Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sequential revenues grew from approximately $8.1 million to $8.5 million, representing an annualized growth rate of 19%.
- Annual recurring revenue (ARR) increased sequentially by $1.3 million, a 60% improvement compared to the first quarter.
- Generated record adjusted EBITDA of approximately $1.5 million, a margin of 17%.
- Free cash flow from operations reached a record $1 million.
- Notable growth in both enterprise and partner marketplace channels, contributing equally to revenue growth.
Negative Points
- Net loss in the second quarter of 2024 was $700,000 or $0.06 per share.
- Cash decreased by approximately $1.9 million in the quarter, primarily due to a $2.4 million final earn-out payment related to a previous acquisition.
- Operating expenses, while decreasing, still amounted to $7.2 million.
- The company has not yet fully penetrated the market opportunities presented by new regulations.
- Gross profit increased only marginally by 1% sequentially and 2% year over year.
Q & A Highlights
Q: You've done a really good job growing your adjusted EBITDA as revenues start to grow again, even in a cost containment mode. How do you feel about the existing infrastructure and headcount if growth continues to pick up? When do you feel like you need to get back to hiring, whether in sales or support areas?
A: David Moradi, CEO: The model is pretty scalable. We've made significant investments in R&D and go-to-market strategies. There will be some incremental investments to generate and support new business, but a good amount of incremental revenue will drop straight down. We don't need to invest a lot more, mostly in sales and marketing, not infrastructure.
Q: The COGS line has been flat to down even on a sequential basis for almost the last two years. What would cause that to start climbing again? How fixed can that be as your top line grows?
A: Kelly Georgevich, CFO: We've been happy to see gross margin improve to 79%. We feel good about the efficiencies we've achieved. It depends on the mix to support different investments, but we feel confident about maintaining that 79% through 2024 and into 2025.
Q: Can you talk about the balance sheet and your access to capital? Does that change any of your acquisition plans or willingness to invest in the business on a more accelerated basis? How comfortable are you with the current debt levels?
A: David Moradi, CEO: We feel pretty good. We don't really need money as we are cash flow generative. Kelly can elaborate on the ATM.
A: Kelly Georgevich, CFO: We opened an ATM for a relatively small amount compared to our market cap. We like to have that debt there and be opportunistic about potentially raising capital to pay down debt and reduce interest expense.
Q: Can you talk about the progress in the enterprise channel and the momentum you expect in the coming quarters?
A: David Moradi, CEO: We've made significant investments in R&D, giving us a full product suite to beat the competition. Investments in our go-to-market strategy are yielding record leads and strong conversions. The pipeline continues to grow, and we are outgrowing the market by two to three times.
Q: Regarding partnerships, you mentioned having access to 80,000 websites under new regulations. Can you talk about the work you're doing to accelerate momentum within that partner channel?
A: David Moradi, CEO: We're excited about the opportunity with Finalsite and are focusing on deploying resources to penetrate their entire customer base. The Title II opportunity is huge, and we're in a great spot with dominant platforms in K-12. More announcements are expected soon.
Q: Can you provide more detail on the resources you might be contributing to partnerships and quantify any incremental costs? How should we think about operating expense growth or leverage over the next couple of years?
A: David Moradi, CEO: We can't get into all the details due to confidentiality, but it involves marketing resources and awareness campaigns. We've already made significant investments in R&D, and the model is scalable. We feel good about investing a bit more in sales and marketing in the future.
Q: Have you had any initial interactions with constituents impacted by the new mandates?
A: David Moradi, CEO: We're seeing a lot of government leads coming in, more than ever. We're having many conversations, and while deals are not closing yet, the awareness is high. We expect demand to tick up in 2025.
Q: Historically, have customers been proactive in addressing mandates, or does it take more of a push past the mandate date to get people moving?
A: David Moradi, CEO: We don't have a lot of experience with this, but with the current mandates from the EU, Title II, and HHS, we expect demand to pick up significantly in 2025.
Q: How are you thinking about capital allocation as you build cash through the remainder of the year and into next with positive free cash flow?
A: David Moradi, CEO: We like being profitable. If LTV to CAC increases, we might spend more on sales and marketing, but we prefer to run off free cash flow.
Q: How do you feel about stock repurchase at today's prices, and what's left on that authorization?
A: David Moradi, CEO: We bought the stock when it was pretty cheap. Given the current higher valuation, we don't plan to buy back more and have an ATM out there.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
