Earnings Transcript for PALT - Q1 Fiscal Year 2023

Operator: Good afternoon, and welcome to the earnings call for Paltalk's first quarter ended March 31, 2023. [Operator Instructions] It is now my pleasure to turn the floor over to your hosts, Jason Katz, Chief Executive Officer of Paltalk; and Kara Jenny, Chief Financial Officer of Paltalk. Kara, the floor is yours.

Kara Jenny: Hello, everyone, and welcome to the Paltalk operating and financial results conference call for the first quarter March 31, 2023. By now, everyone should have had access to the earnings results press release, which was issued earlier today after the market closed at 4

Jason Katz: Thank you, Kara, and good afternoon, everyone. We greatly appreciate you taking the time to join us on today's call. We will discuss our operating highlights and financial results for the first quarter ended March 31, 2023. Additionally, we will provide an update on our business and near-term business objectives. After my opening statement, our CFO, Kara Jenny, will give a summary of our financial results for the first quarter ended March 31, 2023. Following our prepared remarks, we will move into the Q&A portion and answer any questions that were pre-submitted prior to this call. With that, I would now like to walk you through the recent highlights and near-term business objectives. By the decline in revenue, we reduced our operating expenses which enabled us to reduce the cash used in operations by $0.4 million for the three months ended March 31, 2023, compared to the prior year period mainly as a result of a decrease in product development expense. We accomplish this by streamlining our offshore development efforts and expect to realize further decreases in expenses as a result of these actions. We continue to invest in a conservative way being highly responsible in cash management, even though we ended the quarter with $13.9 million in cash. Our objectives for 2023 are centered on growing topline revenue, returning to cash flow positive, and building shareholder value. As we approach the one-year anniversary of the addition of ManyCam to our product offering, we expect one-year annual auto-renewals of existing ManyCam subscriptions to help contribute to growth in subscription revenue. We also seek to grow new user acquisition and user engagement by enhancing our live video chat applications and other features. More specifically, our near-term business objectives, which are focused on a return to growth of the following

Kara Jenny: Thank you, Jason. Our results of operations for the three months ended March 31, 2023 were as follows. Revenues for the three months ended March 31, 2023 decreased by 12.4% to $2.6 million compared to $2.9 million for the three months ended March 31, 2022. This decline was attributed to the decrease in subscription revenue of 12% and a decrease in advertising revenue of 27.4%. Loss from operations for the three months ended March 31, 2023, increased by 27.5% or $0.2 million to a loss of $0.9 million compared to a loss of $0.7 million for the same period in 2022. Net loss for the three months ended March 31, 2023, remained relatively unchanged at $0.7 million compared to the same period March 31, 2022. Adjusted EBITDA loss for the three months ended March 31, 2023, increased by approximately 33.8% or almost $0.2 million to an adjusted EBITDA loss of $0.6 million compared to adjusted EBITDA loss of $0.5 million for the three months ended March 31, 2022. Cash and cash equivalents totaled 13.9 million at March 31, 2023, a decrease of $0.8 million compared to $14.7 million at December 31, 2022. Currently, the company has no long-term debt on its balance sheet. Additionally, we repurchased 5,192 shares of common stock during the three months ended March 31, 2023, pursuant to our stock repurchase plan at an average price per share of $1.39. This plan expired on March 29, 2023. In total, under the stock repurchase plan, we repurchased 610,000 shares of common stock at an average price per share of $1.65 or an aggregate amount of approximately $1,005,000.

A - Kara Jenny: We will now move on to questions that were previously submitted. The first question, what was the ManyCam impact on the business? And what is the timing to get to full revenue impact on a quarterly basis relative to expenses?

Jason Katz: We expect one-year annual auto-renewals of existing ManyCam subscriptions to get -- help contribute to growth and subscription revenue. As a reminder, the transaction closed early in June 2022. So while we are encouraged, it is more likely to affect the subscription revenue in the second half of the year. As for expenses, while we do not report separately on our products, I can't say that over 50% of the total expenses related to ManyCam in the quarter were related to amortization, which are non-cash.

Kara Jenny: Second question, can you provide any additional color on expense control?

Jason Katz: Product development is a significant cost center for the company. We've restructured our offshore development team in a way that we expect to realize significant cost savings in product development over the rest of the year.

Kara Jenny: Is there any commentary on outlook and potential return to adjusted EBITDA positive?

Jason Katz: It is certainly our goal to reach EBITDA positive by the end of the year.

Kara Jenny: Any additional color on M&A outlook?

Jason Katz: We continue to evaluate opportunities that we believe would enhance shareholder value. Paltalk is well positioned given our cash position, IP, and Nasdaq listing, and we believe we will be able to take advantage of the weak capital markets.

Kara Jenny: Finally, can you confirm the date and venue for the Cisco trial? Also, specifically, what are you suing for?

Jason Katz: Currently, the trial is scheduled for mid-July in Waco, Texas. The company alleges that certain of Cisco's products have infringed US patent number 6683858.

Kara Jenny: Jason, back to you to close out the presentation.

Jason Katz: Thank you, everyone, for your support and for joining us today. We're very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our business objectives, pending patent litigation against Cisco, WebEx, with the trial expected to start in the early part of the third quarter, and potential strategic accretive acquisitions, which we continue to identify and analyze. Have a great day.

Operator: Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.