Onstream Media Corp (NASDAQ:ONSM)
Q2 2013 Earnings Conference Call
May 16, 2013, 16:30 ET
Randy Selman - Chief Executive Officer
Don Weinberger - Wolfe Axelrod Weinberger Associates, LLC
Good afternoon and welcome to the Onstream Media Corporation Conference Call to discuss the Company’s Fiscal 2013 Second Quarter results. All participants have been placed on a listen-only mode and the floor will be opened for your questions and comments following the presentation.
At this time, I would like to turn the floor over to your host, Don Weinberger of Wolfe Axelrod Weinberger. Sir, you may begin.
Thank you, Patrick, good afternoon and welcome to the Onstream Media Conference Call. I would like to point out that during the course of the conference call there may be statements made related to future results of the company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors including those set forth in the company’s filing with the Securities and Exchange Commission.
It should also be noted that the webcast of today's conference call may be found on the internet by visiting Onstream Media’s corporate site at www.onstreammedia.com and then selecting Company at the top of the webpage and then clicking on Investor Relations and then selecting the 2013 Press Releases option. At that webpage you will find the link to the News Release for the Company’s second quarter fiscal year 2013 financial results and the webcast.
An archived version of today's webcast will be accessible from the Press Releases page shortly following the end of the call and will be available for at least the next 12 months pursuant to SEC guidelines. For those interested in reviewing Onstream’s Form 10-Q filed yesterday May 15, 2013, which contains detailed financial information related to today's discussion, you may visit Onstream's corporate website at www.onstreammedia.com and then select Company followed by Investor Relations and then click on the SEC filings. You may also access the file directly from the SEC anchor database by visiting www.sec.gov and then input onstream media under search for company filings.
It is now my pleasure to introduce Randy Selman, President and Chief Executive Officer of Onstream Media to begin today's discussion of results. Randy, please proceed.
Thanks, Don. Good afternoon and thank you for joining me. Robert Tomlinson, our CFO is unavailable today, so I will be providing the financial information and corporate highlights for today's call. Today I will review our results for the three and six months ended March 31, 2013. I will focus on the highlights of the second quarter and the outlook for the current third quarter and discuss the initial results and outlook for Intella2 acquisition. Hopefully we will have the opportunity to review our financial results, which were released yesterday, May 15th after the close of the market.
Let me start with a summary of our financial results for the second quarter of fiscal 2013, which I will go into more detail later in the call. Onstream Media had total revenues of approximately $4.4 million representing a decrease of approximately $261,000 or 5.6% over the same quarter of fiscal 2012. This decrease was due to an unexpected drop in webcasting revenues for the period along with the loss of a single low margin DMSP and hosting customer.
Audio and web conferencing servicing group revenues however were approximately $2.9 million for the three months ended March 31, 2013, an increase of approximately $202,000 or 7.3% from the corresponding period of the prior fiscal year. Digital Media Services Group revenues were approximately $1.5 million for the three months ended March 31, 2013, a decrease of approximately $463,000 or 24.2% from the corresponding period of the prior fiscal year, which was previously mentioned to an unexpected drop in webcasting revenues for the period and a decrease in DMSP and hosting division revenues from a single client which I mentioned previously, however I fully expect a drop in webcasting revenues seen in the March 31st ending quarter to be reversed in the June quarter and results so far indicate that is the case.
In addition, consolidated gross margin percentage was 68.9% for the three months ended March 31, 2013, versus 65.5% for the corresponding period of the prior fiscal year. This was due to cost reduction in our Infinite conferencing division and the impact of the acquired Intella2 operation as well the discontinuance of the low margin DMSP and hosting customer.
Our Intella2 acquisition contributed approximately $317,000 in revenues for the quarter. We expect the Intella2 revenues for the subsequent quarters to be at the same or higher levels. In addition as we integrate the acquisition into our main stream business, we expect bottom line cash flow to increase accordingly. I will now discuss the financial results in more detail for the three and six months period ended March 31, 2013.
This slide presents the components of our revenues for the three month ended March 31, 2013. As I indicated earlier, our consolidated revenues of approximately $4.4 million for the three months ended March 31, 2013 represented a decrease of approximately $261,000 versus our revenues for the three months ended March 31, 2012.
Digital Media Services Group revenues were approximately $1.5 million for the three months ended March 31, 2013, a decrease of approximately $463,000 or 24.2% from the corresponding period of the prior fiscal year. This was in turn due to decreases in webcasting revenues and DMSP and hosting revenues. I’ll talk more later in the call about this unexpected drop in webcasting revenues as well as what our expectations are with respect to reversing this negative trend in the third quarter.
As I mentioned before the DMSP and hosting decline was primarily related to the loss of a same customer that we are providing streaming services to at very little margin. This is part of a larger business relationship that is still in place and thus the loss of this customer and the related revenues did not have a material impact on our net operating results.
On a more positive note, audio and web conferencing services group revenues were approximately $2.9 million for the three months ended March 31, 2013 an increase of approximately $202,000 or 7.3% versus the corresponding quarter of the prior fiscal year.
You can see that the current quarter included approximately $317,000 of revenues related to the first full quarter of Intella2 operation. Those operations are in the new subsidiary we established just for this purpose, onstream conferencing corporation or OCC although for information purposes we present Infinite and OCC revenues separately in this slide we consider them to be a single combined line of business and a combined basis revenues from that line of business grew by more than 8% during this quarter as compared to the same period of the previous fiscal year.
This slide presents the components of our revenues for the six months ended March 31, 2013. Our consolidated revenues of approximately $8.7 million for the six months ended March 31, 2013 represented a decrease of approximately $495,000 versus our revenues for the six months ended March 31, 2012. The revenue trends for the six month period are very similar to the revenue trends for the three month period already discussed in detail and so I will not dwell in them further, however, I will point out that although there are increases and decreases in the various divisions, if not for the decline in our DMSP and hosting revenues, primarily from the loss of the single customer with no material impact on our gross margin, our consolidated revenues for the three and six month period of the fiscal year would have been materially the same as the consolidated revenues for the corresponding periods of the previous fiscal year.
This next slide shows a summary of our second quarter fiscal 2013 operating results compared to the same period of the prior fiscal year. Gross margin was approximately $3.0 million for the three months ended March 31, 2013, represented a decrease of approximately $21,000 or 0.7% as compared to the year ago quarter. Our gross margin percentage of 68.9% for the three months ended March 31, 2013, was a significant improvement from the gross margin percentage of 65.5% for the corresponding period of the prior fiscal year.
This improvement was due to reductions in Infinite cost of sales and the impact of the acquired Intella2 operations as well as the discontinuance of a single low margin DMSP and hosting customer, as noted above. During the third quarter of fiscal 2012, we renegotiated certain supplier contracts which reduced our Infinite division cost of sales by approximately $59,000 for the three months ended March 31, 2013 and that we expect will reduce our Infinite division cost of sales by another approximately $36,000 for the remainder of fiscal 2013, as compared to the corresponding period of fiscal 2012.
Onstream’s second quarter fiscal 2013 net loss of approximately $2.2 million, or $0.12 per share, was based on approximately 17.4 million weighted average shares outstanding, as compared to net loss of approximately $0.7 million, or $0.06 per share, which was based on approximately 12 million weighted average shares outstanding, an approximately $1.4 million increase in the current quarter’s loss is almost entirely explained by two non cash expenses and approximately $1.2 million increase in non-cash compensation expense paid with equity versus non-cash debt extinguishment loss of approximately $75,000.
The increase in compensation expense paid with the common shares and other equity accounts for all but approximately $41,000 of the increase in consolidated operating expenses for the three months ended March 31, 2013 as compared to the corresponding period of the prior fiscal year.
Cash flow from operating activities before changes in current assets and liabilities other than cash for the three months ended March 31, 2013 was negative $215,450, compared to net cash provided by operating activities of $70,438 for the three months ended March 31, 2012. Cash used in the quarter for operating activities was adversely affected by an increase in interest expense arising from the debt financing used to acquire Intella2 and general working capital.
This next slide shows a summary of our six months year-to-date fiscal 2013 operating results compared to the same period of the prior fiscal year. Onstream’s second quarter year-to-date fiscal 2013 net loss of approximately $2.9 million or $0.19 per share was based on approximately 15.3 million weighted average shares outstanding as compared to net loss of approximately $1.4 million or $0.12 per share which is based on approximately 11.9 million weighted average shares outstanding.
The primary trends for the six months period are very similar to the trends for the three months period already discussed in detail and so I’ll not dwell on them further. However, I will point out as was the case with the increase in the three month loss, the approximately $1.5 increase and the six month loss is almost entirely explained again by two non-cash expenses and approximately $1.1 million in non-cash compensation expense paid with equity versus non-cash debt extinguishment loss of approximately $143,000.
This next slide demonstrates the approximately $2 million of non-cash expenses net of non-cash gains included in Onstreams net loss for the three months ended March 31, 2013. The removal of these non-cash expenses from the net loss of approximately $2.2 million results in cash used in operating activities before changes in current asset and liabilities other than cash for that period of approximately $215,000.
The primary non-cash expenses included in our net loss or depreciation and amortization in certain items, employee compensation, professional fees and interest paid with equity. For both the three month and six month period, the most significant non-cash expense is for compensation paid with equity.
In the current fiscal year, this expense was primarily related to issuances of shares under an incentive compensation plan adopted by our Board of Directors in February 2013. Such shares will be issued in accordance with the terms of the 2007 equity incentive plan which our board and a majority of our shareholders adopted on September 18, 2007 and amended on March 25, 2010 and again June 13, 2011.
In addition, although we expect to continue compensating our executives as well as our employees, directors and consultants with equity from time to time we do not expect future issuance to result in this level of expense at a single quarter. This next slide demonstrates the approximately $2.7 million on non-cash expenses, net of non-cash gain included in Onstreams network for the six months ended March 31, 2013. Removal of these non-cash expenses from the net loss of approximately $2.9 million results in cash used in operating activity before changes in our current assests and liabilities other than cash for that period of only approximately $226,000.
We have begun marketing our new updated visual webcast of service and we are receiving excellent feedback on the new service from both existing and new clients. We expect to see some substantial new channel partners and direct client sign up for the new webcasting service in the next few months and we will continue to add an even more robust set of features that will enable us to reach out to our competitors putting us once again at the top of the webcasting market.
We believe the fact that our new webcasting platform took a bit longer, I’m sorry we believe that the fact that our new platform took a bit longer to reach the market and they have had a role in the decline of the webcasting revenues for the past few months. However, now that we are in full sales of the new platform, we expect to see a quick turnaround and in fact we are out pacing last year our record quarter to the first week of May.
Our trend of steady growth in audio web conferencing business by a combined insulate and OCC divisions continued into the second quarter of 2013 with a better than 8% growth rate year-over-year for the second fiscal quarter. Our intimate subsidiary now assisted by OCC division provides feature-rich conferencing solutions that range from on-demand audio and web conferencing to full scale online event management.
Our MarketPlace365 platform has been resigned into a comprehensive competitor set of virtual event services that can meet any client requirement and we continue to develop new features and capabilities as new requirements arise. From the marketing stand point we completely redesigned our websites with the new look in field and we launched and continue to maintain a substantial social marketing campaign with continuous presence on all the major social networks. We have hired five new sales people and will continue adding sales personnel as our cash lower out.
During the remainder of 2013, we will continue to make investments in our product technology, marketing initiatives and to improve administration, administrative efficiencies wherever possible. As I stated earlier, the trend of steady growth in our audio and web conferencing business continued into the second quarter of 2013. Our intimate subsidiary now assisted by our OCC division provides feature-rich conferencing solutions that range from on-demand audio and web conferencing to full scale online event management.
As previously mentioned, audio and web conferencing services group revenues were approximately $2.9 million for the three months ended March 31, 2013, an increase of approximately $202,000, 7.3% from the corresponding period of the prior fiscal year. During the second quarter of 2013, Infinite added 681 new accounts, which represents an increase of 52% compared to 357 new accounts added in the same quarter the previous year.
So notable wins for this quarter are our Money Exchange, Supreme Court of Canada, Federal -- I am sorry, Federation of State Medical Boards, the Alzheimer's Foundation of America, [Fitzer] Holdings Corporation and Marcal Manufacturing. Back in November, we announced the acquisition of (inaudible) and operations of Intella2 incorporated to San Diego based communications company.
This acquisition brought on stream a list of customers as well as software licenses, equipment, network infrastructure and recurring revenue stream that was estimated to be over $1 million. The services acquired to Intella2 include a host of complimentary offerings including audio conferencing, web conferencing, text messaging and voice mail services. I can now report that during the second quarter, the first full quarter results from Intella2 we generated $250,000 in revenue from the core Intella2 operation and another $67,000 in revenue from the free conferencing business. The core Intella2 revenue was adversely affected to some extent by certain equipments to offer our network issues that we are in the process of resolving.
We experienced a decline in webcasting revenues; due in part to reduction of both government and corporate usage, which we believe is temporary. Revenues in webcasting division decreased by approximately $220,000 or 15.4% for the three months ended March 31, 2013 as compared to the corresponding period of prior fiscal year.
Although the approximately 1,100 webcasts we produced during the three months ended March 31, 2013 was approximately equal to the corresponding period of the prior fiscal year, the webcast for the three month ended March 31, 2013 had a higher proportion of lower priced audio-only event versus higher priced video events.
However, we believe that our webcasting division revenues will be favourably impacted in the current third quarter and during the remainder of fiscal 2013 by comprehensive update to our webcasting platform Version 4, which we released in January 2013. In that regard, already through the first week of May, webcasting revenues are outpacing last year's June 30th ending quarter, which I mentioned was our record quarter.
Further, our expectation of increased webcasting sales will also be augmented as a result of additional sales personnel plus the recently introduced MP365 pricing model that includes a fixed monthly fee to us as well as establishes MarketPlace365 as a value added platform to assist the customer in using our webcasting services and more particularly our webinar services.
Some of our new webcasting wins during the March ending quarter are jsTree, American Academy of Cancer Research, Coca Cola, First Solar for [Active] Biosciences, Global Finance, KP Events Group, AJ Media, Turner Construction, Fireman's Fund Insurance, Matrix Medical, Institutional Investor and the Federal Reserve Board of San Francisco and one more thing to mention, this conference call webcast is on our new visual webcast four platform.
As we have been discussing our MarketPlace365 platform has been finding to a comprehensive set of virtual event services that can meet up on any client requirement and will continue to develop new features and capabilities as new requirements are up. We have been winning both events in annual contracts and with the role out of our new and – order time feature within the next few weeks; we expect to see even greater sales for the MarketPlace365 service.
Our next MarketPlace365 enhancement will be to make the product fully compatible with HTML5, which we believe will increase marketability as well as broaden use on various mobile devices. Currently we have mobile apps to Droid and Apple, but HTML5 will further broaden the platform suite. We have 14 market places that are and will be operating year around most of which are contracted to pay monthly recurring fees.
In addition, we have several events scheduled where MarketPlace365 is being used as the event venue and the average multi day even exceeds $20,000 in webcasting and MarketPlace365 revenues. During the coming quarters, we expect there will be several market places beginning operation and several more of finalizing contracts. These marketplaces include the [Symbian] World Trade Show, World Dental Expo, Health Economics, Drug Store Chain Consortium, PhoenixMart and [Acclaim].
As I mentioned earlier, we will soon have found embedded or floating auditorium. This is a MarketPlace365 worksheet that enables our clients to host their own conference room or conference center on their website, with complete registration functionality and the ability to present any form of online communication such as webcast, webinars, web conferences or even just an audio conference with social interaction.
As mentioned last quarter, Onstream Media has redesigned its website and marketing collaborative appeal to targeted audiences including associations, accounting and finance, investor relations, education, legal, health sciences, technology, media and entertainment, government and publishing. Our new website has been reconfigured to showcase key products and optimise with new landing pages and called actions.
We've added a blog and social media site to treasurer webinar updates and end user resources to support clients as well as prospects. We continue to refine successful programs including pay-per-click advertising, search engine optimization, retargeting, product reviews, direct voicemail, trade shows, channel relationships and most of all thought leadership through articles, speaking engagements, white papers and case studies.
Our [Webinar Series], which we are sponsoring in conjunction with [Acemoid] for fee level executive decision makers responsible for communications, marketing, training and online video publishing in their organizations has been very successful and the lead generation from the events should contribute to our revenues in the coming months. Our social media strategy will continue to build upon brand awareness, promotional lead generation goals. Social media marketing will enable Onstream to promote Webinar’s webcast and other virtual offering to drive attendance to those events, traffic to the updated website and develop leads.
Continued use of the Google Plus platform will positively affect [FCL] and thus – traffic to better Google search results. Finally, as I mentioned earlier we hired five new sales people bringing up corporate wide sales team to 13 and will continue adding sales personnel as our cash flow allows. Also, we will be extending our sales and marketing into Latin America due to the growth and demand for our products and services there. As a South Florida company we are uniquely positioned to support this market, we plan to develop both it's direct sales organization as well as channel partnerships in the region.
Looking forward to the remainder of the year we believe, we are on track to show improved results. We continue to maintain our expectations by consolidated fiscal 2013 revenues will exceed the respective corresponding fiscal 2012 amounts for the year as a whole provided such comparison is made before considering the impact of loss revenues from that single DMSP and hosting customer we previously discussed.
We also expected consolidated gross margin for fiscal 2013 to exceed the corresponding fiscal 2012 amounts in dollar and remain confident in showing improved top and bottom line still remainder of fiscal 2013. Now with the help of our operator, we will open up the call for questions.
And ladies and gentlemen, the floor is open for questions. (Operator instructions) And we currently have no questions at this time. And now Randy we currently have no phone questions. And actually it looks like Randy’s line has disconnected.
Well thank everyone for joining us today and look forward to better numbers as we go forward. Thank you.
Thank you. That does conclude today's webcast. We thank you for your participation. You may now disconnect your line and have a great day.
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