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Executives

Jerry Hug - Executive Vice President, Corporate Development

James Orsini - President and Chief Executive Officer

Kurt Streams - Chief Financial Officer

Analysts

Marc Robins - Catalyst Research

John Nobile - Taglich Brothers

Scott Ozer - Sandlapper Securities

Single Touch Systems, Inc. (OTCQB:SITO) F1Q 2014 Earnings Conference Call February 11, 2014 4:30 PM ET

Operator

Greetings, and welcome to Single Touch Systems Fiscal 2014 First Quarter Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jerry Hug, Executive Vice President, Corporate Development for Single Touch Systems. Thank you. Mr. Hug, you may begin.

Jerry Hug

Thanks, (Raya). Good afternoon everyone. I would like to welcome all of you to Single Touch's fiscal 2014 first quarter earnings conference call. With us today are Single Touch's President and CEO, James Orsini; and the company's CFO, Kurt Streams.

Before I turn the call over to James, I'd like to remind our listeners that in this call, management's prepared remarks and responses to your questions may contain forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends in the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherit uncertainties, risks and changes in circumstance that are different to project, and many of which are outside of our control.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include among others, our reliance on brand owners and wireless carriers, the possible need for additional capital as well as other risks identified in our filings with the SEC.

Any forward-looking statement made by us on this call is based only on information currently available to us, and speaks only as of the date on which it is made. In addition, any projections as to the company's future performance represent management's estimates as of today, February 11, 2014. We undertake no obligation to publicly update any forward-looking statement whether written or oral that maybe made from time to time, whether as a result of new information, future developments or otherwise.

And now it's my pleasure to turn the call over to Single Touch Systems' President and CEO, James Orsini, who will give an overview of our business activities and developments in the fiscal 2014 first quarter. James will turn the call over to our CFO, Kurt Streams, for detailed account of the company's financial performance.

Following Kurt, I'll comment on our key intellectual property including our digital and video assets and corporate developments, which include updates on our share repurchase program, and we'll then open the call to questions from participants.

This afternoon, we issued a press release announcing our results and filed our 10-Q. So listeners, who may not have already done so, may wish to look at those documents as we provide a summary of the results on this call. James?

James Orsini

Thanks, Jerry, and thank you everyone for joining our call today. Last year, we introduced three key themes that would the focus of our business. First, we set out to grow revenue year-over-year by double-digits with an ultimate growth rate of 50%. Second, we proposed to increase gross margins with a target of 60%. And third, we set out to reach cash flow breakeven on our core operating business.

We made significant progress all along the way on all three of these themes in 2013. Now, in 2014, I'm very excited about last quarter results, which now demonstrate the uniqueness of the Single Touch model. For the first time we see the fruition of the foundation built around a stable and organically growing core operating business anchored in longstanding client relationships, coupled with the first monetization event of our robust patent portfolio.

With that said, even with this tremendous progress we've made -- we're still nearly scratching the surface of the enormous opportunities that lie in front of us.

Before our CFO, Kurt Streams walks us through the details of our results for the first quarter fiscal 2014, I'd like to provide some comments on our strategic developments and operational progress.

During the period ended December 31, 2013, on a pro-forma basis with separating out IP-related initiatives, our core underlying business, operations were profitable on an adjusted EBITDA basis, and we're cash flow positive. A trend that we've been establishing for the trailing 12 months ended, December 31, 2013.

We witnessed the continued momentum with a strong start into the new fiscal year and marked the first quarter of this fiscal with double-digit revenue growth and gross margin improvement and reduced operating expenses.

Our key themes for fiscal 2014 are the logical extension of our work to this point, and in addition we will be introducing three new themes. First, we will look to hire season sales and business development talent in the mobile space to establish a direct sales channel. Next, we will diversify our revenue mix beyond SMS at pennies per transaction to higher margin programmatic media buys through our FollowMe product as marketers begin to shift more budget dollars to mobile advertising. And lastly, we will turn our attention to monetizing our streaming media and dynamic ad insertion patents.

Given our core strengths, we believe we are well positioned for taking the massive opportunities that we see in the mobile marketing space. We have continued to deliver consistently strong revenue growth year-over-year from our growing messaging volume and increasing interest in our mobile messaging and marketing solutions for retail clients.

Our business continues to produce revenues and gross margins that are in line with our expectations. In the first quarter ended December 31, 2013, our revenue reached $2.9 million representing a 49% increase over the same period from the prior year.

For the first quarter of 2014, the gross margins on our core business improved to 60% from 55% in the same period of the prior year, and improved to 70% overall when including the gross margin and a one-time IP licensing transaction with Zoove.

We believe the scalability of our business and the recurring revenue streams are extremely attractive elements to what will drive future results from profitability. One of our core growth metrics is our messaging volume.

This past quarter beginning October 16, 2013, a new Telephone Consumer Protection Act, TCPA consent rule came into effect, which many believe disrupted the mobile marketing industry. This law was enacted to enforce new SMS guidelines requiring mandatory written consents for customers prior to allowing businesses and marketers to send marketing messages via SMS.

As a result, this adversely affected the volume of mobile marketing campaigns from many marketing companies in our space.

Throughout in Single Touch, we worked closely with the Washington DC office of Paul Hastings in support of our retail clients, and we're happy to report that the new law had very little impact on our core operating business as we still experience a 13% growth in our underlying messaging volume, and sent a total of 87 million messages for the quarter ended December 31, 2013, as compared to 77 million messages over the same period in the prior year.

Underlying messaging growth volume from revenues hit 59.7%, and improved more than four points over the same period in the prior year.

We saw a spike in the 2013 Holiday Layaway Retailer Messaging programs. Our messaging volume in the quarter increased seven times year-over-year to 4.6 million. Mobile Commerce Daily reports overall that the traffic from mobile devices to Walmart.com between Thanksgiving and Cyber Monday was more than 50% of the total traffic, and that was up approximately 40% compared to last year's holiday traffic.

My ring in the holiday's article, which is featured in November 7th issue of brand channel brought additional visibility and focused attention to the conversions of Thanksgiving, Chanukah, Great Thursday, Black Friday, Cyber Monday and Giving Tuesday, all converging in the mobile space for marketers.

Adobe Digital Index reports that a quarter of all transactions over this five-day period were conducted on mobile devices, and that retailers earned 10% of their annual sales in a short period of time. This is an increase of 26% year-over-year, and we expect the trend to move forward as more brands begin to see value and embrace the value of mobile marketing solutions.

For us our messaging volume and corresponding revenues continue to grow organically. And looking forward, we expect to continue with the launch of new products and services for new and existing clients.

Our cash position for the quarter ended December 31, 2013 stands at more than $2.3 million and has nearly doubled out at the prior quarter end. This puts us at a stronger financial position as the availability of funds will continue to help us develop and operate our business and unlock our intellectual property value.

I'd like to share some recent developments consistent with our goal of expanding our operating business revenues. This quarter, our earnings included revenues from GAF, North America's largest roofing manufacturer, in which we began the brand awareness campaign during late December. The product is sold in home depot and the project value is $26,000.

FollowMe programs sold to date have ranged from between $10,000 to $75,000 depending on the campaign geography and the duration of the campaign.

We also expanded our partnership and master services agreement relationship with AT&T. And we are now servicing nine client relationships under that agreement, representing 74% of our reported revenues.

The mobile industry as a whole offers tremendous upside. And many third-party research companies are coming out with more compelling data, articulating the opportunities unfolding in its mobile space.

Research firm, eMarketer forecasted U.S. spending on mobile advertising has reached $9.6 billion in 2013, up 120% from the $4.36 billion in 2012.

Additionally, a recent Zenith Media Report cites that mobile will be the fourth largest advertising category by 2016, surpassing print, outdoor, radio and cinema, leaving it behind only desktop, TV and Internet. Currently, mobile advertising represents approximately 23% of digital ad budgets, up from 12% last year.

eMarketer estimates that overall digital ad spending in the U.S. will grow to nearly 16% by the end of 2013, up to $42.6 billion.

It is encouraging to see validation from such industry findings. And over the past year, the digital marketplace has undergone a major transformative phase with mobile ad spending, driving most of this digital growth. This is measurable evidence that mobile ad growth is clearly trending upwards, and we believe we are well positioned to capture our share in the digital ad space.

Furthermore, the majority of our mobile solutions operate across all geography, all mobile carrier coverage and device capabilities. This means that our messaging can be utilized and implemented on the larger scale when it comes to mobile marketing. We are able to engage target audiences with maximum efficiency and scalability.

Our FollowMe product, which targets consumers based on their precise location by placing geofences, which is a virtual perimeter within a radius of a point or location, continue to gain traction in coupon distribution, promotions and brand awareness advertisings.

To-date this year alone, we have achieved bookings of approximately 12 million impressions across multiple programs and had visibility into a healthy pipeline of new business prospects for this product with new clients.

This segment serving the smartphone mobile app was quoted by BIA/Kelsey as being the fastest growing segment of the entire advertising industry, projected to grow 50% annually.

We believe we are on track for another key milestone before the end of our fiscal year as we will send more than 1 billion messages on behalf of our clients.

We have built out a very efficient and economical platform for our customers, and expect to see much better traction and significant growth in the coming quarters. We are excited about what we see in the actualization of this two-sided business model, and what it can mean in increasing our enterprise value in the marketplace.

I'd like to turn it over now to our Chief Financial Officer, Kurt Streams, who will take us through a more detailed review of the numbers we reported in the 10-Q Filing.

Kurt Streams

Thank you, James. As James highlighted, for the fiscal first quarter of 2014, revenues topped $2.9 million, up 49% year-over-year, as compared to $1.9 million for the fiscal first quarter of 2013. This growth is attributed to the organic growth of our core business consisting of the new programs for existing clients and new client relationships, and to the $750,000 one-time IP licensing revenue.

Royalties and application costs are the direct out-of-pocket costs associated with our revenue, while fiscal first quarter revenues increased 49% over the previous fiscal year, our royalty and application costs decreased by 2% over the same period. I'll repeat that.

For this latest fiscal first quarter, our revenues increased 49% in our royalty and application costs over that same comparable period decreased 2%. We improved our gross margins to 70% for quarter ended December 31, 2013 as compared to 55% for quarter ended December 31, 2012.

This improvement is attributable to the $750,000 in licensing revenues in the quarter ended December 31, 2013 for which there are no royalty and application cost, and to the composition of message types, vendor renegotiations and taking in-house a number of formally outsourced services.

As a percent of revenue, royalty and application cost decreased to 30% for the fiscal first quarter 2014 as compared to 45% for the fiscal first quarter 2013.

For the first quarter of fiscal 2014, R&D expense of $24,903 represented 1% of revenues, which is consistent with the same quarter of the previous year.

During the fiscal first quarter of 2014, we spent approximately $168,000 on investing activities, of which approximately $98,000 represented costs of our software development for our core operations, and the remaining $70,000 represented investments in our IP to strengthen our portfolio and to expand our mobile communications and advertising offerings.

Stock-based compensation expense decreased 40% in fiscal first quarter of 2014 to $842,000 from $1.4 million in the fiscal first quarter of 2013. This decrease is attributable to fewer stock-based compensation issuances outstanding during the quarter as part of our effort to reduce the number of issued and potentially issuable shares of our common stock.

General and administrative expense for the fiscal first quarter of 2014 was $819,613 as compared to $771,503 for the fiscal first quarter of 2013, an increase of 6%. This increase is largely related to increased legal and consulting fees.

Interest expense for the quarter ended December 31, 2013 was $192,720 as compared to $308,486 for the quarter ended December 31, 2012. The 38% decrease in interest expense is attributable to a decrease in the outstanding principle on our convertible debentures.

For the quarter ended December 31, 2013, our net loss was $1.1 million as compared to a net loss of $2.2 million for the quarter ended December 31, 2012, a decrease of 53%.

We significantly improved our results due to increases in revenue, improved gross margins and decrease in stock-based compensation expense for employees, directors and consultants.

For the fiscal first quarter of 2014, our net loss per basic and diluted share was $0.01 as compared to $0.02 per share for the first quarter of fiscal 2013.

Our weighted average shares outstanding increased slightly to 141 million for the fiscal first quarter of 2014, as compared to 132 million for the fiscal first quarter of 2013.

At December 31, we had $2.3 million of cash on hand, total assets of $8.2 million, total liabilities of $5.9 million, and stockholders' equity of $2.3 million. For further information and details on our results, you can review our 10-Q that we filed today.

Now, I'd like to turn the call over to Jerry Hug, who will cover key corporate and IP developments.

Jerry Hug

Thanks, Kurt. Before I cover the IP and strategy, please note, we'll be posting an updated presentation in the Investor Relation section of our website that accompany this quarter's results along with an IP update.

While 2013 was a very firm year for Single Touch there is much more to do, given our large addressable market. Research firm, Gartner said it expects global mobile advertising spending to reach US $18 billion this year, up from the estimated $13 billion in 2013. By 2017, it's projecting the market will upsize up to be worth more than $41 billion.

All global regions will experience strong growth according to the analyst, although North America is projected to take the lion's share of the growth owing to the very large scale of ad budgets in the region and their shift to mobile.

As James mentioned, our FollowMe product is perfectly positioned to capture market share in the mobile ad market.

As we previously reported, we began to execute our stock repurchase program, and to date have spend approximately $170,000 in open market purchases. Our Board of Directors has approved the purchase of up to 20 million shares in both open market purchases and private transactions, and our intent is to be aggressive and opportunistic over time depending upon the market price of our stock.

As previously mentioned, our recent license agreement with Zoove was a significant win for the company. It has clearly demonstrated to the market the value in our accessing information on a mobile device patent portfolio.

Two key themes I would like to introduce relating to our IP activity this year are as follows. First, it is our opinion that the category which includes our streaming media and dynamic ad insertion patents now has the greatest potential for near-term monetization. We believe these patents have seminal priority dates and a rich pedigree.

With that said, we'll continue to invest in this portfolio in terms of new applications and resubmission of existing applications. This investment is critical as we feel it will ensure a steady flow of newly granted patents.

We currently have nine pending applications in the area of video streaming and dynamic ad insertion, which will strengthen the already granted 244, 949 and 70 patents.

In addition, we have begun the preparation and planning for the rollout of an extensive licensing program and are already in confidential discussions with numerous key players, to support the program.

Now, we can begin our question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Thank you. Our first question comes from the line of Marc Robins with Catalyst Research. Please proceed with your question.

Marc Robins - Catalyst Research

Well, just a simple question, in your income statement you have media placement number of $10,000. I know what media placement means in most places, but what does it mean to the company? What does it mean here?

James Orsini

Let me take that, Kurt. For the first time, you are going to see three separate revenue lines now. Before, the company reported all of its income in a single revenue line. We are very excited about the fact that we now have three revenue drivers, the traditional messaging driver, which had been in place, the now opened FollowMe media placement driver and the licensing from IP. So, we will begin to report and continue to report revenue on all three lines.

Marc Robins - Catalyst Research

I'm sorry. James, I guess I didn't catch it. So you will have the messaging and then you will have licensing and royalty, and I can understand that. And then you have media, so is there a media component to that FollowMe kind of revenue-based stream and then a messaging kind or is that not the way to think of it?

James Orsini

Yes. You shouldn't think of it that way. You have to think of the FollowMe as the media buy. This is no different than a banner ad on our website. They are actually buying media. We are delivering impressions through various applications. So there will be no separate messaging. What happens in this thing is it's an impression delivery. And they make media buy from a CPM, anywhere between $8 and $12.

Marc Robins - Catalyst Research

Okay. And then I guess maybe I missed it, and by the way congratulations on the 2.9 million. I didn't say that, but that's really a great number. I guess I'm still going back on the same thing. I'm really kind of confused, I thought I heard that GAF was in the last quarter, and it amounted to $26,000 for brand awareness, which I think would have been the media buy or am I confusing periods and confusing -- where am I wrong here?

James Orsini

You are actually not wrong. You are just not 100% right. So here is what happens. The GAF is a $26,000 media buy. And we kicked it off at the end of December, and it goes through the first quarter of 2014. So, you are seeing --

Marc Robins - Catalyst Research

Okay, I'll close the document.

James Orsini

Right, exactly.

Marc Robins - Catalyst Research

Okay. Now, didn't we have Peter Piper Pizza as a FollowMe kind of a thing, and then also rather major name, retailer, and their business didn't dribble into the first quarter? Am I right on that?

James Orsini

Yes. So Peter Piper Pizza was the first one that we did, and that was in the last fiscal year. And when Jerry -- we were speaking to the fact that we have purchased 12 million media impressions that includes GAF -- that actually includes, RadioShack was another one that we signed following the Super Bowl re-branding. I don't know if you saw their commercial during the Super Bowl where they are going to do a re-branding and repositioning and build out a source. So they will be working with them. And we have identified one other here in -- that we'll be doing a FollowMe type campaign. You are not seeing revenue on those yet, because we haven't actually begun the work, although we have signed the purchase orders.

Marc Robins - Catalyst Research

So the way to really describe this is, in late 2013, the September quarter, we more or less dipped our toe, forgive my parlance there. We dipped our toe in the FollowMe arena. We began to see some real, enough media placement revenues to make it a new event, new revenue avenue, hence the third area. And as we go into the current quarter, not only are there more media placement FollowMe kind of opportunities, but there seem to be larger more significant opportunities with each one.

James Orsini

Well, that's correct. What we are defining is that it depends on, as I said, the duration of the campaign, how long do you want the campaign to run and the geography of the campaign. In other words, remember, we are geofencing a particular location and waiting for people to walk into that perimeter. And the more densely populated the area is, the more impressions that are pushed.

In the case of Peter Piper Pizza, that was actually in Texas. So it ran over several weeks. But if you were to run that same campaign in New York, you may burn through the number of impressions in a matter of days because that many more people are walking past the storefront.

Marc Robins - Catalyst Research

Thank you.

James Orsini

Obviously, and it gets more expenses. That's why I gave you the spread of $8 to $12.

Marc Robins - Catalyst Research

Got you. I will get back into the queue, but I have got a couple more follow-up, please.

Operator

Thank you. Our next question comes from the line of John Nobile with Taglich Brothers. Please proceed with your question.

John Nobile - Taglich Brothers

Hi, good afternoon. I need to get back to the GAF question, but I just want to make sure I understand it. You had $26,000 of revenue, which started in the end of December, but $10,000 of that was actually recognized in your first quarter, is that correct?

James Orsini

That's right. We have $26,000 purchase order, and we began work in the end of December on the product. And we began to recognize the revenue based on some of the creative efforts expended.

John Nobile - Taglich Brothers

Okay. So automatically into your Q2 numbers, we are looking at least 16,000, I mean, just from the GAF part of this purchase order?

James Orsini

Right. And remember guys, this is a different concept now because this is the media world. This is different than the messaging, pushing out a message, as we were used to it and the revenue stream that was there and continues to be there. The good news is that revenue stream continues to be there and it's double-digit organically growing. So, it's a sandbox. The next one is media.

John Nobile - Taglich Brothers

For media placement, I think of it in other terms as revenue from mobile ad messages?

James Orsini

Exactly. In its simplest form, it's like a banner ad. So what you are seeing as the banner ads on your Internet, it's the same thing, it has the same comps, the same click through rates. It just happens to be on the mobile devices.

John Nobile - Taglich Brothers

Okay. I can understand you are breaking that out. I mean, it's very small right now looking at it as a percent of total revenue, but I can see that growing. And actually getting into that, do you have any idea, although maybe it's too early, but what's the Internet messaging or media placement revenue by the end of the fiscal year that you are currently in? Because right now it's like maybe not even 1%, but how much do you plan to grow this? And what are your plans to grow that?

James Orsini

Let's start by the fact that you know obviously we don't provide that guidance. But we are focused on a continued revenue growth, that 50% of the target is in there. We don't believe it's unreasonable for us now given these three different revenue lines that we have, and they are coupled with a direct sales force that we are investing in. But I think in Jerry's part of the comment dated by 2017 that's going to be a $41 billion industry. Right? So if you take one tenth of 1% of that industry, we would increase our revenue by 50%.

John Nobile - Taglich Brothers

Well, okay. And if I could just -- getting back to the SMS guidelines, which took effect in October, was it the beginning of October? I mean when in October did that actually start to affect your revenue? And my next question is actually how much if you could monetize, you believe it affected your first quarter revenues?

James Orsini

Well, changed effective October 17. And for many of our competitors, it was devastating. On an average marketing databases, once the law changed and required people to re-opt in a second time, on an average database lost 60% of their numbers.

Fortunately for us, in working with Hastings, the bulk of our messaging, the bulk of our SMS was not deemed marketing messaging. Our "come here, be there" messaging was really a functional messaging. "Come here, your prescription is ready, be over there, the furniture is on its way, your groceries are being delivered, it's time to rotate your tires, pick up your photos." Those were not considered marketing messages and therefore were not governed by the law change.

However, we did have a client like Hibbett, where you are pushing a 20% coupon to make a purchase of a baseball glove. That is considered a marketing message. And we did in fact lose a better than 50% of that database when the law changed.

Now, the good news is that the database is back, it's probably only down 10% now from what it originally was at its peak. But you can see how if the majority of your business was in marketing messaging SMS as many of our competitors were, you were devastated in the quarter. We will come back, but for the quarter that was a real blip. So we still grew 13%. Probably we should have grown closer to 15% to 17%. So we were affected somewhat, but not as nearly as much as our competition.

John Nobile - Taglich Brothers

Okay. And because that's a messaging issue, it shouldn't have any effect on the media placement line of your revenue here?

James Orsini

Absolutely not, which is why the diversification perhaps is important.

John Nobile - Taglich Brothers

Okay, great. Thank you.

Operator

Our next question comes from the line of Scott Ozer with Sandlapper Securities. Please proceed with your question.

Scott Ozer - Sandlapper Securities

Hi. Gentlemen, one, thank you for being shareholder-friendly in the time of this conference call for your West Coast shareholders.

James Orsini

You're welcome, Scott.

Scott Ozer - Sandlapper Securities

So, several points I'd like you to discuss. An update on the world's largest retailer, and are you realizing any savings or is there severance cost going on with CTO, and also an update on are we having -- what level of negotiation on the IP? Are we with some of the people that we have served notice to? And are there any other additional people that we have served notice to?

James Orsini

Okay. So, we'll take the Amazon question, well, the world's largest retailer seller out there; the world's largest retail. We're currently serving messages in 17 different countries. And they are utilizing our new WIN product, or Workers Information Network. You can learn a little bit about that by going to our website, www.singletouch.net to find the product and check out this Workers Information Network, which is a way to save time and money and improving employee relation.

We now have more employees than Microsoft; well over a 100,000 employees in there. And we do have another client, the world's largest retailer also using that product. So, we're optimistic that this product is at the right time for the right offering. And our hope is that we will move beyond just internal messaging and B-to-C messaging as evidenced by our retail clients. So we're hoping that retailer would do the same.

I'll turn over to Kurt now to talk a little bit about your question with the severance expense, I believe.

Kurt Streams

Yes, right. That was your question? Okay.

Scott Ozer - Sandlapper Securities

Yes. Thinking all cost savings or is there still some cost savings be realized when severance might be?

Kurt Streams

We've taken the severance cost into this quarter ended December 31, 2013. So at this point, we have recognized to the cost for that relationship.

Scott Ozer - Sandlapper Securities

And all these details are in the queue as well, right?

Kurt Streams

Yes. The details are in the queue as well.

Scott Ozer - Sandlapper Securities

And, Jerry, on the IP side?

Jerry Hug

So, Scott, with respect to your question around IP, as I alluded to in my comments, we have several confidential discussions that are ongoing around our IP, particularly our streaming media and ad insertion patent family. Unfortunately, that's really as much as allowed to speak on, given the significance of the nature of those discussions.

Scott Ozer - Sandlapper Securities

Okay. Well, let me ask this. Both of our alternatives within this (ad space), are we going to notify any of the international carriers like, Internet providers that are like WhamTech or FIQ or -- I can't think of the other names, but are we going to notify those carriers of enrichment?

James Orsini

Well, I think there is certainly enough work and opportunity for us here domestically in the States. So, if you look at the breakdown of the companies that we've noticed up until now, those are, if not the largest, certainly in the top 10 largest media and stream companies in the world. So we don't necessarily see the need to go outside the States, and we're really going to focus our efforts here at home.

Scott Ozer - Sandlapper Securities

Okay. I'll let somebody else ask some question.

Operator

Thank you. Our next caller is Marc Robins, again with Catalyst Research. (Operator Instructions) Thank you, Mr. Robins, please begin.

Marc Robins – Catalyst Research

Thank you. Help me better understand a little bit between the higher valued "come and get you royal and bloom service" that I think is sponsored, maybe I'm answering my own question, versus the media buy?

James Orsini

So Marc, let me help you kind of break this out and rationalize this in your mind. So the reminder messaging is delivered obviously through functional SMS direct to consumer and our revenue is generated at a per transaction basis, typically, $0.02 to three and a half cents depending upon the category and depending upon the retailer. Okay?

If you compare that to the FollowMe product, the media placement and media buying product, that revenue is much lumpier, it's much more programmatic and it's much higher because it's purchased similarly like branch purchase traditional media out of home and radio. So it's all purchased on a CPM or cost per thousand basis. So they have different elements to the program. The FollowMe product will allow us to theoretically ramp revenue quicker and faster because these budgets are now larger and shifting towards mobile. And that's really what's exciting us going into this year, the ability to Windows marketing programs and get really our share of those marketing ad budgets.

Marc Robins – Catalyst Research

I think I got it now. Okay. That also helps me better understand some of the reasons why it's separated and also the reasons for the different regulatory things. So that's very helpful. Let's follow-on with that, I mean I know you're doing a heck of a lot of messages, anyway you want to measure it with the world's largest retailer and those are "come here and go there and do this," kind of messages. Are we making any more headway with the sponsored to-do messages?

James Orsini

Yes. We continue to look for opportunities to bring sponsors into our channels. One of the things that you have to do is you have to have a marketing channel in order to bring a sponsor into it, okay? So we've been demonstrating sponsorship into the Hibbett's channel whether it's Reebok or Adidas, most recently I believe it was an Under Armor initiative as well. But the channel has to be built for marketing messaging, okay? The TCPA tech law changes are helping with that, because it's making it very clear, "Hey, you're really going to receive marketing messages into this channel." Okay? You're going to receive between three and five a month, when I have to make any special purchases, but that's what that whole law change was, a real clear permission that we're going to be marketing into the channel.

So that clarity is going to help us on a go-forward basis, and bring additional opportunities for sponsorship into the channel. The unique part about the FollowMe is it allows people, allow clients to begin to market in the mobile channels quicker and easier and then the sort of entice to open up a mobile channel and begin the communication and the dialog of that. We had a client on the phone today, who was asking that very thing; I want to make people aware of an event, okay? So, how do I get them to the event? We should use the FollowMe campaign to do that. And then they say, "Well, but I'm also giving our loyalty points." And I'd say, "Well, great, that's when you get a mobile channel." Because now you want to dialog with your loyal customer in that channel, just like Hibbett is doing and give them something to do with it.

So, we see these, while separate they actually do ducktail and begin to sell off one another.

Marc Robins – Catalyst Research

Is it correct to assume that the sales job of providing information or enticing your customers to do more of these programs, to do more of these SMS or media buy program is becoming a little easier, now that you can refer back to this program, say, with the (gas)stores or the app program with GAF?

James Orsini

Yes. We're really still in the very early stages, but we are seeing the budget shifting there. That's what's exciting us more and more about this. We are seeing mobile budget shifting today. There is a market analysis report, which came out today that basically says that "You absolutely must be thinking mobile as part of your integrated offering." Okay? Not instead of something else, but the same way most markers have a holistic offering with television, Internet, out-of-home print. They absolutely must be thinking about mobile in their component.

We believe that many in the Super Bowl lost an enormous opportunity by not tagging some of that television stuff with the mobile (caused action). They missed the boat. You could have had been doing more with it. And we're seeing that marketers are in fact beginning to shift more of their budget to the marketing. So that's why we wanted to have more product offerings to actually capture that.

Marc Robins – Catalyst Research

Okay, thanks. I'll get back in the queue.

Operator

Thank you. (Operator Instructions) We do have a follow-up from the line of Marc Robins with Catalyst Research. Please proceed with your question.

Marc Robins - Catalyst Research

Thank you. Concerning the rather devastating effect of the new October 16th law, is there been any fallout or ramifications that have been helpful directly to Single Touch?

James Orsini

Well, we have noticed that there have been others in the space who have experienced less than favorable conditions with this change in law. So we don't know exactly what it could mean for us. We're in a good position now. We feel good about the fact that we've posted as significant of our revenue growth as we have with improved margins, with cash improving. We think we're in a very good competitive landscape right now.

Operator

Thank you. Mr. Hug, there are no further questions at this time. I'd like to return the floor back over to you for closing comments.

Jerry Hug

Thanks, (Raya). We'd like to thank everyone for their interest in participation on the call. And that concludes the Single Touch Systems fiscal 2014 first quarter conference call. Thank you all.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

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Source: Single Touch Systems' CEO Discusses F1Q 2014 Results - Earnings Call Transcript

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