Q4 2013 Earnings Call
February 27, 2014 4:30 pm ET
Erica L. Mannion - President
Elisabeth H. DeMarse - Chairman, Chief Executive Officer and President
John C. Ferrara - Chief Financial Officer
Welcome to TheStreet's Fourth Quarter 2013 and Full Year Financial Results Conference Call. The date of this call is February 27, 2014. This call is being webcast live on the Investor Relations section of TheStreet’s website at www.t.st. This call is the property of TheStreet, and any recording, reproduction or transmission of this call without the expressed written consent of TheStreet is strictly prohibited. As a reminder, today’s call is being recorded. You may listen to the webcast replay of this call by going to the Investor Relations section of TheStreet's website.
I will now like to turn the call over to Erica Mannion of Sapphire Investor Relations, investor relations for TheStreet.
Erica L. Mannion
Good afternoon. Thank you for joining us to discuss TheStreet's financial and operating results for the fourth quarter of 2013 and full year. With me is Elisabeth DeMarse, Chair, President and Chief Executive Officer; and John Ferrara, Chief Financial Officer. Today, Elisabeth and John will review the fourth quarter and full year results and discuss the industry and market dynamics.
All statements made on this call, other than statements of historical facts, are deemed to be forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, including those described in the company's filings with the Securities and Exchange Commission that could cause actual results to differ materially from those reflected in the forward-looking statements.
Although the company believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee future results or occurrences. The company disclaims any obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise. You may obtain copies of the company’s filings with the SEC at the Commission’s website at www.sec.gov. Additional information related to matters discussed today also will be set forth in the company’s quarterly report on Form 10-K for the fourth quarter of 2013 which the company expects to file shortly.
Before I turn the call over to Elisabeth, I would like to mention that management will be presenting at the 26th Annual ROTH Conference on March, 11, in Laguna, Nigel. Now I will turn the call over to Elisabeth DeMarse.
Elisabeth H. DeMarse
Thank you, Erica, and good afternoon. We released our fourth quarter and full year financial results shortly after market closed today. We're very pleased by our performance and our improving momentum. Execution across our retail and institutional subscription platforms and key operating metrics were strong, and Media sales were unexpectedly higher than projected in Q4.
We are pleased to announce annual revenue of $54.5 million, which was above the high-end of our guidance of $53 million to $54 million. The actions we've taken over the past 2 years are now clearly improving revenue growth without compromising bottom line results. And we are excited about the trends driving our business. The resurgence of M&A and stock market highs over the past year provides a welcome boost to our momentum.
Moving on to the details. As we announced in our press release today, the company recorded quarterly revenue of $14.8 million, representing year-over-year growth for the quarter of 7%, driven primarily by organic growth in both subscription newsletters and The Deal, as well as our 2013 acquisition of DealFlow Media. Subscriptions grew 2% sequentially to $11.4 million as expected, and Media outperformed, delivering $3.4 million based on advertiser demand, our Deal economy event and webinars.
As our topline momentum picked up, we nonetheless kept a tight lid on cost. The company recorded positive net income of $213,000 for the fourth quarter, or $0.01 a share, compared to a net loss of $2.2 million the previous year. This was the company's first positive quarterly net income in 4.5 years. Also, we achieved adjusted EBITDA of $1.6 million for the quarter. Gross profit grew 9 percentage points sequentially, and so did our adjusted EBITDA, demonstrating the operating leverage. Like Q2 and Q3, there were no restructuring charges in Q4.
Our plan is to build a predictable, sustainable and profitable business. While Q4's EPS was a pleasant surprise I am proud of, the positive upside above plan did come from Media. Please remember that advertising is seasonally better in the fourth quarter for our business, while the first quarter of the year is typically a quieter quarter. We have a solid plan in place to deliver positive adjusted EBITDA on a consistent basis, but we are several quarters away from that consistency becoming a reality.
Moving to the full year. The company recorded revenue of $54.5 million, representing 7% growth from 2012, driven primarily by our acquisition of The Deal in Q3 2012, and DealFlow Media in Q2 of 2013, and bolstered by our organic growth and subscription newsletters in the second half. Our net loss narrowed to $3.8 million in 2013, from $12.7 million the prior year. While adjusted EBITDA grew to $2.1 million in 2013, from $1.3 million. The company also generated $2.5 million in operating cash flow for the full year, compared to negative operating cash flow of $6.2 million in 2012. We ended the year with $59.8 million in cash and investments.
Since our last quarterly call, our board reinstated our quarterly dividend of $0.025 a share. I understand that a dividend is uncommon for a company of our size and stage of growth, however, I happen to be a big fan of dividends. Streets dividend represents a promise to our loyal shareholders. It is my hope that we will fund the dividend from our cash flow, leaving our cash position available for acquisitions.
Now, for the business overview and update. In Q4, performance across our 4 platforms met or exceeded expectations. Our subscription newsletter business benefited from vast improvements in our marketing programs and grew 2.5% sequentially. Both The Deal and RateWatch maintained leading positions in their sectors. Our Media business, TheStreet.com, and its sister site, MainStreet, and our conference and webinar businesses exceeded plan in Q4. All in all, a good quarter, revenue-wise.
Approximately 80% of revenue is subscription based, so let's start with The Deal, a lucrative subscription business with operating leverage that provides indispensable M&A news and data to the country's most influential dealmakers. We continue to exhibit pricing power in this business. Customer renewals for Deal Pipeline, The Deal's premier imarily product, reflected an average price increase of 3% year-over-year in the fourth quarter, and 4% year-over-year for the full year. While The Deal Pipeline had its best ever renewal year on a unit basis. The Deal Pipeline grew sequentially every quarter in 2013, with Q4 performing exceptionally well. We expect similar performance in 2014, bearing in mind, Q1 is typically a seasonally low quarter for The Deal.
Last week, The Deal's Jon Marino broke the story of Fosun's impending acquisition of Forbes Media, an example of the must-have content that readers of The Deal have come to expect. In December, we hosted a very successful Deal Economy event at the New York Stock Exchange, featuring Jim Cramer, Peter Orszag, Jeff Sonnenfeld and the Bob Nardelli, among many other luminaries. This is the first year our event was live-streamed free to the public, and our digital audience topped more than a 1,000 viewers. The revenue from this conference and other webinars consolidated up into our Media line.
Moving to subscription newsletters, we turned year-over-year positive in June of last year. During the fourth quarter, bookings, which are leading indicator, increased 20% year-over-year. While full year bookings increased 11% from 2012, as we experienced very strong growth in new subscription unit sales. Our newsletter business grew sequentially every quarter in 2013, and we are excited about our forward momentum. Our strategy is to put the right subscriber into the right product, while improving overall user experience, which leads to higher renewal rates and longer lifetime value of the customer. With this strategy, average monthly churn continued to improve in the fourth quarter, coming in over 14% lower, compared to the same period the previous year.
We also added nearly 13,600 net subs in 2013, and our subscription unit base at December 31 was 20% higher than it was 1 year ago. In 2013, under the leadership of Stephanie Link, our Chief Investment Officer and current Portfolio Manager of Actions Alerts PLUS, we launched Dividend Stock Advisor, Quant Ratings, Trifecta Stocks and actualer's Options to address product gaps. With these new products, new subscription unit sales increased 72% from the prior year.
This year, we are launching Herb Greenberg's Reality Check. Reality Check will be sold at a higher price point to a small group of more institutionally oriented investors who are interested in Herb's deep analysis of selected companies.
Now, let me bring you up-to-date on our promotion strategy. Over Thanksgiving, we ran our first ultimate trial, a promotion where subscribers paid $1 for access to all TheStreet's investing newsletter products from late November until year end. During the course of the trial, our customer concierge team worked with the audience to place them in the right product based on their category interest and investing focus. This promotion performed very well. We plan to run the ultimate trial twice in 2014, over the 4th of July and Thanksgiving holidays.
Another major promotion is our weekend open houses that are coordinated with 10 Pulse [ph] sports events where we can act as a second screen, albeit for investing for sports fans. Our Super Bowl open house this January did well. And we will run 2 additional open houses this year over March Madness and NFL Kickoff weekend.
Before we move on from subscription newsletters, I would like to update you on Jim Cramer's New York Times and Wall Street Journal bestseller, Get Rich Carefully, and the tremendous momentum this has given us during the first quarter of 2014. By offering Jim's book as a premium to new subscribers, we experienced a nice lift in account acquisition the first 2 months of this year. In closing, we look forward to continue year-over-year and sequential growth in Subscriptions.
Lastly, Media. Our advertising dollars cover the cost for our free site editorial team and then we use the free sites to drive people to subscribe to our other products. This dual monetization is a very important competitive advantage. It turns out TheStreet.com is a great way to introduce our lucrative subscription products to more than 10 million people who visit us each month.
Before I arrived in 2011, 8% of new subscribers were acquired via the free sites. Now in Q4, that percentage is 39%, up from 34% in Q3. Our free front porch is by far the most efficient source of new subscribers to TheStreet subscription products.
As for Advertising revenue. We introduced our programmatic offering last summer, and 22% of our Q4 ad revenue was programmatic. In 2014 year-to-date, 25% to 30% of our revenue is programmatic. The CPMs are creeping up, and we deliver our direct buys via our private exchange.
On the direct sale side, the last bastion of high CPMs is video. I'm proud to report we produce 20 to 30 digital videos a day, that we average a 100,000 video plays per day or 3 million plays per month. And that we are in the top 10 for video in our category. Nonetheless, although video CPMs are high, it's still early days in terms of distribution and scaling inventory. As anyone can tell you, the challenge for digital video is distribution. Video consumption on the web and via mobile, while growing, is still small.
Despite our positive revenue surprise in Q4 for Media, looking at 2014, let me remind you that the first quarter is not seasonally as strong as the fourth. Also, advertising and investing, savings and card services, each saw 14% across the U.S. in the past year. Because of these negative secular trends and the proven cyclicality of advertising, we'll be extremely conservative in our outlook for display advertising going forward.
Which brings us to traffic. We had a very strong January with both our internal logs and comScore. And comScore shows year-over-year growth in uniques of 104% with page views of 31%. As we grow our organic page views, we will use that as an opportunity to reduce our paid partner traffic, and try and effect savings there. So you may see some volatility in our comScore numbers going forward. Please bear in mind, we believe we are generating sufficient inventory to satisfy our endemic customers and also feed programmatic demand. Our long-term goal over the next year or 2 is to reduce our traffic acquisition costs.
Now turning to our M&A program. We continue to aggressively search for attractive targets. A recent study by BDO reported that pricing and availability of quality targets are top challenges for private equity funds in 2014. We too are finding that pricing is also affecting us and our search for targets. So the pace of completed acquisitions may not be as rapid as we would like. Having said that, we hope to complete at least one significant acquisition in 2014.
In closing, I would like to announce an important initiative for 2014, which is our contributor program, also known as Indefatigable. Our goal is to attract smart influential writers, analysts and money managers to augment the work of our newsrooms, and who want to be part of our mission. This is an important initiative lead personally by Jim Cramer to attract the best and brightest stock minds to join our publisher platform. By publishing on our platform, smart research can be amplified to TheStreet's 95,000 Twitter followers, Jim Cramer's 730,000 Twitter followers and our 122,000 Facebook fans. The Indefatigable contributor platform returns us to our roots and original vision where TheStreet served -- stood for bringing smart, independent Wall-Street-quality equity analysis to main street.
In addition to attracting new contributors, we've launched blogs for our writers, providing us with another avenue for reaching our audience. We've launched blogs for Stephanie Link; for Herb Greenberg, as a complement and lead generator for Reality Check; and for Adam Feuerstein, who is our award winning biotech reporter. Beyond the launch of our Indefatigable CMS, we don't expect any big strategic changes, but expect to see an accelerated pace of improvement internally that will ultimately be reflected in the performance of the company.
Now, I would like to turn the call over to John Ferrara, our CFO.
John C. Ferrara
Thank you, Elisabeth, and welcome, everyone. As we have said, we are pleased with our fourth quarter performance. Revenues came in better than expected due to higher revenues for Media and subscription newsletters. I will first review our fourth quarter results.
In the fourth quarter of 2013, revenue was $14.8 million, an increase of $1 million or 7% compared to the prior year. All of the increase was due to higher Subscription revenues. Subscription revenue was $11.4 million, an increase of $1 million or 10% compared to the prior year, and 200,000 or 2% sequentially. This increase was due to organic growth both in subscription newsletters and The Deal and revenues from the DealFlow Media acquisition.
For competitive reasons, we do not report revenue by product line. But we do want to give you some sense of the relative size of these product lines. The largest revenue contributor is subscription newsletters, which accounts for slightly less than 50% of the company's full year total revenues. The Deal contributes slightly less than 20% and RateWatch contributes 15%.
Our subscriber base and bookings performed well during the fourth quarter. For total subscription, bookings were 11.6 million for the fourth quarter, an increase of 7% from the prior year. For subscription newsletters, the number of paid subscriptions at the end of the period were $78,400, an increase of 21% from the prior year and 5% sequentially. ARPU, our average revenue per user, for the fourth quarter declined 10%, as compared to the prior year, and 3% sequential. This was expected as ARPU declines when we grow our subscription base with new subs at lower introductory level pricing. Average monthly churn was 2.3% for the fourth quarter, compared to 2.7% in the prior year period.
Media revenue in the fourth quarter was $3.4 million, the same as the prior year, and an increase of $1 million or 42% sequentially. The increase is due to advertising spend, which is seasonably higher in the fourth quarter, and revenue from The Deal economy event. Operating expenses in the fourth quarter were $14.6 million, a decrease of 9%, compared to the prior year period. Excluding restructuring and other charges and a gain on sale of assets, operating expenses decreased 6%, compared to the prior year period.
The company reported a net income of $213,000 in the fourth quarter, as Elisabeth mentioned, this is the first reported net income since the second quarter of 2009. This compared to a net loss of $2.2 million in the prior year period. While we are pleased with our net income in Q4 2013, we do not expect to report net income again until the fourth quarter of 2014. Adjusted EBITDA was $1.6 million in the quarter, compared to $453,000 in the prior year period.
And now, for the full year results. Revenue for the full year 2013 was $54.5 million, compared to $50.7 million for the prior year, an increase of $3.7 million or 7%. All of the increase was in subscription as Media revenue was down $2.7 million or 20%, compared to the prior year. Subscription revenue for the year was $43.5 million, an increase of $6.4 million or 17%, compared to the prior year. The increase was primarily due to the acquisitions of The Deal and DealFlow Media.
Subscription bookings for the year were $45 million, which includes the impact of acquisitions. This compared to $36.6 million in the prior year. It's worth noting that total bookings of $45 million are greater than full year revenue of $43.5 million, which is indicative of a growing subscription business. Operating expenses for the year were $58.4 million, a decrease of $5.3 million or 8%, compared to the prior year. Excluding restructuring and other charges and gain or loss on disposition of assets, operating expenses increased $441,000 or less than 1%, compared to the prior year.
The company reported a net loss of $3.8 million for the year, compared to a net loss of $12.7 million in the prior year, an improvement of $8.9 million. Adjusted EBITDA for the year was $2.1 million, compared to $1.3 million in the prior-year period.
For the year ending December 31, 2013, the company generated $2.5 million in operating cash flow, compared to the use of $6.2 million in cash flow for the prior year. Company ended the year with cash and cash equivalents and marketable securities of $59.8 million, all of which, except for $1.3 million in restricted cash is available for acquisitions, operations and dividends.
Looking ahead, we expect to continue to execute on our strategy in 2014. As Elisabeth highlighted, we have more investments to make in the business; however, for the full year, we expect the growth in revenue to slightly exceed the growth in operating expenses, yielding a modest improvement in adjusted EBITDA. On the topline, we expect to grow -- or we expect growth in both Subscription and Media. While we have visibility for Subscription, we do not have visibility for Media revenues. Also, growth in Media would reverse a 3-year decline in Media revenue from $19.1 million in 2010.
On the expense side, increases include investments in new and existing products, new employment agreements, health care costs and additional headcount to fill gaps in our operations.
Excluding potential acquisitions for the full year 2014, we expect revenues to be between $57 million and $58 million, and adjusted EBITDA to be between $2.2 million and $2.7 million. While we expect total revenue to grow year-over-year, we do not expect to show sequential revenue growth across all quarters. We expect Q1 2014 revenue to be down from Q4 2013 due to seasonality of advertising buys in the conference, but up from Q1 2013. Also, we do not expect to show consistent growth in adjusted EBITDA for the quarters, since our increased cost will come early in the year, but revenues will build through the year.
And now, I'd like to turn the call back over to Elisabeth.
Elisabeth H. DeMarse
Thank you, John. For those of you who are new to TheStreet, I would like to briefly highlight some of the key attributes of our business. We're very fortunate to have an asymmetrical competitive advantage versus other Internet publishers, because we can monetize uniques 2 ways, via advertising dollars and also by converting them to subscribers. 80% of TheStreet's revenue is subscription revenue. Subscription businesses are very difficult to build, but very lucrative once you build them. Our subscriptions are annual contracts. They provide durable, visible revenue streams with terrific cash flow characteristics. We get paid up front.
While we are focused on finance, we are cyclically diversified. Our businesses help both consumers and institutions. We have an interest rate play with our RateWatch division that derisks our stock and M&A market exposures. We have a fortress balance sheet with almost $60 million in cash, plus we're now generating cash from operations. An important part of our strategy is to be acquisitive with our balance sheet. We've reinstated our quarterly dividend of $0.025 a share, and our operating model has a lot of leverage. We can grow the business significantly without growing headcount. We are poised for margin expansion.
Looking beyond and to 2014, we are feeling cautiously optimistic about the state of our subscription businesses, and we feel we may have reached bottom accounting for seasonality and Media.
With that, operator, please open the call for questions.
Elisabeth H. DeMarse
Thank you, Karen. In closing, I imagine there aren't -- well, there is another question or there isn’t a question, we can close. I just want to thank everyone, thank the entire team for their efforts in returning TheStreet to growth. We have a great team of franchise players with Jim Cramer, Doug Kass, Stephanie Link and Herb Greenberg, among others, who we are building our business around. I'm really pleased and excited where we are. We've got a great leadership team in place. We have solid momentum to start the year, and we’re executing on our strategy to sustain growth beyond 2014. I really look forward to sharing our progress in coming calls. And thank you, all, for your interest in TheStreet. Have a good day.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.
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