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TheStreet Inc. (NASDAQ:TST)

Q1 2014 Results Earnings Conference Call

May 08, 2014, 04:30 PM ET

Executives

Erica L. Mannion - President

Elisabeth H. DeMarse - Chairman, Chief Executive Officer and President

John C. Ferrara - Chief Financial Officer

Analysts

Operator

Welcome to TheStreet's First Quarter 2014 Financial Results Conference Call. The date of this call is May 8, 2014. This call is being webcast live on 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 a webcast replay of this call by going to the Investor Relations section of TheStreet's website.

I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations, Investor Relations for TheStreet.

Erica Mannion

Good afternoon. Thank you for joining us to discuss TheStreet's financial and operating results for the first quarter of 2014. With me is Elisabeth DeMarse, Chair, President and Chief Executive Officer; and John Ferrara, Chief Financial Officer. Today, Elisabeth and John will review the first quarter results and discuss industry and market dynamics.

All statements 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 will be set forth in the company’s report on Form 10-Q for the first quarter of 2014 which the company expects to file shortly.

Now, I will turn the call over to Elisabeth DeMarse.

Elisabeth DeMarse

Thank you, Erica, and good afternoon. We released our first quarter financial results shortly after market closed. We are very pleased by TheStreet's first quarter performance and our continued momentum.

Execution across our retail and institutional subscription platforms and key operating metrics were outstanding, resulting in strong financial performance. We remained excited about the trends driving our business. The resurgence of M&A activity, highest fund raising volumes and stock market highs during the first quarter provided a welcome boost to our business.

Moving on to the details. As we announced in our press release today, the company recorded revenue of $14.4 million for Q1, representing a very strong year-over-year growth of 14%, driven primarily by growth in The Deal, subscription newsletters and media, as well as our 2013 acquisition of DealFlow Media.

The company recorded a net loss of $1.1 million for the first quarter, compared to a net loss of $1.7 million the previous year. Adjusted EBITDA was breakeven for the quarter compared to a small loss last year.

The company also generated $2.4 million in operation cash flows for the first quarter, compared to negative operating cash flows of $41,000 in the prior year. We ended the quarter with $60.9 million in cash and investments, an increase of $1.1 million from the fourth quarter.

Now, for the first quarter business update. Let’s start with The Deal, our institutional subscription platform. The Deal performed on plan in Q1 with M&A and pipeline surging. We saw a continuation of high renewal rates as well as inbound product interest. We continued to exhibit pricing power in this business.

Customer renewals for Deal Pipeline, The Deal's premier product reflected an average price increase of 3% year-over-year. Our institutional growth strategy is to enhance the value of The Deal pipeline with new content and product offerings delivering more must have insights into the workforce of senior lawyers, bankers, private equity and hedge fund professionals, where our actual business intelligence drives for new growth and new sales.

The Deal Newsroom won top liner honors for the highly coveted SABEW Best in business for general excellence. Also our Deal Pipeline App was recently recognized as a finalist for MediaPost Appy Award. We are very proud of these achievements as they speak to the high quality, value and actionability of The Deal’s content and products.

Moving to subscription newsletters, we experienced significant momentum as retail investors return to the stock market. The DART, our Daily Average Revenue Trades, as measured by three publicly-traded online regional brokerages reached multiyear highs during the first quarter as the markets rallied, then corrected, then rallied again.

Subscription newsletter bookings increased 16% year-over-year and revenue grew both year-over-year and sequentially. We experienced strong growth in new subscription unit sales. We added nearly 4,300 net subs in the first quarter and our subscription unit base at March 31 was 22% higher than it was a year ago.

Our strategy for driving growth in the subscription newsletter business works. We seek to grow customer acquisitions, while maximizing the retention of our paid subscriber base. Success and driving subscription unit sales results from the focus on execution and the continuous optimization of all our marketing channels.

In combination with launching new subscription products such as Dividend Stock Advisor, Spot Ratings, Action Alerts Options and Trifecta Stocks to address product gaps. This coincided with increased retail participation in the stock market as evidenced by the DART.

Jim Cramer also released a best selling new book, Get Rich Carefully, which gave us added momentum. We offered signed copies of his book to the new subscribers of Action Alerts PLUS and saw a great demand for this combination. Because of the buzz around Jim’s book, Q1 web searches for the word Jim Cramer increased 32% sequentially and 11% year-over-year.

As a result, we increased our investment and our paid search in display channels during the quarter. This investment contributed to our success in Q1 by increasing new subscribers and will continue to contribute to our success going forward.

Put simply, we invested in customer acquisition in Q1 and we recognized the revenue readably over the next 12 months. Our subscription strategy is to put the right subscriber into the right product, while improving overall user experience which sneaks the higher renewal rates along the lifetime value of the customer.

In Q2, we plan to launch a subscription app to make our products more accessible with an improved user experience . Improving user experience as we stride to make our products easily accessible anywhere and everywhere translates into improved renewal rates.

(inaudible) to our second quarter, our growth in the subscription units and bookings is continuing on plan despite a slight pause over Easter and Passover when there was a modest market pullback.

Coming to Media. TheStreet.com is a great way to sell our lucrative subscription products. Remember, we have an asymmetrical competitive advantage because we have dual monetorization of the audience coming into flagship site TheStreet.com.

One of the biggest achievements since I arrived is our ability to generate leads for our subscription business from TheStreet.com. In 2011, 8% of the subscribers were acquired via TheStreet site. In Q1 that percentage was 38%, in line with Q4 2013.

On the advertising sales front, Media revenue grew 26% year-over-year including double-digit growth in direct and programmatic ad sales. This was down sequentially as expected from the fourth quarter due to seasonality as Internet advertising is on sale with discounted CPMs during Q1.

On the product side, we are very excited to welcome Janet Lynne Guyon as our new Editor in Chief for TheStreet.com. Janet started today. Janet has an award winning business journalist who brings deep experience from Dow Jones, Wall Street Journal, Fortune, Bloomberg and Investopedia to Thestreet. Janet will oversee TheStreet.com’s editorial and video teams.

A brief note about video. A year ago we hired Ruben Ramirez from Nightly Business Report to run our digital video operation. We adopted the technology to sports television and we built a de novo digital video operation optimized for the noble experience . Today, we now produce 20 to 30 video segments a day.

We are in comScore's top ten for business and finance. In Q1, less than year after watch, TheStreet TV received a revenue award in the news and information category and a communicator award for excellent in film and video corporate image. I’m very proud of the success of our video operation.

Finally, on topic of M&A, while we have nothing to report at this time, we remained focused on identifying opportunities that are aligned with our platforms.

Now, I would like to turn call over to John Ferrara, our CFO.

John Ferrara

Thank you, Elisabeth, and welcome, everyone. As we have said, we are very pleased with our first quarter performance in both media and subscription.

Product revenue for the quarter was $14.4 million, an increase of $1.8 million or 14% compared to the prior year period. Subscription revenue was $11.4 million, an increase of $1.2 million or 12% compared to the prior year period.

About half of the increase was due to increased subscribers for our subscription newsletters and half is due to revenues from DealFlow and the effects of purchase price accounting. As we have described in the past, the purchase price adjustment that reduces GAAP revenues is generally required in initial reporting period after an acquisition.

In the first quarter of 2013 the company’s GAAP revenues were reduced due to the purchase price adjustments relating to The Deal.

We do not report revenue by product line, but the largest revenue contributor is subscription newsletter, which accounts for a slightly less than 50% of the company’s total revenues. The Deal contributes slightly less than 20%, and RateWatch contributes approximately 15%.

Our subscriber base and bookings performed well during the quarter. For total subscription services, bookings were $12.8 million for the quarter, an increase of 10% from the prior year period. Subscription bookings for the trailing four quarters ending March 31, 2014 were $46.2 million, which includes the impact of acquisitions.

This compares to $38.6 million for the trailing fourth quarter is ending March 31, 2013, an increase of $7.6 million or 20%. The total bookings of $46.2 million are greater than revenue of $44.7 million for the same period, which is indicative of growing subscription business.

For subscription newsletters, the number of paid subscriptions at the end of the quarter was 82,700, an increase of 22.3% from the prior year period and 5.5% sequentially. Average revenue per user or ARPU for the quarter declined 9.1% as compared to the prior year period and 2.6% sequentially. This was expected as ARPU declines as we grow our subscription base with new subs at lower introductory level pricing.

Average monthly churn was 3.3% for the quarter compared to 3% in the prior year period and 2.3% sequentially. This increase was also expected due to accelerated growth in the number of new subscribers.

Media revenue for the quarter was $2.9 million, an increase of 26% compared to the prior year period. 14% of the increase was due to demand from new and repeat advertisers and the remainder was due to an increase in other miscellaneous revenue.

Operating expenses for the quarter were $15.6 million, an increase of 8% compared to the prior year. Net loss for the quarter was $1.1 milion compared to a net loss of $1.7 million in the prior year period.

The company reported basic and fully diluted net loss attributable to common stockholders of $0.04 per share for the quarter compared to $0.05 in the prior year period. Adjusted EBITDA was 18,000 for the first quarter compared to a negative 34,000 in the prior year period.

For the quarter, the company generated $2.4 million in operating cash flow compared to the use of $41,000 in operating cash flow for the prior year period. The company ended the quarter with cash and cash equivalents, restricted cash and marketable securities of $60.9 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 growth strategy in 2014. As we have previously discussed, we have more investments to make in the business; however, for the full year we continue to expect the growth in revenue to slightly exceed the growth in operating expenses, yielding a modest improvement in adjusted EBITDA.

On the top line, we expect a growth both in subscription and media. While we have some visibility for subscription revenues, we do not have much visibility for media beyond the current the quarter. On the expense side, increases include investments in new and existing products, new employment agreements, healthcare cost, marketing and additional headcount to fill gaps in our operations.

As we previously indicated during our fourth quarter earnings call on February 27, excluding any potential acquisitions we expect 2014 full year revenues to be between $57 million and $58 million with an adjusted EBITDA 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.

Revenues for the first quarter were down sequentially as expected due to seasonality in media from advertising buys and The Deal confernece in the fourth quarter 2013. Also, we do not expect to show consistent growth in adjusted EBITDA for the quarters since our increased costs will generally come early in the year, revenues will built through the year.

Before I turn the call over to Elisabeth, I would like to mention that we will presenting at the following conference, SunTrust Robinson Humphrey Internet & Digital Media Conference in San Francisco, California on Tuesday, May 13th; and the 15th Annual B. Riley & Company Investor Conference in Santa Monica, California on Tuesday, May 20, 2014.

Thank you. And now I’d like to turn the call back to Elisabeth.

Elisabeth DeMarse

Thank you, John. In closing, we saw positive results from the first quarter and go to the second quarter with expectations of even more success, especially in our lucrative subscription businesses. The Deal is performing on plan and provides us with a strong platform for bolt-on and organic growth.

Our free site is sourcing almost 40% of new subscriptions and is poised to grow double-digits in 2014. We remained focused on top line improvement and we’ll spend discriminately on growth initiatives.

With that, operator, please open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And at this time, there are no questions over the phone.

Elisabeth DeMarse

Well, I just want to thank everyone and thank the entire team on my side of the table for their efforts in returning TheStreet to growth, and we have a great team. I have to continue to mention the contributions of Stephanie Link, Jim Cramer, Doug Kass, and Herb Greenberg for helping us build out our franchise and doing just a great job.

So, we are pleased and excited with where we are. We’ve got solid momentum in Q1 and we’re executing on our strategy to continue this growth throughout 2014 and beyond. And I’m looking forward to continuing to share our progress on future calls. So, thank you all for the interest in TheStreet, and have a great day. All right. Take care.

Operator

Thank you for your participation, and that does conclude today's call.

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