TheStreet, Inc. (NASDAQ:TST)
Q2 2014 Earnings Conference Call
August 4, 2014 16:30 ET
Erica Mannion – IR
Elisabeth DeMarse – Chairman, President & CEO
John Ferrara – CFO
Kara Anderson – B. Riley & Co
Welcome to TheStreet's Second Quarter 2014 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to Erica Mannion.
Good afternoon. Thank you for joining us to discuss TheStreet's financial and operating results for the second 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 second quarter results and discuss 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 will be set forth in the company’s report on Form 10-Q for the second quarter of 2014 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 Needham and Company Interconnect Conference on August 6 in New York.
Now, I will turn the call over to Elisabeth DeMarse.
Thank you Erica and good afternoon. Thank you all for joining us today to discuss our second quarter 2014 results, we had a terrific quarter that performed ahead of expectations. Excellent execution across our subscription segment resulted in year-over-year revenue growth of 7.4% setting a new quarterly high at $11.6 million. Our media segment grew 17.5% year-over-year, our pacing and advertising shows as promised we have turned the corner and are growing media revenue. The company reported net loss of 641,000 for the second quarter compared to a net loss of 1.1 million in the previous year period.
Adjusted EBITDA was 502,000 for the quarter compared to 297,000 last year. The company also generated operating cash flows of 2 million for the first half of the year compared to operating cash flows of 1.2 million in the prior year. We ended the quarter with 59.1 million in cash and investments.
Looking forward our success from the first half of the year is carrying through to the second half. Our Summer of Freedom promotion served – is bringing a new subscribers during the seasonally quiet quarter, both our traffic and our advertising pipeline are solid. Around 8% of our revenue is lucrative subscription revenue or we have great visibility to your end. Our 2014 future priorities remain consistent and they are to grow our subscription newsletter business. Two, grow the deal our institutional M&A news and data business and three return our media to growth.
Our first priority is growing our subscription newsletter business. Net subs in the quarter were flat sequentially as we entered the seasonal summer slowdown but 18% higher than a year ago. We have already said that our strategy is to put the right person and the right product, give them a good experience and they will renew creating higher life time value.
Last year we innovated around our product suite and launched two lower cost offerings known in the industry as front end products aimed at novice investors. We launched comp ratings a proprietary model developed by TheStreet, that assigns an investment grade to 4300 stocks. Investors use comp ratings to screen for stocks. Second, we released dividend stock advisor managed by Jim Cramer’s protégé Dave Peltier. Dividend stock advisor provides investing ideas for reliable, predictable dividend income and capital appreciation which are a great interest to novice investors.
These two new front end products are extremely popular getting us many thousands of new investors to the Street subscriber base. These products renewal at significantly higher prices than our introductory rates and also provide us with the opportunity to upsell and cross sell additional offerings and if these new subscribers become more familiar with the quality of the Street.
All in, our subscription services revenue line grew 7.4% or 800,000 with nearly 35% of the revenue growth coming from new subscription newsletter products and 65% from established offerings including institutional. Also subscription newsletter bookings increased 8% year-over-year.
The deal performed on plan in Q2 with M&A in PIPE’s volume surging we saw a continuation of high renewal rates as well as inbound product interests. We continue to exhibit pricing power in this business. Customer renewals for the deal pipeline, the deal’s premier product reflected an average price increase of 3% to 4% year-over-year. Our institutional growth strategy is to enhance the value of the deal pipeline with new content and product offerings deliver more must have insights into the work flow of senior lawyers, bankers and private equity as well as hedge fund professionals. More actionable business intelligence drive renewal growth of new sales.
Earlier in the year we lost our Activist newsletter we will be following up with an Activist data base. Activism is a very hot topic right now, we’re doing excellent work in that area. The Old Newsroom won top honor for the highly coveted SABEW Best in Business for General Excellence and last week our Richard Collings won an Azbee for Best Enterprise News Story. Also our Deal Pipeline won three quarters in Q2. We’re very proud of these achievements, they speak to the high quality, value and actionability of the Deal’s Content and products.
Our third priority of returning media business to growth begins with growing our audience by developing great products that empower consumers to invest and manage their finances. On the product front we’re very excited to welcome Janet Guyon as our Editor-in-Chief of TheStreet.com. Janet, an award-winning business journalist brings deep experience from Dow Jones, Wall-Street Journal, Bloomberg and Investopedia to TheStreet.
Janet oversees the TheStreet.com’s editorial and video teams. In Q2, our Street.com editorial team won four awards for editorial excellence including one for our video reporting.
A brief note about video, with improvements in our work flow we’re now producing 30 to 40 videos a day with a goal of 50 to 60 videos a day by year end, an increase from our 20 to 30 in Q1 and we’re not sacrificing quality. In Q1, TheStreet.com TV received two awards for video excellence and we added third award in Q2. Our digital video is optimized for mobile which is the way our audience interacts with our content.
Speaking of mobile we continue to investment in significant product resources and evolving our mobile web experience and launching and improving our apps. We’re capturing the consumer shift to mobile as we now see products like 30% of visits coming from our mobile device. As I said our Deal Pipeline app won three awards in Q2.
Other notable product advancements during the quarter included the launch of our alerts feature on TheStreet.com which allows our readers to receive alerts on companies, industries and writers creating new products and features, adding strong enterprise editorial, increasingly resonates with our creators and our traffic partners and our advisors. In Q4, we reported that we believed ad sales have bottomed out and it's on rebound. Media revenue which is primarily ad sales through 18% year-over-year and 9% sequentially including double digit growth in direct and programmatic ad sales.
And then finally remember we have an asymmetrical competitive advantage because we have dual monetization of our audience via our flagship free site because we can introduce them to advertisers and sell them subscriptions. In 2011, 8% of the subscribers were acquired via the free site TheStreet.com. In Q2 of this year that percentage was 36%, finally on the topic of M&A while we have nothing to report at this time we remain focused on identifying opportunities that align with our platforms. Now I would like to turn the call over John Ferrara, our CFO.
Thank you Elizabeth and welcome everyone. We’re very pleased with our second quarter performance in both media and subscription. Total revenue for the quarter was 14.8 million, an increase of 9.5% compared to the prior year period. Subscription revenue was 11.6 million, an increase of 800,000 or 7.4% compared to the prior year period primarily due to increased subscribers for our investing newsletters. Our subscriber base and bookings continue to perform well during the quarter, our total subscription services bookings were 12.4 million for the quarter, an increase of 7.1% from the prior year period.
Bookings for the trailing four quarters ending June 30, 2014 were 47 million. This compares to 41.6 million for the trailing four quarters ending June 30, 2013. An increase of 5.4 million or 13.1%. Our subscription newsletter, the number of paid subscriptions at the end of the quarter was 82,300, an increase of 18.3% from the prior year period. Average revenue per user or ARPU for the quarter declined 8.5% compared to the prior year and 0.8% sequentially.
This was expected as ARPU declined as we continue to grow our subscriber base with new subscriptions at lower introductory level prices. Average monthly churn was 3.7% for the quarter compared to 3.3% in the prior year period. This increase was also expected due to the accelerated growth in a number of new subscribers. Media revenue for the quarter was 3.2 million, an increase of 478,000 or 17.5% compared to the prior year period primarily due to increased demand from both new and repeat advertisers.
Operating expenses for the quarter 15.4 million an increase of 5.5% compared to the prior year period. Net loss for the quarter was 641,000 compared to a net loss of 1.1 million in the prior year. The company reported basic and fully diluted net loss attributable to common shareholders of $0.02 per share for the quarter compared to $0.03 per share in the prior year period. Adjusted EBITDA was 502,000 in the second quarter compared to 297,000 in the prior year period.
For the six month period ended June 30, 2014, company generated a 2 million in operating cash flow, compared to 1.2 million in the prior year period. The company ended the quarter with cash and cash equivalents, restricted cash and marketable securities of 59.1 million all of which expect for 1.3 million in restricted cash is available for acquisitions, operations and dividends.
Looking ahead we plan to continue to execute on our long term growth strategy in 2014. So for the full year 2014 excluding any potential acquisitions, we continue to expect revenues to be between 57 million and 58 million and adjusted EBITDA to be between 2.2 million and 2.7 million.
Thank you. And now I would like to turn the call back to Elizabeth.
Thanks John. We look forward to carrying our success from the first half into the second half. We love the visibility that the subscription model affords and with that operator please open the call for questions.
(Operator Instructions). The first question comes from Kara Anderson from B. Riley & Co.
Kara Anderson – B. Riley & Co
Just looking at sort of what you’ve done in the past with regards to restructuring and I’m wondering where your focus today is on the cost management side?
So I mean we’re ever vigilant but we’re also in a place where we continue to reinvest and building a strong foundation. So, if you look at the company it looks like a very different company than just two years ago. We have a very much different cost structure in terms of vendors, we have reduced the vendor cost significantly millions of millions of dollars. In terms of our headcounts, we have added significant revenue and then we have been able to keep a lid on our headcount. So we are able to get a lot of operating leverage out of people that we have and see this now. So we’re kind of taking time -- some things around the edges that we haven't had a chance to in the past two years. We commissioned a fairly extensive marketing branding study in Q2 for example and that was something we needed to do, we wanted to do that when we had a good order and when it was fit to quarter -- I called them shovel-ready projects where we can get them done if we see the revenue coming in and the cost structure can support it.
So we have a Shovel Ready Projects still going. I think that again we’re poised for margin expansion, we’re fully staffed in terms of FTEs, it just took a couple of years to really get the right people into the right teams, for example in technology and editorials. So we’re pretty fully staffed and so we don’t feel like we need to do more hiring necessarily. So yes, I mean I think that I think we have a very stable cost structure at this point and then we really should see about 90% of the incremental revenue go to the bottom-line.
John do you have anything to add there?
No I think that’s fine.
Kara Anderson – B. Riley & Co
Do you anticipate any promotional introductory spending in the pipeline here shortly?
Yes, I mean we’re committed to sponsoring Nightly Business Report in Q4 and that’s something we will always take a look at and we were able to spend a fair amount on paid search in Q1 of this year and we have had the dividends of that investment pay off in Q2 and Q3, so that’s -- we have another example of again, out of cycle investment that we made, we saw an opportunity to buy up -- Jim Cramer, he was around the launch of his new book and we made that investment in Q1 and again that helped us, helped generate our growth in newsletter subscription.
Was there something else you had in mind Kara?
Kara Anderson – B. Riley & Co
No, you hit it right on. When can we expect to see the average revenue per newsletter to begin to trend back up?
In the next two quarters we think that as long as our growth is what we have seen in the past. Don’t forget these new introductory prices came out about a year ago, so we’re getting to the first cycle of renewals and so we expect that to level off. You see sequentially it was down less than 1%, so we’re approaching that level in the next quarter too.
Yes let me just remind you that these new lower priced you can call them gateways, you can call them front end newsletters and that’s why spend so much time on the call. It's a very, very, very good thing because it's a way to introduce people to TheStreet to our brand, to our challenge and there is a large cohort of people who aren’t ready to jump into off the deep end and go into an introductory price of $200 a year and then get moved up to $400 a year. These $50 products are things a lot of our competitors have and they are extremely successful, first of all adoption was fantastic. They just blew off the shelves. Secondly, the ability to convert these new subscribers who are the new to TheStreet who has not subscriber to us before to one of our higher end products is bearing a fair amount of fruit. So the renewal rates are good and also the availability to upsell. So particularly from Quant Ratings is very good. So this is a very good thing, the question, is the mix now stable. I think that might be what you were asking and I mean I think it looks pretty stable.
Yes, so we don’t see the drop in ARPU as any kind of issue at all, as long as our total revenues are growing and the number of subscriptions are growing.
And the bookings are growing, so you can see and again this is why I addressed this. You can see all the positives that have come out being able to have -- again develop a product that is right for the sort of novice investor and at a price point that makes it easy for them to get involved with our products.
Kara Anderson – B. Riley & Co
And then last question, I know you touched on sort of being fully staffed but is there any point at which the capacity for subscriber’s peaks and you will need to invest in infrastructure or staff to support the business?
We have so much operating -- we could double and not change our technology platforms or our accounting platforms. I mean John would you be comfortable with that?
There is a significant amount of growth that this cost structure could support -- both the subscription and the media side. So if we were a buyer company for example we would be able to absorb that very nicely and that is one of the reasons we do look at subscription products in terms of our M&A is because we see a consolidation being very accretive on the cost side not to mention the revenue accretion.
Well thank you everyone. I think we have got a great opportunity in front of us and I think we have done a good job executing the last several months. So we’re going to keep at it and I look forward to addressing you again in 90 days to report on Q3. So, thanks everyone and have a good evening.
Ladies and gentlemen that does conclude the conference for today. Again thank you for your participation. You may all disconnect, have a good day.
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