Direct Insite Corp. (DIRI) Q4 2015 Results Earnings Conference Call March 24, 2016 11:00 AM ET
Lowell Rush - Chief Financial Officer
Matthew Oakes - Chairman and CEO
Tom Shaughnessy - SecretCaps
Greetings and welcome to the Direct Insite Corp. Fourth Quarter 2015 Earnings 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.
I will begin by introducing Lowell Rush, Chief Financial Officer for the Company, for a brief legal disclaimer, after which it will be my pleasure to introduce your host, Matthew Oakes, Chairman of the Board and Chief Executive Officer for the Company. Thank you. Mr. Rush, you may begin.
Thank you, Adam. And good morning.
Prior to reviewing this quarterly result, I will begin with a legal disclaimer and Safe Harbor statement. All material contained in this webcast is the sole property and copyright of Direct Insite Corp. with all rights reserved.
Certain statements which are not historical fact, may be considered forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements regarding future business results, future sales and profitability, customer demand, and industry and economic conditions. Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements. These factors are set forth in our press release dated March 22, 2016, and are further described in our SEC filings included in our annual report on Form 10-K for the year ended December 31, 2015. Listeners are cautioned not to place undue reliance on these forward-looking statements.
The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events. Listeners who do not have a copy of our fourth quarter 2015 earnings press release may view this on our website at www.directinsite.com.
Thank you, Mr. Rush. At this time, it is now my pleasure to introduce the Company’s Chairman and Chief Executive Officer, Matthew Oakes. Thank you, Mr. Oakes. You may begin.
Thank you, Adam. Good afternoon, everyone to all our shareholders and interested parties, to our fourth quarter 2015 earnings call.
During this call, we will cover the following about the Company, our product offerings and the customers we serve, our direct sales -- channel sales strategy and pricing methodology and our financial results for Q4 of 2015, four key items on the state of our business, and then we’ll answer shareholders questions and management responses for those questions.
Let’s start with our product offerings and sales methodology. Direct Insite’s working capital management platform PAYBOX provides three distinct financial automation offerings. Number one, PAYBOX CORE is our accounts receivable offering for our corporate customers which assists in significantly reducing DSO and processing costs. It provides a secure invoice system to protect valuable invoicing and pricing information, and it is easy to implement and configure the specific business needs.
PAYBOX CORE process is efficient and straight forward and is being sold by our sales team direct to corporate clients. A PAYBOX CORE client imports an open invoice file and the PAYBOX from any ERP system and utilizes the client based distribution instructions and our clients -- customers receive their invoices by a preferred distribution method whether it be email, print mail. It has a secure login portal when download and/or they can receive it via direct integration into a specific AP network. The payor then views the invoice, adjust it and approves the invoice inside PAYBOX.
Our current customer set for PAYBOX CORE includes the IBM Corporation Carlson Wagonlit Travel, Kraft Foods, Royal Dutch Shell and then Mondelez Food Corporation. PAYBOX integrated receivables is a process where they white label solution that we sell in the channel relationship to banks and financial institution partners to benefit their large corporate funds.
PAYBOX integrated builds upon our core products. And integrated functionalities include the ability to accept payments, channel feeds in the PAYBOX via ACH, lockbox, credit card and wires for processing. It also provides automated data extraction, verification, matching [ph] and reporting of remittance and payment information along with the invoice to provide a complete consolidated invoice file.
Our first financial institution utilizing PAYBOX integrated receivables is one of the largest global banks. And the platform is being utilized by one of their largest corporate enterprise customers, a leading consumer goods provider. PAYBOX for accounts payable automation suite of products were sold directly to corporate customers via a direct sales team as well. And the functionalities they include is Vendor Lynx Express for self registration and authentication into the PAYBOX safety portal by company vendors. The injection of vendor invoices via paper, e-mail, web form entry, spreadsheet uploads and/or direct integration from any AR system into PAYBOX AP. Workflow, approval and the schedule of payments of such vendor invoices and notification of the vendor that is going to approve for payment and also the payment base. [Ph]
Our current customer set for PAYBOX AP includes Siemens Corporation, Saint Gobain and BE Aerospace. Currently Direct Insite facilitates over $160 billion worth of business to business transactions between more than 375,000 companies. The transactions we process have an average invoice value of over $22,000. PAYBOX CORE, integrated and AP are all web-based financial automation tools provided in the secure SaaS hosted environment that is ISO 9001:2008, Payment Card Industry, SSAE 16 and HIPAA compliant. Those transactions, all of our customers’ financial information, and our three hosted platforms in customer assistance are located in the secured Tier 4 data centers of our partner Verizon Terremark, in both Miami, Florida and Amsterdam in the Netherlands.
Our pricing information and methodology is very straight forward. It combines a subscription and transaction based model and is usage based. We also provide professional services in association with the boarding of our clients on to our platforms. However, our business objective is to obtain and grow recurring revenue streams in our ongoing support or OGS -- ongoing customer support. Currently, recurring revenues or OGS are in excess of 84% of our current total revenue.
At this time, I will turn the call back over to Mr. Rush, who will review the Company’s financial results. And then following his prepared remarks, there will be a question-and-answer session, and additional comments from myself on the direction of the business. Lowell?
Thank you, Matthew. I will now begin with the review of our financial results for the three months ended December 31, 2015.
Total revenue for the quarter ended December 31, 2015, was $1,962,000, a decrease of $164,000, or 7.7%, from the same period in 2014. Our ongoing services or recurring revenue for the quarter ended December 31, 2015, was $1,659,000, an increase of $16,000, or 1%, from the three months ended December 31, 2014. The year-over-year increase was primarily due to a full quarter of operations of the PAYBOX integrated receivables solution that was launched in November of 2014.
Professional services or non-recurring revenue for the three months ended December 31, 2015, was $303,000, a decrease of $180,000, or 37.3%, from the comparable prior-year period due to the non-recurrence of certain large prior-year customer requested modifications, partially offset by higher scanning fees.
Total operating costs and expenses were $1,745,000 for the quarter ended December 31, 2015, a decrease of $319,000, or 15.5%, from the quarter ended December 31, 2014. The cost reduction was due to various cost-cutting measures, specifically in compensation expense and professional feel which were partially offset by higher scanning charges. Net income therefore for the three months ended December 31, 2015, was $216,000, compared with last net income of $51,000 in the fourth quarter of 2014 due to the expense reduction previously noted.
Basic and diluted income per share for the three months ended December 31, 2015, was $0.01, compared to zero in the comparable prior period. Non-cash expenses for the quarter included $69,000 of depreciation and amortization. So, earnings before interest, taxes, depreciation, and amortization or EBITDA for the three months ended December 31, 2015 was $286,000. Stock and option expense was $64,000, providing an adjusted EBITDA of $350,000.
Now, I will discuss financial results for the year ended December 31, 2015. Total revenue for the year ended December 31, 2015 was $8,011,000, a decrease of $284,000, or 3.4%, from the year ended December 31, 2014. Ongoing services or recurring revenue for the year ended December 31, 2015 was $6,745,000, an increase of $230,000 or 3.5% from last year’s recurring revenue. Once again -- excuse me. That year-over-year gain was primarily due to the November 2014 launch of the PAYBOX integrated receivables solutions.
Non-recurring or professional services revenue for the year ended December 31, 2015 was $1,266,000, a decline of $514,000 or 28.9% from the comparable prior year period due to the non-recurrence of large prior year customer requested modifications, partially offset by higher scanning fees.
Total operating costs and expenses for the year ended December 31, 2015, were $7,416,000, a decrease of $755,000, or 9.2%, from $8,171,000 for the year ended December 31, 2014. This decrease in total operating costs and expenses was primarily due to lower salary expense, resulting from reduced headcount and a decrease in subcontractor usage, partially offset by higher cloud license and service costs and scanning charges. Therefore, net income for the year ended December 31, 2015 was $568,000, as compared with net income of $106,000 last year. The year-over-year increase reflects the cost savings, just noted, partially offset by the revolver revenue.
Basic and diluted income per share for the year ended December 31, 2015, was $0.04, up from $0.01 in the comparable prior period. Earnings before interest, taxes, depreciation, and amortization for the year ended December 31, 2015, was $884,000 compared with last year’s $451,000. Stock and option expense was $243,000, providing an adjusted EBITDA for the year 2015 of $1,127,000.
Our cash balance at December 31, 2015 was $2,375,000, an increase of $1,504,000 from cash of $871,000 at December 31, 2014. Much of this higher cash balance resulted from a $963,000 decrease in accounts receivable to $1,444,000 at December 31, 2015 from $2,407,000 at the prior year-end. Accounts payable and accrued expenses at December 31, 2015, were $1,468,000, a decrease of $321,000 from accounts payable and accrued liability of $1,789,000 at December 31, 2014. Our working capital at December 31, 2015, was $2,708,000, an increase of $959,000 from working capital of $1,749,000 at December 31, 2014.
For the year ended December 31, 2015, cash of $1,732,000 was provided from operations, while cash of $203,000 was used in investing activities due to the capitalization of internally developed software.
At this point, I will turn it back to our Chairman and CEO. Matthew?
Thank you, Lowell, very much.
So, let me go ahead and speak the four points on the state of the business. So, financially from a cost and expenses management standpoint, we had a successful 2015. We obviously built our cash up. We accomplished a lot on the PAYBOX platform development. And including the initiating of the global upgrade of our largest customer, IBM, which we think we’ll complete in 2016, and that should yield extension of our existing contract.
So, we upgraded the PAYBOX platform. We saw there were opportunities to invest. We obviously built the sales organization, which we think is really starting to turn the corner on the pipeline. And so, we have a lot of new opportunities and we intend to go ahead and close it and get after it.
Number two, probably a lot of focus on this call, the contract loss of our HP customer, which is significant and we’re really taking steps to mitigate the impact. However, we’re continuing to invest in revenue growth areas and look forward to be more focused in intensity. And we have great core team. And I think we’ve overcome the shock of that loss. And we’ll move forward and we’ll build back the revenue that we lost in that contract departure.
Number three, when I consider the three offerings and what we think the revenue impact they can have on the business, it really aligns with where our marketing and sales investments have been headed and will be allocated. So, the directionally, we are committed to the areas of opportunity, and it’s really a matter of sales execution and balancing out.
Number four, I think there’s been a close shift in the market. Accounts payable automation is really dominating the pipeline from an opportunity standpoint with our direct sales team. And we’re exploring our options to vertically expand our offerings, potentially adding some software, and some other items that will help us go ahead and meet that opportunity. And in our bank channel, our strategy remains steady and growing with our existing base partnership. And we have quite a few new opportunities that we’re trying to work to close, but it’s certainly slower than the rate of pace we anticipated from our original product feedback that we’ve got over a year and a half ago at show [ph].
So, those are really just four few drivers that probably people want to talk about. And at this time, I’ll be glad to conclude our prepared comments and I can open up the call for any questions and hopefully provide good answers for our shareholders.
Thank you, Matthew. [Operator Instructions] Our first question comes from the line of Tom Shaughnessy from SecretCaps. Please go ahead with your question.
I’ve got a quick question on the strategy moving forward. So, let’s switch a over the past year, I mean focusing on AP side and your sales structure changed a little bit. Can you expand on that for us; why the change is and moving forward?
Yes. And thank you for the call and the questions. So, the marketplace in last year, and we’ve really seen this internally with our AP processing, at the large enterprise level, customers are going to send their invoices or send that secure e-mail link out to have the customers come download it because there’s security concerns with pricing and everything else. But anything short of maybe the really large customers that we serve, a lot of those clients are moving to migrate -- they’re migrating really to just emailing their invoices. And we see that on the AP side, where for a couple of our clients inbound email invoices dominate how those invoices are being transmitted. And I thought this would happen. I didn’t realize the e-mail would be the transition set, as quickly as it is, but it’s honestly really, really taking over. And certain clients -- and we see that on the AP side.
So, we’re processing a high volume of inbound or what we would call, electronic invoices but it’s through the email process. So, I think that some of the really large clients like IBM and these other big, big companies are not going to do that obviously. So, they’re still going to send them via portal with the email and with the link.
I think it creates an opportunity and that’s may be why AP is coming a little more sharply into focus, because with all those inbound emails, that’s not traditionally the paper scan method that customers are using there to process. So now, they’re basically putting that email out and then they’ve got right back through same process. So, there’s some capture technology. But a lot of scanning partners have or upgrading to, would also create a what I’d consider to be a skip step for us on the AP side, to go ahead and take that inbound email and really just have scan -- capture just off with the paper. So I think that piece of account which I thought would happen but not as quickly it has and it’s been impactful. And it’s an opportunity for us, or a little strong opportunity.
The second thing is on the bank side with very large clients, processing EDI and those invoices, the PAYBOX CORE product with the integrated receivables still apply. [Ph] So, we’re still seeing a steady migration of our existing bank client over the customer number two. We’re in the middle of that customer number two that we’ve talked about prior and we now have a pipeline that we’re presenting in close arm [ph] with them and hopefully we’ll have customer on the trigger before long. And then there’s other bank opportunities that we’re actually meeting with and we’re discussing requirements. And so, we’re further down on the path and we’re in conversations. But banking as well is a long sales cycle. And I know everybody have heard that story before but it’s just the fact. And we’re doing everything we can from a product side to go ahead and meet those requirements with relationship. But we still think that there’s a lot of decent value in that bank channel. What we’re seeing is really an opportunity on the AP side. I think part of it maybe because they’ve got a lot of inbound invoices and format that they haven’t certainly seen before and they also -- automation has taken over, right? If you’re starting to send emails via -- your invoices via an email, then what your AP partner is doing about the paper. So, I think there’s a little bit of heating in the market and it’s just really shifted from AP to -- AR on AP on the interest side, and that really dominates our pipeline. So that’s what we’re trying to conduct.
Just a follow-up for you. So, the bank customer, the second customer you just mentioned before, is there any updates on that and then…
Yes. We’re in process with them now.
And then the follow-up question is, does that bank offer the AP side of this or just the AR side?
So, banks are really trying to solve for AP now. And all of the banks that we’ve had discussions with, they either have the solutions; it’s probably not portal based or as robust as what we offer, so we’re having conversations about what they’re doing on the AP side. And I think we’re couple of steps ahead of where their existing processes are, not in all cases, some of them have already partnered but we look at that as not opportunity as well.
Is there any updates on the AR side, I mean any discussions, I think you can update us on that side moving forward or is it essentially where we were a quarter ago or…
You’re to referring to what we’re selling with AR or new customers or…
There is I think four in the pipeline of let’s say 20, there is four or five AR opportunities but the AP opportunities are moving faster.
You said 20 AR opportunities?
No, I said, of a pipeline, let’s say it would be 20; the AR opportunities probably three or four, top part of this. There’s really no defined method how to measures. But it seems like when the economy is challenged, people really focus on AP, which is counterintuitive. And then there is always some AR but like I said, if you’re shifting to email and think about this -- if you’re sending out 10,000 invoices a month and you can [indiscernible] and email those out, at least majority of them, it’s much less expensive than the cost of stamp and mailing it, right, and generating the paper. And so, it’s a much easier internal process to automate. However, it’s really hard on the other side if you’ve been struggling with paper then now start dealing with inbound email, unless you’re just going to print and then ship [ph] them out. So, I think AP, we’re probably positioned right to continue go after it. And I like the fact -- we do AP well. And BE Aerospace, Siemens and Saint Gobain are our clients, and we continue to see growth inside those clients. And we do see more real opportunity at this juncture right there after they purchase on the AP side.
Mr. Oakes, it appears that we have no further questions in queue at this time. I would like to turn the floor back over to you for any closing comments.
Great, thanks Adam. So, hopefully, the information provided here was good. [Ph] We closed 2015 keeping our eye on money and cumulative cash and obviously cutting expense where we could. We invested in the platform. I like where we are from the sales process standpoint. I like where we are from the product standpoint. I like the fact we’re getting a lot of market information that we didn’t have before, just allowing us to ahead, of course correct moving forward. I’m not at all satisfied where we are from a closing the pipeline standpoint. I think we’re doing everything we can internally, A, to have the right sales team and marketing message in place. And we’ve really ramped up the spend on the digital marketing and we’ll continue to see a lot of digital, not only press releases but as well communications that which I hope you’re copied on, if you’re not, we’ll open the email Lowell Rush, CFO and be placed on that.
We are focused -- we’re going to count on AP because that’s where a lot of the opportunity is right now and hopefully get some quick wins here. We really have eliminated the upfront non-recurring engineering charges as a big part of our go forward revenue. We’re really focused on OGS. And really at this point really don’t have any other update. I think as we move forward to this year, there will be some progress. Hopefully, we’ll make a lot of progress, not only with our existing bank client, but with additional bank clients. I think we’ll close some AP deals here hopefully in the near term and then we’re going to lead to that growth of recurring revenue which all of us look to have. In the same token, we’ll manage our cash and our expenses to the point that we don’t get ourselves in a buy.
So, I think we have a great team. I appreciate everyone’s interest, attendance on the call and questions. And I hope everyone has a very good Easter. Thank you very much.
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!