Q3 2019 Earnings Call

It is dead when you're a car can handle it for today's conference call. At this time, we are sending today's audience sometimes to be under way. Shortly thank you for your patience and please for me and on the line.

Good morning, and welcome to the energy and a third quarter 29 game earnings called News Conference is being recorded at this time I would like to trying to comfort zone.

Please go ahead and.

Thank you <unk>. Good morning, everyone. Thank you for joining us today are speakers today, Jack Apple Huh Chairman fee.

<unk>.

Operate O'connor ever see Ya.

Here from Jack first feel will provide perspective about the business and and Robert will follow up with a review of our results <unk>.

Take your question first let me clarify this forward looking statements that are made during the call. These statements are being made pursuant to the safe Harbor percussion stuff to private Securities Litigation Reform Act of 1995.

Well worth looking statements include without limitation any statement they may predict forecast indicate or imply feature result performance are cheap.

Statements are based on our management currents expectations assumptions and estimates and they're subject to a nonprofit risks answering machine, including without limitation that contract may be terminated by clients projected are committed vines of work may not materialized and hall or in part the primarily out.

<unk> shocks with our digital data solutions clients and the ability of these claims to reduce delayed or canceled projects. The likelihood of continued development of the market's particularly with emerging markets.

Services support continuing digital data solution segment revenue concentration in a limited number of clients our ability to replace projects that are completed cancelled or reduced our dependency on third party content providers and our jolie sackmann depressed market conditions change is an external.

Market factors, the ability and willingness of our clients and prospective clients to execute business plans, which give rise to requirements far surfaces.

<unk> integrating and deriving synergies from acquisitions joint ventures, as strategic investments potential undiscovered liabilities of companies in businesses that we may acquire potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire.

Changes in our business or growth strategy, the emergence of new or growing competitors potential effects on our results of operations from interruption interruptions and ER breaches of our information technology systems, and various other competitive and technological factors and the other risks and uncertainty.

Educated from time to time in our filings with the Securities and Exchange Commission, including our most recent reports on form 10, K. 10, Q. and eight k. and any amendments there too.

Your take no obligation to update forward looking information or to announce revisions to any forward looking statements, except as required by the federal secure these laws an actual results could differ materially from our current expectations. Thank you I will now turn the qual over to Jack.

Good morning, everybody.

It it 30 plus years of history, providing high quality data for some of the world's largest and most demanding companies.

And over the past couple of years, we've been harnessing.

Learning capabilities.

The a.

M.L. Revolution that is transforming every company and every industry is still in its first or second dinning.

Exponential and accelerating grow he's expected.

Our history of expertise in managing cure reading and securely processing large amounts of data and harnessing a.

Position to us ideally to take advantage of the secular trend.

If you take a look at the new in the data website, we launched last Friday.

Didn't idea of how our core capabilities combined with the A.I. work, we've been doing have enabled us to refresher offerings in order to <unk>.

Quite a markets that are fast growing and expecting to be worth multiple billions of dollars within the next five years.

For the last two years, we've been on a path of transforming our business in order to become a leader in these fast growing markets. This journey began with us, creating a I based solutions for our own a turtle use.

And our success here enabled us to remove several million dollars of costs of manual human labor management, an infrastructure, while at the same time, improving the quality of our offers.

Our success with developing these capabilities and so now naval dusted package them solutions that we can take to a wider range of industries and applications.

And we are seeing an excellent response from the marketplace.

Wave example, we are on track to close this year over a million dollars of opportunities for the new services listed on our website with companies that are outside our traditional publishing sector.

In 2008.

And only nine new clients from outside our traditional publishing sector button just the last two months alone we have put in place pilots and pipe one with a multiple of that.

We're either and pilot or discussing pilots with financial services companies healthcare companies media conglomerates and others as well.

Our marketing team, which we expected significantly this year in order to power R. transformations.

Hitting it stride.

<unk>, we've driven close to 10000 warmed leaves with a variety of marketing programs across our segments.

To illustrate the creativity and breath of our marketing team. This past quarter re ran a 17 session virtual summit delivered by 25 internal and external experts sharing insights with customer prospects.

Hello resulted in 1700, registrants and 900 and warm leagues.

The market response, we are getting has given us the confidence to increase our core D.D.S. sales function head count by 100% and the last quarter.

And to be including in our 2020 budget further sales head count increases across her segments.

In the third quarter, we announce to 2 million dollar authorize share buyback program. So far we have spent $544000 of our authorization buying 424 775 shares of our stock.

Had an average price of $1.28.

We continue to see our stock as an exceptional value and we intend to continue the buyback initiative.

Robl walk you through the corridors numbers and then we'll take your questions as a highlight are adjusted increased by 163% sequentially from the second quarter to third quarter, and we expect to see a further increase in the fourth quarter.

<unk>.

I see Jack good morning, everyone as Jack said or excited about the transformation, we moved diving and we look forward to.

Sharing with you and our next call some more detail around Abu B. driving growth and the metrics, we will use to track yeah progress.

I'll just share some third quarter highlights.

Revenue increase by approximately $200000 gross margins improved quarter to quarter from 30% to 35%.

As a result to continue efficiency improvements.

Are adjusted EBITDA, I was $914000 into third quarter compared to $350000 in the second quarter.

After deducting tax expenses in minority interest or net loss and the third quarter was $550000 compared to a net loss of $650000 in the second quarter of 2019.

Our cash and investment balances with 13.2 million in the third quarter, approximately 1 million higher than the second quarter or day sales outstanding and Q3 was 62 days essentially no change from the second quarter.

<unk> was $600000 this quarter.

Thank you operate it will ready to take questions about.

Thank you.

You mean signal by pressing star one on your telephone keypad, if you're using a speaker phone p. make sure you meet function is turned off.

Through each or equipment.

Star willing to ask a question.

Momentarily to know everyone opportunity to signal for questions.

Mm.

We'll be getting them with Tim Clarkson from Van Clemens. Please go ahead.

Hi, guys I'm just wanted to ask.

Are you know.

My clients are curious you know they you know they care about IB and they care about other companies their players and artificial intelligence and their skeptical you know how little company like in a data would have any expertise and artificial intelligence. So what are the what are the.

The skill sets that in a data has that it makes you believe that weaken or make some money in this area.

Oh, it's Jim great questions, Thanks to that [noise].

So.

A couple of things there first of all you know we are.

Talking to many of the large players and artificial intelligence about working with that there are channel partnership opportunities, we have because we do different things.

If you take a look at our new website, where you'll see is we do several things you know with artificial intelligence, starting with helping people build their AI models. So there are people who are building AI models, they need to train those models and what they need is a combination of AI.

Human expertise and a secure data infrastructure in which to do that we bring all of that to the table.

In addition to that and on top of that we're looking you data transformation data curations and when we when we're performing data transformation data curations for people, we're using the AI models that we've built oftentimes working.

With the frameworks that are produced by some of the very large companies.

Their models that we built and that we've engineered we maintain and we manage that turn documents that people now read into data that computers can read.

We are helping to cure rate data.

Master data that's at the core of companies success.

Like CRM data.

That again works with the combination of our trained experts and our robust trained AI models. So.

Within the ecosystem and there are people that produce maps showing have this ecosystem is emerging.

There is there is most certainly a play for US we're seeing lots of pipeline opportunity as I just said in my.

Prepared remarks.

And it's a large and fast growing ecosystem.

Products and services is expected to be $180 billion by 2024.

And we think there's absolutely a play for us within that ecosystem.

Okay.

Now I know you've got some contracts specifically with these life insurance companies how are those contracts going.

Going very well.

What were.

You have there been a few developments in there.

Two of the three largest life insurers in the quarter have increased their their business with us and we plan to ramp up into that beginning late in the third quarter and into the fourth quarter.

And the third of the three largest life insurers is exploring working with us now.

Apart from that we see another.

Related segment that could also benefit from our services and were in co development with two of their largest.

To the largest companies in that related segment to begin working with them as well so excellent progress there.

I know I know that you had on your website that you're doing some work and data annotation.

And your three different customer types of business that you showed.

How many different customers are we are working with right now in that area.

So a lot of the work that we've done historically is in fact, you know data annotation increasingly though what we're seeing is an opportunity to work for.

To provide data annotation surfaces to companies that are using the data not as part of their data product, but they are using the data.

In order to build models.

We're working with a good number of companies that are in that category and we're working across text video image and audio as well.

When do you expect to start seeing actual revenue increases.

Into that we'll see it in the actual quarterly results.

I think that we should be looking toward first quarter.

For that Yep.

Right now we talked before about.

You know sort of that $15 million to $16 million level, where you start to make some money and really show some growth I mean, it I mean is that a reasonable expectation the to hit obviously its or too early to guarantee anything.

So we're working on our 2020 budgets now, but we are targeting next year to be a growth year across all of our segments.

We think that growth is going to.

In large part by virtue of the fact that were.

We're using the AI capabilities that we've been building over the past couple of years and have deployed primarily internally and we're now turning goes into externally facing product offerings and service offerings that go to a much larger addressable market.

The inhibiting factor that Weve.

Really always had is a fairly circumscribed addressable market.

And what this transformation with this pivot enables us to do is to broaden that play very significantly and to perform a function within this market. That's.

Very very much in demand.

Now I noticed in the quarter that agility had a nice sales growth I mean do you expect that to continue.

We do.

It should be doing real well, we're forecasting growth in the fourth quarter, we're going to force forecast growth.

In the business continually through next year.

And that growth is being fed by two things principally first retention.

Our overall net retention continues to improve.

Improve it was over 90% this year, which is exactly where we want this past quarter, which is where we wanted to be.

On top of that were.

We're seeing very significant improvements in terms of lead flow everything from web traffic.

Which was two times this year than it was last year.

To lead flow from marketing qualified leads turning into sales qualified leads and improvements in bookings that follow that.

So we're looking at is really being in a position to to have all that plumbing in place and to start accelerating growth through next year now what what would you say is your differentiating characteristics of that business that allows you to compete with the bigger guys that you're competing one.

Well, what I look to have opinions about that but when I look to is what the market's telling us.

We're now ranked the number one easy to use media and Influencer targeting platform.

The World and we are considered to be Amir. This is the analysts talking were considered to be the momentum leader.

Based not only on growth, but also on customer satisfaction ratings. So there's some things that we do in order to achieve that but thats market, telling us that.

We may be small now, but we've got an opportunity to capture.

The share of this very large market.

Now I know seasonally fourth quarter has always been one of your better quarters I mean, it's shaping up the same way this time.

Yes, I think we're going to have a good fourth quarter.

Barriers.

In each of the businesses were seeing opportunities for growth and for expansion.

But.

A lot of what we're going to do with this transformation is we're going to.

Fine less satisfaction and $100000 here in their of growth and we're going to be look.

To driving much more substantial growth over longer periods of time.

All right now are the are the size of the deals.

That you're seeing in AI are they bigger than your historical legacy market.

So it depends legacy market has always been characterized by lots of small deals and occasionally a very large one coming along.

I think that we're going to you to the deals that we're now looking at our larger than our small deals.

I don't know, whether we're going to see deals that are comparable to our larger deals, which we've had maybe two or three over the last decade.

That remains to be seen but I'm looking for.

$100000 to $300000 as a sweet spot if we can collect a lot of those were going to be in great shape.

And one last question I mean.

What what kind of percentage of business do you think is.

Repeatable business versus project right now.

In terms of the business right now were as we look forward.

Now, while both I guess.

You have the recurring.

Number right now well Rob that number for you all have for June one point ill talk about going forward.

I think.

The what we're seeing in terms of data annotation is that there is a continuing need it's not a onetime event.

To to build a model whether that's a text analytics model a video model autonomous driving chat bots whatever it is theres initial training, but then there is maintenance that's critically important in terms of maintaining that model as a high performing model.

So we are seeing recurring revenue opportunities. There we were in positioning our data transformation offering is absolutely a recurring revenue play.

We see that is an embedded functionality that's why.

Apiay driven that will enable us to continually process text and turn it into machine.

Processable data.

So we're very focused on recurring revenue we recognized how critical that is and we think that the new product service architecture is going to enable us to drive effort.

One last question, then I promise I've done.

So can you give me an example of how you'd be working with.

A customer you, obviously don't give the name, but where that would save them money and how it would save them money.

Sure. So if you look at.

I see our offerings in terms of intelligent automation as well as data transformation. What people are looking to do is reinvent knowledge intensive processes.

So really what we're able to do there is we're able to share with our customers those things that we've learned over the past couple of years integrating AI, which is how does AI work with people, how do you hybridize machines and chairman's.

How do you use AI not to replace people, but to augment them.

And we've learned an awful lot, we we learn from our mistakes and we learned from our successes and we've built that into our platform and we're now able to present that as a capability to our customer base right. Why why don't you wanted to this explain I mean, we talk to.

When I talk with the agility president and about.

The savings in costs and the improvement in quality and off you remember that conversation, but I'm sure you do though what you were able to do it at agility.

Sure so.

In the agility business.

We've got a few assets that were working with one of the assets is weve curated a database of.

Global Influencers and journalists.

And the fact that thats databases tremendously high quality and tremendously.

Addressable meaning that is.

Someone has a particular message that they're looking to amplify into the world as a marketing initiative.

Our database enables them to very discreetly isolate the people that are most likely to be interested in that message and the most likely to to amplify that message in both social media and traditional media.

Mhm.

And what people are finding is that the return on that effort. The return on that investment is much higher than sending out a generic wire that may or may not be read.

Sure sure I know you also mentioned roll simply that they're able to cut their workforce in happened and actually improve the how fast they could respond to the two queries too.

Well that's right so.

There are few things that are going on and this really is true across our businesses.

People are looking to take processes that had been labor intensive that had been slow an arduous and they're looking to to move those into being able to respond and as close to real time as possible.

And.

What are the impediments to that one of the impediments in still in many workflows is that you take you need people, who have expertise to read and to process textual data.

A lot of the work, we're now doing in Dayton transformation and intelligent automation and then by extension also.

Annotating other people's data for their own models.

A lot of that work is geared to making business is digital enabling them to deliver the promise of digital transformation, which includes lower operational costs, but also very very quick response time to customers and very quick response time to changing market conditions.

All right.

Okay I'm done thanks.

Thanks.

Thank you.

Hi, good if you'd like to ask a question. It's our one that's darwen on your telephone.

And as a final call for questions Star one.

Okay as Weve no further questions at this time.

Thanks, Operator, I'll just quickly add a couple of concluding thoughts then.

In our fourth quarter call.

I will share with you our goals for 2020 and the metrics, we will use to track our progress.

As you know the operating leverage in our business allows us to translate 60% or more of incremental growth for our bottom line.

The increase in our Salesforce and our ability now to target large fast growing markets is central to our goal of showing accelerating revenue growth in our business next year.

And in addition to driving growth, we intend to continue to drive operating efficiency as well and we will be prudent stewards of our capital.

Most of our agility and Synodex businesses have inflected and are expected to be EBITDA positive in the fourth quarter contributing to what is likely to be another sequential increase in EBITDA in the fourth quarter.

And we're at an exciting time and our board our management and our team members are tremendously enthusiastic about our prospects and the new opportunities. We're seeing as result of our new initiatives. Thank you everybody look forward to being with you next time.

Today's conference is had been available for replay from two P.M. eastern today to November 7th straight to 19 at two P.M. Eastern you May access the recording my John extended 194.7 theater late two zero, our one ace 20311 to using passcode three nine 703.

Kevin Thanks, again to numbers are 7194 or five seven year late two zero our 188.

1112.

Three 970 376.

Today's conference you may now disconnect.