Q2 2024 Intellinetics Inc Earnings Call

August 13, 2024

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Operator: Greetings and welcome to the Intellinetics second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: Thomas Baumann, James DeSocio, Joseph Spain, Thomas Thanks for watching, and don't forget to like, share, and subscribe to our channel.. .. .. .. .. .. Thomas Baumann, James DeSocio, Joseph Spain, James DeSocio, James DeSocio, James DeSocio, Thomas Relations, Intellinetics Thomas Baumann, James DeSocio, Joseph Spain, [inaudible] Thomas Baumann, James DeSocio, Joseph Spain, [inaudible] Greetings, and welcome to the Intellinetics second quarter 2024 earnings call. At this time, all participants are in a listen-only mode.

Speaker Change: Greetings and welcome to the Intellinetics second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow a formal presentation.

Operator: If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Tom Baumann, Investor Relations. Thank you, Tom. You may begin. Thank you. Good afternoon, everyone.

Operator: A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded.

Tom Bowman: I would now like to turn the call over to Tom Bowman, investor relations.

Speaker Change: As a reminder, this call is being recorded. I would now like to turn the call over to Tom Baumann, Investor Relations. Thank you, Tom.

Tom Bowman: Thank you, Tom.

Tom Bowman: You may begin. Thank you.

Tom Baumann: I am pleased to welcome you to Intellinetics' 2024 second quarter conference call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward-looking statements regarding Intellinetics. They are not historical facts.

Jim DeSocio: Good afternoon, everyone. I am pleased you welcome to Intellinetics 2024 second quarter conference call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward-looking statements regarding Intellinetics. There are not historical facts. These forward-looking statements are based on the current expectations and beliefs of management. And they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Intellinetics undertakes no duty to update any forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release issued today, as well as the risks and uncertainties included in the section under the caption, Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations in Intellinetics and a report on Form 10-K or the quarterly report on Form 10-Q filed today.

Speaker Change: Thank you. Good afternoon everyone.

Speaker Change: I am pleased to welcome you to IntelliMedx's 2024 second quarter conference call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward-looking statements regarding IntelliMedx. They are not historical facts.

Tom Baumann: These forward-looking statements are based on the current expectations and beliefs of managers, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Intellinetics undertakes no duty to update any forward-looking statement. For more information about factors that may cause actual results to differ materially from forward-looking statements, please visit our website. Please refer to the press release issued today, as well as the risks of uncertainty, included in the section under the caption, Risk Factors and Management Discussion and Analysis, Financial Conditions, and Results of Operations, and a report on Form 10-K or the quarterly report on Form 10-Q filed today.

Speaker Change: These forward-looking statements are based on the current expectations and beliefs of management, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results.

Speaker Change: Intellinex undertakes no duty to update any forward-looking statements.

Speaker Change: For more information about factors that may cause actual results to differ maturely from forward-looking statements, please refer to the press release issued today, as well as the risks and uncertainties included in this section under the caption, Risk Factors and Management's Discussion and Analysis.

Speaker Change: of Financial Conditions and Results of Operations in Intellinx in a report on Form 10-K or the quarterly report on Form 10-Q filed today.

Jim DeSocio: Also, please note that on the call today, management will discuss non-GAAP financial measures such as adjusted EBITDA and recurring revenue. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today.

Tom Baumann: Also, please note that on the call today, management will discuss non-GAAP financial measures such as adjusted EBITDA and recurring revenue. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies.

Speaker Change: Also, please note that on the call today, the management will discuss non-GAAP financial measures such as adjusted EBITDA and recurring revenue.

Speaker Change: Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies.

Jim DeSocio: A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today. With all that said, I would now like to turn the call over to Jim DeSocio, Intellinetics President and CEO. Jim, the call is yours.

Tom Baumann: A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today. With all that said, I would now like to turn the call over to Jim DeSocio, Intellinetics President and CEO. Jim, the call is yours.

Jim DeSocio: With all that said, I would now like to turn the call over to Jim DeSosio, Intellinetics President and CEO, Jim DeSosio. Jim DeSosio is yours. Thank you, Tom. Intellinetics continues to generate solid financial results. While taking these steps to enable accelerated top and bottom line growth in the future, we deliver growth in SaaS and overall recurring revenue in line with our stated strategy. We also generated continued profitability even as we begin to invest significantly in sales and marketing to support a broader SaaS initiative. Yellowfolder continues to grow, and response to our new IntelliCloud Pables Automation Solution or IPAS offering has been highly encouraging, with deployments accelerating.

Jim DeSocio: Thank you, Tom, and Intellinetics continues to generate solid financial results while taking these steps to enable accelerated top and bottom line growth in the future. We delivered growth in SAS and overall recurring revenue in line with our stated strategy. We also generated continued profitability even as we began to invest significantly in sales and marketing to support a broader SaaS initiative. Yellow Folder continues to grow in response to our new IntelliCloud payables automation solution, or the iPad. The offering has been highly encouraging, with deployments accelerating.

Jim DeSocio: Thank you, Tom. Intellinetics continues to generate solid financial results.

Speaker Change: While taking these steps to enable accelerated top and bottom line growth in the future, we delivered growth in SAS and overall recurring revenue in line with our stated strategy.

Speaker Change: We also generated continued profitability even as we began to invest significantly in sales and marketing to support a broader SaaS initiative.

Speaker Change: Yellow Folder continues to grow and the response to our new IntelliCloud Payables Automation Solution, or iPaaS,

Jim DeSocio: We generated significant cash and continued to pay down debt. The pieces are in place for continued success for years to come. This progress comes even as our new SaaS offering, IPAS. I just started contributing to our results. As I said, the response to IPAS has been very strong. Our pipeline of opportunities for IPAS is improving in terms of quality and quantity with each passing month. The man for Yellowfolder solutions is also growing. And overall, Intellinetics is well positioned across all our SaaS offers. as we have been communicating, we have been investing to scale our business and we are now pointing to accelerate our investment in marketing our SaaS offerings.

Jim DeSocio: We generated significant cash and continue to pay down debt. The pieces are in place for continued success for years to come. This progress comes even as our newest SaaS offering, iPad, has just started contributing to our results. As I said, the response to I-PASS has been very strong.

Speaker Change: offering has been highly encouraging with deployments accelerating.

Speaker Change: We generated significant cash and continue to pay down debt. The pieces are in place for continued success for years to come.

Speaker Change: This progress comes even as our newest SaaS offering, iPaaS.

Speaker Change: has just started contributing to our results.

Jim DeSocio: Our pipeline of opportunities for I-PASS is improving in terms of quality and quantity with each passing month. Demand for yellow folder solutions is also growing. And overall, Intellinetics is well-positioned across all our SaaS offerings. As we have been communicating, we have been investing to scale our business. And we are now planning to accelerate our investment in marketing our SaaS offering. These investments will support all of our SaaS offerings, including Yellow Folder and iPads. In the quarter, SAS revenue as a percentage of our consolidated revenue remained at 30%, even with a record contribution from our professional services business.

Speaker Change: As I said, the response to I-PASS has been very strong. Our pipeline of opportunities for I-PASS is improving in terms of quality and quantity.

Speaker Change: with each passing month. Demand for yellow folder solutions is also growing, and overall Intellinetics is well positioned across all our SaaS offerings.

Speaker Change: As we have been communicating, we have been investing to scale our business, and we are now planning to accelerate our investment in marketing our SaaS offerings. These investments will support all of our SaaS offerings, including Yellow Folder and iPaaS.

Jim DeSocio: These investments will support all of our SaaS offerings, including YellowFolder and IPASS. In the quarter, DAS revenue as a percentage of our consolidated revenue remained at 30%. Even with a record contribution from our Professional Services business. Once again, our goal is to make recurring revenue the majority of our total revenue, with as much contracted SaaS revenue as possible. This will reduce earnings volatility, make our business very easy to model, and benefit shareholders through consistent profitability. DAS businesses are, historically, quite profitable. We invested in 2022 to acquire Yellowfolder, as we are paying down the debt related to this acquisition, having already fully paid down the debt from the 2020 Graphic Sciences acquisition.

Speaker Change: In the quarter, SAS revenue as a percentage of our consolidated revenue remained at 30%, even with a record contribution from our professional services business.

Jim DeSocio: Once again, our goal is to make recurring revenue the majority of our total revenue, with as much contracted SAS revenue as possible. This will reduce earnings volatility, make our business very easy to model, and benefit shareholders through consistent profitability. Fast businesses are, historically, quite profitable.

Speaker Change: Once again, our goal is to make recurring revenue the majority of our total revenue with as much contracted SAS revenue as possible.

Speaker Change: This will reduce earnings volatility, make our business very easy to model, and benefit shareholders through consistent profitability.

Speaker Change: Fast businesses are, historically, quite profitable. We invested in 2022 to acquire Yellow Folder, as we are paying down the debt related to this acquisition, having already fully paid down the debt from the 2020 Graphic Sciences acquisition.

Jim DeSocio: We invested in 2022 to acquire Yellow Fold, as we are paying down the debt related to this acquisition, having already fully paid down the debt from the 2020 Graphic Sciences Acquisition. We launched I-PASS in 2023, and we are investing in capabilities to maximize the opportunity. Historically, our sales and marketing investments have been relatively modest.

Jim DeSocio: We launched IPASS in 2023, and we are investing in capabilities to maximize the opportunity. Historically, our sales and marketing investments have been relatively modest, but with the inclusion of IPASS into our portfolio, we have been meaningfully expanded our addressable market. The number of potential customers has increased significantly. This means we need to add skilled and capable salespeople, and we need to expand our presence at trade shows and similar events. For more specifics regarding sales personnel, we added one this March, planned for two more right now, before the end of the third quarter, and we want to have two more on board in January.

Speaker Change: We launched I-PASS in 2023, and we are investing in capabilities to maximize the opportunity.

Speaker Change: Historically, our sales and marketing investments have been relatively modest.

Jim DeSocio: But with the inclusion of I-PASS into our portfolio, we have meaningfully expanded our addressable market. The number of potential customers has increased significantly. This means we need to add skilled and capable salespeople, and we need to expand our presence at trade shows and similar events. For more specifics regarding sales personnel, we added one this March, plan for two more right now before the end of the third quarter, and we want to have two more on board in January.

Speaker Change: But with the inclusion of I-PASS into our portfolio, we have been meaningfully expanded our addressable market. The number of potential customers has increased significantly. This means we need to add skilled and capable salespeople.

Speaker Change: and we need to expand our presence at trade shows and similar events.

Speaker Change: For more specifics regarding sales personnel, we added one this March, plan for two more right now before the end of the third quarter, and we want to have two more on board in January.

Jim DeSocio: These investments will modestly, and we expect temporarily, we do start EBITDA, but they will pull forward revenue opportunities that should exceed the spend and be accretive at some point in 2025. Once revenue from IPASS exceeds these investments, incremental revenue will disproportionately drop to the bottom line. Additionally, this model will enable us to appropriately size fixed costs so that we are systemically profitable, creating a durable, sustainable, scalable platform for profitable growth. As I said, our IPASS solution has given us significant momentum. We have doubled the number of reference accounts from two to four during the second quarter.

Jim DeSocio: These investments will modestly, and we expect temporarily, reduce our EBITDA, but they will pull forward revenue opportunities that should exceed the spend and be accretive at some point in 2025. However, once revenue from I-PASS exceeds these investments, incremental revenue will disproportionately drop to the bottom line.

Speaker Change: These investments will modestly, and we expect temporarily, reduce our EBITDA, but they will pull forward revenue opportunities that should exceed the spend and be accretive at some point in 2025.

Speaker Change: Once revenue from I-PASS exceeds these investments, incremental revenue will disproportionately drop to the bottom line.

Jim DeSocio: Additionally, this model will enable us to appropriately size fixed costs so that we are systemically profitable, creating a durable, sustainable, scalable platform for profitable growth. As I said, our iPass solution has given us significant momentum. We have doubled the number of live reference accounts from two to four during the second quarter, and these accounts are all running smoothly.

Speaker Change: Additionally, this model will enable us to appropriately size fixed costs so that we are systemically profitable, creating a durable, sustainable, scalable platform for profitable growth.

Speaker Change: As I said,

Speaker Change: our I-PASS solution has given us significant momentum.

Speaker Change: We have doubled the number of live reference accounts from 2 to 4 during the second quarter.

Jim DeSocio: These accounts are all running smoothly. We have an additional three or four expected to go live in the third quarter, and our pipeline continues to grow. Again, this is with a pretty modest sales and marketing function. As we move through 2024, we anticipate IPASS becoming a larger and larger contributor to our consolidated revenue. Our K-12 operations now have 619 K-12 districts generating significant SaaS revenue, which more than doubles our presence in this vertical market since before we acquired Yellow Folder in April of 2022.

Jim DeSocio: We have an additional three or four expected to go live in the third quarter, and our pipeline continues to grow. Again, this is with a pretty modest sales and marketing function. As we move through 2024, we anticipate IPAS becoming a larger and larger contributor to our consolidated revenue. Our K-12 operations now have 619 K-12 districts generating significant revenue from the sale of student data, which more than doubles our presence in this vertical market since before we acquired Yellow Folder in April of 2022. Importantly, each of these districts is a target for additional Intellinetics services, including iPads.

Speaker Change: These accounts are all running smoothly. We have an additional three or four expected to go live in the third quarter, and our pipeline continues to grow. Again, this is with a pretty modest sales and marketing function.

Speaker Change: As we move through 2024, we anticipate IPAS becoming a larger and larger contributor to our consolidated revenue.

Speaker Change: Our K-12 operations now have 619 K-12 districts generating significant SAS revenue which more than doubles our presence in this vertical market since before we acquired Yellow Folder in April of 2022.

Jim DeSocio: International. Importantly, each of these districts is a target for additional and telenetics services, including IPAS. We are launching a K-12 IPAS pilot this week, as we speak, to address this opportunity. Meanwhile, the document conversion portion of our digital transformation business, including business process outsourcing, business and document storage, and retrieval, continues to generate a positive contribution margin. As a reminder, last quarter, we disclosed that our largest professional services customer plans to transition certain tasks performed by our document conversion business from one office location to another location in a way that could reduce annual revenue of our document conversion segment.

Speaker Change: Importantly, each of these districts is a target for additional and telemedic services, including I-PASS. We are launching a K-12 I-PASS pilot this week as we speak to address this opportunity.

Jim DeSocio: We are launching a K-12 I-PASS pilot this week as we speak to address this opportunity. Meanwhile, the document conversion portion of our digital transformation business, including business process outsourcing, business intelligence, and document storage and retrieval, continues to generate positive contribution margins. As a reminder, last quarter, we disclosed that our largest professional services customer plans to transition certain tasks performed by our document conversion business from one office location to another location in a way that could reduce annual revenue for our document conversion segment.

Speaker Change: Meanwhile, the document conversion portion of our digital transformation business, including business process outsourcing, business and document storage and retrieval, continues to generate positive contribution margin.

Speaker Change: As a reminder,

Speaker Change: Last quarter, we disclosed that our largest professional services customer plans to transition certain tasks performed by our document conversion business from one office location to another location in a way that could reduce annual revenue of our document conversion segment.

Jim DeSocio: The amount of the future revenue reduction is still uncertain, and their transition has been delayed by the customer with no clear timeframe. We are continuing to negotiate with the customer to mitigate the impact of this future revenue reduction. For Q2, I want to congratulate the entire Document Conversion team for delivering a record revenue quarter. We continue to work on initiatives to improve efficiencies and margins there, but our new investments in sales and marketing are focused on growing our recurring revenue, in particular, our SaaS subscription revenue.

Jim DeSocio: The amount of the future revenue reduction is still uncertain, and the transition has been delayed by the customer with no clear timeframe. We are continuing to negotiate with the customer to mitigate the impact of this future revenue reduction. For Q2, I want to congratulate the entire document conversion team for delivering a record revenue quarter. We continue to work on initiatives to improve efficiencies and margins there, but our new investments in sales and marketing are focused on growing our recurring revenue, in particular our SAS subscription revenue. At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain. Thanks, Jim.

Speaker Change: The amount of the future revenue reduction is still uncertain, and the transition has been delayed by the customer with no clear time frame.

Speaker Change: We are continuing to negotiate with the customer to mitigate the impact of this future revenue reduction.

Speaker Change: For Q2, I want to congratulate the entire document conversion team for delivering a record revenue quarter.

Speaker Change: We continue to work on initiatives to improve efficiencies and margins there, but our new investments in sales and marketing are focused on growing our recurring revenue, in particular, our SAS subscription revenue.

Joseph Spain: At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain. Thanks, Jim. I will now review our financial results for the second quarter of 2024, the period ending June 30, 2024, compared to the prior year, 23. Total revenue for the quarter increased 9% to 4.6 million as compared to 4.3 million for the same period last year. The following are the material components of our revenue. First, description software, which is comprised of SaaS, including hosting revenue and software maintenance services revenue, increased to 1.75 million for the quarter from 1.63 million for the same period last year.

Speaker Change: At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain.

Joe Spain: I will now review our financial results for the second quarter of 2024, the period ending June 30, 2024, compared to the prior year, 2020. Total revenue for the quarter increased 9% to $4.6 million, as compared to $4.3 million for the same period last year. The following are the material components of our revenue. First, subscription software, which is comprised of SAS, including hosting revenue, and software maintenance services revenue, increased to $1.75 million for the quarter from $1.63 million for the same period last year. SAS grew 9.6%, and, consistent with history and as expected, our software maintenance services are growing more slowly at 1.4% over 2020. Secondly, professional services.

Joe Spain: Thanks, Jim. I will now review our financial results for the second quarter of 2024, the period ending June 30, 2024, compared to the prior year, 2023.

Joe Spain: Total revenue for the quarter increased 9% to 4.6 million as compared to 4.3 million for the same period last year. The following are the material components of our revenue. First, subscription software.

Joe Spain: which is comprised of SAS, including hosting revenue, and software maintenance services revenue.

Speaker Change: increased to 1.75 million for the quarter from 1.63 million for the same period last year. SAS grew 9.6% and, consistent with history and as expected, our software maintenance services are growing more slowly at 1.4% over 2023.

Joseph Spain: SaaS grew 9.6%, and, consistent with history and, as expected, our software maintenance services are growing more slowly at 1.4% over 2023.

Joseph Spain: Secondly, professional services. Revenue increased 15.8% to 2.66 million from 2.3 million for the same period last year. As a percentage of total revenue, professional services revenue was 57% of total revenue for the quarter, up from 54% last year.

Joe Spain: Revenue increased 15.8% to $2.66 million from $2.3 million for the same period last year. As a percentage of total revenue, professional services revenue was 57% of total revenue for the quarter, up from 54% last year. Consolidated gross margin increased 387 basis points to 64.7% for Q2, compared to 60.8% last year. The increase was driven by both a better revenue mix, slightly weighted towards subscription revenue, plus higher-margin professional service projects, and also a positive impact from price increases. Operating expenses increased 23.4% to $2.8 million, compared to $2.3 million in Q2'23.

Speaker Change: Secondly, professional services. Revenue increased 15.8 percent to 2.66 million from 2.3 million for the same period last year.

Speaker Change: As a percentage of total revenue, professional services revenue was 57% of total revenue for the quarter, up from 54% last year.

Joseph Spain: Consolidated gross margin increased 387 basis points to 64.7% for Q2 compared to 60.8% last year. The increase was driven by both better revenue mix, better revenue mix, slightly weighted towards subscription revenue, plus higher margin professional service projects, and also positive impact from price increases.

Speaker Change: Consolidated gross margin increased 387 basis points to 64.7% for Q2 compared to 60.8% last year.

Speaker Change: The increase was driven by both better revenue mix, slightly weighted towards subscription revenue, plus higher margin professional service projects, and also positive impact from price increases.

Joseph Spain: Operating expenses increased 23.4% to 2.8 million, compared to 2.3 million in Q2, 23. The increase is largely due to the 0.5 million in non-cash stock-based compensation expense for restricted stock awards to employees, as well as investment in structure and scale.

Joe Spain: The increase is largely due to $0.5 million in non-cash, stock-based compensation expense for restricted stock awards to employees, as well as investments in structure and scale. As a subset of operating expenses, sales and marketing expenses for the quarter increased 7.7% compared to the same period in 2023. As Jim mentioned, we continue to invest in marketing and sales, and these prior-period comparatives will continue to shift as we increase our sales and marketing investment compared to historical levels.

Speaker Change: Operating expenses?

Speaker Change: increased 23.4% to 2.8 million compared to 2.3 million in Q2'23.

Speaker Change: The increase is largely due to the $0.5 million in non-cash, stock-based compensation expense for restricted stock awards to employees, as well as investments in structure and scale.

Joseph Spain: General. A subset of operating expenses, sales and marketing expenses for the quarter increased 7.7% compared to the same period in 2023. As Jim mentioned, we continue to invest in marketing sales, and these prior period comparatives will continue to shift as we increase the sales and marketing investment compared to historical levels. This includes the sales repetitions Jim talked about, plus increasing our trade show activity in 24, which is important to both our IPAS and K12 revenue acceleration.

Speaker Change: A subset of operating expenses, sales and marketing expenses for the quarter increased 7.7%.

Speaker Change: compared to the same period in 2023. As Jim mentioned, we continue to invest in marketing and sales, and these prior period comparatives will continue to shift as we increase the sales and marketing investment compared to historical levels.

Joe Spain: This includes the failed repetitions Jim talked about plus increasing our trade show activity in 24 hours, which is important to both our I-PASS and K-12 revenue acceleration. Net income for Q2 was $75,000, compared to net income of $136,000 for the same period last year. Earnings per share was $0.02 per share compared to earnings per share of $0.03.

Speaker Change: This includes the sales repetitions Jim talked about plus increasing our trade show activity in 24 which is important to both our I-PASS and K-12 revenue acceleration.

Joseph Spain: Net income for Q2 was 75,000 compared to net income of 136,000 for the same period last year. Earnings per share was 2 cents per share compared to earnings per share of 3 cents last year.

Speaker Change: Net income for Q2 was $75,000 compared to net income of $136,000 for the same period last year.

Speaker Change: Earnings per share was $0.02 per share compared to earnings per share of $0.03 last year.

Joseph Spain: Our adjusted EBITDA for the quarter was 698,000 compared to the adjusted EBITDA of 651,000 for the same period in 2023.

Joe Spain: Our adjusted EBITDA for the quarter was $698,000 compared to an adjusted EBITDA of $651,000 for the same period in 2023. Next, a brief overview of the balance sheet. As of June 30, 24, we had cash of $1.7 million and accounts receivable net of $1.4 million. Our total assets were $18.9 million, including $9.4 million in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were $8.5 million, including $2.8 million in deferred revenues, reflecting signed SAS and maintenance contracts, and $2.1 million in debt principal as of June 30.

Speaker Change: Our adjusted EBITDA for the quarter was $698,000 compared to an adjusted EBITDA of $651,000 for the same period in 2023.

Joseph Spain: Next, a brief overview of the balance sheet. At June 3024, we had cash of 1.7 million in accounts receivable, net of 1.4 million. Our total assets were 18.9 million, including 9.4 million in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were 8.5 million, including 2.8 million in deferred revenues, reflecting signed SaaS and maintenance contracts, and 2.1 million in debt principle as of June 30. In this first six months of 24, we have prepaid 825,000 of our long term debt, including 325,000 at the end of the second quarter. We expect to continue to pay down our debt, including another 800,000 this month, and expect to have no net debt, meaning that less cash at the end of 2024.

Speaker Change: Next, a brief overview of the balance sheet.

Speaker Change: At June 30, 2024, we had cash of $1.7 million and accounts receivable net of $1.4 million.

Speaker Change: Our total assets were $18.9 million, including $9.4 million in intangible assets and goodwill as part of acquisitions made since 2020.

Speaker Change: Total liabilities were $8.5 million including $2.8 million in deferred revenues reflecting signed SAS and maintenance contracts and $2.1 million in debt principal as of June 30.

Joe Spain: In this first six months of 24, we have prepaid $825,000 of our long-term debt, including $325,000 at the end of the second quarter. We expect to continue to pay down our debt, including another 800,000 this month, and expect to have no net debt, meaning debt less cash at the end of 2024. I want to wrap up with our financial outlook. Based on our current plans and assumptions, and subject to the risk and uncertainties we describe in our filings and this call, we are reiterating our expectation to grow revenues on a year-over-year basis for the fiscal year 2024.

Speaker Change: In this first six months of 24, we have prepaid $825,000 of our long-term debt, including $325,000 at the end of the second quarter.

Speaker Change: We expect to continue to pay down our debt, including another $800,000 this month, and expect to have no net debt, meaning debt less cash, at the end of 2024.

Joseph Spain: I want to wrap up with our financial outlook based on our current plans and assumptions and subject to risks and uncertainties we described in our filings and this call. We are reiterating our expectation to grow revenues on a year-over-year basis for the fiscal year 2024. As Jim mentioned, we'll be increasing our investment in sales and marketing, including adding 4 salespeople to support our SaaS offerings over the next several quarters. These investments will have a modest, short-term impact on our EBITDA margins. To be clear, we continue to expect to generate positive adjusted EBITDA and even less to continue to pay down our debt and bolster our value.

Speaker Change: I want to wrap up with our financial outlook based on our current plans and assumptions and subject to risk and uncertainties we described in our filings and this call, we are reiterating our expectation to grow revenues on a year-over-year basis for the fiscal year 2024.

Joe Spain: As Jim mentioned, we'll be increasing our investment in sales and marketing, including adding four salespeople to support our SaaS offerings over the next several quarters. These investments will have a modest short-term impact on our EBITDA margins.

Speaker Change: As Jim mentioned, we'll be increasing our investment in sales and marketing, including adding four salespeople to support our SaaS offerings over the next several quarters.

Joe Spain: To be clear, we continue to expect to generate positive adjusted EBITDA, enabling us to continue to pay down our debt and bolster our balance sheet. However, as noted in our earnings release, we are revising our guidance as we expect our adjusted EBITDA to decrease modestly year over year.

Speaker Change: These investments will have a modest short-term impact on our EBITDA margins. To be clear,

Speaker Change: We continue to expect to generate positive adjusted EBITDA, enabling us to continue to pay down our debt and bolster our balance sheet. However, as noted in our earnings release, we are revising our guidance as we expect our adjusted EBITDA to decrease modestly year over year.

Joseph Spain: However, as noted in our earnings release, we're revising our guidance as we expect our adjusted EBITDA to decrease modestly year-over-year. As these sales and marketing investments begin to bear fruit, we expect accelerated top and bottom-line growth in 2025 and beyond.

Joe Spain: As these sales and marketing investments begin to bear fruit, we expect accelerated top and bottom line growth in 2025 and beyond. We thank you all for listening. And at this time, we'd like to open the call up to Q&A. Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Speaker Change: As these sales and marketing investments begin to bear fruit, we expect accelerated top and bottom line growth in 2025 and beyond.

Operator: With that, we thank you all for listening, and at this time, we'd like to open the call up to Q&A. Thank you.

Speaker Change: With that, we thank you all for listening. And at this time, we'd like to open the call up to Q&A.

Operator: Well, now we can obtain a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your lives in the question, too. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, maybe necessary to pick up your hand set before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Speaker Change: Thank you. Well now we conduct a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Howard Halpern with the Taglit Brothers. Please proceed with your question. Congratulations guys, a great quarter. In terms of I-PASS, how many customers are actually live right now? Four are actively live, and we're expecting three to go live sometime this quarter, and probably the other two in August. Yeah, go ahead.

Howard Halpern: Our first question is from Howard Halpern with Taglick Brothers. Please proceed with your question. Thank you.

Speaker Change: Thank you. Our first question is from Howard Halpern with Taglit Brothers. Please proceed with your question.

Jim DeSocio: Congratulations, guys. Great quarter. In terms of, in terms of, I pass, how many customers are actually live right now? Four are actively live, and we're expecting them three to go live sometime this quarter. In general though, when we're entering 2025, what do you expect with the live implementations? What could the potential annualized revenue, recurring revenue run rate be for these I pass customers? Well, that's forward-looking. Yeah. Well, yeah. I think Howard, yeah, we're, I mean, it's a little bit in the box to have us be that specific. That's time bound because then we, you know, we don't want to get too crazy within the bound to what we're supposed to be able to say.

Howard Halpern: And. In general, though, when we're entering 2025, what do you expect with the live implementations? What could the potential annualized revenue, recurring revenue run rate be for these I-PASS customers?

Howard Halpern: Congratulations guys, great quarter.

Howard Halpern: In terms of iPaaS, how many customers are actually live right now?

Speaker Change: four are actively live and we're expecting them three to go live sometime this quarter.

Speaker Change: and probably another two in August, yeah, go ahead.

Speaker Change: [inaudible] E-E-E-E-E-E

Speaker Change: just you know

Speaker Change: In general though, when we're entering 2025, what do you expect with, you know, the live implementations? What could the potential annualized revenue be?

Speaker Change: recurring revenue run rate be for these I-PASS customers.

Jim DeSocio: Well, that's forward-looking. Yeah. Well, yeah, I think Howard, yeah, we're I mean, it's a little bit in a box to have us be that specific. That's time bound. Because then, you know, we don't want to get too crazy within the bounds of what we're supposed to be able to say.

Speaker Change: Well, that's forward-looking. Yeah.

Jim DeSocio: But I mean, we can say certainly, qualitatively, it's going to be significant relative to our path. Very significant. Okay, and so with with seven customers expected to be online, you know, entering the fourth quarter, and new salespeople coming online, and your pipeline, could you give a little color as to that cadence you hope to achieve in not only signing customers, but then once you sign implementing those customers, what should, and I know it's relative, you know, iPaaS is relatively new for you, but what should the cadence be, or what do you hope the cadence to be?

Speaker Change: Well, well, yeah, I think I think Howard. Yeah, we're I mean it's a little bit in a box to have us be that specific That's time bound because then we you know, we don't want to get too crazy Within the bounds of what we're supposed to be able to stay but I mean we can stay certainly

Operator: Greetings and welcome to the Intellinetics Second Quarter 2024 Earnings Call. At this time all participants are in a listen only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Jim DeSocio: But, I mean, we can say certainly qualitatively, it's going to be significant relative to our path. Very significant. Yes. Okay. And so with seven customers expected to be online, you know, entering the fourth quarter and new salespeople coming online, what, and your pipeline, could you give a little color as to that cadence? You hope to achieve in not only signing customers, but then once you sign implementing those customers. What should, and I know it's relative, you know, I pass it relatively new for you, but what should the cadence be or what do you hope the cadence to be?

Operator: A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded.

Speaker Change: Qualitatively, it's going to be significant relative to our path, very significant.

Tom Bowman: I would now like to turn the call over to Tom Bowman, Investor Relations. Thank you, Tom.

Speaker Change: Okay, and so with seven customers expected to be online, you know, entering the fourth quarter,

Jim DeSocio: You may begin. Thank you. Good afternoon, everyone. I am pleased you welcome to Intellinetics 2024 Second Quarter Conference Call. Before we begin, I would like to remind listeners that during this conference call, comments made by management may include forward-looking statements regarding Intellinetics. There are not historical facts. These forward-looking statements are based on the current expectations and beliefs of management. And they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results.

Speaker Change: and new salespeople coming online, what, and your pipeline, could you give a little color as to the cadence you hope to achieve in...

Speaker Change: not only signing customers, but then once you sign implementing those customers, what should, and I know it's relative, you know, iPaaS is relatively new for you, but what should the cadence be, or what do you hope the cadence to be?

Jim DeSocio: Well, we could I talk about our, our work, our budget, our, we're planning on 15 to 18 customers this year. We've already closed, sold 11 to 12. So we're, you know, another five or six this year; we're counting. And then next year, with them coming on live, we plan to, you know, go substantially after that. Okay. And that's all just from that one vertical, the home building vertical. That's all from the one vertical.

Jim DeSocio: Well, I could talk about our work, our budget, or we're planning on 15 to 18 customers this year; we've already closed on 11 to 12, so we're another five or six this year, and we're counting. And then next year, with them coming online, we plan to, you know, grow substantially after that. Okay, and that's all just from that one vertical, the home building vertical?

Speaker Change: Well, could I talk about our budget? We're planning on 15 to 18 customers this year. We've already closed, sold 11 to 12, so we're you know another 5 or 6 this year.

Jim DeSocio: Intellinetics undertakes no duty to update any forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release issue today, as well as the risks and uncertainties included in the section under the caption, risk factors and management discussion and analysis of financial condition and results of operations in Intellinetics and a report on form 10K or the quarterly report on form 10Q file today.

Speaker Change: We're counting. And then next year with them coming on live, we plan to, you know, grow substantially after that.

Speaker Change: And that's still all just from that one vertical, the home building vertical? That's all from the one vertical. So we are in beta with our K-12.

Jim DeSocio: So we are in beta with our K-12 Datasite, and we've got some good things there. And we're also working on a new product. All these customers were sold with just AP, Able's Automation. We are coming out with PO in the future as well. Okay, and Howard's answer will be towards the end of the question. Yeah, I would say, definitely it's going to accelerate, right?

Jim DeSocio: So we are in beta with our K-12. Data site, and we've got some good things there, and we're also working on a new product. All these customers were sold with just AP, Able's automation. We are coming out with PO in the future as well. Okay. And how it will be towards the end of the question. Yes. Yeah, I would say, I mean, definitely it's going to accelerate, right? You know, this is a brand new product released in 2023. You know, obviously we've got some early adopters, but you know, there's momentum to be had here. And, you know, the old buzzword a few years ago, the flywheel, right?

Speaker Change: data site and we've got some good things there and we're also working on a new product. All these customers were sold with just AP, tables automation. We are coming out with PO in the future as well.

Jim DeSocio: Also, please note that on the call today, management will discuss non-gap financial measures such as adjusted EBITDA and recurring revenue. Non-gap financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAP and may be different from non-gap financial measures presented by other companies. A reconciliation between GAP and non-gap measures can be found in the press release issue today.

Speaker Change: okay and how it will be towards the end of the question

Jim DeSocio: You know, this is a brand new product released in 2023. Obviously, we've got some early adopters, but you know, there's momentum to be had here. And you know, the old buzzword a few years ago, the flywheel, right? I mean, it just hasn't even started spinning yet.

Speaker Change: Yeah, I would say, I mean, definitely it's going to accelerate, right? You know, this is a brand new product released in 2023 You know, obviously we've got some early adopters, but you know, there's momentum to be had here and You know the old buzzword a few years ago the flywheel, right? I mean, it just hasn't even started spinning yet So we definitely expect acceleration

Jim DeSocio: I mean, it just hasn't even started spinning yet. So we definitely expect acceleration. Okay. And what I said in the past two, Howard, you know, the 11 customers we paid, I think Joe were up to nine of paid in full already as they're coming up going live. So, you know, people believe in the product, the implementations are going well, and they're paying us, which is, and, you know, my experience in the software business is that is a phenomenal metric, right? So the deferred revenue will be leading in the caterer of hopefully the satisfaction and the future results.

Jim DeSocio: With all that said, I would now like to turn the call over to Jim DeSosio, Intellinetics present and CEO Jim DeSosio. Jim DeSosio is yours. Thank you, Tom. Intellinetics continues to generate solid financial results. While taking these steps to enable accelerated top and bottom line growth in the future, we deliver growth in SaaS and overall recurring revenue in line with our stated strategy. We also generated continued profitability even as we begin to invest significantly in sales and marketing to support a broader SaaS initiative.

Jim DeSocio: So we definitely expect acceleration. And as I said in the past, Howard, you know, the 11 customers we paid for, I think, Joe, we're up to nine have paid in full already as they're coming up, going live. So you know, people believe in the product, the implementations are going well, and they're paying us, which is, you know, in my experience in the software business, that is a phenomenal metric, right, that people are paying. So the deferred revenue will be a leading indicator of, hopefully, customer satisfaction and future results. Okay. Exactly what I meant. Yep. You talked about document conversion.

Speaker Change: And what I've said in the past too, Howard, you know, of the 11 customers we paid,

Speaker Change: I think, Joe, we're up to nine of paid-in-full already as they're coming up, going live.

Howard Halpern: You know, people believe in the product, the implementations are going well, and they're paying us, which is, you know, in my experience in the software business, that is a phenomenal metric, right, that people are paying.

Howard Halpern: So the deferred revenue will be a leading indicator of hopefully the satisfaction in the future results.

Jim DeSocio: You talked about the document conversion. What actually drove the increase in Michigan, or was there some conversions of K-12 customers? Well, we actually have up the facility in Columbus, Ohio, and they're actually working and doing scanning business as well. We've closed a number of microfilm microfish steels, which is a different revenue line than the basic scanning business. So everything came together this last quarter, and we've owned the business for a few years. When we bought the business, the infrastructure was 40 years old, 30 years old. We've really invested in better systems. We've gotten better at running the business.

Jim DeSocio: Yellowfolder continues to grow and response to our new IntelliCloud Pables Automation Solution or IPAS offering has been highly encouraging with deployments accelerating. We generated significant cash and continued to pay down debt. The pieces are in place for continued success for years to come. This progress comes even as our new SaaS offering, IPAS. I just started contributing to our results. As I said, the response to IPAS has been very strong. Our pipeline of opportunities for IPAS is improving in terms of quality and quantity with each passing month.

Speaker Change: You talked about the document conversion, what actually drove the increase, was it just in Michigan or were there some conversions of K-12 customers?

Jim DeSocio: What actually drove the increase, this, was it just in Michigan, or was there some conversion of, you know, K-12 customers? Well, we actually have the facility in Columbus, Ohio, and they're actually working and doing scanning business as well. We've closed a number of microfilm and microfiche deals, which is a different revenue line than the basic scanning business. So everything came together this last quarter.

Speaker Change: Well, we actually have upped the facility in Columbus, Ohio, and they're actually working and doing scanning business as well. We've closed a number of microfilm microfiche deals, which is a different revenue line than the basic scanning business.

Jim DeSocio: And you know, we've owned the business for a few years, and when we bought the business, the infrastructure was 40 years old, 30 years old. We've really invested in better systems. We've gotten better at running the business; we know how to do it much more effectively and efficiently now. So everything's come together, Howard, over the last year and a half or so. Yeah.

Speaker Change: So everything came together this last quarter.

Speaker Change: And, you know, we've owned the business for a few years and when we bought the business, the infrastructure was 40 years old, 30 years old.

Jim DeSocio: The man for yellowfolder solutions is also growing. And overall, Intellinetics is well positioned across all our SaaS offers, as we have been communicating, we have been investing to scale our business and we are now pointing to accelerate our investment in marketing our SaaS offerings. These investments will support all of our SaaS offerings, including Yellowfolder and IPASS. In the quarter, DAS Revenue as a percentage of our consolidated revenue remained at 30%. Even with a record contribution from our professional services business.

Speaker Change: We've really invested in better systems.

Jim DeSocio: We know how to do it much more effectively and efficiently now. So everything's come together. Howard, over the last year and a half or so. Yep, and it seems like there's a pipeline that will pent up the man for that service out there from existing customers and new customers. Yes, well, keep in mind that we're getting a lot of K-12 business. So we're doing a good job of cross-selling into our K-12 business. And keep in mind that school districts have to keep student records for 99 years. It's generated by someone who needs a new building.

Speaker Change: We've gotten better at running the business. We know how to do it much more effectively and efficiently now, so everything's come together.

Jim DeSocio: And does it seem like there's a pipeline, a pent-up demand for that service out there from existing customers and new customers? Yes, well, keep in mind that we're getting a lot of K-12 business. So we're doing a good job of cross-selling into our K-12 business. And keep in mind that school districts have to keep student records for 99 years?

Speaker Change: Howard over the last year and a half or so, yep. And does it seem like there's a pipeline, a pent-up demand for that service out there from existing customers and new customers? Yes, well keep in mind that

Speaker Change: We're getting a lot of K-12 business, so we're doing a good job of cross-selling into our K-12 business.

Speaker Change: and...

Speaker Change: And keep in mind that school districts have to keep student records for 99 years.

Jim DeSocio: And it's generated by someone who needs a new building. They're consolidating buildings. They're trying to get rid of all their paper documents, et cetera.

Jim DeSocio: Once again, our goal is to make recurring revenue the majority of our total revenue, with as much contracted SaaS revenue as possible. This will reduce earnings volatility, make our business very easy to model, and benefit shareholders through consistent profitability. DAS businesses are, historically, quite profitable. We invested in 2022 to acquire Yellowfolder, as we are paying down the debt related to this acquisition, having already fully paid down the debt from the 2020 Graphic Sciences acquisition.

Speaker Change: and you know it's you know it's generated by you know someone needs a new building they're consolidating buildings they're trying to get rid of all their paper documents etc so there's a lot of things that drive people to say let me digitize all my back records and backfile all my back records

Jim DeSocio: They're consolidating buildings. They're trying to get rid of all their paper documents, etc. So there's a lot of things that drive people to say, "let me digitize all my back records and back file all my back records." Recently, we've also been successful. The original vision was, we've been in the document management business for a number of years. And people would say, "How do I get my old files into your system?" Well, now we're doing a much better job of actually integrating the sales team. So, as they sell a document management system, we'll sell a scanning project as well at the same time.

Jim DeSocio: So there's a lot of things that drive people to say, let me digitize all my old records and back file all my old records. Recently, we've also been successful in, you know, the original vision was, you know, we've been in the document management business for a number of years, and people would say, how do I get my old files into your system? Well, now we're doing a much better job of actually integrating the sales team. So, as they sell a document management system, we'll sell a scanning project as well at the same time.

Speaker Change: Recently we've also been successful of, you know, the original vision was, you know, we've been in the document management business for a number of years and people would say, how do I get my old files into your system?

Speaker Change: Well now we're doing a much better job of actually integrating the sales team so as they sell a document management system we'll sell a scanning project as well at the same time.

Jim DeSocio: Well, that all sounds great. Keep up the great work. Thank you, Howard. I appreciate it. Thank you. There are no further questions at this time. I would like to hand the call back over to Jim Spain for any closing comments. Thank you all for joining us. I'm very optimistic about the future of Intellinetics.

Howard Halpern: That all sounds great. Keep up the great work. Thank you, Howard. Appreciate it.

Speaker Change: Okay. Well, that all sounds great. Keep up the great work.

Speaker Change: Thank you Howard, appreciate it.

Operator: Thank you. There are no further questions at this time.

Speaker Change: Thank you.

Jim DeSocio: I would like to hand the call back over to Jim Span for any closing comments.

Speaker Change: Thank you. There are no further questions at this time. I would like to hand the call back over to Jim Spain for any closing comments.

Jim DeSocio: Jim Spaneman.

Jim DeSocio: Jim DeSosia. Yeah, thank you all for joining us. I'm very optimistic about the future of the Telenetics. We have exciting SaaS assets supported by project-oriented business that is expected to continue to generate cash. We are paying down our debt and investing in our sales and marketing function to drive future growth. We have a strong competitive position in growing markets and a diverse set of solutions with ample cross-selling opportunities. Our business model structured around recurring revenue is working. We appreciate the continued support of our long-time shareholders.

Speaker Change: Jim Spain, Jim DeSocio. Thank you all for joining.

Jim DeSocio: Yeah, thank you all for joining us. I'm very optimistic about the future of telemedics.

Jim DeSocio: We have exciting SaaS assets supported by project-oriented business that is expected to continue to generate cash. We are paying down our debt and investing in our sales and marketing function to drive future growth. We have a strong competitive position in growing markets and a diverse set of solutions with ample cross-selling opportunities. Our business model, structured around recurring revenue, is working.

Speaker Change: We have exciting SaaS assets supported by project-oriented business that is expected to continue to generate cash. We are paying down our debt and investing in our sales and marketing function to drive future growth.

Speaker Change: We have a strong competitive position in growing markets and a diverse set of solutions with ample cross-selling opportunities. Our business model, structured around recurring revenue, is working.

Jim DeSocio: We appreciate the continued support of our long-term shareholders. Thank you for joining us today, and we look forward to speaking again on our next conference call. Thank you very much. I appreciate everybody coming and joining. This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.

Jim DeSocio: Thank you for joining us today. And we look forward to speaking again on our next conference call. Thank you very much. Appreciate everybody coming. Enjoy.

Speaker Change: We appreciate the continued support of our long-time shareholders. Thank you for joining us today, and we look forward to speaking again on our next conference call.

Speaker Change: Thank you very much. Appreciate everybody coming and joining.

Operator: This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.

Speaker Change: This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.

Jim DeSocio: We have doubled the number of reference accounts from two to four during the second quarter. These accounts are all running smoothly. We have an additional three or four expected to go live in the third quarter, and our pipeline continues to grow. Again, this is with a pretty modest sales and marketing function. As we move through 2024, we anticipate IPASS becoming a larger and larger contributor to our consolidated revenue. Our K-12 operations now have 619 K-12 districts generating significant SaaS revenue, which more than doubles our presence in this vertical market since before we acquired Yellow Folder in April of 2022.

Jim DeSocio: International. Importantly, each of these districts is a target for additional and telenetics services, including IPAS. We are launching a K-12 IPAS pilot this week, as we speak, to address this opportunity. Meanwhile, the document conversion portion of our digital transformation business, including business process outsourcing, business and document storage, and retrieval, continues to generate positive contribution margin. As a reminder, last quarter, we disclosed that our largest professional services customer plans to transition certain tasks performed by our document conversion business from one office location to another location in a way that could reduce annual revenue of our document conversion segment.

Jim DeSocio: The amount of the future revenue reduction is still uncertain, and their transition has been delayed by the customer with no clear timeframe. We are continuing to negotiate with the customer to mitigate the impact of this future revenue reduction. For Q2, I want to congratulate the entire document conversion team for delivering a record revenue quarter. We continue to work on initiatives to improve efficiencies and margins there, but our new investments in sales and marketing are focused on growing our recurring revenue, in particular, our SaaS subscription revenue.

Joseph Spain: At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain. Thanks, Jim. I will now review our financial results for the second quarter of 2024, the period ending June 30, 2024, compared to the prior year, 23. Total revenue for the quarter increased 9% to 4.6 million as compared to 4.3 million for the same period last year. The following are the material components of our revenue. First, description software, which is comprised of SaaS, including hosting revenue, and software maintenance services revenue, increased to 1.75 million for the quarter from 1.63 million for the same period last year.

Joseph Spain: SaaS grew 9.6% and, consistent with history and, as expected, our software maintenance services are growing more slowly at 1.4% over 2023. Secondly, professional services. Revenue increased 15.8% to 2.66 million from 2.3 million for the same period last year. As a percentage of total revenue, professional services revenue was 57% of total revenue for the quarter up from 54% last year. Consolidated gross margin increased 387 basis points to 64.7% for Q2 compared to 60.8% last year.

Joseph Spain: The increase was driven by both better revenue mix, better revenue mix, slightly weighted towards subscription revenue, plus higher margin professional service projects, and also positive impact from price increases. Operating expenses increased 23.4% to 2.8 million, compared to 2.3 million in Q2, 23. The increase is largely due to the 0.5 million in non-cash stock-based compensation expense for restricted stock awards to employees, as well as investment in structure and scale. General. A subset of operating expenses, sales and marketing expenses for the quarter increased 7.7% compared to the same period in 2023.

Joseph Spain: As Jim mentioned, we continue to invest in marketing sales and these prior period comparatives will continue to shift as we increase the sales and marketing investment compared to historical levels. This includes the sales repetitions Jim talked about, plus increasing our trade show activity in 24, which is important to both our IPAS and K12 revenue acceleration. Net income for Q2 was 75,000 compared to net income of 136,000 for the same period last year.

Joseph Spain: Earnings per share was 2 cents per share compared to earnings per share of 3 cents last year. Our adjusted EBITDA for the quarter was 698,000 compared to the adjusted EBITDA of 651,000 for the same period in 2023. Next, a brief overview of the balance sheet. At June 3024, we had cash of 1.7 million in accounts receivable net of 1.4 million. Our total assets were 18.9 million, including 9.4 million in intangible assets and goodwill as part of acquisitions made since 2020.

Joseph Spain: Total liabilities were 8.5 million, including 2.8 million in deferred revenues, reflecting signed SaaS and maintenance contracts, and 2.1 million in debt principle as of June 30. In this first six months of 24, we have prepaid 825,000 of our long term debt, including 325,000 at the end of the second quarter. We expect to continue to pay down our debt, including another 800,000 this month, and expect to have no net debt, meaning that less cash at the end of 2024.

Joseph Spain: I want to wrap up with our financial outlook based on our current plans and assumptions and subject to risk and uncertainties we described in our filings and this call. We are reiterating our expectation to grow revenues on a year-over-year basis for the fiscal year 2024. As Jim mentioned, we'll be increasing our investment in sales and marketing, including adding 4 salespeople to support our SaaS offerings over the next several quarters. These investments will have a modest, short-term impact on our EBITDA margins.

Joseph Spain: To be clear, we continue to expect to generate positive adjusted EBITDA and even less to continue to pay down our debt and bolster our value. However, as noted in our earnings release, we're revising our guidance as we expect our adjusted EBITDA to decrease modestly year-over-year. As these sales and marketing investments begin to bear fruit, we expect accelerated top and bottom-line growth in 2025 and beyond.

Operator: With that, we thank you all for listening and at this time, we'd like to open the call up to Q&A. Thank you. Well, now we can obtain a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your lives in the question, too. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, maybe necessary to pick up your hand set before pressing the star keys. One moment, please, while we pull for questions. Thank you.

Howard Halpern: Our first question is from Howard Halpern with Taglick Brothers. Please proceed with your question. Thank you.

Jim DeSocio: Congratulations, guys, great quarter. In terms of, in terms of, I pass, how many customers are actually live right now? Four are actively live and we're expecting them three to go live sometime this quarter. In general though, when we're entering 2025, what do you expect with the live implementations? What could the potential annualized revenue, recurring revenue run rate be for these I pass customers? Well, that's forward-looking. Yeah. Well, yeah. I think Howard, yeah, we're, I mean, it's a little bit in the box to have us be that specific.

Jim DeSocio: That's time bound because then we, you know, we don't want to get too crazy within the bound to what we're supposed to be able to say. But, I mean, we can say certainly qualitatively, it's going to be significant relative to our path. Very significant. Yes. Okay. And so with seven customers expected to be online, you know, entering the fourth quarter and new salespeople coming online, what, and your pipeline, could you give a little color as to that cadence?

Jim DeSocio: You hope to achieve in not only signing customers, but then once you sign implementing those customers, what, what should, and I know it's relative, you know, I pass it relatively new for you, but what should the cadence be or what do you hope the cadence to be? Well, we, could I talk about our, our work, our budget, our, we're planning on 15 to 18 customers this year. We've already closed, sold 11 to 12.

Jim DeSocio: So we're, you know, another five or six this year, we're counting. And then next year with them coming on live, we plan to, you know, go substantially after that. Okay. And that's all just from that one vertical, the home building vertical. That's all from the one vertical. So we are in beta with our K-12. Data site, and we've got some good things there, and we're also working on a new product. All these customers were sold with just AP, Able's automation, we are coming out with PO in the future as well.

Jim DeSocio: Okay. And how it will be towards the end of the question. Yes. Yeah, I would say, I mean, definitely it's going to accelerate, right? You know, this is a brand new product released in 2023. You know, obviously we've got some early adopters, but you know, there's momentum to be had here. And, you know, the old buzzword a few years ago, the flywheel, right? I mean, it just hasn't even started spinning yet.

Jim DeSocio: So we definitely expect acceleration. Okay. And what I said in the past two, Howard, you know, the 11 customers we paid, I think Joe were up to nine of paid in full already as they're coming up going live. So, you know, people believe in the product, the implementations are going well, and they're paying us, which is and, you know, my experience in the software business is that is a phenomenal metric, right?

Jim DeSocio: So the deferred revenue will be leading in the caterer of hopefully the satisfaction and the future results. You talked about the document conversion. What actually drove the increase in Michigan or was there some conversions of K-12 customers? Well, we actually have up the facility in Columbus, Ohio and they're actually working and doing scanning business as well. We've closed a number of microfilm microfish steels, which is a different revenue line than the basic scanning business.

Jim DeSocio: So everything came together this last quarter, and we've owned the business for a few years, and when we bought the business, the infrastructure was 40 years old, 30 years old. We've really invested in better systems. We've gotten better at running the business. We know how to do it much more effectively and efficiently now. So everything's come together. Howard over the last year and a half or so. Yep, and it seems like there's a pipeline that will pent up the man for that service out there from existing customers and new customers.

Jim DeSocio: Yes, well, keep in mind that we're getting a lot of K-12 business. So we're doing a good job of cross-selling into our K-12 business. And keep in mind that school districts have to keep student records for 99 years. It's generated by someone who needs a new building. They're consolidating buildings. They're trying to get rid of all their paper documents, etc. So there's a lot of things that drive people to say, let me digitize all my back records and back file all my back records.

Jim DeSocio: Recently, we've also been successful. The original vision was, we've been in the document management business for a number of years. And people would say, how do I get my old files into your system? Well, now we're doing a much better job of actually integrating the sales team. So as they sell a document management system, we'll sell a scanning project as well at the same time.

Howard Halpern: That all sounds great. Keep up the great work. Thank you, Howard. Appreciate it. Thank you.

Operator: There are no further questions at this time.

Jim DeSocio: I would like to hand the call back over to Jim Span for any closing comments. Jim Spaneman. Jim DeSosia. Yeah, thank you all for joining us. I'm very optimistic about the future of the telenetics. We have exciting SaaS assets supported by project oriented business that is expected to continue to generate cash. We are paying down our debt and investing in our sales and marketing function to drive future growth. We have a strong competitive position in growing markets and a diverse set of solutions with ample cross-selling opportunities. Our business model structured around recurring revenue is working. We appreciate the continued support of our long-time shareholders.

Jim DeSocio: Thank you for joining us today. And we look forward to speaking again on our next conference call. Thank you very much. Appreciate everybody coming.

Operator: Enjoy, this concludes today's conference call. You may now disconnect your lines. Thank you for your participation.

Q2 2024 Intellinetics Inc Earnings Call

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