(QMCI)
Q4 2020 Earnings-Transcript
Brendan Hopkins - Investor Relations
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Michael Kupinski - Noble Capital Markets - Analyst
Deane Avahami - - Analyst
Operator
Good day everyone and welcome to today's QuoteMedia 2020 results. [Operator Instructions]
It is now my pleasure to turn today's program over to Brendan Hopkins. Go ahead.
Brendan Hopkins - Investor Relations
Thank you for joining us this afternoon for our annual results call. I have a brief Safe Harbor and we'll get started.
Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results.
With that said, I would like to turn the call over to Dave Shworan, CEO of QuoteMedia.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
Thank you, Brendan. Welcome, everybody. Thank you for joining us to discuss our 2020 year-end results. It certainly has been an interesting year. I guess that would be an understatement, but I'm happy to say that QuoteMedia did very well in 2020. Even with the difficulties that some of our clients experienced, we achieved a 5% increase this past year.
Certainly the world turmoil was a bit of a setback when the pandemic hit, but as we expected companies eventually restructured, got back into business and business talks and we certainly saw everything pick back up as the year progressed.
In fact, we're finding that we're actually busier now than we have been in some time and new client proposals and negotiations are moving along quite nicely. Indicative of the improvements in the industry we achieved a 10% increase in revenue in Q4. And we're expecting a continued increase in revenue throughout 2021. In fact, we expect the next quarter and future quarters this year to show even more revenue growth and we're thinking that it will be somewhere in the neighborhood of 20% for future quarters this year. So last year in 2020 we achieved $12.4 million in revenue and already as of January of this year, we had already booked $14 million of revenue under contract for 2021. So as you can see business is picking back up and we're very excited to see what we can add to that $14 million base this year.
One of the things I wanted to discuss as our increased spend - is our increased spending this last year. In the previous year, we were quite profitable and we are starting to bank quite a bit of money. And it was time - it was at that time that we decided we wanted to expand our data offering, add to our product lines and look to acquire our own proprietary data in several areas rather than using third parties where our margins were not as good as we would prefer. In order to properly - we decided to start quite a few new projects that would provide considerable future benefits for QuoteMedia. Everything was going along well and we were well on track and then of course the pandemic came along. At that time we knew that there would be quite a bit of slowdown in business. Certainly we decided - we discussed whether to pause some of these future growth activities and data collection projects. But we decided that the benefits outweighed some of the short-term pain.
We felt that the world would get back to normal and that the growth projections would recover to what we previously expected. In fact, we actually had to expand on some of our projects as client feedback guided us to focus on certain key areas in the industry. And as it turns out we were right. We made the right decision. It was the right decision to continue with all these new projects.
We are now rounding the corner and over the course of this year, we'll be launching quite a few new product lines, new analytics, new market research services and new data sets. We will be expanding into various new areas of market research and we will be able to compete even more broadly with firms that are much, much bigger than we are.
I feel this year is probably going to be our biggest year for launching new products and services. And I'm very excited to see what we can achieve in 2021.
At this point, I'd like to turn the mic over to Keith Randall who can take us through some of the numbers and then we can open up the call to some of your questions.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Thank you, Dave, and welcome everyone. Overall, we had an excellent year given the challenges presented by COVID-19. I'll start with the income statement. Note that all comparisons are on a year-over-year basis unless otherwise noted. Our annual revenue increased 5% and our fourth quarter revenue increased 10% compared to Q4 of 2019.
Breaking down our revenue, interactive content revenue, which is web display content, decreased 2%. The pandemic significantly impacted our smaller interactive content customers. But its impact is diminishing. So we expect to return to positive revenue growth in 2021.
Our total Quotestream revenue on the other hand increased by 13%. This was driven by an 18% increase in corporate Quotestream revenue. We believe this increase is due in part to the constant upgrades we made to our streaming portfolio of management products. We've also been able to take advantage of new opportunities arising from the current economic condition as financial sector firms are looking for a more cost-effective solution to their data and technology needs.
Individual Quotestream revenue increased 2%, with most of this growth occurring towards the end of 2020 as we attribute - which we attribute to our new marketing program started earlier in the year. We also believe there has been an increase in the need for our services for customers working remotely during the pandemic, a trend we expect to continue for the foreseeable future.
Our cost of revenue consists of fixed and variable stock exchange fees and other data feed costs. It also includes the amortization of capitalized software costs. As previously mentioned, we have invested in infrastructure, new product development, data collection and the expansion of our global market coverage. As a result our cost of revenue increased 16% and our gross margin decreased from 51% to 46%. Our stock exchange and data costs increased by $714,000 due to the increased usage fees, vendor price increases and new data added during the year.
Our investment in product development resulted in $207,000 increase in amortization expense associated with capitalized development costs. Our gross margins have also been impacted by our revenue mix. Our Quotestream revenue has been growing at a higher rate than our interactive content revenue which typically has higher gross margins. We expect gross margins to start improving in 2021 however as our revenue catches up with the costs associated with our expansion plan.
Our total operating expenses increased 17%, primarily due to staffing increases. Expanding our product lines and improving our infrastructure required additional sales, development and administrative staff, resulting in increased personnel costs of approximately $788,000. We also had a $160,000 [Phonetic] increase in bad debt, mainly due to the impact of the pandemic. COVID-19 forced some of our clients to halt projects and even caused some to go out of business entirely. While our adjusted EBITDA was $734,000, we incurred a loss for the year of $646,000 due to our expansion initiatives and the impact of the pandemic which muted our revenue growth. Please refer to the reconciliation included in our press release for the calculation of adjusted EBITDA.
Turning now to our balance sheet and year-to-date cash flow statement. Our cash totaled $418,000 [Phonetic] at year-end. This is a - this is a $398,000 decrease from 2019. Our cash flow from operations was $1.3 million, while net cash used in investing activities was $1.8 million due to spending - due to increased spending on infrastructure and product development.
Net cash provided by financing activities was $99,000, primarily due to our paycheck protection program loan of $133,000 received in 2020. We received notice of full forgiveness in February of this year, which will be recorded in other income in Q1. It should also be noted that we have a deferred tax asset of approximately $2 million that has not been recognized to date on our balance sheet as we have a full valuation allowance applied against it. We expect the valuation allowance to be eliminated in the upcoming years as we reestablish the pattern of profitability.
Looking forward, based on customers currently under contract, we are forecasting revenue growth of approximately 20% for Q1, and we expect similar results for the remainder of 2021. We are also expecting a return to profitability and increasing cash balances as our revenue catches up with the costs [Indecipherable] expansion plan undertaken in 2020. However, if circumstances dictate, we have the flexibility to reduce development spending to maintain a strong balance sheet and liquidity position.
Thank you, and I'll now pass it back to Dave.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
Thank you, Keith.
So once again, everybody, thank you for making the time to be on the call with us. I think probably we'll just open it up to questions. And we're happy to answer any questions. And obviously if you have future questions after the call, feel free to reach out to Brendan Hopkins who is bhopkins@quotemedia.com and he can take care of you or direct you to us. But yeah, I'll open the floor to any questions.
Operator
[Operator Instructions] We will take our first question from Michael Kupinski. Please go ahead.
Michael Kupinski - Noble Capital Markets - Analyst
Thank you. Congratulations. I'm glad to see that things are picking up. So just a couple of questions. In terms of your guidance in Q1 with revenue growth about 20%, does that include the $133,000 of the PPP forgiveness?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. I'll take that question. Yeah, no, it doesn't.
Michael Kupinski - Noble Capital Markets - Analyst
Okay. And then in terms of just looking at the breadth of the rebound that we're seeing in Q1, can you kind of give us a flavor of how that breaks out? It sounds like your Corporate Quotestream, you've got a big client there that's coming in. A lot of data usage, I assume. Can you just kind of give us a flavor of what's driving that? Are you seeing it a broad impact or is it just coming from some recent client wins? Give us a flavor of some color on that. And then if you could talk a little bit about your interactive content data since it was down 9% in the fourth quarter, can you give us a sense of what you're anticipating and how that might perform going into the first quarter as well? Yeah, Keith. I'm not sure if you have breakdown of the fourth quarter - to answer Michael's question of the breakdown of the product lines, but I guess I can kind of talk holistically about it all. So essentially what I'm seeing or what I've seen over the last year is that with our interactive content solutions, which is our web content, that's typically where our Company is adding a whole bunch of new data into their site to offer - [Technical Issues] And so those types of clients were probably the ones that were affected the most when the pandemic came along. So it would be data feed clients because companies are - to switch to new data, to add new data feeds, to do anything where it takes a lot of programmers. During the pandemic, when it first started, obviously for the first say three months, that's when people are moving home, they're trying to get organized, they're trying to figure out - what they're really going to focus on, what they're not going to focus on. And so content solutions and data feeds are about the corporate decision to make a big change to do something to build a new site, to add new products into their trading system, things like that. So there would be a pause in stuff like that, and that's why we see those areas decrease or slow down when the pandemic came along. What we see is the increase of the individuals needing access to market data, needing access to real-time Level 2 research data from home, all of those types of things. So a larger increase in all of our - the use of our applications, our mobile products or different types of services like that. So now what we're seeing as the pandemic is winding down, we hope, fingers crossed, that what we're seeing is that those companies that were pausing at the beginning or trying to decide what they were going to do have all started coming back to the table, right. So they've started to say, okay, yeah, life goes on, time to continue business, let's build that new site, let's add to that trading system, let's continue down the path. So their pause is kind of over, and they're moving - and so the world is moving again. So now what we're seeing is the influx of all of those, and then, over the last several months or whatever, is those types of clients coming back to the table and saying, okay, we're going to proceed with that plan that we had that we were talking to you about before the pandemic hit. And so that's when you see these increases of these clients that were kind of in the lingering back there. So that's the kind of story of the product lines and how the pandemic affected the product lines. Keith, did you want to add to that?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. I'll just talk about the - I think Michael asked a question about the interactive content revenue in the fourth quarter and going forward. So we had - in the fourth quarter we had some larger one-time adjustments to our revenue which decreased our fourth quarter revenue. But we have seen going forward in 2021 our interactive content revenue weaken [Phonetic] although both sectors are doing well, both Corporate Quotestream and our interactive content revenue. So, the growth was driven by - sorry, go ahead.
Michael Kupinski - Noble Capital Markets - Analyst
I am sorry. I didn't mean to interrupt. Go ahead.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
No, I'm just saying going forward we see growth in both areas, although I would - although we're going to probably see more in the Quotestream revenue streams.
Michael Kupinski - Noble Capital Markets - Analyst
Got you. And then Dave, the thought process was that, in an economic downturn, you might be able to pick up businesses accompanied by cutback on expenses and kind of go to the less expensive alternative like you. Do you think that the recent increase in corporate Quotestream is due to improved data set or because companies are just cutting back on cost for financial that. I'm just trying to get a flavor of why people are coming to you now.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
I think it's a lot of that. I think it's - saving is a big thing. I mean, we're obviously adding more features and more data as clients need it and we're always improving our products. I think we're rolling out a whole bunch of new parts to Quotestream this year. Yeah, clients are looking to save money and they're looking for alternative solutions.
So I think what happens is that when there is a lot of - well, let's say this. Before the pandemic everybody's cruising along and the business is great and people are sitting behind their desks and they are twiddling their thumbs and business is great. And then when something goes sideways in the industry or the market or the world then senior management starts to look at their employees and say, hey, we got to save some money, we got to re-look at everything that we're doing and let's do a re-analysis. And so that's when companies are coming to us and saying, hey, we've been with this provider for the last 10, 15 years.
We think that it's time for us to look around and they're absolutely right. We're saving them even up to 50% of what their spend is on the same data, the same products, the same type of things. So I think that - and as QuoteMedia expands in our data offering and all of these new product lines and everything that we're doing, that's basically QuoteMedia ownership, that's ownership of our own data, that's full management of our data that's not dealing with third parties and all of the setbacks and problems that we have with - dealing with third-party data.
So it's really kind of evolve us to be at that highest level in the industry and that's always been our target and that's where we're going. So kind of went around [Indecipherable] there, but hopefully I answered your question.
Michael Kupinski - Noble Capital Markets - Analyst
Yeah. That's okay. And we have two quick questions. So Dave going back to my earlier question, the Corporate Quotestream was that - with the increase in the fourth quarter due to a large client addition or was it due to more broad business trend? I'm just trying to get a sense of how broad that rebound was in the fourth quarter.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
I think - Keith you can answer that but I think it was a combination. I think that we did have some bigger clients come along at that point in time, but we also had very good success. We started more marketing getting the name out there, making sure that people when they needed data from home and they needed more products that the QuoteMedia was in the limelight. So I think we saw an increase in both. But Keith am I right?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. Yeah, that's correct. So we did have a couple of large clients come on board in the fourth quarter. But we've also seen increased usage from our existing clients and some of the newer clients that came on board and then also with our Quotestream products, just the individual Quotestream products as well. We've seen the uptick in users in both Canada and the US.
Michael Kupinski - Noble Capital Markets - Analyst
Got you. Ad then on the expense front, obviously expenses are elevated given your investments into new products and feature sets and so forth. Is this the new norm or is there additional spending this year? Can you give us a sense of the level of operating margins that you expect possibly on an adjusted EBITDA basis and what do you think might be the sustainable margins? What do you think, where you will shake out over time?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Well that's tough to predict just because of - it's hard to know what our revenue mix is going to be, which direction that it's going to go in. So our Quotestream has lower margins, but it's growing at a higher rate. So it really depends again like on our revenue mix, but certainly on an overall basis, we expected our margins, as I mentioned, to increase or to improve as our revenue catches up with our expenses because some of our expenses were fixed in nature. So once we start recovering those fixed costs, our margins - we do expect our margins to improve.
Michael Kupinski - Noble Capital Markets - Analyst
All right. Thank you, guys. That's all I have. Thank you.
Operator
Okay. We will take our next question from Deane Avahami [Phonetic]. Please go ahead.
Deane Avahami - - Analyst
Hey, guys. I just want to say congratulations on the amazing quarter, an amazing year, but especially this quarter. I noticed - I just have a few questions here. I'm wondering, those two new announcements, new customer announcements you had in December, if any revenue from them is recognized in the fourth quarter or is it those last few days in the fourth quarter that they were recognized? I'm just wondering how - if there was any spillover there or did they start this year.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
Keith, do you have an answer for that?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. [Speech Overlap] I'm looking at - I'm looking at the press release. [Indecipherable]
Deane Avahami - - Analyst
December 16, something like that.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. Anything that late would not - we wouldn't have had much of impact in our 2020 results.
Deane Avahami - - Analyst
Okay. All right. And then I want to know if any of the revenue - sorry.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
I was just going to say, usually when we do a press release, the client is in the act of launching or preparing data or that type of thing, maybe has just launched. So typically when you guys see a press release on a client, and I should - I did actually want to say something about press releases, because a lot of people call me asking about press releases and why we don't put out too many press releases. It's just because clients are not allowing us to press release. They - when a big from goes with our data, they don't want their competitors to know where they're going for data. So we are often denied for press releases.
But anyway, to answer your question these - typically when we are - when we can't announce a client they're new, they're fairly new as far as going live. So they wouldn't be - the revenue would be either just starting or future starting.
Deane Avahami - - Analyst
Okay, got you. Next question would be, I'm wondering if any of the revenue increase from this past quarter was due to any price increases or did you guys keep price at the same or maybe lower? I'm wondering if it was just all from new customer wins and new business?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Are you referring to the fourth quarter of 2020 or the first quarter of this year?
Deane Avahami - - Analyst
Let's focus on the fourth quarter of 2020 because I think that's where -
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. There were -
Deane Avahami - - Analyst
That was most exciting. [Phonetic]
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. There would be no price increases like if we were going to do price increases we typically do beginning of the year. So there were no major price increases or even passing on any price increases in the fourth quarter. So it would be new clients and increased usage during the quarter.
Deane Avahami - - Analyst
Awesome. And then last question is, I just want to touch more on the margin profiles of the Quotestream segment versus the interactive content segment. When I first spoke to you it would strike to me that half of your cost of revenue is fixed. Is that true for both segments? I know a lot of the decline in gross margins were from one-time things and from your product development. And I'm wondering let's say interactive content stay flat in Corporate Quotestream - or let's say Quotestream keeps growing at this amazing rate compared to interactive content. I'm wondering if that still holds true, if the high incremental margin part still holds true and you still have half of your COGS - half of your cost of revenue fixed essentially.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Well, I wouldn't characterize those costs as necessarily fixed. They are basically semi-fixed.
Deane Avahami - - Analyst
Semi-fixed?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah. To answer your question, if our Quotestream revenue - if the rate of growth is higher than [Indecipherable] revenue, yeah, it will decrease our margins just because of the nature of the products and the exchange fees and all. But that's not necessarily a bad thing because we've found that our - there is a lot more organic growth within Quotestream, so just in terms of increased usage from month to month whereas our interactive content revenue is more static; we tend to - we have a fixed billing per month. So you don't get the organic growth in terms of usage for that revenue stream. So we're able to grow our Corporate Quotestream revenue a lot quicker, so while the margins might be lower, we can grow our revenue and grow the actual impact to the bottom line a lot quicker through Quotestream.
Deane Avahami - - Analyst
Okay. Got you. That's all I have.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
I think - yeah, I was just going to add. And Keith, maybe you can tell me if I'm right, but I think probably we have - we do have a fairly strong fixed cost structure, though. I don't know if it's 50% or 60% or something like that, but we have a pretty solid fixed cost structure. So, like for example, if we got a whole pile of new clients that were all adding data to their websites, we would not have to increase spend. It would be very nominal. So am I right, Keith? Am I saying the right thing?
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Yeah, that's correct.
Dave Shworan - Director, President and Chief Executive Officer, QuoteMedia Ltd.
Yeah. And I think that was the question: are we - do we have a fairly strong fixed cost structure. And we do.
Deane Avahami - - Analyst
Okay. Thanks for the color, guys. I'll get back in the queue.
Operator
Okay. We have no further questions at this time.
Keith J. Randall - President, Chief Executive Officer and Chief Financial Officer
Okay. Well, quiet group. I guess we've chatted a lot throughout the year. Okay, well thank you, everybody. Thanks for being part of QuoteMedia. Really appreciate it. And certainly we're always around if you have any more questions. And feel free to reach out to Brendan Hopkins, bhopkins@quotemedia.com if you come up with any further questions or you'd like to chat more. But thank you so much, everybody, and we really look forward to this year. I think it's going to be a very exciting year for QuoteMedia. Thank you so much.
Operator