Q4 2023 Intellinetics Inc Earnings Call

Participants

Tom Baumann; Investor Relations; Intellinetics Inc

Jim Desocio; President, Chief Executive Officer; Intellinetics Inc

Joe Spain; Chief Financial Officer; Intellinetics Inc

Howard Halpern; Analyst; Taglich Borthers, Inc.

Presentation

Operator

Welcome to Intellinetics' fourth-quarter and full year 2023 earnings call. (Operator Instructions) Please note that this conference is being recorded. I now turn the conference over to Tom Baumann with Investor Relations. Tom, you may now begin your presentation.

Tom Baumann

Thank you. Good afternoon, everyone. I am pleased to welcome you to Intellinetics' fourth-quarter and full year 2023 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 telematics that 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, and telematics 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 this section under the caption Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in telematics annual report on Form 10 K filed today.
Also, please note that on the call today, management will discuss non-GAAP financial measures, such as adjusted EBITDA, recurring revenue and total contract value. Non-gaap financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. It may be different from non-GAAP financial measures presented by other companies. The reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and the total contract value will be described on today's call.
With all that said, I'd like to now turn the call over to Jim DeSocio, Intellinetics' President and CEO. Jim, the floor is yours.

Jim Desocio

Thank you, Tom. This was a strong year for telematics as we effectively integrated prior acquisitions, grew our recurring SaaS revenue and established another revenue stream to drive our next phase of growth. Our telematics payable automation solution for what we call IPS, we entered 2024 with strong momentum and a stable baseline with consistent profitability and cash generation. We expect to invest in our IPS solution and expand our cross-selling efforts in 2024, enabling accelerating profitability as we scale.
For the year ended December 31st, 2023, we grew revenue more than 20% and increased SaaS revenue by nearly 28%. This growth, combined with prudent expense management enabled earnings per share of $0.13 per fully diluted share, up from just a penny per share last year. Net income was $519,000 compared to $24,000 in 2022. Excluding noncash items such as depreciation and amortization, we grew our adjusted EBITDA by nearly 14% to a record $2.7 million for the year. This performance includes only a small contribution from our new IPS solution. As a reminder, I passed is a new enterprise class software payables, automation solution for financial platforms with very complex cost accounting. We are collaborating with Constellation homebuilder systems, part of the CAD5 billion Constellation Software family to broaden awareness for IPS, especially in the homebuilder market. To date for Constellation, customers have gone live with bypass and we have now signed contracts with an additional five additional customers scheduled to go live during the first half of 2024. In the aggregate, these nine Constellation customers represent an estimated combined annual recurring revenue of $500,000, and we expect to more than double the customer count in this business over the next few quarters.
Importantly, the homebuilder market is just one of many target verticals for IPS and while Constellation is the ideal channel partner for this vertical, we are pursuing opportunities in a wide range of markets beyond our constellation relationship and outside the homebuilder market. Clearly, we view IPS as a significant growth catalyst for our business in 2024.
Beyond the homebuilder market, we have begun marketing, I pass to our K-12 customer base, and we believe there is a meaningful opportunity to cross-sell iPass to existing yellow folder and other K-12 customers.
In our core business, we see continued customer demand with the addition of IPAS. revenue. On top of our growing K-12 business, we expect to accelerate our growth in 2024. We view 2024 as a year for investing in IPS and expanding our sales and marketing capabilities so that I passed represents the next step in our stair step approach to growing our SaaS revenue. To reiterate, our core business is sustainably profitable on top of this IPO represents a potentially significant growth catalyst for us. We expect to increase our recurring revenue from my past as we move through 2024. And we anticipate this revenue to be a meaningful contributor to our top line as we exit the year. Our 2024 budget includes an incremental $400,000 of spend towards accelerating iPass. This spend will go towards additional sales headcount, expanding and enhancing our delivery team, including an industry specialist as well as expanding development and project management.
For the fourth quarter our SaaS maintenance and BPO professional services all grew. Our primary focus is on recurring revenue growth, giving us significant visibility into our future results and minimizing the quarter to quarter variability from our project-based scanning storage business. Our base of recurring revenues reached a point where it exceeds our operating expenses and our SaaS revenue is growing faster than our operating expenses, enabling consistent profitability. In the fourth quarter, we delivered 4.2 million total revenue, including 2.6 million in recurring revenue, and our SG&A costs were $2.2 million enabling 62,000 in net income and $754,000 in adjusted EBITDA. We are now systematically profitable in 2023. We closed 353 contracts with an estimated total contract value of $7.7 million. As a reminder, the total contract value of these orders are generally recognizable in revenue over one year or less. Our K-12 operations now has 591 K-12 districts, generating significant SaaS revenue, which more than doubles our presence in this vertical market. Since we acquired yellow folder in April of 2022. Importantly, each of these districts is a target for additional telematics services. As I said, we have significant momentum, and I'm excited for the next year of growth.
At this time, I'd like to turn the call over to our Chief Financial Officer, Joe Spain.

Joe Spain

Thanks, Jim. I will now review our financial results for the fourth quarter of 2023. Total revenue for the quarter increased 3.8% to 4.2 million as compared to $4 million for the same period last year. The following are the components of our revenue presented in our statements of income subscription and software, which is comprised of SaaS, including hosting revenue and software maintenance services, revenue increased to 1.68 million for the quarter from 1.57 million for the same period last year. Stash grew 8.8% and consistent with history and as expected, our software maintenance services are growing more slowly and we're flat to 2022.
Professional services revenue increased 4.7% to 2.2 million for the quarter from $2.1 million for the same period last year. As a percentage of total revenue, professional services revenue was 53% of total revenue for the quarter the same as last year. Storage and retrieval services revenue for the quarter was relatively flat year-over-year at 266,000. Consolidated gross margin increased 98 basis points to 64.9% for Q4 this year compared to 63.9% last year. The increase was driven by both a better revenue mix but more growth weighted towards recurring revenue and positive impact from price increases.
Operating expenses increased 17% to $2.5 million for Q4 2023 compared to $2.2 million in 2022. The increase was largely due to the timing of equity compensation expenses as well as investments and structure and scale. Sales and marketing expenses for the quarter decreased 23% compared to the same period during 2022, which is largely a timing matter. We continue to invest in marketing and sales. As Jim noted, we're expanding our sales force. We're also increasing our tradeshow activity in 2024, which is important to both our iPad and K12 accelerates. Net income for Q4 was 62,000 compared to net income of 201,000 for the same period last year. And as I referenced in the operating expenses a moment ago, there was 105,000 of equity compensation increase year over year. Contributing to that change. Earnings per share was $0.02 per share compared to $0.05 per share last year and one and $0.04, respectively for diluted shares. Our adjusted EBITDA for the quarter was $754,000 compared to an adjusted EBITDA of 670,000 for the same period and 22.
Turning to the full year results. Total revenue for 23 increased 20.5% to 16.9 million as compared to 14 million last year. Vas revenue increased 27.8% and professional services revenues increased 24.6%. Consolidated gross margin was 62.6% compared to 63.6 last year. Operating expenses increased 17% to $9.5 million for 23 compared to 8.1 million in 22. Full year. Net income was $519,000 compared to net income of $24,000 last year. Earnings per share was $0.13 compared to $0.01 per share last year. Full year adjusted EBITDA, $2.7 million compared to adjusted EBITDA of 2.4 million for 2022 quickly now or do you have in telematics balance sheet at December 31st, 23, the company had cash of 1.2 million and accounts receivable net of 1.9 million. Our total assets were $19 million, including 9.7 million in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were $9.3 million, including almost $3 million in debt principal as of December 31st, deferred revenues were $2.9 million, reflecting signed SaaS and maintenance contracts.
I want to wrap up with a brief financial outlook based on our current plans and assumptions and subject to risks and uncertainties we described in our filings. And at this call, we expect to grow revenues and adjusted EBITDA on a year-over-year basis for the fiscal year 2024. As noted in Jim's quote in our press release today, I pass offering provides customers with an almost instant positive return and offers our company an organic growth opportunity to more than double our SaaS revenue over the next four to five years with UI. pass as a transformative opportunity for our company. And we plan to make investments to position that product for as a rapid adoption as we can drive even with these investments, 2024 adjusted EBITDA is expected to grow on a year over year basis as we focus on making all the early adopters of bypass, happy round out its capabilities and set the stage for wholesale adoption in select BRP ecosystems over the next four to five years. As a final note, we will be prepaying 500,000 of our long-term debt shortly and expect to have no net debt at the end of 2024 for clarity, meaning debt.
Yes.
With that, we thank you all for listening. And at this time, we'd like to open the call up for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Howard Halpern, Taglich Brothers.

Howard Halpern

Congratulations. Great quarter. Great year and hopefully good start to 2024.

Joe Spain

Thanks, Howard.

Howard Halpern

Yes, in terms of IPS deals, can you talk about deal size compared to you base your basal offerings.

Joe Spain

And yes, we could do that on the K-12 offering back in imagine the K-12 offering it is anywhere from three to probably 8,000 average sale size me I pencil offering and the deals we've closed already is north of 35,000 and annual recurring revenue. So there's bigger ones and there's the average about 35. But Tom, as we enhance the product and add more functionality to the product, i.e., PO processing, that will bring the price up a little bit higher as well.

Howard Halpern

Okay. And is part of the investments that you're going to be making with IPASI., are you going to be able to drive down implementation time as as you have more customers?

Jim Desocio

Yes, that's a good question, Howard. So I've been in the software business my entire career, and this was a brand new release, at least new for our implementation people.
So the first two implementations, the first four implementations took us a little longer.
It was a new product. You find a bug fixes to implementing it. But now we are very, very confident as part of that development process.
We've built some new implementation tools as well.
So rather than our people having to go in and actually do the work for the customer.
These new tools will facilitate them doing the product, the implementation and a good part of their implementation themselves.
So those tools are scheduled to come out and connecting in imminently.
So we're in good shape there.
And as you know, the more you implement, the easier it gets, the more you learn what the customer is looking for, what they're asking and yes, we assume that it's going to get much easier for us and migrating within Constellation into different verticals.

Howard Halpern

Are you going to other other companies to implement I pass or just float out?

Jim Desocio

Yes. So the plan is to do both.
We have hired a sales rep and part of responsibilities or new partners. So now that we're confident that we have a really solid product out there. We are looking at other verticals that we can go into and we are also, you know, Constellation owns 1,000 companies. So we've identified a number of companies that we could start calling on. So again, it is a new release and it is installed now the customers are very happy, very, very happy and we're very confident that we can take this two new verticals within and out of Constellation.

Howard Halpern

And circling back to the case, K-12 offerings, do you still anticipate new districts coming online in the 15 to 20 districts a quarter of a type of a pace that what you're seeing?

Jim Desocio

Yes.

Howard Halpern

Okay. And our last question, yes, you're going to have our last question is you know, you talked about the $400,000 spend. Is that going to be front-loaded in the first half of the year or spread out through throughout the year?

Jim Desocio

It's spread out.
But more towards the back end, we've already hired one sales rep and we're actually have planning to hire some implementation people and then depending on development cycle, yes.
So it's more back end of the year was, I would say, third to third to fourth quarter.

Howard Halpern

Okay.
Thanks.
Keep up the great work and I'm looking forward to seeing the quarter-by-quarter progress Thank you.

Jim Desocio

And thank you, Howard.

Operator

At this time there are no additional questions. I'll hand the floor back to Jim DeSocio for closing remarks.

Jim Desocio

Thank you, Rob. On worker safety and telematics is well positioned for continued success. This is the 4th year in a row.
We've done very well.
We have significant momentum, a strong competitive position, growing markets and a diverse set of solutions with ample cross-selling opportunities. Our business model structured around recurring revenue is working, and we appreciate the continued support of our long-time shareholders and aim to attract new investors as well by delivering strong and consistent financial results.
Thank you for joining us today, and we look forward to speaking again on our next conference call. Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.