Professional Diversity Network Inc (IPDN) 2013 Q1 法說會逐字稿

Ladies and gentlemen, welcome to First Quarter Fiscal 2013 Financial Results Conference call on Wednesday, 15 May 2013. Throughout today's presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator instructions)

I'll now hand the conference over to Michael Polyviou, Investor Relations. Please go ahead, sir.

Thank you, Kirsten. And welcome to Professional Diversity Network's first quarter 2013 conference call. With me on the call this morning are Jim Kirsch, Chief Executive Officer, Myrna Newman, Chief Financial Officer, and Rudy Martinez, Jim's partner and founder of iHispano.com.

Earlier this morning, the Company issued a news release announcing it's Q1 financial results. Please refer to the Company's website under Investor Relations for a copy.

Our comments today include forward-looking statements, including those regarding future events and the future financial performance of the Company, certain non-financial metrics such as registered membership growth, earnings and cash flow projections, direct sales, development and business strategies.

These statements involve a number of risks and uncertainties that could cause actual results and events to differ materially from those from the Company's exhortations.

Please refer to the Company's filings with the SEC for further information on forward-looking statements and for a discussion of risks that could cause actual results to differ materially from those discussed today.

PDN is making these statements as of May 15, 2013, and disclaims any obligation to update them.

I would now like to turn the call over to Professional Diversity Network's CEO, Jim Kirsch. Jim?

Thank you, Michael. And thank you all for joining us this morning to discuss our results for the first quarter ended March 31, 2013.

This is our first conference call as a public company following our IPO in March. For the interest of those new to the Professional Diversity Network, I believe it's important to provide an overview of our business and growth strategy. Our CFO, Myrna Newman, will then discuss our financial results for the first quarter.

Professional Diversity Network develops and operates online websites and networks dedicated to serving diverse professionals in the United States. We have created a marketplace whereby we connect diverse talent to employers seeking to recruit diverse professionals in an EEO/OFCCP-compliant manner.

We currently operate professional online networking communities for Hispanics, African Americans, Women, Asians, the Gay community, the Differently-Abled, and Veterans. Last month, we reached an important milestone as we surpassed 2.5 million registered users.

It has been reported that in 2011 the online recruitment market was $2.5 billion. And, based on our internal analysis, online diversity recruitment spending will be $350 million in 2013. We expect this will increase at a faster rate compared to the general market recruitment revenue over the next decade.

The reason we expect diversity recruitment revenue to accelerate at a faster rate is because of the advent of the multi-cultural majority in American, driven to a degree by the growth in the Hispanic community. We also recognize this growth may accelerate faster than we anticipate, depending upon immigration legislation currently being discussed in Congress.

Additionally, diversity recruitment is of critical importance to employers, primarily for two reasons.

First, there is a business case necessity to hire and retain a diverse workforce that mirrors the diversity of the nation in order to achieve corporate performance goals on all levels. Second, diversity outreach hiring practices are important to the Department of Labor and numerous other governmental agencies.

This is best illustrated by the Executive Order issued in 2011 stating that diversity recruitment should be both comprehensive and integrated. Thus, compliance is an important factor, especially when combined with effective diversity hiring strategies.

Now, let me discuss our activities and key accomplishments during the first quarter of 2013. We completed our initial public offering, and at the same time, all the Company's outstanding debt was converted to stock. The Company is well-capitalized and is positioned to take advantage of a large, addressable market opportunity.

On January 1, we began our diversity recruitment alliance with LinkedIn. We built a diversity recruitment services team to support our new alliance with LinkedIn.

We entered into several diversity job distribution relationships with leading influential organizations, including to, but not limited to, the NAACP, the National Association of Hispanic Nurses, and Vet Jobs.

We launched an internal sales force which now totals 21 diversity recruitment sales consultants.

As we have previously stated, we have identified several areas where we can leverage these funds, including supporting our alliance with LinkedIn via marketing infrastructure, technology and client services.

Additionally, our funds will be used for the establishment and growth of our diversity recruitment sales team, as well as for acquisitions.

While we are excited about potential acquisitions, we believe that growing our core business is and will be our primary focus. Our immediate objective is to support our Lined In alliance and to develop a leading sales organization.

We believe that developing our internal diversity recruitment sales solution team will take time to mature. But, ultimately, will become a critically important asset of the Company.

We are in the process of expanding our marketing efforts to increase our brand awareness with both diverse professionals and recruiters who seek to hire them. Specifically, in terms of marketing, we have recruited our new Chief Communications and Marketing Officer, Mr. Michael Hernandez.

Mike has over 20 years experience in marketing. And he is also currently an adjunct professor of marketing at DePaul University.

Mike will lead our enhanced new media and traditional media marketing campaigns, including, but not limited to, search engine optimization, search engine marketing, print advertising, as well as additional media outlets.

We operate in a highly fragmented sector. And part of our growth plan is to seek and acquire companies that will add to our offering.

We have already identified potential opportunities, and are in advanced level discussions with two of these companies. We hope to finalize and communicate these developments to our shareholders in the next several weeks.

Additionally, we have expanded our diversity recruitment outreach and job distribution to numerous influential organizations within the diverse community, including the NAACP, the National Association of Hispanic Nurses, DisabledPersons.org, and Vet Jobs.

With that, let me now discuss the other major development that occurred in the first quarter, our diversity recruitment alliance with LinkedIn.

The alliance commenced on January 1, 2013. And I am pleased to report that our relationship with LinkedIn has progressed favorably. And we are enthusiastic about this key alliance.

Together with LinkedIn, we dedicated resources to facilitate all aspects of our relationship. In fact, we have begun to provide diversity recruitment services to numerous companies who value diversity within their workforce via our relationship with LinkedIn.

While our fixed fee is lower than our previous recruitment alliance, we believe that our upside potential with LinkedIn is superior.

In addition to our LinkedIn agreement, we have an alliance with the Apollo Group, the parent company of University of Phoenix. Under this agreement, we collect fees for advertising on our websites to promote University of Phoenix.

Many of those who access our websites desire to secure a career that requires an additional degree. We feel that providing thoughtful, thorough and comprehensive information about how to access higher education for working adults through University of Phoenix meets our mission and is of value to those diverse professionals we serve.

Additionally, we provide a careers portal for both University of Phoenix students and alumni, effectively connecting them with employers who have expressed a desire to recruit students and alumni from the University of Phoenix.

In summary, diversity recruitment is growing in importance to employers nationwide. The demand for diverse talent is accelerating as America becomes even more multi-cultural. Furthermore, there has been an increase in government compliance oversight, which has caused employers to seek compliant solutions that generate applicant flow. We believe that we are well positioned to benefit from this increasingly growing market.

With that, I want to hand the call over to Myrna to review our financial results for the first quarter. Myrna?

Thank you, Jim. Total revenue was $919,803, a decrease of approximately $595,000, or 39.3%, for the three months ended March 31, 2013, compared to revenue of $1,514,661 for the three months ended March 31, 2012.

Revenue from our recruitment solutions decreased $464,320 as the fixed fee pursuant to our 2013 Lined In contract is half of the fixed fee pursuant to our 2012 Monster contract.

Revenue from our consumer advertising and consumer marketing solutions was $384,123, representing a decrease of $130,539, or 25.4% for the three months ended March 31, 2013, compared to $514,661 for the three months ended March 31, 2012.

The period-over-period decrease was the result of a modification from a cost for promotion to a cost for lead generation in our agreement with the Apollo Group, also a decrease in our media revenue as we changed our product offering, and a slight decrease in partner job posting revenue.

Now, let me discuss our expenses. For the first quarter ended March 31, 2013, our expenses increased to $1.17 million, compared to $767,000. These increases were due to the build out of our direct sales force, infrastructure investments and the incremental costs of being a publicly traded company.

As we move throughout the course of the year, again, to position PDN for growth, we would anticipate similar quarterly expense levels as we continue to add sales people, build up the brand, and improve our infrastructure.

Our cost of service expense for the three months ended March 31, 2013, was $239,213, an increase of $37,161, or 18.4%, as compared to $202,052 for the three months ended March 31, 2012.

Sales and marketing expense for the three months ended March 31, 2013, was $455,809, an increase of $165,096, or 56.8%, as compared to $290,713 for the three months ended March 31, 2012.

The quarter-over-quarter increase consisted of an increase in commissions, salaries, consulting fees, and customer database management tools.

Our general and administrative expense for the three months ended March 31, 2013, was $421,066, an increase of $167,716, or 62.2%, as compared to $253,350 for the three months ended March 31, 2012.

The quarter-over-quarter increase in general and administrative expense was primarily due to increases in personnel expenses of $111,000 related to the hiring of additional personnel to support our public offering.

As a result of the lower revenue and increased expenses, we reported a net loss for the quarter of approximately $482,000, compared to net income of $706,000 in the 2012 first quarter.

The lower year-over-year revenue, combined with increased expenses of $1.17 million, primarily related to increased marketing, client solution providers, infrastructure support, and our new recruitment alliance, and the incremental costs of being a publicly traded company, which all contributed to our loss.

Our fully diluted earnings per share during the quarter was a loss of $0.11, compared to $0.21 in the same period for 2012. The weighted average shares outstanding in 2013 first quarter were 4,307,774.

Our balance sheet is solid as we have over $20 million in cash and no debt, enabling us to implement the strategic growth initiatives that Jim expressed earlier.

With that, I would like to hand the call back to Jim.

Thanks, Myrna. I am confident that we have a very large total market opportunity. We have the right alliance relationships and the foundations necessary to achieve long term success for our shareholders.

Now, before I turn it over for questions, please allow me to go off-script for a moment. I want to highlight a couple of points that are important to mention.

First of all, I am pleased that, despite a $243,000 operating loss, that our strong liquidity position prior to becoming a public company enabled us to generate over $900,000 of positive cash flow in the first quarter of 2013.

This provides us with the operating cash to effectuate the beginnings of our transformation and long term growth, without having to access the proceeds from our IPO up to this point.

Secondly, I am pleased that in just six weeks of this quarter, we have doubled the size of our Q1 sales pipeline. We have 21 sales executives in place and operating in our new sales team. And we are beginning to see green shoots of progress.

Third, I want to point out to all of those who are on the call today that diversity recruitment is of critical importance to individuals across this nation and to our greater economy.

If we are going to recover from the great recession, it's not going to be because of actions solely that happened in Washington, D.C. It will be, in part, contributed to by companies like ours who are investing their time, energy and capital in order to put America back to work.

Finally, I would like to thank all of those who participated in our initial public offering. I can assure you our board and the management team are fully committed to our long term success, which we approach with a great and immediate sense of urgency.

With that being said, Michael, I'll turn it over to you for questions.

Thank you, Jim. Kirsten, if you can now poll the audience for Q&A?

Thank you, sir. (Operator instructions). Steve Emerson, Emerson Investment. Please go ahead with your question.

Are there going to be any metrics? Or what metrics will come out on the LinkedIn relationship? And, of course, business joint venture can often be very light on data. But will there be any? And are there any on non-financial metrics, number of new client agreements, et cetera? And same for your direct marketing of agreements?

Thanks, Steve. I appreciate the question. It's good to speak with you. I appreciate also you being on the phone so early in the morning on the West Coast, and your participation with our Company.

We will not be receiving information from LinkedIn as to what transactions occurred in the first quarter until 60 days after the end of the quarter. Because of our relationship with LinkedIn, and the mutual confidentiality that we have, it will be impossible for us at this point to be providing specific data and metrics.

What I can tell you now is that we have begun to on-board clients. And that is accelerating week-by-week. The clients that LinkedIn have brought on are a great value to our audience. And we are very pleased with having the initial distribution of clients brought on in a successful capacity and the opportunity to grow that in the most critical quarters being the third and fourth quarter of the year. Thank you, Steve.

Okay. And same question -- what metrics can you provide us with your direct marketing. For instance, perhaps dollar value of the firm proposals you've sent out -- some kind of a measure of -- a numerical measure of your progress for direct marketing?

Great question. Thank you. And I asked that specific question to counsel. And the reason I frame my comments as such was that was done with the advice of counsel.

I can tell you that a) Steve, if you allow me to talk about direct sales for a moment, maybe expanding beyond your question, if that's okay?

Of course.

Thank you -- a) we were able to develop proposals out on the street in the first quarter, as I mentioned. And that is accelerating. In the second quarter, in the first six weeks, we've doubled the size of proposals out in the street. And we are closing business as recently as yesterday.

We're also able to tell you that we have over 120 companies who have received proposals, 62% of those companies being large enterprise, 38% of them being [SNB] businesses.

Additionally, we are currently going through an enhancement and a fulfillment of both our sales process and our customer service support. But we're investing heavily and not just setting up the sales team, but also the establishment of a client services team to help ensure success and renewals.

With that said, I will turn it back to you, Steve, if you have more follow-up questions.

Okay. Will you or do you have a backlog number or booked agreements number that you can share with us? How many agreements did you book, let's say, through today? And what would their annual run rate represent?

Well, in the first quarter -- we can report on the first quarter. And will report on the first quarter. But we didn't start to book a lot of business in the first quarter. In actuality, the business that we booked was primarily business that was in-bounded to us and was of immediate transaction value.

Myrna has the numbers for Q1 on both bookings and what we recorded as revenue. Before I ever answer that question, I will also reiterate that we will be recording the revenue in accordance with GAAP, meaning it's going to be divided during the duration of fulfillment period. Myrna?

Okay. Well, I can tell you that our bookings in the first quarter were just over $86,000. The revenue that we were able to recognize from that was $35,000 -- just over $35,000.

Thanks, Myrna.

Okay. Excellent. And then you said you had 120 proposals out. What, on an annualized basis, revenue would they represent? And what is your typical closure rate on proposals?

I did ask that question before we went into the call. And I can't give specific numbers because of our advice from counsel was that's something we shouldn't be providing.

Okay. Well, thank you very much. And we're eagerly looking forward to your further progress. Will LinkedIn be providing you or will you be able to reveal the dollar value of LinkedIn generated activations? Or any data other than revenue per quarter after 60 days?

In accordance with our current contract, we are not permitted to disclose information relating to details about the LinkedIn relationship.

Of course. Thank you again.

Thanks, Steve.

Thank you. John Merriman, Merriman Capital. Please go ahead with your question, sir.

Jim, good morning. Just a quick question. In terms of some of your larger potential clients, what is the time from inception of the pitch to closing the business -- a). And b) what would be the largest contract that you could fulfill, say, with a Fortune 500 client looking to be compliant?

Thanks, John. Typically, diversity recruitment is bought on budget cycles. And based upon larger companies having a fiscal year end often coinciding with the calendar year end, budgets tend to be associated with allocation in the third and fourth quarter.

The typical incubation time is three to nine months. And I would say three months is an accelerated process. We did have a inbound request from a very prominent employer in February that did not transact until the middle of May. And that is with an employer that sought us out to do business with us in specific terms. So, even when that occurs, you have this incubation cycle.

And, again, I would go back to it's a three to nine month cycle, whether that would be through our alliance relationship or direct.

And in terms of deal size, we have experienced, historically, transactions that have eclipsed $1 million. But not since we have begun our life as a public company. And the typical transaction value in our proposals, I would say, ranges from a few thousand dollars to in excess of $100,000.

Is the margin profile different -- significantly different on -- say, if there's $1 million contract I would expect that you would have a lower margin on that?

The higher value contracts often involve additional diversity recruitment outreach media. And that media has a lower margin. But, still, we anticipate maintaining very high margins.

And if you were to book something in that size, I would expect, obviously, that's a material event for you. So you would -- we would expect to see a separate announcement vis a vis a contract with XYZ Fortune 500 company in excess of $1 million?

Well, if we booked it and the client agreed to it, yes. But, of course, we have to be considerate of our clients and what they want in the public domain. And, obviously, if it was booked through our alliance partner, that would be up to them.

Understood. That's all I've got.

I would caution you, John, and say that we're not out whale hunting. We think that there's a large opportunity. We're current working against prospective client lists in excess of 43,000 companies. And those companies represent a sizeable market opportunity. And we aren't -- we don't consider ourselves dependent on exceedingly large transactions.

Understood. Sometimes the larger companies tend to be the ones that are extremely vigilant on the compliance side. And I would expect that you're going to see your fair share of those kind of guys. So, therefore, the question.

Thank you. Last question.

Thank you. We have time for one more question. Walter Ramsley Walrus Partners. Please go ahead, sir.

Oh, thank you very much. Got a couple of questions, actually, for Myrna, I think.

The Company put out a pro forma earnings figure that included a tax provision. Even though there was a loss in the quarter, does that suggest that the Company expects to be profitable for the year?

Actually, that pro forma tax provision is further explained in our 10-Q, which should be filed relatively shortly. But that pro forma tax provision is really the result of becoming a (inaudible) corporation and setting up certain deferred tax assets and deferred tax liabilities.

Okay. So, you're not necessarily expecting or assuming profitability for the entire year?

No. That is not really anything to do with whether we assume it or not. It was strictly the deferred tax calculation, setting up of a deferred tax item.

Okay. And there was a mention in the press release about positive cash flow of $900,000 or something. What's the definition of cash flow?

Our cash flow from operations was over $900,000 for the first quarter.

But how do you define that? I mean, I'm not sure I understand how you got to that number.

Well, it's the activities directly associated with our operations. So it is not activities associated with financing or investing. Strictly the operating activities of the Company.

Maybe we can drill down out of the accounting world and kind of make sure that we're answering questions in layman speak, if possible. I mean, my assumption is that we received -- we took in more cash than we spent. Right?

Correct.

So, in its simplest forms, we generated cash primarily through the collection of receivables that were associated with the Company prior to going public as part of --

Okay. I get it. That was like $1.2 million right there. Okay. Just one further thing, I guess.   The Company used to do business with Monster. Can you just go through quickly what the process is from converting those former Monster clients to your own direct sales customers?

Right. I think also -- before you get off of Walter's questions on finance, there was also an expense for the acceleration of the note that we converted. It was a non-cash item. But because we converted it before its maturity date -- we didn't pay the note off. We converted it to equity. It resulted in a tax consequence as part of that loss number.

And I'll go back to our sizeable opportunity in terms of companies who we believe are a potential partner for us in diversity and recruitment.

And I had mentioned the number earlier that within our sales force dot com database, we have 43,000 companies. Many, many of those companies have historically used our product during our previous alliance.

We are not specifically associating any client with any former partner. But we do have a very sizeable list of companies that employ and seek to employ diverse candidates that the sales organization is working against. And, once again, that does not include the 1,000 companies that LinkedIn has an exclusive opportunity to transact with.

Well, I was just kind of curious. I mean, out of the Monster population, is Monster really fighting hard to retain that business? Or is kind of an easy sell on your part to transition them to your business?

Well, I would assume any company is going to do whatever they can to transact business as we are. And the term "easy" is not something that we often speak of. So, I would reiterate that we have a very large market opportunity. And we have a great database of clients who we're reaching out to.

And we're pleased that we're at 21 sales professionals. At the end of last year, we didn't have any. And the process of getting those people placed, and getting those people trained, and getting those people seasoned it's a very important activity. A very, a very big accomplishment, I would say. And it's something that we continue to work on perfecting. So, that's how we're approaching the market, Walter.

Okay. Well, congratulations. Thanks for taking the questions.

Thank you, Walter.

Let me just make a closing comment. Jim will be in New York City on May 30, attending the [Marcum] Conference, presenting on the 30th at 4.30 at the Grand Hyatt. So we look forward to seeing you there.

And if you require or want a meeting, please call Jim or call myself, Michael Polyviou, and we'll be happy to facilitate a meeting with Jim. With that, Jim, any closing comments?

All right, Michael. Well, thank you very much. Once again I want to thank you all for participating on the call today. We feel that we are exceedingly blessed to have the opportunity to create a tremendous amount of value for our shareholders. And at the same time provide employment opportunity to diverse Americans and help companies achieve their financial goals.

We look forward to hearing from you in the future. And thank you for participating on this call.

Thank you, ladies and gentlemen. That concludes today's first quarter fiscal 2013 financial results conference call. Thank you for participating. You may now disconnect.