Professional Diversity Network Inc (IPDN) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Professional Diversity Network's first quarter 2014 financial results conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions).

I'd like to remind listeners, that during the call, certain information presented contains forward looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumption.

Potential risk and uncertainties that could cause the Company's business and financial results to differ materially from these forward looking statements are described in the Company's periodic reports filed with the SEC from time to time.

All information discussed in the call is as of today, May 14 and Professional Diversity Network does not intend and undertakes no duty to update future events or circumstances.

At this time, I'd like to turn the call over to Jim Kirsch, Chief Executive Officer.

Jim, please go ahead.

Thank you, operator. And thank you for joining our call today. Joining me today is David Mecklenburger, Chief Financial Officer of the Professional Diversity Network; Rudy Martinez, the founder of our flagship site iHispano.com; Maribel de la Rosa, our Vice-President of Business Development; Kevin Williams, our Marketing and Communications leader; and Dan Sullivan, our Chief Revenue Officer.

This afternoon I will address a few salient points relating to our business and our results in the first quarter of 2014 before turning it over to our CFO for additional financial detail. And finally we will have a question-and-answer session at the end of the call.

After our call this afternoon, we will be hosting one-on-one phone meetings throughout the next several days to provide current and potential investors' time to speak with David and me directly.

Because we have recently received inquiries from investors who are new to the Professional Diversity Network, we will start the call by providing a brief overview of our business, our services and our total addressable market opportunity.

It's important to note that the market for the Professional Diversity Network consist of employers in United States of America who desire to hire diverse talent for competitive reasons and also by employers who desire to hire diverse talent for regulatory reasons.

Interestingly, what we have observed in the past three quarters especially is the intersection of both the need of required compliance and the want of diversity recruitment for a competitive advantage. We believe this positions us favorably to grow in subsequent quarters.

An example of some companies who are now using our platform is Avis Rent a Car, Novo Nordisk, GlaxoSmithKline, McDonald's, Blue Cross Blue Shield and Allstate Insurance. All of these are direct relationships that the Internal Sales Team has fostered over the past few months.

The market for our product is accelerating as we have pointed out in our release of the Diversity Jobs Index report, which has indicated an increase in demand for diverse talent. The unemployment level in the United States for college-educated professionals is approximately 3.5%. However, the scarcity of college-educated qualified diverse talent is even greater than the national average.

Our expertise is identifying diverse talent in an EEO OFCCP-compliant manner and connecting that diverse talent to employers who value diversity. We do that through various means of outreach and do not rely upon active job seekers. Quite to the contrary, our communication systems are aggressively communicating to passive job seekers because of the scarcity in the market.

As we have said previously, 14,000 companies approximately have used our platform over the past several years in an indirect manner through legacy relationships with reselling companies.

Our objective is to convert those 14,000 companies as direct relationships to the Professional Diversity Network. We own eight of our own sites that are focused on various affinities. These are professional networking environments with very powerful semantic search job boards built into that. They represent an affinity for the Hispanic community, the African-American community, the gay community, Asians, individuals with disabilities, women, veterans and active military.

Our technology is built on a mobile platform. We harness semantic search, which our marketing team uses aggressively to be able to connect in real time our members and audience with jobs as they become available on our network. Often these jobs are shared from member to member by promoting career opportunities to fellows who are professionals within their affinity.

We also have extensive reporting and archiving capability for our recruitment partners. In addition to the eight sites that we own and operate, we also have a relationship with over 50 professional organizations and Diversity partners where we distribute our jobs and our career opportunities. And we do this in a manner that is comprehensive of an overall marketing strategy to drive success for both our job seekers and employers.

We are the first company that ever has represented, as a career center, prominent organizations in the collective of the National Association of Black MBAs, the National Urban League and the NAACP.

We have -- in addition to our professional organization partners we distribute now out of thousands of locations around the country that promote career opportunities at community colleges, universities, HPCUs, state-based hiring offices, veteran-hiring offices and governmental-hiring offices.

Finally, we have refined and deployed a leading EEO OFCCP compliance service that distributes jobs in real time to ESDS state job boards throughout the country and provides leading reporting for documentation that the postings were in fact delivered and presented on to the state board with an actual screenshot capture of each individual posting.

I just want to take a moment and express that we work with employers who have very specific pain points when it comes to diversity. They're trying to increase the amount of diversity within especially their middle management and senior management.

And our audience of registered users has -- over 88% of those users are an associate degree or above, 48% of our users have a college degree and 24% of our users have a master's degree. We're able to connect employers with desirable candidates not only when they are active job seekers but communicate opportunities to them when they are passive job seekers.

In addition to that, because of the new regulations we really are unparalleled in our ability to be able to service both the compliance need and efficient diversity recruitment because we have intersected these two very important components. It is our belief that the spirit of the regulations that are behind OFCCP are, in fact, not simply to distribute your jobs but they are, in fact, to get diverse candidates hired. And we believe that we have the leading product in the marketplace.

I'd like to take a moment and read to you a letter that I received in the first quarter from one of the new customers that we onboarded. This letter is from Mr. Dennis Dahl, Director of Human Resources and Strategic Initiatives at PCL Construction.

And it reads, "I am the director of Human Resource Strategic Initiatives. The primary focus of which is diversity for PCL Construction Enterprises Inc., a multi-national construction firm. PCL is rated as the fifth largest contracting organization in the United States and the eighth top green contractor by Engineering News-Record magazine. PCL is currently ranked number 59 on the Fortune 100 Best Companies to Work For list and is honored to have been recognized on this list for nine consecutive years.

As part of Executive Order 11246 Compliance Solution that I empowered to oversee, I was utilizing a service that distributed our jobs via email to state and local employment agencies and offices. The firm also posted our jobs to their site and had micro sites for each local market.

My concerns with my former resources were as follows. Our jobs are not getting posted to some state sites. We suspect because those state employment offices had inadequate staff to receive the emails with numerous position open those emails and manually post the jobs on behalf of the employers. The distribution and documentation method had little or no effectiveness and is not considered to be allowable under the new regulations going into effect as of March 27th, 2014.

Two, the sites where our jobs were being posted were ineffective as they had little or no traffic. And notices were being sent to many agencies that are simply not involved in candidate referrals.

Three. The vendor we used was a check-the-box solution, compliant under the former regulations but not under the new regulations. Very few actual Diversity candidates apply for our positions.

My company and I wanted to accomplish more than the check-the-box. We wanted to reach diverse candidates, comply with the new regulations and follow the intent of the OFCCP regulations which is to conduct effective outreach to diverse candidates that we could actually hire." And he underlines "hire."

"In September of last year, my team decided to use the Professional Diversity Network to provide us with EEO 11246 compliance services notifying state employment offices and referral sources for females, minorities, veterans and persons with disabilities along with significant Diversity recruitment services.

Our cost for the new provider was roughly the same as the former resource, but the level of service and performance has been vastly superior. Professional Diversity Network has excelled at both compliance services and delivering candidates to PCL.

The Professional Diversity Network provided us with white-glove service. Their team was very attentive, proactive and knowledgeable. They had a very streamlined process of launching our campaign and providing training for our recruiters. The reporting under platform was very detailed and documented each critical point, including job use and application statistics. Every aspect of the outreach campaign was tracked down to the hire, including recruitment advertising, social and professional networking and email marketing of our job openings.

Because they have over 2.6 million registered members and 8 of their own websites and thousands of points of distribution and great partners who present their job such as the NAACP help put disabled person in that jobs plus many more partners in their network, they were able to achieve results for us that can be documented.

For example, we went from a handful of job use and actual candidate applications with our former vendor to over 10,000 job use and 1,000 applications in less than 6 months with an average of only 90 jobs posted during the period.

The compliance services provided us with the screen capture which documented each of our jobs that were posted on applicable sites including state job boards. Now we know our jobs are actually being presented to candidates on the state boards instead of sitting in an email folder of an employee of the state."

I say that because I think it's -- I read this because I think it's important to know that we are addressing a very large market and we are doing so with a very unique solution. And this intersection between compliance and diversity recruitment has never been approached the way our company has approached it.

And we're very encouraged about not only our results of connecting with employers who desire these services and the pace in which we're connecting with them, but the actual people that we're helping get jobs at these great companies.

Our future success is highly dependent upon the effectiveness of our Sales team. Our goal is to establish new, direct relationships with employers who have used our platform previously via reseller agreements.

Our direct sales bookings increased for the third consecutive quarter to $764,000 representing a 526% increase over the first quarter of 2013. I would like you to note that we did receive the benefit of our PSI acquisition that we made in the third quarter of last year which added $275,000 to our bookings growth in the quarter.

We're also pleased that we have entered into new direct relationships with leading employers, including the United States Consumer Financial Protection Bureau, Novartis, Capital One and the Peace Corps.

We have also added three very experienced sales executives recently including an expert in government solutions with over 15 years selling online recruitment services to the Federal government including senior leadership positions with both Monster and LinkedIn.

Now, why is all this so important? Number one, we believe as a management team that we must establish new direct relationships in order to build a diversified customer base and a diversified source of revenue.

We also believe that the new OFCCP regulations that went into effect March 27th are game-changing. There's 50,000 employers according to the Department of Labor in the United States that are subject to OFCCP compliance.

Some of those employers we estimate approximately 3,000 of those companies are outsourcing the service now. We believe we have the potential to convert those companies to our clients as we did with PCL Construction with success.

But we also have experienced and we continue to experience that there's another set which we see as approximately 47,000 companies who we can provide these services to give them greater efficiency by outsourcing it to our company.

We also feel that the increase in our direct sales by our inside sales team demonstrates to us that both our sales team is maturing and they are also experiencing acceptance to our price points. We're not getting price pushback. We have market acceptance. I think we're providing an outstanding value for our clients. And I think that our conversations are going better and better and better.

I would like to also comment and say that the beginning of creating a new direct sales relationship is an extraordinarily hard task and it requires tremendous effort and a lot of capital.

I want to thank Dan Sullivan, our Chief Revenue Officer, for the extraordinary work that he has done in getting the momentum going and to putting us in a place where we can achieve our future goals.

In conclusion, we have only begun to scratch the surface of our market. We started 2014 with very strong direct sales and we intend to build upon this momentum in the future. At this time, I'd like to turn the call over to David Mecklenburger, our Chief Financial Officer.

David, please go ahead.

Thank you, Jim. And thank you to everyone who's joined our call today. I'm going to speak to some of the key points in our financials from the quarter and how we are tracking according to our strategy for the long-term financial success that Jim just outlined.

Beginning with revenue, recruitment services totaled $816,000 and included revenue recognized from sales made directly to customers of $180,000 for the quarter. $100,000 of the revenue came from our events division, $42,000 from Ecommerce sales and $449,000 from LinkedIn. As a reminder, this will be the final quarter that we will include LinkedIn revenue.

Revenue from consumer advertising and marketing services was $421,000 for the quarter ended March 31, 2014 and included $350,000 of revenue from Apollo Education Group and $71,000 from our partner organizations. Combined, total revenues grew 35% compared to the first quarter of 2013.

Operationally, we categorized all revenue into four main silos, direct sales for customers, event revenue, Ecommerce sales and partner revenue. These four categories are the focus of our sales and marketing team and we have grown revenues in each of these categories in the first quarter of 2014 compared to the first quarter of 2013.

We benchmark our progress and the success of our sales and marketing efforts according to bookings rather than simply recognize revenue because of the life of a direct sales contract which is typically one year.

Revenue recognition policies for Generally Accepted Accounting Principles require that we recognize revenue and report revenue as services are delivered rather than in the period that the sale is contracted. As a result, the revenues recognized and reported do not directly correspond to our internally tracked sales order written or booked in a particular period.

Bookings of direct sales to customers in the first quarter of 2014 were $375,000 compared to $80,000 in the first quarter of 2013. And bookings for our events division were $275,000 the first quarter of 2014 and not in the comparable quarter of 2013 as we did that acquisition later in the year. For our partner, Ecommerce revenues sales are recognized as booked due to the short-term nature of those sales.

Looking at expenses, our total operating expenditures for the first quarter of 2014 increased 53% compared to the same period one year prior from $1,167,000 to $1,790,000. Included in these operating expenses, we break them down as follows. Our cost of services was $366,000 in the first quarter of 2014 compared to $239,000 in the first quarter of 2013. The primary increase in these expenses was the operation of the career networking events produced by our events division. We also had an increase in revenue sharing cost as a result of increased partner (inaudible).

Sales and marketing cost were $796,000 in the first quarter of 2014 versus $456,000 in the first quarter of 2013. As we have stated, our new business model includes investment in our sales and marketing force in order to sell directly to target customers.

We began building this team in March last year. And as of March 31, 2014 we had 26 team members focused on sales and marketing. Salaries, wages and commissions for this team increased approximately $310,000 in the first quarter of 2014 compared with the first quarter of the prior year.

General administrative expenses were $536,000 in the first quarter of 2014 versus $421,000 in the first quarter of 2013. This increase is primarily due to the cause of being a public company which became effective in the last month of the first quarter of last year.

The Company continue to maintain a strong balance sheet by closely monitoring and controlling cost. We plan to efficiently manage our cash reserves to allow the business to mature, engage in strategic projects and provide funding for future acquisitions.

Cash and short-term investments totaled $18.3 million as of March 31st, 2014 compared to $18.7 million at December 31st, 2013. Total working capital as of the end of the first quarter in 2014 was $18.1 million.

Accounts receivable decreased $258,000 from December 31st, 2013 to March 31st, 2014 primarily due to the cancellation of the LinkedIn contract. The deferred tax asset grew by $180,000 as a result to pre-tax net losses incurred in the fist quarter of 2014.

In summary, the first quarter of 2014 saw a strong growth in our customer base as the Company transitions from model of dependency on one or two large customers to a diversified base and gains [corrections] selling to the large potential audience for our products and services. We are well-positioned with a unique business model to achieve long-term success.

Jim, I will hand it back to you.

Thanks, David. And thank you all very much for your time today.

Starting and maturing a new sales team requires effort and cost. Getting the ball rolling is the hardest part. Now we feel the friction is reducing and the pace is increasing. I believe we have achieved significant milestones in the first quarter and are continuing to see returns on our efforts towards direct sales. We will continue to focus on business fundamentals as well as ways to increase shareholder value.

Prior to turning the call back over to the operator, I wanted to communicate once again that we were making ourselves available for the next several days to anyone of you who are on the call today or anyone who should listen to the call subsequently who would like to speak to David or I directly.

With that being said, I'll turn it back to the operator for any questions that any of the callers may have.

Operator?

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions).

Our first question comes from the line of Andrew D'Silva from Merriman Capital. Please proceed with your question.

Thanks for taking my call. I just have a few questions. If you back out your events division bookings, your bookings growth was essentially flat sequentially. How is that possible? Isn't the fourth quarter your [seasonally] highest period by a long shot? Did something structurally changed that resulted in such a strong bookings for the quarter?

Yes. I'll take that, David.

So as a management team, we do not anticipate the level of sales that the sales team was going to generate. We surpass our goals, our internal goals. The recruitment business is very heavily weighted in the fourth quarter. We did see a very strong increase from the third quarter to the fourth quarter. We anticipated that we would have an increase year over year over the quarter, but we never anticipated that we would eclipse the fourth quarter of last year with the first quarter of this year.

Traditionally, budget cycles are such that our products are purchased by our customers very heavily weighted as we have said in the past in the middle of the third quarter to the latter part of the fourth quarter.

So we were pleased with that. We're also pleased with the amount of proposals that were put out during the quarter and the level of engagement that we had. It was -- for our internal sales team it was somewhat of a breakthrough for us.

Would you be surprised if this level of engagement continued in the second and third quarter or would you suspect that it would decline and the fourth quarter will continue to be, yes, the best period for you?

We're not providing any guidance in that specific form or detail. What I will say to you is that our pipeline is much higher than it's ever been. And the number of proposals that we have out are much higher than they ever been. And we're not seeing a low of activity, but we do have a long sales cycle and until the sales team matures to a greater level we're not going to be providing specific guidance as quarter to quarter sales.

But as far as the macro team that fourth quarter just seasonally over the industry is still expected just to be the biggest quarter comparatively?

Absolutely.

And then for you events division, you just said you generated $100,000 in revenues for the quarter. What were your associated expenses of that?

The associated expenses would be events business in the first quarter --

It's very hard for us to --

Yes, I don't have that breakout.

Yes, he doesn't have it now. But I think it's important to note that because of the way we recognize revenue we actually I think put I think $275,000 for the quarter.

Right.

But, Andrew, we'll be happy to get you that number after the call.

That'd be perfect. And then should we expect the events division to be seasonal as well or is that kind of a different structure that your legacy business?

The events business is a different structure. It's not on the same life cycle. It's more of a six to eight weeks sales cycle. What I would say is -- and excuse me for going off the balance sheet or the profit and loss statement for a minute. I think it's important to note that as part of the events series we have had early extraordinary success in one of the fundamental aspects and motivations behind acquiring the events business and that is to promote the professional diversity network to job seekers and also to employers.

And I would like to just take a couple of moments and then ask one of my teammates to contribute to this point. But we did have significant membership growth in the quarter. I don't have a data in front of me, but we eclipsed to 9% increase in new members. We've never grown at that pace before. And I think one of the reasons is the investment we've made on the ground in having these events.

But I would also like my colleagues to speak to the events and the diversity roundtables that we have held in now Chicago, Washington DC, New York City and in Boston. So if maybe Kevin Williams, you might want to start and then Maribel and Rudy can contribute. Just add a bit of context around -- let's not get too broad here and keep the comments the tight because we're short on time. But I would say the New York event and the host of New York event and the Boston event and some of the highlights of companies who have attended the event and the early not only awareness but revenue that has associated by those events occurring.

Yes. This is Kevin Williams. Hello, everyone. Specifically around events in branding and building awareness for Professional Diversity Network, the events worked very well in that regard because what we're doing is traditional advertising to assist folks with understanding where the event is, what and who we are and the kinds of employers that are there looking for and seeking diverse talent relative to increasing their talent pipeline.

And that's been critical for us because all of the diversity and multicultural media outlets has basically been involved with our events particularly in these large cities, New York, Chicago, Boston and DC.

So we've been very effective in attaching our brand in the marketplace, building awareness in the marketplace while at the same time associating our audiences with employers in those markets looking to engage diverse talent.

This is Rudy and I know what Kevin is saying here. The roundtable launches have been fantastic from a branding standpoint. And we've been able to engage with companies such as Goldman Sachs, Morgan Stanley, Marsh, perhaps just many great Fortune 500 type companies with the executive levels -- executives that come to the roundtables have been fantastic.

Thanks, Rudy.

And I would say that Blue Cross Blue Shield, Allstate Insurance are a couple of examples of attendees of those events who have already transacted with the Company. And we do have relationships, ongoing conversations and proposals out to a number of employers.

So what's in essence happening is the events business is helping us build membership. It's helping grow our brand. It's helping build awareness within the executive employer recruitment community. And it's helping to transact the business in a broader comprehensive level and scale than what was seen at the events business before. So that's an exciting development in our company.

That is exciting. Are you seeing any of these initiatives result in increased traction in your advertising arm? I mean that segment has been, you know, largely flat year over year and sequentially. I'm just trying to see if there's anything that could uptake that in the future.

I think it's important to know that we're really focused now on recruitment advertising so that what could be deemed advertising and consumer advertising is now largely being directed and focused to employers and advertising on their behalf to find diverse talent.

We are and have been engaged by great, great companies and organizations to promote their brand in non-recruitment areas as well. One of those highlights is the Peace Corps which we're running in national very, very significant campaign for the Peace Corps.

Okay. All right. Thank you very much. That's all I have right now. I'll hop back in queue.

Thanks. Appreciate it.

(Operator Instructions). Our next question comes from the line of Ron Chasse, a private investor. Please proceed with your question.

How many -- good afternoon. How many salespeople did you start the year with? And how many do you have now?

Well, I think let me give you a deeper answer to that. We currently have 26 people in sales and marketing that is up modestly. But we've done our rotation as we've matured the sales force.

And I think I'll let Dan take this question and specifically address why we have decided to retain very senior salespeople especially around government solutions business which has already started to yield results for us and why we decided to transition out of some individuals who were less experienced.

Dan?

Yes, sure, Jim. Thank you.

Ron, to answer your question, we're essentially flat at the end of first quarter with the relative headcount than we are -- than we were when we started the quarter. But we did have a transition and that we have departed some of our junior sales team out that were principally doing a lot of sort of evangelizing and cold calling.

And we've made a switch to bring in and to replace those individuals with some more seasoned individuals as we are finding that we are moving more from building an awareness stage to getting involved into more of a advanced sales and solution-based conversation.

So the headcount has essentially remained flat. However, the experience level has changed. The one significant thing that we've been able to do is we are able to secure the services of a very well highly respected individual in the government solution space who's going to be working very closely with us as we build out a strategy to go after federal agencies in a more significant way.

We are finding that federal agencies are more and more being pressed to diversify their employment population and they're also on the precipice of having significant turnover as their employment populations are aging out at very, very significant rate. So we feel that that's a really significant opportunity. It was an opportunity for us to add some headcount to really take advantage of what we think will be a great sales opportunity.

So you have qualitatively improved the sales force despite the fact that the headcount was flat?

Yes. I mean yes. And if you just look at on a yield of experience or level of experience both in the industry or as a sales professional, we have significantly upgraded from that perspective absolutely, yes.

And obviously that's working for you, right?

Yes. And I think, A, that's working for us. And, B, with the advancement that we're having with our plan and the traction that we're getting, it makes us a more appealing, desired place to come. And it makes it a lot easier for me to recruit based on the fact that we have momentum in the marketplace and we're able to capitalize on that momentum by being able to attract good, seasoned professionals who view the growth opportunity with our organization to be significant to them.

So are you planning to add additional salespeople this quarter?

Not through the balance of the second quarter. I think we will be consistently on sort of an analysis mode on that as our top line increases. And we feel as though that there's an opportunity that headcount can representatively increase the top line. We will do that.

However, I will tell you that we will always be on the lookout for high quality, experienced talent in this space that could be (inaudible) to our efforts. And from an opportunistic perspective, if it wasn't necessarily in our plan, but we had a great opportunity to secure a really top talent in the space, we would not hesitate to do that.

Good. I think you should use your recruiting services.

Yes, we do.

All right. Okay. One more question. Are you considering -- are you considering -- as Jim said, no pushback on pricing -- are you considering the prospect of raising prices?

I think at this point what we have really done is we have found -- we have sort of found our sweet spot with pricing. I think that what we are doing is we're delivering especially in the compliance side, Ron, I think the maturation of the customer conversations has accelerated based on the new compliance regulations.

And when you're talking about essentially ensuring yourself from a compliance perspective against multi-million dollar federal contract, there isn't a lot of price resistance. But we do recognize that there are other competitors in the marketplace that will always play below our value card.

So if we feel as though that the marketplace will enable that and that our pricing can, has enough elasticity to increase that, we'll certainly monitor and do it. At this point, there's enough room for top line growth with our existing pricing that our growth mode doesn't necessarily have to be predicated on price. I think we're in really [pure play] customer acquisition mode right now.

Okay. Thank you.

Thanks, Ron. Thanks, Dan.

And I would just add so that there's total clarity that the current sales team assets constructed is capable of doing a lot of business. And we don't need to hire additional sales executives to start pushing the $20 million revenue mark.

What we need to do is we need to mature these folks, we need to mature the pipeline, we need to continue to have great conversations, we need to continue to close business. And we feel very strongly that we've got a lot of capacity within the organization to grow our revenues from where we're at today without growing our fixed expenses.

That is all the time we have for questions. I like to hand the call back over to management for closing comments.

Thank you, operator.

And thank you all for joining the call today. I want to make sure that everyone understands that this is an important call as it is -- has everybody together. And it gives you the opportunity to hear from the Company directly.

But we want to encourage you to reach out to us and gain a better understanding about our business, our philosophy and the positive impact that we believe that we were having on our society. So thank you very much for joining us.

I want to thank my management team and I want to thank my colleagues. We're looking forward to a great year in 2014 and using that as a springboard to many years of success to come.

Thank you all very much and have a good afternoon.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.