Intellinetics(INLX) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue for Q3 2024 increased by 8% to $4.6 million compared to$4.2 million in Q3 2023 [17] - Subscription software revenue increased to $1.76 million, with SaaS growing by 8.5$2.6 million, representing 56.7% of total revenue [18] - Consolidated gross margin decreased slightly by 20 basis points to 61.1% due to unfavorable projects in document conversion services [19] - SaaS margins decreased slightly to 83.7% from 84.5% but remain strong [20] - Operating expenses increased by 37.3% to $3.1 million, driven by share-based compensation, sales and marketing investments, and general administrative expenses [21] - Net loss for Q3 was$393,000 compared to net income of $209,000 in Q3 2023 [23] - Adjusted EBITDA for Q3 was$479,000, down from $709,000 in Q3 2023 [23] - Cash position at September 30, 2024, was$2.5 million, with total assets of $19 million and total liabilities of$8.6 million [24] - Debt principal outstanding was $1.3 million after$800,000 in prepayments during the quarter [25] Business Line Performance - Payables Automation Solution (IPAS) is the primary growth driver, with strong customer acceptance and additional functionality around purchase orders expected by year-end [8][12] - IPAS is being deployed in the K12 ecosystem with a beta customer already live and additional orders secured [13] - The company is actively pursuing opportunities with niche ERP providers to outperform generic solutions [14] Market Performance - The company presented at the Build Smarter Homebuilding Industry Conference, where a customer showcased strong ROI from IPAS, leading to significant interest [11] - The K12 market, while having smaller transaction volumes, offers faster implementation times compared to homebuilders [13] Strategic Direction and Industry Competition - The company is investing in scaling its business, including hiring additional sales reps, an implementations manager, and expanding marketing efforts [15] - Investments are expected to temporarily reduce EBITDA but are anticipated to bring revenue opportunities that will exceed the spend by 2025 [15] - The company is focusing on integrating IPAS with new ERP systems and expanding into new verticals [31][33] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the future, citing strong SaaS assets, a cash-generating business model, and a competitive position in growing markets [38] - The company expects to grow revenues year-over-year for fiscal 2024, with adjusted EBITDA expected to decrease modestly due to increased investments [26] Other Important Information - The company has paid out $2.7 million in acquisition earnouts since 2021 and reduced long-term debt by$3.6 million since December 2022 [9] - The company has a strong deferred revenue position, particularly due to government and K12 contracts running from July to June [24] Q&A Session Summary Question: Total number of live IPAS customers entering 2025 - The company expects to have 11 or 12 customers live by early 2025, with a significant new customer providing $250,000 in annual revenue [27] Question: Pipeline potential from the homebuilders trade show - The company had a strong presence at the trade show, with over 50 attendees at their breakout session and positive feedback from a customer testimonial [28][29] Question: Pace of implementations and functionality - The company anticipates faster implementations as they formalize their release schedule and improve tools and product knowledge [30] Question: Expansion to other ERP systems - The company is actively working on integrating IPAS with other ERP systems, including a co-marketing agreement with Software Unlimited for the K12 market [31][33] Question: SaaS revenue inflection point - The company expects a meaningful inflection point in SaaS revenue in the second half of 2025, as new deals signed in late 2024 will start recognizing revenue in early 2025 [34][35] Question: Activity in Michigan - The company expects activity in Michigan to remain consistent through the end of the year, with low expectations for government-related business until the New Year [36][37]