In the third quarter of 2024, Paltalk (ticker: PALT), a technology company specializing in video chat and instant messaging applications, reported a significant decrease in revenue and an increase in net loss compared to the same period last year.
The earnings call, hosted by CFO Kara Jenny and CEO Jason Katz, outlined the company's financial performance, recent legal victories, and strategic moves, including the divestiture of certain assets and the planned acquisition of Newtek Technology Solutions, which is expected to close by the end of the first quarter of 2025.
Key Takeaways
- Paltalk's Q3 2024 revenue decreased by 23.4% year-over-year to $2.1 million.
- Net loss for the quarter increased by 731.2% to $1.5 million.
- The company signed a merger agreement to acquire Newtek Technology Solutions and entered an Asset Purchase Agreement to sell certain assets to Meteor Mobile Holdings, Inc.
- Paltalk won a $65.7 million verdict against Cisco Systems (NASDAQ:CSCO) for patent infringement.
- The company expects to receive no more than one-third of the gross proceeds from the Cisco lawsuit, after deducting litigation-related expenses.
- Paltalk has an ample cash balance of $12.1 million and no long-term debt.
Company Outlook
- The acquisition of Newtek Technology Solutions is expected to have an immediate and meaningful impact on Paltalk's revenue.
- Paltalk plans to enter the cloud infrastructure and cybersecurity sectors, anticipating growth both organically and through future acquisitions.
Bearish Highlights
- The company experienced a decline in subscription revenue, contributing to the overall decrease in quarterly and nine-month revenue.
- Increased professional fees related to the Acquisition Agreement and Divestiture contributed to the rise in operating losses.
Bullish Highlights
- Paltalk's management team is confident in their ability to integrate and grow Newtek Technology Solutions.
- The company's cash position remains strong, allowing for strategic investments and growth opportunities.
Misses
- Paltalk's financial performance in Q3 2024 fell short of the previous year's figures, with significant increases in both net loss and adjusted EBITDA loss.
Q&A Highlights
- Paltalk expects to receive proceeds from the Cisco lawsuit judgment after post-trial and potential appellate proceedings.
- Newtek Technology Solutions provides a variety of IT-related services to clients in heavily regulated industries.
- The acquisition of Newtek is seen as a stepping stone for Paltalk to further expand into the cloud and cybersecurity sectors, with the potential for more acquisitions in the future.
Paltalk's strategic decisions in the third quarter of 2024 highlight the company's transition and focus on growth in the technology solutions business.
Despite the downturn in financial performance, Paltalk's leadership remains optimistic about the future, particularly with the anticipated integration of Newtek Technology Solutions, which they believe will significantly enhance shareholder value.
InvestingPro Insights
Paltalk's recent financial performance and strategic moves have been met with mixed market reactions. According to InvestingPro data, the company's market capitalization stands at $18.29 million, reflecting the market's current valuation of its future prospects. Despite the reported revenue decline, InvestingPro Tips highlight that Paltalk holds more cash than debt on its balance sheet, which aligns with the company's reported strong cash position of $12.1 million and absence of long-term debt.
The company's financial health is further underscored by another InvestingPro Tip indicating that Paltalk's liquid assets exceed its short-term obligations. This financial stability could prove crucial as the company navigates its strategic transition and pursues the Newtek Technology Solutions acquisition.
However, investors should note that Paltalk's stock has experienced significant volatility recently. An InvestingPro Tip reveals that the stock has fallen substantially over the last three months, with price data showing a 49.23% decline in the three-month total return. This volatility may reflect market uncertainty about the company's ongoing transformation and future performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Paltalk, providing a deeper understanding of the company's financial position and market performance.
Full transcript - Paltalk Inc (PALT) Q3 2024:
Operator: Greetings, and welcome to the Paltalk Third Quarter 2024 Results Conference Call. At this time, all participants are on a listen-only mode. [Operator Instructions] Please note, this call is being recorded. I will now turn the conference over to your host, Kara Jenny, CFO of Paltalk. Kara, the floor is yours.
Kara Jenny: Hello, everyone, and welcome to the Paltalk operating and financial results conference call for the third quarter ended September 30, 2024. By now, everyone should have access to the earnings results press release, which was issued earlier this afternoon at approximately 4:00 p.m. Eastern time. This call is being webcast and will be available for replay. In our remarks today, we will include statements that are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements about future results of operations, business strategies and our plans, our relationships with our customers as well as market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management’s current knowledge and expectations as of today and are subject to certain risks, uncertainties, and assumptions related to factors that may cause actual results to differ materially from those anticipated in the forward-looking statements. We offer no assurance that these expectations and beliefs will prove to be correct. A detailed discussion of such risks and uncertainties are contained in our filings with the SEC, including our most recent quarterly reports on Form 10-Q and our annual report on Form 10-K. You should refer and consider these factors when relying on such forward-looking information. The company does not undertake and expressly disclaims any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. On this call, we will refer to adjusted EBITDA, a non-GAAP measure that when used in connection with GAAP results, provides us and our investors with additional analytical tools to understand our operations. For adjusted EBITDA, we have provided a reconciliation to the most directly comparable GAAP financial measure in our earnings press release, which will be posted on the Investor Relations section of our website at www.paltalk.com. And with that, I would like to introduce Paltalk’s Chief Executive Officer, Jason Katz.
Jason Katz: Thank you, Kara, and good afternoon, everyone. We greatly appreciate you taking the time to join us on today’s call. We will discuss our operating highlights and financial results for the third quarter ended September 30, 2024. We will also provide an update on our business objectives and strategies. After my opening statement, our CFO, Kara Jenny, will give a summary of our financial results for the third quarter ended September 30, 2024. Following our prepared remarks, we will move into the Q&A portion and answer any questions that were submitted prior to this call. With that, I would now like to walk you through the recent financial and operating highlights, and near-term business objectives. Our team had a very busy and productive end to the summer, highlighted by the signing of a merger agreement to acquire Newtek Technology Solutions from NewtekOne through a two-step merger process. Pursuant to the merger agreement at closing, we will pay $4 million in cash to Newtek and will issue to Newtek 4 million shares of newly created series of Paltalk’s preferred stock. Newtek is also entitled to receive an earn-out payment of up to $5 million based on the achievement of certain cumulative average adjusted EBITDA thresholds for 2025 and 2026 fiscal years. We also recently announced our entry into an Asset Purchase Agreement with Meteor Mobile Holdings, Inc., pursuant to which we agreed to sell our telecommunications services provider, Vumber, as well as its Paltalk and Camfrog applications and all assets related to such services provider and applications to Meteor Mobile in exchange for a cash payment of $1.35 million; the assumption of all our liabilities and obligations arising out of or relating to the Transferred Assets on or after the closing of the Divestiture. The sale of our Paltalk and Camfrog applications is required under the terms of the merger agreement with NewtekOne. Following the Divestiture, Paltalk will retain all patents, patent applications, any rights or causes of actions related to such patents and patent applications, including the patent litigation against Cisco, and any assets, including intellectual property that are not exclusively related to such applications. We are also entitled to receive that the 6-month period beginning July 1, 2025, and each subsequent annual period beginning on January 1, 2026, 2027, and 2028, certain cash earn-out payments based on a percentage of cash revenue, net of refunds received by Meteor Mobile that is attributable to the businesses of the transferred assets that we are selling. We believe the acquisition of Newtek Technology Solutions will provide excellent value for our stockholders. We expect the acquisition once completed will have an immediate and meaningful impact on our revenue, since NTS revenue in 2023 was approximately 3 times greater than Paltalk’s 2023 revenue. We also expect the acquisition to provide enhanced opportunities for future growth and optimization. We are extremely excited upon closing of the acquisition to enter the cloud infrastructure and cybersecurity sectors with the acquisition of a business we deem ripe for growth, both organically and through potential accretive acquisitions in the future. Given our management team’s extensive technology expertise that has been demonstrated throughout the years, we are confident in our ability to integrate, operate and grow this business and enhance stockholder value. We have an ample cash balance of $12.1 million as of September 30, 2024, and we are excited to focus our attention on growing the technology solutions business. As a result of the entry into the Acquisition Agreement and the Divestiture Agreement, our near-term business objectives now include the consummation of the acquisition and divestiture, integration of the business of NTS following the closing of the acquisition, continuing our efforts to improve user experience with our ManyCam software and optimize features for both consumer and enterprise applications, and continuing to defend our intellectual property. On August 29, 2024, a jury in the district court for the Western District of Texas awarded Paltalk $65.7 million in a verdict against Cisco Systems for infringing U.S. patent number 6,683,858. On October 8, 2024, an order granting a motion for final judgment was entered into in the court in connection with the lawsuit. The final judgment was entered in favor in the amount of the award and started the time for filing any post-trial motions. The exact amount of the award proceeds to be received by us will be determined based on a number of factors and will reflect the deduction of significant litigation-related expenses, including legal fees. Consequently, we estimate that we would receive no more than one-third of the gross proceeds in connection with the award subject to the post-trial proceedings, including any potential appellate proceedings by Cisco. Now, I’d like to pass it to Kara for a financial summary of our third quarter ended September 30, 2024.
Kara Jenny: Thank you, Jason. Revenue for the 3 months ended September 30, 2024 decreased by 23.4% to $2.1 million, compared to $2.8 million for the 3 months ended September 30, 2023. Decrease was attributed to a decrease in subscription revenue of 23.9%. Loss from operations for the 3 months ended September 30, 2024, increased by 333%, or $1.3 million, to a loss of $$1.7 million, compared to a loss of $0.4 million, for the three months ended September 30, 2023. The increase in loss from operations was attributed to the decrease in revenue for the 3 months ended September 30th, 2024, as well as an increase in professional fees of $0.8 million in connection with the Acquisition Agreement and the Divestiture. Net loss for the 3 months ended September 30, 2024 increased by 731.2%, or $1.3 million, to a net loss of $1.5 million compared to net loss of $0.2 million for the 3 months ended September 30, 2023. And adjusted EBITDA loss for the 3 months ended September 30, 2024 increased by approximately 1046.2%, or 1.3 million, to an adjusted EBITDA loss of $1.4 million compared to adjusted EBITDA loss of $0.1 million for the 3 months ended September 30, 2023. Now, turning to our financial results for the 9 months ended September 30, 2024, revenue for the 9 months ended September 30 decreased by 16.2% to $6.9 million, compared to $8.3 million for the 9 months ended September 30, 2023. This decrease was attributed primarily to a decrease in subscription revenue of 17.5%. Loss from operations for the 9 months ended September 30, 2024 increased by 129.9%, or $2 million, to a loss of $3.6 million compared to a loss of $1.6 million for the 9 months ended September 30, 2023. The increase in loss from operations was attributed to the decrease in revenue for the 9 months ended September 30, 2024 as well as an increase in professional fees of $1.1 million in connection with the Acquisition Agreement and the Divestiture. Net loss for the 9 months ended September 30, 2024 increased by 274.3%, or $2.2 million, to a loss of $2.9 million, compared to a loss of $0.8 million for the 9 months ended September 30, 2023. Adjusted EBITDA loss for the 9 months ended September 30, 2024 increased by approximately 265.1%, or $2.1 million, to an adjusted EBITDA loss of $2.9 million, compared to adjusted EBITDA loss of $0.8 million for the 9 months ended September 30, 2023. Cash and cash equivalents totaled $12.1 million at September 30, 2024, a decrease of $1.5 million compared to $13.6 million at December 31, 2023. And we had no long-term debt on our balance sheet at September 30, 2024. We will now move on to questions.
A - Kara Jenny: The first question. Congratulations on winning the trial against Cisco WebEx. Can you provide any color on when you would expect to see any money from that judgment and a date range of when that might be?
Jason Katz: On October 8, 2024, an order granting a motion for final judgment was entered into by the court and signed by Judge Alan D. Albright in the amount of $65.7 million in connection with the lawsuit. The final judgment was entered in our favor and started the time for filing any post-trial motions or appeal.
Kara Jenny: Next (LON:NXT) question. In regards to the Newtek Technology Solutions acquisition, can you please explain and give some detail as to what the business specifically does and perhaps give an example of a client and what it does for them?
Jason Katz: NTS provides a range of IT-related services, including managed IT, managed security, managed backup and disaster recovery, secure private cloud hosting, professional services consulting, product procurement services, web hosting, and e-commerce solutions, as well as implementing technology solutions for enterprise and commercial clients across the United States. NTS delivers secure and compliant services to customers within heavily regulated industries, including financial services and healthcare.
Kara Jenny: Thank you. Final question. As a follow-up to Newtek Technology Solutions, it appears to generate significantly more revenue than your prior Paltalk business. But what gives you the confidence it’s a business with growth prospects? And are there additional likewise businesses you feel you can also acquire?
Jason Katz: Well, managed cybersecurity and managed cloud hosting are growing rapidly worldwide. We believe the acquisition of NTS gives us the ability to enter the cloud infrastructure and cybersecurity sectors, both business-themed ripe for growth, both organically and through potential accretive acquisitions in the future.
Kara Jenny: Thank you. Jason, back to you to close out the presentation.
Jason Katz: Thanks everyone for your support and for joining us today. We’re very grateful for your interest in our business. We look forward to updating the market and our stockholders with our progress on our proposed acquisition of Newtek Technology Solutions, Inc., a wholly-owned subsidiary of NewtekOne, which is expected to close by the end of the first quarter of 2025. Have a great day.
Operator: Thank you. This concludes today’s conference. You may disconnect at this time, and we thank you for your participation.
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