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PI

PALTALK, INC. (PALT)·Q2 2024 Earnings Summary

Executive Summary

  • Revenue declined 24.7% year over year to $2.23M, driven by a 47.7% drop in virtual gift revenue; net loss was $(0.93)M versus net income of $0.14M in Q2 2023, reflecting higher professional fees and transaction costs tied to the NTS deal .
  • Management announced a transformational agreement to acquire Newtek Technology Solutions (NTS); as a condition, Paltalk must divest its Paltalk, Camfrog, and Tinychat applications, while retaining IP and related assets including the Cisco litigation .
  • Cash was $12.8M, down $0.2M sequentially; no long‑term debt. Advertising revenue grew 29.2% YoY to $0.09M, partially offsetting subscription declines .
  • Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was unavailable; stock catalysts pivot to NTS acquisition path, divestiture execution, and the Cisco trial commencement on August 26, 2024 . S&P Global estimates unavailable.

What Went Well and What Went Wrong

What Went Well

  • Entered into an agreement to acquire NTS; management expects the acquisition to have an immediate, meaningful revenue impact as NTS 2023 revenue was ~3x Paltalk’s 2023 revenue. “We are extremely excited to enter the cloud infrastructure and cybersecurity sectors...” .
  • Advertising revenue increased 29.2% YoY; company attributes growth to new partners and new ad units (noted in Q1 commentary and continued trajectory) .
  • Strong liquidity and no long-term debt; cash $12.8M at quarter end provides flexibility to pursue strategic initiatives and defend IP .

What Went Wrong

  • Total revenue fell 24.7% YoY to $2.23M due to a sharp 47.7% drop in virtual gift revenue; subscription revenue decreased 26.1% YoY .
  • Loss from operations widened to $(1.17)M vs $(0.28)M in Q2 2023, driven by lower revenue and higher professional fees; adjusted EBITDA loss increased to $(0.94)M .
  • Management cited macro softness impacting discretionary spend by subscribers, and incurred ~$0.3M of expenses related to the NTS transaction in Q2 .

Financial Results

Quarterly Performance (GAAP and Non-GAAP)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$2.692 $2.598 $2.225
Net Income (Loss) ($USD Millions)$(0.283) $(0.492) $(0.934)
Diluted EPS ($USD)N/A$(0.05) $(0.10)
Loss from Operations ($USD Millions)$(0.494) $(0.762) $(1.174)
Adjusted EBITDA ($USD Millions)$(0.223) $(0.497) $(0.936)
Total Costs and Expenses ($USD Millions)N/A$3.360 $3.399

Year-over-Year (Q2 only)

MetricQ2 2023Q2 2024
Total Revenues ($USD Millions)$2.956 $2.225
Net Income (Loss) ($USD Millions)$0.136 $(0.934)
Loss from Operations ($USD Millions)$(0.278) $(1.174)
Adjusted EBITDA ($USD Millions)$(0.015) $(0.936)
Subscription Revenue ($USD Millions)$2.885 $2.133
Advertising Revenue ($USD Millions)$0.071 $0.092

Segment/Category Breakdown

Revenue CategoryQ4 2023Q1 2024Q2 2024
Subscription Revenue ($USD Millions)$2.583 $2.483 $2.133
Advertising Revenue ($USD Millions)$0.109 $0.115 $0.092
Total Revenues ($USD Millions)$2.692 $2.598 $2.225

KPIs and Balance Sheet Indicators

KPIQ4 2023Q1 2024Q2 2024
Deferred Subscription Revenue ($USD Millions)$2.043 $1.890 $1.891
Cash and Equivalents ($USD Millions)$13.568 $13.047 $12.796
Net Cash Used in Operating Activities ($USD Millions)$0.099 $0.521 $0.251

Consensus vs Actual (Q2 2024)

MetricConsensus (S&P Global)Actual
Revenue ($USD Millions)N/A – Unavailable$2.225
EPS ($USD)N/A – Unavailable$(0.10)

S&P Global consensus estimates were unavailable for PALT Q2 2024; comparisons to Street consensus are not possible at this time.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Financial Guidance (Revenue, Margins, OpEx, EPS, Tax)FY/Q3-Q4 2024None providedNone providedMaintained (no formal guidance)
NTS Acquisition Consideration and Earn-outTransaction; FY 2025–2026 earn-outN/A$4.0M cash + 4.0M preferred shares; earn-out up to $5.0M based on cumulative average Adjusted EBITDA thresholds (2025–2026)Announced
Divestiture of Paltalk/Camfrog/Tinychat (closing condition)Prior to NTS closingN/ARequired divestiture of apps and all related assets/liabilities; Paltalk retains patents/IP and Cisco litigation rightsNew closing condition
Litigation Timeline (Cisco)August 2024Trial expected Aug/2024Trial set to proceed August 26, 2024Schedule reaffirmed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
M&A / Strategic PivotActively identifying potential mergers/acquisitions; ManyCam expansion; focus on efficiencies Definitive agreement to acquire NTS; plan to divest Paltalk/Camfrog/Tinychat; enter cloud infra/cybersecurity Accelerated strategic shift
Macro / Discretionary SpendOptimized expenses; stabilized revenue; ad growth Softness in subscriber discretionary spend impacting revenues; promotional spend adjustments planned Macro headwind intensified
Product Performance – ManyCamIntegration into Paltalk; enterprise expansion Launch of Version 9 with revamped UI/templates; continued upsell/integration Product improvement continues
Regulatory/LegalCisco trial set (Apr 2024 then Aug 2024) Final pretrial held Aug 1; trial to proceed Aug 26, 2024; patent claims confirmed Milestone imminent
Advertising MonetizationQ4/Q1 growth in ad revenue noted Advertising up 29.2% YoY; small base Positive but modest contributor
Marketing EfficiencyReduced OpEx; improving efficiency Further optimizing promotional/marketing spend given macro softness Ongoing optimization

Management Commentary

  • “The announcement of our definitive agreement to acquire Newtek Technology Solutions... marks a transformational transaction for our company... We have an ample cash balance of $12.8 million and are excited to focus our attention on growing the technology solutions business.” — Jason Katz, CEO .
  • “We believe our second quarter results reflect a softness in discretionary spending by our subscribers due in part to the overall economic and inflationary environment... we expect to continue to make adjustments to our promotional spending until we see a pick-up in our metrics... our second quarter results of operations included approximately $0.3 million of expenses related to the NTS transaction.” — Jason Katz .
  • “We are extremely excited to enter the cloud infrastructure and cybersecurity sectors with the acquisition... NTS’ revenue in 2023 was approximately 3x greater than Paltalk’s 2023 revenue.” — Management remarks .
  • “Our trial against Cisco is set to begin on August 26, 2024, and we look forward to continuing to defend our intellectual property.” — Management .

Q&A Highlights

  • Format: Management addressed pre-submitted questions; no live analyst Q&A transcript provided .
  • Themes addressed:
    • Acquisition rationale and integration confidence given management’s technology expertise .
    • Promotional spend optimization amid macro-driven discretionary spend softness .
    • Clarification of divestiture requirement for chat applications as a condition to closing NTS .
    • Cisco litigation timing and prior confirmation of patent claims 1–10 .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for Q2 2024 EPS and revenue were unavailable for PALT, preventing a quantitative beat/miss assessment. S&P Global estimates unavailable.
  • Given reported results, investor models may need to incorporate: lower subscription revenue run-rate, higher professional fees and ~$0.3M transaction costs in Q2, and the prospective consolidation/divestiture impacts around the NTS acquisition .

Key Takeaways for Investors

  • The NTS acquisition and required divestiture represent a strategic pivot from consumer chat applications to enterprise cloud and managed security—execution on divestiture and integration are the immediate stock catalysts .
  • Q2 showed pronounced revenue pressure and margin degradation due to macro softness and elevated professional fees; watch for stabilization in discretionary spend and the impact of promotional adjustments on KPIs .
  • Liquidity is strong with $12.8M cash and no long-term debt, providing optionality to close the deal and navigate divestitures and litigation .
  • Advertising revenue growth continued but remains a small base; core subscription declines highlight the importance of strategic shift and product enhancements (ManyCam v9) to drive monetization .
  • Near-term events: Cisco trial start on August 26, 2024; any verdict/settlement outcomes will be net of significant legal costs and are inherently uncertain—trade the headline risk but model conservatively .
  • Medium-term thesis hinges on successful entry into cloud infra/cybersecurity via NTS, realization of earn-out EBITDA thresholds, and clean execution of the divestiture to unlock the deal closing .
  • Without available Street consensus, focus on sequential metrics, cash burn, and operating expense trajectory as management pursues strategic transformation; adjust assumptions for higher transaction/professional fees in the near term .