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ZAIO RECORDS STRONG FINANCIAL RESULTS
Multiple revenue streams take quarterly results to new heights
On November 19, 2007, Zaio reported third-quarter revenues of $4.9 million. On a
quarter-over-quarter basis, this represents an increase of 188% or $3.2 million.
Year over year, the increase is significant, as only $51,000 was recorded in the
same quarter in 2006.
“Revenues were up in the third quarter, and are expected to rise again this quarter,
largely because we have more revenue streams,” says Zaio Chief Financial Officer
Rod Mitton. A number of transactions contributed to the notable increase. The third
quarter marked the first time that deferred revenue from the sale of Zones migrated
into the new revenue category. It was also the first quarter that reflected income
from the purchase of Kirchmeyer & Associates, Inc., Real Info Inc. and Virtual Imaging
Corporation.
To understand the impact on ongoing operations, let’s quickly review how Zaio earns
revenues. It is important to note that while the Company’s revenues are reported
in Canadian dollars, all revenues and most expenses are realized in U.S. dollars.
Zone License Fees
Zaio earns revenue from appraisal Zone license fees. Each Zone licensee pays a nominal
administration fee when they purchase a Zone as compensation for recovery of the
Company’s costs incurred to initiate the contract. This fee – typically US$500 –
is recognized as revenue at the time the license agreement is signed. The balance
is recorded as revenue once the licensee has been supplied with photographs and
property data for their Zones. The current cost of an individual Zone is US$9,800.
The Zaio Zone license fee has gradually increased from US$5,000 in 2005, with discounts
available for multiple purchases.
In the third quarter, the Company concluded the photography and data-matching process
and began handing Zones back to Zone appraisers, allowing them to begin their process
of inspecting homes and preparing their appraisal reports. This important transition
will continue to accelerate during 2007 and into next year until all Zones sold
have been integrated and returned to the appraisers. As Zaio and its Zone appraisers
populate the database with fully completed appraisals, interest in this database,
by lenders throughout the nation, and the corresponding revenues generated from
this database are expected to grow. During the quarter, Zaio handed over photographs
and data for 127 Zones to appraisers for completion of the valuation process, representing
$713,000 in revenue. A further $115,000 was included in revenue from deposits made
on the sale of 204 Zones during the quarter.
Traditional Appraisal Products
Zaio's primary source of revenue – which is recurring – is generated through the
sale of appraisals, photographs and other valuation products. Zaio generated revenues
of $4.1 million during the third quarter from its various business units. About
50% of these recurring revenues came from the acquisition of Kirchmeyer & Associates,
which closed on July 16, 2007, with the balance coming from Realink, acquired in
April 2007, as well as a month of revenue from Virtual Imaging, which was acquired
in late August 2007.
According to Chief Executive Officer Thomas Inserra, “The strategic acquisitions
made during the first nine months of this year have provided significantly more
resources to accelerate our growth. Today, Zaio is able to deliver a full range
of valuation services in all 50 states. These acquisitions have provided immediate
relationships with over 400 institutional clients ordering a range of valuation
services that are generating significant recurring revenues for the Company.”
“The increase in revenues is significant only to the extent that investors value
a company on the basis of revenues and not necessarily activity,” added Mitton.
The transfer of funds from deferred to earned revenue is just one of four tracking
mechanisms; rate of photography, Zone sales and the rate at which Zones are appraised
being the other three.
At the end of the quarter, Zaio had sold a total of 1,300 of the estimated 7,500
Zones available across the country; and there are currently in excess of 14 million
photos in the database. Mitton says management would like to significantly increase
the rate of photography. “It’s the foundation upon which we’ve built our business
model. Prior to the Christmas and New Year holidays we were at 100,000 photographs/day
and we’re looking to double that sometime next year.” A substantial portion of the
proceeds from the recently closed $15 million private placement will be used to
accelerate photography and data-gathering operations.
We welcome your ideas! Please send feedback or ideas for future topics to
newsletter@zaio.com.
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