PNI Digital Media CEO Kyle Hall talks to Cantech Letter

PNI took flight in the latter half of 2013 and hit a recent peak of $1.47 late last month. The company, which offers consumers an array of ways to personalize photography that is increasingly being taken with mobile devices, has announced deals with household names like Walgreens and Office Depot.

Management says it is seeing growth in the photo market spurred by higher value items such as photo books and canvases.

The company has also been rejigging its business model. One successful change was to transition its clients to a model in which PNI gets paid based on percentage of retailer’s revenue earned instead of the number of photos it uploads.

Cantech Letter talked to CEO Kyle Hall about what’s next.

Kyle, it’s been a great year for PNI. What, do you think, has spurred the run in your stock?

Nick, You’re correct in that it has been a great year-to-date for PNI stock. At $1.31 (as of April 2) we are trading close to our 52-week high of $1.38. Year-to-date we have gained 19.09% and have outperformed the S&P 500 by 316% during the last year. We would attribute that price momentum to a number of milestones over the last year including our recent strong financial results.

You posted a pretty strong Q1 recently…

Yes, on February 11, we reported better-than-expected Q1 results. Some of the highlights included record revenue of $8.2 million, up 24% from Q1 FY2013 and up 52% from Q4 FY2013, which beat consensus of 7.5 million. Our EBITDA number of $2.0 million beat consensus of $1.4 million. And our transaction volumes rose to 7.5 million . These results were underpinned by progress against a number of initiatives such as transitioning all of our retail customers to contracts based on a percentage of the revenue they earn from PNI-enabled products, rather than the number of photos uploaded. This transaction fee model better positions us to participate in the revenue growth we’ve have been seeing in our retailer partners. As well we deployed our new cards & invitations solution with our largest retailers which has exceeded our expectations. We also expanded our mobile offering with our integrations with cloud media sources, including Dropbox, Google drive, Facebook and Instagram. This helped boost our traditional print revenue processed for our partners 17% to $45.5 million in direct contrast to the overall industry trend of prints not growing.

Having the functionality to quickly and easily print a picture that is stored on your phone is relatively new, and I see it taking sometime for consumers to change their habits.

A recent reported cited by Cantor Fitzgerald analyst Justin Kew revealed that as many as 55% of smartphone photographers have experience with ordering photo output products, such as photo prints, photo books, calendars and cards. Do you see this as a long-term trend?

We do believe this is a long-term trend. Having the functionality to quickly and easily print a picture that is stored on your phone is relatively new, and I see it taking sometime for consumers to change their habits. Partnerships like the one we have with Samsung, where our print functionality will be embedded directly on the phone and easily sent for printing from within the gallery, makes adoption even easier and hopefully will encourage more users to order products this way. We see our API also helping us in this camp as we make it simple for developers to integrate our functionality into their app, helping expand our reach. Still, with only a few tablet or smartphone apps available to help facilitate ordering photos from your phone, a lot of people are still uploading their photos to their computers and ordering from there, but we believe that this will continue to evolve as consumers become more familiar with the technology. This is evidenced in our strong growth in our mobile orders.

What kind of progress have you made with regard to getting PNI Digital’s solution in physical locations?

Kiosks remain an integral part of our omni-channel platform, ensuring that no matter how a customer has a picture stored, they can get it printed quickly in-store. Our existing kiosk business remains fairly steady, but we envision that area of the market evolving from traditional kiosk to an in-store tablet based computing solution as our mobile and HTML5 solutions mature.

What is the financial nature of a deal you might have with a retailer such as Walgreen’s or Office Depot. How do you make money?

We recently transitioned the last of our major retail customers to revenue-sharing contracts, from contracts where we were compensated based on the amount of images uploaded to our platform. We now earn a percentage of the revenue that our retailers earn from products ordered using the PNI platform.

We decided to make the switch to HTML5 to be sure that our systems worked across all devices. This switch has allowed us to truly be device agnostic with our sites working across any device and platform.

How can your business scale? Is there room to expand geographically, or is there still lots of work to do in North America?

There is still plenty of room for us to further penetrate the markets in our established markets of Canada, the US and the UK. Bringing our business printing online and deploying cards and invitation builders with our remaining retailers will provide good growth in the near term.

Can you tell us a bit about your Google Glass app? When will that be rolling out?

Sure! Our Google Glass application enables photo and postcard printing. Users can order these products directly from Google Glass using the app, and pick up their order directly from our participating retailers. While we recognize that this app is fairly novel, it allowed us to showcase our ability to connect devices to retailers. Given the ease with which Google Glass can capture great photos, this was a natural step for us to expand our mobile ecosystem. We expect to launch the app this spring.

Why did you make a commitment you made to HTML5 and why you think that was important?

We made a commitment to HTML5 in the face of a growing mobile computing segment, especially tablets. Previously we had relied on Adobe Flash, long the industry standard for these types of sites. We recognized that remaining Flash-based would exclude a growing part of the market as Flash does not work on an iPad. We decided to make the switch to HTML5 to be sure that our systems worked across all devices. This switch has allowed us to truly be device agnostic with our sites working across any device and platform, and this remains a large competitive advantage for PNI.

What would you like to accomplish in the next 12-18 months?

Over the next 12-18 months, we want to demonstrate to the market that we have successfully brought the Company back to sound financial footing. Demonstrating consistent good fiscal results will be important for us over the coming year. The way we get there is by executing on a number of initiatives we are already working on. Rolling out with Office Depot and Samsung and getting those initiatives into the marketplace creates sizeable blue sky for us. From a technology standpoint there is still some work to do in bringing all of our product builders onto the HTML5 platform as well as deploying our stationery solutions with our final customers. And finally, continuing to pursue new business, whether it is through traditional deals with retailers or unique deals with hardware and software suppliers such as Samsung.