Vancouver’s PNI Digital Media Inc. has become a perennial entry on Business in Vancouver’s list of B.C.’s 100 fastest-growing companies. It placed on the list for the fifth-consecutive year, falling to No. 21 in 2011 from No. 11 last year.
CEO Kyle Hall believes, however, that investors do not yet understand the story behind why his 138-employee software company is ready to rocket.
Hall plans to fix that ignorance by embarking on an investor day in New York this month to educate institutional and other investors.
PNI helps clients such as Costco Wholesale Corp. (Nasdaq:COST) facilitate the ordering of photofinishing prints and related products.
“What people don’t quite understand yet are all of our businesses, which we are just launching,” Hall told BIV. “We’re getting pain a little bit with the fact that the photo industry is having some tough times.”
PNI’s share price (TSX-V:PNI) has steadily declined from a high of more than $2 in late 2009 to $0.81 in late August.
Hall believes that the market has not factored in that his company will soon leave being exclusively in the consumer discretionary photofinishing print business.
PNI is slated to start targeting the print-on-demand stationery niche in the next few months and the niche of servicing small-business owners’ print-on-demand needs for everything from flyers to business cards in the near future.
Americans spent slightly more than US$4 billion on photographic print services in 2010, according to Info Trends Inc.
Hall believes the stationery market is three times bigger and that the small-business print-on-demand sector is worth about US$16 billion annually.
PNI charges a royalty of approximately 10% on each transaction that customers conduct to get photos printed at Costco and CVS Caremark (NYSE:CVS) stores.
“We’re a transaction software company. We build software for future revenue. We don’t build software and license it, per se, or charge professional service fees for developing it,” Hall said. “Our business model is building software and being in the business with our customers. As business grows, we take a piece of it.”
PNI’s newest software offering, which enables special print-on-demand stationery products, will start to launch throughout the 8,169-store Walgreen Co. (NYSE:WAG) chain next quarter, Hall said.
Walgreen already uses software from PNI competitor Hewlett-Packard Co. (NYSE:HPQ) to facilitate the routing of customers’ photographic print orders.
Walgreen executives, however, were impressed enough with PNI’s sales pitch they agreed to let PNI handle the routing of customized stationery orders at Walgreen stores.
Walgreen customers will be able to order customized stationery either via the Internet or through in-store kiosks. They then are able to pick up the order at the store that is most convenient for them, Hall said.
The shift to starting to get revenue from print-on-demand stationery transactions is key for PNI because U.S. photofinishing print orders have been dropping steadily.
In April, industry data-collector Info Trends estimated that 16.6 billion photo prints were produced in the U.S. in 2010. By 2015, that is expected to be 14.4 billion prints.
Americans spent more than US$8 billion on those photo print orders in 2000, when digital cameras were less prominent and smartphones were in their infancy. Info Trends expects that little more than US$3 billion will be spent on such services in each of the next three years (see graph).
“Hallmark came to us a couple years ago in the U.K. and said they loved how we did [non-folding glossy] photo cards. Could we do the same thing for regular cards [that are print-on-demand, folded and are on paper],” Hall said. “We built a whole engine around creating a folded card – front cover, inside and the back.”
PNI lost $76,221 in the three months that ended June 30 but Hall expects that the company will show a profitable fiscal year, which ends September 30.
Its revenue was $5.3 million in the most recent quarter – down from about $5.7 million in the same quarter a year ago – though revenue would have been approximately $5.5 million had foreign exchange rates not been factored in.
Indeed, analysts at Versant Partners warned in an April 19 industry update that a weaker U.S. dollar will adversely affect PNI.
Approximately 60% of the company’s revenue comes from the U.S. with another 20% coming from the U.K.
PNI has applied to shift later this year from the TSX Venture Exchange to the Toronto Stock Exchange.
In time, Hall anticipates that the company will also shift from being on the loosely traded U.S.-based OTCBB exchange to being on the Nasdaq Stock Market in the U.S.
The current obstacle is that Nasdaq requires new listings to have at least a US$4 stock price. •
