Q4 2019 Earnings Call

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good day and welcome to the 2019 year-end Financial results call today's conference is being recorded at this time. I would like to turn the conference over to Walter Pinto pass kcse.

Thank you operator. Good afternoon. Like to thank everyone for joining us today could be a new girl fourth quarter and full-year 2019 Cheryl dropped a conference call today a new voters chief executive officer Richard how and Chief Financial Officer Walley release will be your presenters on the call. I'd like to start by letting our listeners know that as a consequence of the covid-19 demek our office in San Jose, California is closed due to the stay-at-home order in place in California for California residents in our Little Rock Arkansas office is closed where we instituted work from home policy to protect our employees wage families for potential virus transmission among co-workers.

We're also in the process of completing our audit for 2019 and the result amounts for fourth-quarter and full-year 2019 discuss today our preliminary unaudited on subject to audit adjustment took the audit of a year-end numbers is substantially complete and we are issuing landlord earnings disgusted a finalization of our audit and related form 10-K has been delayed to the impact of covid-19.

Apparently in the process of working with our Auditors remote bases to complete our audit and our internal and external review of a form 10-K including a more detailed assessment of the impact of covid-19 emerges we anticipate taking advantage of regulatory relief provided by the Securities and Exchange Commission and taking an additional 45 days to file a form 10-K in order to an audit a 2019 bank statements. I'm not going to review the company Safe Harbor statement the statements in this conference call that are not descriptions of historical facts are forward-looking statements related to future events. And I'm looking statements are made pursuant to the Securities litigation Reform Act of nineteen ninety five dollars. These forward-looking statements are subject to risks and uncertainties and actual results. May differ materially am using this call the words anticipate could enable estimate and tend to expect believe potential will ship project and similar Expressions as they relate to Google Inc are as such forward-looking statements.

And that's what you are cautioned that all forward-looking statements.

Risks and uncertainties which may cause actual results to differ from those anticipated by Mughal at this time. In addition other risks are more fully described in the Republic of Ireland to the US Securities and Exchange Commission, which can be reviewed at sec.gov with that now like to turn the call over to CEO Richard have

thank you falter and thanks everyone for joining us today for the 3 months ended December 31st, 2019. We delivered eighteen point two million in revenue and increase of 32% sequentially and 7% year-over-year for the full year. We delivered 61 and 1/2 million dollars, which was down approximately 16% year-over-year valid click and lock and key Revenue in the fourth quarter with approximately 15 and 1/2 million and two point seven million and for the full year 53 million and 8 and 1/2 million respectively.

Full-year results were impacted by two factors firstly we lost momentum within the valley click business during the roughly 8-month process associated with a merger that did not consummate and secondly, we let it right certain publisher technology revenue streams associated with the overall intent Kiri engineering activity which occurred throughout 2018 Valley clicks year-over-year Revenue decline was roughly eleven point two million dollars while the attrition of publisher Technologies was wage oximetry 3 and 1/2 million dollars in the year. These reductions were partially offset by the growth of the intent key and 2019 Valley took Revenue started off cover in the fourth quarter of 2019 delivering 15.5 million an increase of approximately $14 4% Excuse me over the same period in time.

Close profit in the fourth quarter and full-year increased roughly 42% and decreased 11% respectively a full year gross profit declines were principally associated with the year-over-year decline in revenues fourth-quarter gross profit increase reflects the earlier, related to Bali quick recovery in that quarter and the contributions from strong revenue and gross margin within the intent key adjusted ebitda in the fourth quarter of its $47,000, um, which was up from a loss of 1.2 million in the year-over-year.

For the full year adjusted ebitda was a loss of two point three million compared to a loss of 1.4 million year-over-year. We had $991,000 of cost associated with the terminated merger mentioned the majority of which occurred in the first three quarters of 2019. We had a number of things to be proud of in 2019 in spite of an overall Revenue decline the valix strategy entering 2019 was to diversify its Revenue with products that had both a greater growth and margin potential.

We believe we need.

Some progress here taking Valley clicks primary partner from approximately 72% of overall company Revenue to 64% on a year-over-year basis am looking forward. Our mission was valid quick is to improve gross margins of traffic Acquisitions cost and capitalize where possible on growth opportunities that might occur in time.

The valley could business has many positive attributes not the least of which is positive working capital with low receivable risks. And because it serves the largest online marketing spend category it can scale quickly when opportunities present themselves. We are currently pursuing a number of such opportunities in this quarter and as a result had forecasted single-digit growth within this business for twenty twenty the intent had a terrific year delivering eight and a half million in Revenue with the second half of the Year up 62% over the phone numbers half of the year.

We saw gross margins in the business rise from 10% in January of 2019 to 46% in December fourth quarter, 2019, gross margins averaged about 42% And this has held up through q1 twenty-twenty where we now expect the year-over-year intent key Remnant to be up approximately 48% wage.

We now count among our clients industry leaders within Insurance Automotive Healthcare entertainment and travel the latter two in December having been recently added into 12020.

10 key performance and retention of clients has been strong across the board and we have increased our sales team from approximately four people in 2019 to a current count of 9 sales people.

We continue to perform well against the competition for new business in large part because we have proprietary marketing information, which is produced by the intent Ki AI data platform. And as we disclosed in the November 2019 and 10th Cloud press release because we can respond faster than the competition can technically when we encounter online audiences that are suited to our clients marketing objectives.

Prior to the recent coronavirus outbreak, we had been forecasting modest growth with invalid click and a doubling of the intent key business year-over-year wage.

We had already messaged in July of 2019 that we had expected to burn roughly $150,000 a month on average through q320 when income and Merchants associated with the intent key over team, its operating costs on a run-rate basis.

We continued.

Manage to this overall objective with a break even for the intent key occurring at approximately 3 and 1/2 million in quarterly Revenue.

Seasonally q1 it typically our weakest performing quarter and it's such we are currently forecasting and adjusted ebitda. We will discuss later how we have been supplementing included page of the unknown longer-term impacts associated with the virus has recently at Mid last week. We started to see some virus related activity among wage suppliers and intent key clients it is however still too early for us to predict with any certainty what will happen given this outcome depends in large part on how long it takes to eradicate the virus and how the government stimulus programs flow into the economy in the case of the intent key to Marty new client find in the quarter one in the hotel business the other in the airline business not surprisingly both have paused campaigns that we had expected to deliver more Revenue into

One that's far. We've had only one existing in Tempe client reduce their short-term budgets because of the wires now opposing these impacts. We've also seen a reduced cost of Revenue associated with the intent key business following mandatory quarantine in California and New York. We believe this is the result of people staying at home, which has had the benefit of increasing the traffic to websites and that in terms of decreased the cost of advertising on those websites.

Overall with March now almost completed. We are currently forecasting a modest reduction in our 2022 one plan directly related to the virus and as mentioned earlier do not have enough information yet to predict the longer-term impacts throughout 20/20. We had plans for q1 2020 to be roughly flat year-over-year wage generally in times of economic contraction. We would expect marketing budgets to decline. However, this current situation is unprecedented and that's such a nice taking adjusting kind of approach to the management of our company.

With that said we have been proactive with respect to our balance sheet last week. We close roughly $688,000 worth of Insider purchases of our stock. I recently purchased $111,000 worth of that offering and every one of our board members participated. We also recently announced a refinancing of our receivables credit facilities. I believe should provide additional working capital throughout the year.

Now like other companies in America, we are also exploring ways to trim operating expenses across the board while we wait to better determine the impact of the virus on the economy and current wage. We have already started applying for local state and federal programs that may or may not materialize based on current Congressional processes generally ended up staying downturn you might expect the intent keep plan to be impacted more than the valley click plan in large part because the market phallic serves currently has greater advertisers wage versity and the result of the three large clients we have in that business with that. I'd like to now turn the call over to Wally for a more detailed assessment of our financial performance for the year.

Thank you.

Good afternoon, everyone. I'll recap the financial results of our fourth quarter and full-year 2019.

Nouveau reported revenue of 18.2 million dollars for the quarter ended December 31st, 2019 and 61.5 million dollars for the full year 2019. This compares the 17 recorded in the fourth quarter of last year and 73.3 million reported in the full year 1018.

Revenue increase of approximately 1.2 million dollars in the fourth quarter year-over-year was primarily do you intend key Revenue growth into about half a million dollar increase in the valley Club Business Bureau over a year by the attrition of Revenue associated with the supply side of our business, which I walk on in just a moment.

Decrease of approximately 11.8 million dollars in the full year 2019 was principally due to the valley click business as mentioned earlier. We invested resources and capital throughout the first half of the year on integration planning associated with the merging of the company. The merger was terminated in June 2019 additional that would click monetization was lower earlier in the year as a result of lesser quality advertising Supply from our primary partner.

Burger be made an announcer decision last year to reduce emphasis on the supply side of the business in favor of focusing and key resources and capital on the demand or advertisers same with the intent. They they the platform re-engineering and 2018 was designed to have its Market advantage.

Change resulting in reduction of Revenue in the current vehicle with quarter of over $500,000 compared to the same quarter last year and three point five million dollars for the full 2019 compared to full year of the prior-year gross margins increase in the fourth quarter to 70% compared to 53% in the same quarter last year due primarily to revenue mix particularly due to the higher valid clip display Revenue where we recorded cost as marketing costs in the operating expenses.

Overall operating expense are comprised of marketing costs compensation and selling a general and administrative expense operating expense wage is worth three million dollars higher in the fourth quarter of 2019 compared to the prior-year that is it was 14.1 million dollars in the fourth quarter of 2018 vs 11.1 million dollars in the same quarter last year for the prior-year.

Marketing costs are primarily traffic acquisition costs associated with a Liquid Marketing costs were a 3.3 million dollars higher in the fourth quarter of this year compared to the prior-year you to hire valet click Revenue in 2019.

That was quick revenues generated predominantly from ads served websites. And therefore as it has a small cost of Revenue associated with it as the expense is monthly marketing or traffic acquisition costs and is recorded as an operating expense.

Compensation expense was $248,000 higher in the fourth quarter of this year compared to the prior-year despite the lower payroll that is due to higher stock-based compensation expense that approved for modifications through outstanding restricted stock grants and to a reversal of an accrued incentive pay off the fourth quarter of 2018 the full time headcount at the end of December was $61 compared to $63 in December of the prior-year.

Kellen General and administrative expense decreased $534,000 in the fourth quarter of this year compared to the prior-year due primarily to expenses incurred in Dead Rising from the merger agreement, which we terminated in June 2019.

Interests with $29,000 of income in the fourth quarter of 2019 compared to $124,000 of expense in the same quarter in the prior year wage primarily to the evaluation of the amortization of the convertible note original issue discount and to be Associated derivative. This is Porsche except by higher borrowing borrowing rates in 2019.

We had other income of $92,000 in the fourth quarter of this year due primarily to the settlement with a customer other income for the full year 2019 home three point four million dollars was primarily due to the termination of the merger agreement in June 2019. And the result in termination fee that was received that was composed of canceling the one point 1 million dollar note outstanding including interest additionally the assets and and customers of a business initially thought that one point six million dollars was transferred to a new Volvo. And finally we were paid 50% of a $250,000 settlement for a class action suit off that resulted as that was filed as a result of the merger.

Subsequently had an independent third-party valuation performed on the transfer business and it was that two point six million dollars the the greater value that was determined. Then then was originally received in the merger termination fee was credit credited to other income month.

The tax benefit of $334,000 in the fourth quarter of 2019 primarily do any change in there just deferred tax liability. We recorded a net loss of $859,000.40 per basic share right now. Once you that December 31st 2019 have cash and cash equivalents are $373,000. And and it also had outstanding balance instead of two point four million dollars and notes are $537,000 off like a year end. We had a number of events that impacted the balance sheet.

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The January a convertible noteholders converted $360,000 of principal amount due into one point two million shares of our common stock month after this conversion $315,000 of the original principle remains outstanding under under all convertible notes that we had issues on March 12th, 2020 the new loan and security agreement with petacchi capital gains for replacing the existing facility with Bridgman.

Under the terms of agreement Itachi provided us with a five million dollar line of credit and with more availability than our prior facility we can now borrow up 90% of the aggregated eligible receivable and up to 75% of the aggregate of unemployed receiving this month on March 20th. We close the private placement of common stock to our company's directors that's worth mentioning receiving $688,000 off in March. We also close in agreement for the use of our valid with platform for 1.5 million dollars of which $500,000 for that you received any marked dead.

I'll turn the call back over to Rich be closing remarks.

All right. Well, thank you very much operator. I think we can turn it over to to question answers now.

Of course, ladies and gentlemen, if you wish that question, please signal by pressing star one on your telephone keypad. Please ensure your mute function is Switched Off to allow your signal to reach our equipment again, that is star one to ask question.

We will go far first question from Eric Martin of Lake Street.

Congrats on the the big finish in Q4. Obviously, it's like a long time ago. Now, I'm sure given the recent events, but it certainly should be recognized the whole you guys were in first conversion point and then once you accomplish subsequent to that, so I want to recognize that I do have a question about the recent happenings as far off the outlet for q1 though, and I thought I'd start with March 16th when he talked about the intention expectation for a 50% increase. And then today the expectation a 48% is that you specifically do to the two customers. We decide in March and then we pause in March.

Yeah, it's a yes Eric's owed It's a combination of the three things. I mentioned that you know that have happened, you know, since the the virus for those two clients one of them hadn't even started off. Okay, so just so we're clear on that but we expected them to they would the airline client. So there's probably no surprise. They're given what's happening with the airline. The other one was a hotel change and they had started just recently started in when of course the virus sort of propagated and they sort of positive campaign. I had one other clients. Like I said my script who we didn't stop or pause there, but if it did reduce their budgets just kind of you know, waiting and seeing and so the combination of those things off some of them happening at least one of them happening after we first announced the 50% you know, cause we do the math and at this point with our current forecast, you know will do for you ma'am.

We thought we gave the the number. We think it's going to be at this point.

Okay, and then I wanted to better understand the issue on the ballot quick side of the house. We talked about a number of suppliers potential impact from the number of car is this reduced traffic or a shift in the mix of traffic every publishing partners.

Yeah, it's it's traffic-related. So, you know again with the coronavirus, you know has an effect on I guess the entire business value chain in America right now and we have people that we work with and they themselves are starting to you know, figure out what what to do and not to do in light of the the changes going on so long, you know, we haven't seen a lot of disruption there yet as is evidenced by the fact that we you know, we stated we're pretty much where we thought we would be on our plan overall for q1. And so most of my commentary or are related to you know, unknowns at this point that it may or may not materialize, you know in the next quarter or two depending upon what happens.

But specifically how do you spell the stores unable to publish the normal content that you maybe their own Workforce issues, or is it something else? I think I think you know, it's it's generally the same issue for them. That is the issue for just about every I guess smaller business in America right now. They're thinking about how they should cut staff wage reduces Focus. They can't publish content. They can't drive advertising like either all with the whole thing and just to recap page to see one with your expectation as to be flat right? I don't know is that that's what you were thinking and that's not going to happen or that's what you were thinking of that may happen with six days ago.

no, I think we'll be pretty closed while we can comment better on the

So I think we'll be pretty close to Flat year-over-year, which is where we want it to be rolling down a percent or two off of what our internal plan was for 2020 recognizing that our first quarter is all wage because quarter and recognizing that you know, in in in 2018, we had revenue streams that we had discontinued right to just flat year-over-year is Thursday a good was good for us coming into the 29th 2020. Excuse me, and I feel I still think we're we're pretty close to that. But I think we're a percentage or to percentages off of I don't know what last year was I forgot about but maybe Wali know if it last year's, you know to one was

Would you care to comment and 15.3?

Nope, that's it.

Okay, so I wanted to focus on the operating expenses sounds like you have some problems that until people. I think you said you were for finishing up for 19 and you're currently may I have this number, correct?

that's correct the intent here in the last couple of weeks off for intent to

We've held hiring across the company at this point. We're not hiring anybody across the country until we like everybody else. See what's going to happen, you know in the in the market for the answers we had a month and maybe I said if we hired as a person in March which brought us up to 9 and we had planned on hiring another salesperson in June July and August and at this point we have took it all hiring on hold.

Okay. I just want to cross managers. I understand throttle back on travel and people are working from home. But you know, the headcount has changed since you first started taking a pleasure.

So far kind of balance each item off the shelf. I think the year 46 and 46 point something we did sell shares here in in my life. So as far as kind of a ProForm share to use for the second quarter of the third quarter while I do you have a ballpark there for me.

Yeah, so figure about $57 million shares outstanding.

And you know at this point, you know other than RS use that are in the future probably, you know, bring it to $57 and half, you know, $57 3/4 something like that by the end of the year.

Okay, and then the last question for me, I'm going to be cash or current price situation. You talked about being a I think it's a negative suggest to be the top or for q1, you know pretty tight as it stands. I know you did do the 688 thousand way. So where do we come out on cash kind of eggs and see what we got the influx from The Insider, but we also learned a little bit with the expectation for March 31st.

Yeah, so the expectation is to have cash relatively flat from from from December anything available cash that we have. This is used to run the business and keep that as well as possible. So as long as we have availability on our credit line, we can serve continuously keep cash flow and and I don't pay off existing debts.

Understand. Okay. I appreciate it. Thanks for taking my question.

Thank you, Eric.

Our next question comes from the line of Baron of Roth Capital partners.

Hi, this is Dylan on for Darren. Thanks for taking my question. First one for me. Have you been in direct contact at all with some reason figure advertising Partners page as far as what they're seeing the advertising space and how that can sort of relate to contextualize in the environment going forward. And I mean, I guess it's pretty fluid. Just trying to see what kind of usability you have with with sort of we're advertising may or may not be pulling back and then as a follow-up on a second key. Can you see any sort of new conceptualization across your customers given I guess sort of the Dynamics around the virus outbreak maybe with behavioral patterns or a new audience targets even sort of search habits.

Okay. So we have Mets unplugged meet you. So let me talk a little bit about advertising pull back. So the answer that is is we had seen a lot of it other than the ones I mentioned and like I said the ones I mentioned particularly the airline and the and the hotel chain, you know are kind of obvious first life impacted by the virus. We are in conversations with all of our advertising Partners on a regular basis. I guess the good news is we don't have a concentration and and travel and entertainment other than the clients. I just mentioned so that's a good thing. However, like I said in my script, I think you know marketing is always kind of a leading indicator for a refreshing. Hopefully when you have a recession, so, you know, if if things did go, you know poorly and the dog

The economy started to slug down I think.

Yeah, I think we would probably start to see pull back in in advertising budgets. I think that happens universally I'm not sure I can answer the the issue of intent online. I don't think anything's changed with regard to you know, the the say the the the way the technology handles people's interests online, but other than there's definitely an increase in volume online. So clearly people who are at home now are spending more time than they would normally in their workplace, you know off on the internet either doing searches or or or reading content or visiting their favorite sites, and we are definitely seeing that occur.

Thank you. And then I guess last one of the incremental sales forces and tired like the one in March how quickly can they get up to speed into sort of helping build build build some of the funnel?

Yes, the way our our experience with sales people have gone with respect to the intent Ki generally billing Falls kind of the following month past, you know for the first three months of their ten-year with us. They don't really close any business. So they're effectively getting trained and learning and I'm trying to figure out who the target, you know within their their clients they already know and or any new clients that we're finding to them, they start to deliver results in the next six months, but it's not, you know, massive amounts of money and then it gets better in the next 3 months of the nine month. And then they get better and the 12-month. We do have a quota that I'm signed to our sales people in that quarter of runs about 1 and 1/2 million dollars. Annually is what we assigned. Yeah.

Thank you.

Ladies and gentlemen that concludes the question and answer session. I would like to hand the call back to Richard hell for any additional or closed.

Thank you operator, and I'd like to thank everyone and joined us on the call today. We appreciate your continued interest in our company.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating.

Thursday

Thursday

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dead dead

Yes.