Q3 2020 Inuvo Inc Earnings Call
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Ladies and gentlemen, you're currently standing by for the New <unk> third quarter financial results call. At this time, we're still at many of the she'll participants is planned to be underway. Shortly we do appreciate your patience and please remain on the line.
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Good day, everyone and welcome to the Inuvo incorporated third quarter financial results Conference call today's call is being recorded.
At this time I would like to turn the conference over to the Ultra Pinto managing director of KC essay Strategic Communications. Please go ahead.
Thank you operator and good afternoon.
I like to thank everyone for joining us today for the year or 2020 shareholder update conference call.
Today, It was chief Executive Officer, and Richard will take you financial sure well, we're going to reduce your concern or school.
I would like to start building what's in there is no consequence, coping Nike pandemic or walk in San Jose, California has remained close.
The little rock facility rotating ph in and out of the office on Thursday, So I'm kinda or at least the potential risk of infection Stuart you Rush through college.
We would also like to remind our shareholders that leadership is probably your 10 acute securities and Exchange Commission Tomorrow Tuesday November 10 2024.
Yeah, I'm going to review the company's she's harbour statement statements. In this conference call that are not descriptions or forward looking statements relating to future events and as such all forward looking statements are made pursuant to the Securities Litigation Reform Act of banking I'm sorry, yes.
Because forward looking statements are subject to risks and uncertainties and actual results may differ materially when using this call. The words, Mississippi could enable estimate expect believe potential will should project and similar expressions.
As it relates opinion go inc. are as such a forward looking statement that's.
Lessors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those in pitch. They buy it did go up. This time. In addition, other risks and more fully described in <unk> public filings with Securities and Exchange Commission.
You're viewed as he sees that go with.
With that I'd like now turn the call over to Sito Richard.
Thank you Walter and thanks, everyone for joining us today for the three months ended September Thirtyth 2020, we delivered roughly 9.2 million in revenue when.
Well at approximately 6.2 million coming from the valid click platform.
And 3 million coming from the intent keep platform.
On sequentially Nuvo grew 21.4% valid click grew 10.4% and the intent key grew 53.4%.
We did see sequential growth rates are strong signal that we're coming out of the COVID-19 related downturn that hit us hard in the second quarter of 2020.
Year over year, while we are still down 33%. This quarter. The decline has been significantly curtailed from the 46% we experienced in Q2 and we anticipate this will be further reduced in the fourth quarter for.
For the nine month year over a year period, we're down roughly 27%.
As we have mentioned on previous calls COVID-19 impacted both the intent key and valid click the pandemic resulted in significant reductions in advertising budgets across the industry.
However, we have been able to continue to grow the intense heat through these difficult times and that platform.
Now up 16% year over year, both within the third quarter and through the first nine months of 2020.
What do you intend to keep the consequence of COVID-19 has been more about a slowdown in the 2020 expected growth that was forecasted to come from new account.
Existing attend key clients have continued to grow up in spite of code at 19.
Which we think is a strong indication of the performance we've delivered for clients.
On an adjusted EBITDA basis, while we lost $1.3 million in the quarter, both revenue and margin trends heading into the fourth quarter are pointing towards improvement here.
As a result of progress.
In the third quarter, we have recently started hiring again with active search is underway for campaign managers account managers and sales professionals.
Currently have 66 full time employees up from 57.
In the prior year period.
The bulk of platform had its lowest revenue month.
For the year in May.
Since then we have experienced steady sequential monthly improvement.
<unk> total revenue is expected to be roughly 150% when compared to this may low point of 2020.
Our largest clients within valleys click or Yahoo, and Google.
It's about the team has used this downturn to we think the overall strategy within this marketing services component of our business.
Concentrating on diversification with a focus on cash generation.
Can a pre coded world has historically been strong and consistent.
In the third quarter revenue from Yahoo contributed roughly 33% of valid click.
Google roughly 43% the remaining 23% a valid click revenues came from a collection of other client.
These things to clients accounted for roughly 22% and 29% of total a new low revenues within third quarter.
Mr. diversification represents a big change in our historical revenue dependencies as a company.
We were also recently successful in renewing our Yahoo agreement for another two years or within the quarter. We believe all other client relationships associated with valid quick currently remain secure.
The objective with invalid pick has always been to deliver high quality consumers to our major clients.
Media buying and the technology to facilitate optimize media buying has always been an important component of this business model.
Scalability within the business has at times been delayed due to limitations of credit lines with media partners Yeah.
Recently been successful at expanding those credit lines, a direct consequence of our stronger balance sheet.
Our net margin after including these media buying cost has continued to improve following a low in April.
You can see platform has continued to deliver exceptional results for clients.
Were on average in the third quarter that performance exceeded our clients goals by over 30%.
Gross margins for the intensity platform, we're roughly 50% in the quarter and we had over 30% more active campaigns running within the quarter sequentially.
In the third quarter, we have been successfully expanding existing client.
Adding and Onboarding new clients.
Within industries that include education, automotive tourism insurance health retail and nonprofit.
We recently put out a press release related to political campaigns and while this was a small budget. We learned much from this campaign that should prepare us to capture a larger share of advertising dollars.
The next time, we go through a political cycle.
As mentioned on our second quarter Conference call. We ran an important and significant connected TV campaign early in the third quarter. The results were strong.
And we were able to prove that the intent key AI and data work equally as well within this media placement as it does for us within display and video advertising.
This in turn not only allows us to offer this capability to existing and prospective clients, but do so in a manner that unifies data and insights we can bring to those clients across the.
These three different choices for media placement.
In the coming quarters, we anticipate the launch of a software as a service version of the intensity.
We are actively recruiting beta clients for that product now.
This product is designed to expand the intensities market reach by packaging the core technological components of the platform in a manner that allows clients to use their own resources marketing and campaign platforms.
This is particularly important for our agency clients, who prefer a more direct control over these services.
Concurrently and because this strategy allows for greater distribution of the technology and data.
We expect to be disrupting what is currently a 19 billion dollar annual third party marketing data market with a product designed and compliant with expected future data and privacy constraints.
When fully deployed this capability will be available to clients across the various demand side or campaign platform. They may be using we're.
We've had initial launch integration through apps Nexus.
We recently signed an amendment to our current agreement without Nexus for that purpose.
The intent he is already a technological Marvel adept at generating custom artificial intelligence models capable of continuously evaluating in excess of 20 million different audience features.
While simultaneously now capable of evaluating up to 2 million requests for advertisement from publishers.
Per second.
This version of the intent platform will put the power of our artificial intelligence.
The data created by that AI.
It's sophisticated modeling capabilities.
And these insights about audiences directly in the hands of our clients.
With that I would now like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter.
Thank you rich.
Good afternoon, everyone I'll recap the financial results of the third quarter.
As George mentioned.
Moving to reported revenue of $9.2 billion for the quarter ended September thirtyth of this year.
Compared to the four new before.
Reported third quarter of last year.
The decrease in this years revenue due to lower valid click revenues, partially offset by higher since keeper.
Now we could revenue in the third quarter this year.
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And that compares to 11.2.
No in dollars.
Right.
This lower valley click revenue was primarily due to reduced advertising budgets associated with the coding and billing.
Despite the reporting lower year over year revenue Ratably cooks recovery began June while remains low and as of October as rich mentioned.
We're up 150% offset wells.
You can keep revenue that 16% under orders this year compared with last year.
Newbuilds gross margins increased in the third quarter.
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4% same quarter last year.
Since he was gross margin.
The 49%.
Order compared to 29% in the prior year.
Genkey represented 32% of the overall third quarter revenues this year.
Peter just 19% last year, resulting.
Higher margin and ready to weigh on the overall result gross margins this year.
Valid click revenue.
Since generated predominantly from ads served to web sites and score as a result.
There's only a small loss associated.
The cost of revenues since you Didnt Miss a seller click revenue.
Operating expenses were $1.2 billion lower in the third quarter.
As to the prior year.
The largest component of operating expenses is mark.
Marketing costs are primarily traffic acquisition cost associated without it.
The largest expenses.
Welcome to the service.
Marketing costs were $5.7 million in the third quarter this year.
$9 million last year, the lower spreads than this year than last year, primarily due to the lower value revenue.
We experienced this year.
Compensation expense was $2.5 million reported this year year to $2.2 million in the prior year.
Again, primarily due to higher.
Employee salary costs.
As mentioned, our full time employment at September Thirtyth, which grew 66.
Employees and as compared to 57 floors.
In the third year of last year.
We expect compensation expense to remain relatively flat.
Yes.
Selling general and administrative expenses decreased $211000 in the third quarter this year compared to the prior year due primarily to lower costs really completed our computing facilities consolidation program earlier this year.
Interest expense was $26000 in the third quarter 2000 compared to $144000 in the same quarter last year.
Interest expenses. This year. This quarter is primarily related to the outstanding debt on our line of credit, which we men who pay though as of the end of July.
We've had other income of $54000.
The third quarter of this year and those associated with the recognition of deferred revenue.
From a contract to license.
Technology.
Other income in the third quarter last year was $3.2 million associated with the break up soon.
Through a merger that did not come from.
We reported a net loss of $2.4 billion or two cents per basic share compared to 788000 net income net income or two cents per share in the same quarter last year.
Adjusted EBITDA for the quarter ended September Thirtyth, 2020 was a loss of $1.2 million.
Her to a loss of $769000 last year.
This year's adjusted EBITDA loss reflects in part the lower operating margins that occur invalid.
As the platform begins to recover and scale.
Those margins continue to be up in October which is the whole.
<unk> expenses adjusted EBITDA too.
Grew significantly in the fourth quarter.
Our balance sheet at September 32020, and yes, you will be $9.5 million.
Outstanding Finance that.
$2.2 million.
Which included.
Loan of $1.1 million.
And that's the idea.
No loan of $100000 and finance leases for IP.
In September we applied for producers of the CDC loan.
As made available in the theaters that.
We expect to see the decisions made by year end or early January.
In the quarter.
Included in our capital raising activities underwritten follow on public offering.
21.5 million shares of common stock.
We raised gross proceeds of two quarter million dollar.
And with that I'd like to turn it back over to rich.
Thanks, Wally we.
We've seen a steady upward trend in our business since its Cobra impacted low point in may of this year.
The intent the platform has continued to grow throughout 2020, despite co bid.
And while valid click is down year over year. It is expected to be up in October.
Roughly 115% hundred 15%.
Office, a low point in the year, which was made.
Strategically and you love it when using this time to develop the technologies necessary to facilitate our transition into a technology enabled services and ultimately that's based business model.
Now I'll call that continues to make forecasting difficult and unpredictable based on the revenue run rate coming out of October we would expect sequential growth in the fourth quarter between 25, and 40%, which in turn you should also improve adjusted EBITDA.
Heading into 2020.
And with that I will turn the call over the operator for questions Chris.
Christy.
Thank you if you'd like to ask a question. Please press star followed by the number one I guess it sounds like you're calling from a speaker phone from FLLP shrinking how she is often checked your second I'll recap right now I guess satellite to ask a question I'll go first to Brian Kinstlinger from Alliance Global Partners. Your line is open.
Hi, This is Jacob on for Brian Thanks for taking my questions.
You mentioned 25, 40% sequential growth from Q4, Q can you give us an idea of where this is coming from Verizon that because terms have been slowing through Q of the can you give us the average campaign size compared to the year ago period.
[noise], they're quite few questions in there that's the growth rates that we're seeing is coming both from new clients and from existing clients. I don't know exact distribution is between those two of them sitting here on this call, but I can tell you that the majority of that coming from existing clients that we have.
Ed.
Leading into coated which as I mentioned in our mind you.
Given.
The way budgets.
You know had been declining across the industry for marketing discoveries that great a testament to the performance of the technology as anything.
What was the second question, Brian sorry.
Yes, the chicken, but yet is there a reason.
Can you give you had no. That's okay. Also can you give the average campaign size compared to year ago.
I don't have that number handy either but I can certainly get that to you you know what the average number is but.
Just as a general statement like a lot of companies I mean, we have a number of.
Customers who are.
On the high end, meaning we've got some large customers and we've got to smaller customers.
I don't Yeah, we'll have to get if you offline I don't have the number off of my head to give us.
That's okay and then is there reason that new customer wins have been slower just because of advertising budgets.
He asked what was the question is is there a reason why new clients being signed has been slower than expected was that the question David.
Yeah.
Yeah, Yeah, I think the answer to that is quite simply coated you know when koby. It hit you know what happened was people who had budget you know a pause some.
And started to think about you know what what theyre going to do and so that impacted our sales efforts that that 0.1. So just the natural cogs related to marketing budget constraints in the second one was.
You know it Kobin world, where you're no longer face to face trying to sell directly to clients, which in our case with the technology. We have you know is required to some degree you are forced to have to try to do the same through you know through you know video conferencing and that had an impact as well given that you know.
It's just the nature of people adapting to it as the model, but as you know the combination of those two things definitely reduced the what we were forecasting to have been what we thought was going to occur with the with.
With new sales related to the 10-K, but we kind of made up for us and then some given the growth rate.
With cobot within Cobiz Investee run on a on growth of new clients that the clients right.
Okay. A few more have you been have you begun sooner or covering advertising budgets and if so what industries and water customers communicating about new campaigns.
Yeah. The answer is yes, and that's probably more evident.
The valley side of our business given Valueclick service.
A much larger audience.
Brands and advertisers because our two biggest clients. There are you know along the two biggest mark.
Marketing platform on the platform.
Google So the answer is yes, we've definitely seen an increase in increasing number of.
A budgetary movement upwards and money coming back into to marketing.
So again, sorry, Jacob what was the second part of the question.
Water customers communicating about new campaigns.
I think we're seeing you know come.
Customers revisiting their marketing budgets and preparing.
I guess inevitably for a yeah.
A world less dependent on what's going on with coated men anything.
Actually today's announcement with Pfizer is probably a good indication that 2021, maybe you know at.
At least partially back on track I'm not sure. If you could say, it's going to be on track.
Back to normal but.
I think these are good indications that that marketers will start spending money again, given that there's some hope at the end of the tunnel if you would.
As it relates to go but.
Yeah and.
You talked a little bit about political contributions or political ads could you give a little idea of how that's contributing to each segment and.
Sure.
Yes, so the political work that we did was entirely related to the intensity, we get it indirectly through valid click or we don't track it that well.
So when I was making that statement. It was really related to the 10-K, we know for a fact that DHX TV.
Is a powerful tool you know for a football.
For politics.
And so.
So you know the campaign that we ran this year, which was small you know just reinforced enough that that you know we have a product there that we can sell to.
To whatever party. It is that wants to use it and then so you know next time around when the budgets become available we'll be actively recruiting.
Recruiting for that given we have now some some history of successfully some results that can point to.
Okay can you quantify your over your revenue trends and last couple of months August September October.
Yeah.
For both segments.
I don't have it handy omni Wally I don't know if you know what those numbers are hopping ahead, we typically Jacobs I won't give it on a month by month basis that you typically give it on a quarterly basis.
But I would say if its revenue.
Well actually I'll take it one step further but as far as I know as far as I can recall, both revenue and margins have gone up steadily since the low point in may.
Every month.
Okay, and then one last one how do you expect the holidays will impact revenue.
Typically we see an increase in demand for advertising during the holidays and as you know.
That seems to be happening again this year, albeit you know with the cobot backdrop, you're not quite sure it budgets coming back in because of the holidays or is it just budgets coming back in because people are starting to think that there is you know an end to covidien site.
But generally the fourth quarter.
Tends to be up which we are seeing.
Alright, great. That's all for me thanks.
Sure.
Thank you Jacob.
And let's see I've never questions today. Thank you so much for participation today. We appreciate your participation and please you may now disconnect.
Thank you operator and thank everyone.
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