Q1 2021 Inuvo Inc Earnings Call
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Ladies and gentlemen, you're currently holding for each day is a new Vo 2021 first quarter financial results conference call at this time for assembling today's audience, we'd probably be underway. Shortly we thank you for your patience when we ask that you. Please continue to stay on.
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Good day, ladies and gentlemen, and welcome to the new boat 2021 for first quarter financial results Conference call. Please note today's conference is being recorded at this time I would like turn the conference over to Mr. Valter Pinto managing director F. Casey asked a strategic communications. Please go ahead Sir.
Thank you operator and good afternoon.
Thank you everyone for joining us today for the new gold first quarter 2021 shareholder update conference call.
Gross Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz will be your presenters on the call.
We'd also like to remind our shareholders that we anticipate filing our 10-Q with the Securities and Exchange Commission for this evening.
Before we begin I'm going to review the Companys Safe Harbor statement.
Statements in this conference call that are not descriptions of historical facts are forward looking statements relating to future events and as such all forward looking statements are made pursuant to the Securities Litigation Reform Act of 1995 so.
Forward looking statements are subject to risks and uncertainties and actual results may differ materially when used in this call. The words anticipate could enable estimate intend expect believe potential will should project and similar expressions as they relate to newco are as such a forward looking statement.
Investors are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by this time.
For sure other risks are more fully described in numerous public filings for the U S Securities and Exchange Commission, which can be reviewed at SEC Gov with that and I'd like to turn the call over to CEO Richard Howe.
Hey, Thanks, Walter Walter and thanks, everyone for joining US today, we have a lot of great information to share.
For the three months ended March 31, 2021, we delivered roughly $10 6 million in revenue now advertisers do tend to delay their media budget allocations until the start of the second quarter.
At which time they tend to accelerate their spending into the second half of the year and as a result in the first quarter of the year for our business is typically seasonally our softest quarter.
Revenue in Q1 of this year was down 18% sequentially as a result of the seasonality, which is very much in line with our historical experience for Q1 revenue coming out of Q4 in our prior year.
Of this $10 6 million that was delivered are valid click platform contributed $8 5 million.
Which remains down as a result of COVID-19 year over year by 35 per cent. However, the gap between valid clicks pre pandemic and post pandemic performance is closing quite rapidly.
The platform has had a 9% monthly compounded growth rate through March of 2020 one off of its low which was in may of 2020.
As we have guided previously we do expect that I would like to return to its 2019 a pre.
Pre pandemic average monthly revenue run rate of approximately $4 4 million within 2021, and then when you expect it to grow thereafter, a moron valid click later in the conference.
The intent key platform contributed 2.1 million of revenue in the quarter growing 15% year over year.
And we would expect that this product line to continue its double digit growth rates are year over year for this foreseeable future.
Gross margins for the business were up roughly three percentage points on a sequential basis and nine percentage points year over year within the overall business.
With valley place continuing improvement being a contributor to that improvement.
Adjusted EBITDA improved 36% on a year over year basis, with a loss of roughly $878000 in the quarter.
Which was expected given the seasonality and the continuing post pandemic recovery of of the valid click business of the valley click product.
As we have guided previously we would expect adjusted EBITDA to return to positive within the second half of the year on the back of the growth rates are within each product.
And the returning advertising market post pandemic.
Our balance sheet remains strong with roughly $17 8 million of cash.
$16 8 million of net working capital and we have no debt.
For the second quarter of 2021 year over year, we are expecting revenue to grow in excess of 50 per cent a with both the intent and valid click platforms.
Contributing to that growth.
Let me now provide some additional insights for each of the product line and.
And I'll start with the intent key.
In the first quarter on average, we performed 48 per cent better than our clients goals.
Which is a continuation of the incredible results that we've delivered within this product line for the better part of the last 18 months.
Is the intent key growth has accelerated.
We put out a number of press releases in the quarter that highlight the other.
Standing performance, we are seeing within the client base.
We had 81 campaigns operational in the first quarter, which was down roughly 4% from the seasonal high fourth quarter 2020 campaign total of 84.
The 81 campaigns are.
18, where new ones and 63 were renewals.
Hiring within the intent key to support sales has continued throughout the first quarter.
In fact, we now have 18 people in sales account management and sales support roles and that includes two recent hires within Canada to support an expansion north.
Montreal, and Toronto are within driving distance of one another and our home to Canada's largest corporations and.
And have a combined population of roughly 10 million people.
The intent key will be one of few platforms.
Capable of meeting these Canadian companies online advertising needs, both domestically and within the USA, particularly as the cookie less future approaches more.
More on that shortly.
Product marketing activity has been robust in the first quarter with a focus on the expansion of external materials for prospecting and internal training programs and materials for all of our new employees.
Responding to Rfps remains an important function of this team.
Well, we have seen that number of rfps to date increased by 40%.
And our win rate.
On those Rfps has improved 43 per cent and this is both of these percentages are on a year over year basis.
Yeah.
And our sales team and support structure has evolved.
So in turn has our sales cycles are where we are now experiencing deal closings within 90 days and this is down.
From roughly 180 days you know over the last year period.
Now this increase in demand is being reflected in the new clients, we are signing up and the pipeline.
We're opportunity looks good for both of.
The managed service and SaaS versions of the product the ladder.
As you will remember only having been launched for sale at the end of the first quarter.
Among our recently signed clients, where two of the world's most respected technology companies.
One of which is in the CRM software business and the other and E Commerce platform.
The in turnkey platform is now being used across all the advertising channel supported.
By the software.
Including display video and native connected TV.
And streaming audio.
We are signing up both business to consumer.
And business to business clients.
Increasingly we have clients, where the intent key is actually solving multiple challenges.
Our casino client for example is of course, using the intent key to attract audiences to their venues. However.
However.
With the tremendous success. The casino has had and a shortage of qualified workers. They are now also starting to use the intent to help with their recruitment of table game dealers and they are not the only client where we have this interesting dual value proposition.
Deals are coming in across various interest our industry segments.
Among the business closed in the quarter with a tourism deal with one of the largest states.
Multiple CBD clients a brewery.
Casino and a number of technology companies.
We now believe a new low has a in a way a perfect storm opportunity.
In part.
Cause the post pandemic economy is forecasted to be strong, which typically leads to a larger media budgets and.
Cause the third party cookies going away, which will significantly hinder the performance and scale of most of our competitors.
The best way to understand the cookie issue and its disruptive impact.
On the competitive landscape is to appreciate that modern digital marketing was created around the identity of a consumer.
The data and methods used by the majority of marketing and advertising technology and service providers revolves around prospecting for new clients based on who they are.
This means targeting around things like income and age and gender and interests and the like.
Which exact which is exactly the issue the elimination of the cookie is designed to resolve.
To adapt to this new reality will require that these companies significantly reengineer their business models.
As the Cookie is in fact, the mechanism that allows this kind of who based prospecting to actually work.
We see the countdown for these companies approaching quickly and a similar disruptive technological events are the indicator. These companies are likely to lag in terms of meeting the needs of the future marketplace, both in their ability to scale and to perform.
This is often referred to as the innovators dilemma.
Conversely.
Our new low could not be better positioned for this upcoming disruption.
The cornerstone of artificial intelligence approach is not about the who but rather the why behind the purchase of a product or service or AI really cares not who someone is it cares only about the reasons behind why a product or service was actually purchased.
This is an important distinction, which should be coupled with the reality that unlike our competitors, we neither us nor require any third party data, which is the backbone of the conventional who based approach used universally across our industry.
This ability to know why without third party data is the essence of our differentiation.
Associated with the artificial intelligence and the reason we are poised for success leading into 2022, when these disruptive changes become a reality.
We've been running cookie less campaigns for the better part of the last 12 months without degradation of performance.
Every single Corporation in America is right now trying to figure out how to deal with this and sewing issue.
There is a solution for these companies and it's called the intent cake.
All we have to do is get the word out which is what we are doing through sales marketing and PR.
Turning now to valid click, whereas I mentioned earlier, we have seen a strong 9% compounded monthly growth rate since the COVID-19 low in may of 2020.
As we've also mentioned previously the pandemic was in fact, a catalyst for reengineering the Valley quick service and the best of ways.
It allowed us to also designed into the platform.
Various content technology and services that are cookie less future ready.
Throughout 2020.
And into 2020, one we have focused on the quality of content within our owned and operated websites.
This in turn has for.
Abided, a better consumer engagement experience, which in turn is yielding better results for advertising clients.
In a cookie less world.
Quality of the content will become more valuable because as we described earlier within the in turnkey summary, advertisers will no longer be able to prospect for audiences based on who they are which will invariably lead them towards the selection of content as the match for their product their surge.
This.
Diversification diversification of advertisers. There's also been an important component of the post pandemic valid click.
And in this regard we have expanded the number of relationships we have both directly.
And indirectly as a way to gain access to these advertisers and a means of ensuring the platform generates the best payouts of margins for a new low.
We are of course, continuing to maintain increasingly rare and valuable relationships with with the largest search engines on the planet.
Having renewed our largest partner relationship in the first quarter.
All of these channel to advertisers makes it Alex like less vulnerable to systemic changes like the elimination of the third party cookie or apples iOS privacy changes.
With that I'd like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter Wally.
Thank you rich good afternoon, everyone.
I will recap the financial results of our first quarter of 2021.
As rich mentioned <unk> reported revenue of $10 $6 million for the quarter that ended March 31 2021.
This compares to $14 9 billion reported in the first quarter of last year.
The decrease in this year's revenue is due to lower valley for like revenue, which in the first quarter of this year was $8 5 million compared.
Compared to $13 $1 billion in the same quarter last year.
This lower valley click revenue was due to the pullback in advertising budgets at the onset of the pandemic.
Which had not fully recovered by this.
This year's first quarter.
Despite our reported lower year over year revenue that.
Total liquids recovery began in June following base low and by March 31 of this year was up over 140% off that well maybe low.
In turnkey revenue was 15% higher than the first quarter this year compared with last year.
<unk> represented 20 per cent of the overall first quarter revenues this year and that compares to 12% of all the revenue in the first quarter of last year.
As the turnkey platform revenue has become a greater percentage of overall revenue the components of the cost of revenue have shifted.
Cost of revenue in the 2021 period is primarily generated by payments to AD exchanges that provide access to a supply of advertising inventory, where we serve advertisements using information predicted by the <unk>.
And to a lesser extent payments to website publishers and web developers that host advertisements, we serve to validate line.
The cost of revenue last year in 2020.
Was primarily generated by payments to website publishers and App developers that hosts.
Advertisements that share valid.
So there was a shift.
The components of.
Cost of revenue.
The new vote.
Gross margins increased in the first quarter to 86% compared to 77% in the same quarter last year due primarily to the shift in the revenue, but I was just mentioning.
For payments to website publishers and web developers that host advertisements that we serve some valid cliff decline.
Reducing the cost of revenue net of increasing margins.
The <unk> gross margins were 42% for the first quarter.
Going forward, we expect <unk> gross margins to increase as the launch of the SaaS version in Q1 begins to develop delivering clients margins are expected to be significantly higher as a result of mostly fixed costs associated with operating just for.
The modeling and the data generation components of the <unk> platform.
Operating expenses were 11 $8 million in the first quarter of 2021 compared to $14 million for prior year, a decrease of $2 3 billion.
The largest components of operating expenses marketing expenses.
<unk> costs are predominantly traffic acquisition cost associated without.
It is the largest expense associated with the <unk> platform.
Marketing costs were $7 $3 billion in the first quarter compared to $9 $6 million in the same quarter last year.
For $2 $3 billion lower expense this year compared to last year is primarily due to the lower valley click revenue.
Compensation expense was $2 $7 billion in the first quarter of this year compared to $2 3 billion in.
In the prior year, primarily due to higher stock based compensation expense this year and.
And to a lesser extent to higher employee salary costs.
Our full time deployment was 73.
Net.
March 31 of this year net.
That compares to 64 at March 31.
Last year.
The majority.
Any of the increase in headcount occurred within sales sales support and account management.
For the 10-K.
It's complemented by the hiring of traffic acquisition professionals within that likely to support our strategy to bring the function in house.
Selling general and administrative expenses decreased $334000 and for first quarter of this year compared to the same quarter last year <unk>.
Due primarily to a $197000 lower coffee cost, where we consolidated our computing facilities.
Two data centers.
And $2 $56000 and lower travel and entertainment expense.
$87000, lower depreciation and amortization expense.
And two a $60000 reversal of a reserve for liabilities that had been satisfied.
All of these savings were partially offset by higher professional fees that is what caused it with the public offering that we had in January of this year.
Net interest expense was $22000 in the first quarter of this year compared to $152000.
<unk> expense in the <unk>.
Same quarter last year.
We had other income of $470000.
The first quarter of this year, primarily due to a licensing agreement from the first quarter last year that terminated.
Other revenue deferred for that contract was recognized in this.
This quarter.
We reported a net loss of $2 $1 billion or two cents per basic share.
Two a $2 8 million dollar net loss last year for <unk> for.
For basic share.
Yes.
The adjusted EBITDA in the quarter ended March 31, 2021 was <unk> was a net loss of $878000 compared to a loss last year of $1 4 million an improvement of about 36%.
On March.
31 of this year, we had cash and cash equivalents.
$17 8 million and a net working capital of $16 8 million.
In addition, we have a $5 billion working line of credit, which currently has no outstanding balance.
We maintain a simple cap structure with only common stock and employee restricted stock units.
For a equity incentive plan.
In January we completed two underwritten public offerings for 19 million shares of common stock.
We raised 14 in.
In a quarter million dollars on a gross basis for gross proceeds.
These additional funds are being used for working capital.
Building, the <unk> sales force and facilitating the acquisition strategy, which we discussed at the last quarter call.
With that I'd like to turn the call back over to rich for closing remarks.
Rich.
Hey, Thanks Wally.
Now in spite of our seasonally soft first quarter the balance of the platform for the month ending in March 2021 was up 140% from its pandemic induced low point in may of 2020.
And as I mentioned in my original call notes, our largest partner within the valid click.
Platform.
Was renewed in the quarter for an additional two year term.
The intent he continues to produce remarkable performance for our clients.
And of course, it grew 15% year over year.
It has an expanding client base a strong pipeline.
And really could not be better positioned for the disruption coming in 2022, when cookies go away.
I simply cannot emphasize enough how well positioned we are for winning market share leading into and after this industry transition.
We expect the in turnkey platform to be up roughly 45% year over year in the second quarter.
For <unk>, we expect our second quarter to be strong with year over year growth of over 50 per cent.
We expect any back to EBITDA adjusted EBITDA positive contributions.
Within the second half of the year.
And as Wally pointed out our balance sheet remains strong.
With $17 8 million of cash, which we anticipate.
Putting in part to work through an acquisition within the 2021 calendar year as we continue to explore suitable candidates.
With that I will now turn the call back over to the operator.
Thank you so much ladies and gentlemen, if you would like to ask a question. Please signify by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure you give me a function is turned off for all your signal to reach our equipment again net of star one to ask a question, we'll pause for a momentum everyone an opportunity to ship.
So for questions.
Okay.
And again that is star one to ask a question at this time.
Yeah.
And it appears we have no questions in our queue I'll turn the conference back over to our speakers for any additional or closing remarks.
Thanks Holly.
And I'd just like to thank everyone, who joined us today.
Good I appreciate your continued support in our company.
Thank you so much and that does conclude our conference for today, we thank you for your participation.
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