Q3 2021 Inuvo Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the NN Nouveau, Inc. 2021 third quarter results Financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Valter Pinto managing director of Casey S. A's strategic communications. Please.
Go ahead Sir.
Thank you operator and good afternoon.
Thank everyone for joining us today for the new gold third quarter 2021 shareholder update conference call.
Today, <unk>, Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz will be your presenters on the call.
I'd like to remind our shareholders that we anticipate filing our 10-Q with the Securities and Exchange Commission Tomorrow morning.
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. These 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 Novo Inc. Are as such a forward looking statement.
You are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by no go at this time. In addition, other risks are more fully described in it goes public filings with the U S Securities and Exchange Commission, which can be reviewed at SEC Gov.
Okay.
Thank you Walter and thanks, everyone for joining us today.
We had a very strong third quarter, where for the three months ended September 32020, when we delivered $16 $8 million in revenue, which was up 83% year over year and up 33% sequentially.
As we have messaged throughout the year, we expect it to be back positive adjusted EBIT in the back half of 2021.
I'm pleased to report that adjusted EBIT in the month of September wasn't back positive.
The third quarter it was a loss of $338000.
The balance sheet remains strong with no debt and roughly $14 6 million in cash and marketable securities.
Along with an unused 5 million financing facility.
The company is not currently in need of additional capital.
Of the $16 8 million, we delivered the valley pit platform contributed approximately 11.7 million, which was up year over year by 88% and up 21% sequentially.
The platform's growth rate has been steady 8% compounded monthly through September of 2021 off the COVID-19 related low in May 2020.
Valid clicks services include multichannel media buying in support of our largest clients.
The product line has continued to enhance these competencies having recently added Twitter.
The stable of social media relationships.
Much of the technological enhancements like revolve around automating the numerous traffic sources under management, which are necessary to ensure the best quality consumers are delivered to our clients at the lowest cost.
This automation continues to have a positive impact.
Most notably on the time resources spend manually adjusting campaigns.
We've seen a 50% reduction in this time spent optimizing campaigns because of these continuous enhancements to the platform.
Additionally.
We've continued to enhance our publishing technologies within click.
Within the quarter, we were able to dynamically insert related articles into content at a time when our systems detect users' engagement is declining.
This feature now allows us to reignite engagement at the time of declining interest and as a result improve the opportunities to further monetize that engagement.
Further and in combination with our largest client we began in market testing of an innovative advertising unit that lab leverages. The search intent of users on pages. So it can customize content and advertising in a manner that is.
Proves the pages overall yield.
While this program is in the initial test phase and is showing positive results with significant upside opportunity.
Consequently, we see this as a significant growth driver in 2022.
Yes.
Most notably in the quarter and for the first time, we leveraged the services are valid lake in combination with the services of the intent key to win larger direct clients.
Where are we now manage the entire multichannel online advertising spend.
Cross channels that include social search.
<unk> TV video display advertising streaming audio and linear TV.
This is a significant advancement of our strategy to sell directly to clients, where the competitive differentiation of our artificial intelligence.
Bind it with this multichannel capability puts us in a position to win more and larger deals.
This quarter's wins, which I will talk more about later gives us confidence in our strategy.
One of the advantages of this approach is our ability to incorporate our AI into channels, such as social and search where we are confident that we can outperform existing performance within those platforms through this integration.
We started executing on this capability in the third quarter as part of a larger media budgets. We are now managing.
Of the 16.8 million delivered the intent key platform contributed approximately $5 1 million, which was up year over year by 71%.
75% sequentially.
The platform's growth rate has been and continues to be strong based on the products core value proposition as a replacement for third party consumer data, which the industry uses today universally.
In the third quarter, we signed more than $10 million worth borders across the collection of businesses, both direct to client and through agencies.
We anticipate that these orders will deliver over a nine month period.
Our sales outreach continues to improve.
Which has resulted in 31% more rfps submitted compared to the same period last year.
In addition, the dollar volume Rfp's submitted is also increased by 75%.
This reflects our strategy to go after larger clients.
And just sell further up the chain.
It's worth noting that not every deal we go after requires an RFP.
We signed a device a diverse range of clients over the last three months.
These include companies within insurance online gaming Pet technologies education, a number of state Covid initiatives.
Real estate E Commerce investing.
Winemaking.
Agent care.
DNA screening gym memberships.
And personal lending to name a few.
Across the client base, we outperformed goals by 40% on average within the quarter.
We ran 95 campaigns within the quarter, which is up 13% sequentially.
25 of these campaigns were new and 70 were renewals of existing business.
We continue to sign clients, who understand that the future of online advertising is one where consumer data is no longer used as a part of our company's prospecting activities.
In turnkey.
As you are aware uses no consumer data as a part of its artificial intelligence.
Rather than trying to identify who the people are that magic product service or branded juiced.
It determines why that interest exists to begin with.
This intelligence is considerably more valuable and strategic to the clients adopting us as their go to market technology or this privacy first future.
At its core.
Cookie is an effective mechanism through which consumer data is on boarded for use within digital advertising.
We believe strongly that the era of who based marketing that uses this consumer data is coming to an end.
And believe we are well positioned to win market share as companies and agencies accelerate their acceptance of this new reality.
Apple has already adopted this future.
We believe others will follow.
We are often asked to prove that our cookie less solution works as part of our sales cycle.
In one such example, within the quarter, we ran two large cookie Atlas tests for our clients.
We achieved a 50% lower cost for the same return.
This not only means we can in fact deliver advertising effectively in this privacy first future.
But we can do so at a level of performance that already exceeds the burst of the existing <unk> base methods currently in use.
Okay.
As mentioned in my comments related to valid click.
We are now managing cross channel advertising activity for a handful of clients.
As a result, we are also building out reporting and performance tools required to support those campaigns.
These new clients are preparing us for our revised sales strategy in 2022, where we sell a managed service directly to clients and our SaaS solution to agencies.
Across the company we.
We are hiring to ensure delivery of existing and future business with a continued focus on sales account management and campaign operations.
Along with select positions and development and marketing.
We currently have 77 full and part time employees.
As we enter 2020 2022.
We are increasing our brand building activities in support of our efforts increase the awareness of our company.
And it's solutions.
We plan to complement this awareness with a direct to CMO marketing plan.
It uses the intent key.
Identify and message to those C M o's.
So as to create a funnel of qualified leads using the very technology, we are selling to them.
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.
I'll recap the financial results of the third quarter of 2021.
As rich mentioned <unk> reported revenue of $16 $8 million for the quarter ended September 30th 2021. This compares to $9 $2 million reported in the third quarter of last year.
Both platforms valid click N and turnkey exceeded the prior year Valley.
<unk> click revenue exceeded the revenue in the third quarter of last year by 88% in the turnkey revenue for the three months ended September 32021 exceeded the prior year quarter by approximately 71%.
Primarily due to the acquisition of new customers.
And turnkey revenue represented 30% of total revenue in this year's quarter compared to 32% in the same quarter last year.
This year's quarter as a bit of an anomaly in that valley clip.
Being the most affected by the COVID-19 pandemic last year came roaring back starting in the second quarter. This year.
However, due to the strong growth we are seeing is a turnkey in the fourth quarter. We expect the turnkey revenue to continue to grow as a percent of the total revenue.
Nouveau gross margins decreased in the third quarter to 78% compared to 82% in the same quarter of last year.
<unk> gross margins were 36% in the third quarter compared to 49% in the same quarter last year, our new customers are requiring us to deliver ads in a multichannel environment.
The different channels have different gross margins, though.
So we attempt to optimize gross margins, we wanted to deliver to the customers the multichannel campaigns that they want.
Going forward and turnkey gross margins may increase due to the increased use of the SaaS version of intent to you where margins are expected to be significantly higher as a result of the mostly fixed costs associated with operating just the AI modeling and decision components of our platform.
The majority of valley clicks cost our traffic acquisition related and not reported as cost of revenue rather as a marketing expense valor.
Valid clicks gross margins were 96% in the third quarter compared to 98% in the same quarter of last year. This also is due to the multichannel environment. We are now operating at.
As rich mentioned, we have started to integrate.
Valley Click services with the intent key customers and.
And we expect the valid click gross margins to stabilize.
Operating expenses were $14 $8 million in the third quarter of 2021 compared to $10 million. The prior year, an increase of $4 8 billion.
The largest component of operating expense is marketing costs.
Marketing costs are predominantly traffic acquisition costs associated with valid claim it is the largest expense associated with a valid click platform.
Marketing costs were $10 $2 million in the third quarter this year compared to $5 7 million in the same quarter last year.
Four and a half million dollar higher expense. This year has mostly to do with the reduction of traffic acquisition activities last year in response to the unusually low valid click revenue last year again associated with the COVID-19 pandemic.
Compensation expense was $2 $8 million in the third quarter this year compared to $2.5 million in the prior year, primarily due to higher stock based compensation expense and to a lesser degree higher employee salary costs.
Our full time employment with 73 at September 30th and that compares to 66 and September of last year.
The majority of the increase in headcount occurred with that sales sales support and account management for the in Turkey.
We also have higher traffic acquisition professionals with invalid clicks to support our strategy to bring the function in house.
Selling general and administrative expense decreased by $45000 in the third quarter. This compares to the prior year.
This is compared to the prior year and that's due to lower professional fees and costs this year, where we consolidated.
Operating facilities.
Net interest expense was $6000 in the third quarter of this year compared to $26000 last year. This.
This year's expenses associated with the leasing of equipment and last year's expense was primarily related to the outstanding debt on our line of credit.
We had other expense of $79000 in the third quarter of this year due to an unrealized loss from marketable securities.
The other gain of $54000 in the third quarter of last year was associated with the recognition of deferred revenue from our contract to license valid clip technology.
We reported a net loss of $1 $8 million or two cents per basic share compared to a.
$2.4 million net loss or <unk> <unk> per basic share.
For the same quarter last year.
Noncash based expenses totaled <unk> <unk>.
<unk>, one $5 million in the quarter.
The adjusted EBITDA for the quarter ended September 30th of this year was a loss of 338000 that compares to a loss of $1 2 million for the same time period last year.
As mentioned, we had a positive adjusted EBITDA in the month of September we believe we should be we.
We believe we should be positive EBITDA positive. We believe we should be positive EBITDA adjusted EBITDA for the fourth quarter.
On September 30th 'twenty, 'twenty, one we had cash and cash equivalents in marketable securities of $14 $6 million and a networking capital of $13 million. In addition to having a 5 million dollar working line of credit, which currently has no outstanding balance.
We maintain a simple cap structure with only common stock employee restricted stock units through an equity incentive plan and 300000 warrants to purchase common stock.
With that I'd like to turn the call back over to rich.
Thanks, Wally we had a very strong third quarter with 83% year over year and 33% sequential growth.
We signed over $10 million worth of turnkey orders within the quarter, an all time high.
We expect to report strong year over year growth in the fourth quarter.
We expect both product lines are so to show sequential growth in the fourth quarter.
We are forecasting adjusted EBITDA to be positive in the fourth quarter coming off a positive month in September.
We expect the intent keys notable client performance to continue alongside a growing pipeline with improving win rates.
Our balance sheet is currently strong enough to accommodate the working capital needs of the growing business and as a result, we have no immediate plans to raise capital.
With that I will now turn the call over the operator for questions operator.
Thank you to signal for a question. Please press star one on your telephone keypad also if you are using a speaker phone. Please make sure. Your mute button is turned off to allow your signal to reach our equipment. Once again. It is star one at this time for questions and we'll pause for just a moment to give everyone the opportunity to signal.
We'll take our first question from Brian can Slinger with Alliance Global partners.
Great. Thanks, the third quarter seem to be a breakout quarter for intensely in shirts very satisfying is it's been a long time coming.
As you mentioned the leverage on valid collect that you're using as well as the clear changes in privacy that drove some of the performance.
Can you talk about the number of Rfps in the fourth quarter of your bidding are tracking.
Is it tracking higher than the third quarter and just maybe from a higher.
Perspective talk about how the pipeline is building.
I don't know the exact number.
But where we stand today, Brian after the fourth quarter.
But the third quarters.
RFP counts I think we're.
Somewhere near.
100 or ish if memory serves.
And it has been increasing steadily I think I referred to that in the.
In the call notes. So we feel good about the you know the way the pipeline is.
Is evolving for the product.
And.
I don't know if I would categorize the intent keys quarter or the breakup, where certainly it was a good quarter.
But the intent he has grown.
Pretty much tenuous.
Tenuously since it was launched in.
2019.
Sure you know it was a it.
It took a bump up in <unk>.
Q3 of this year, but it really is not.
Ever.
Ground since it was launched.
At that point.
Okay, I guess I look at it differently.
By far the best quarter in revenue and I think more to come but we'll see.
Hey.
You guys have been preparing for new privacy rules by Apple and others for some time on first party data can you talk about how your offering is resonating with customers and so then I guess with that and how demand.
And more rfps are being bid on.
Maybe a what's a reasonable goal for either 12 or 24 months.
Growth for in turnkey with these trends.
Yeah.
Yeah, So I think he will.
Like any.
Change that affects the industry.
There are.
Individuals within.
Clients that we will sell to whether those be directly or agencies, who are ahead of the curve.
Let's call them early adopters and then there will be others, who aren't.
And I would say you know the large to a large degree.
We're getting there.
The early adopter phase of the disruptive changes coming and <unk>.
Privacy rules continue to get more stringent and there's the cooking issue comes to a head in 2023 and as companies like Apple continue to basically just.
<unk> headed.
And try to create you know the world that they want created.
You know people are going to be forced to have to deal with the situation.
And good news will be ready willing and able to help when when when they get there.
Yeah.
You gave a $10 million of turnkey orders for the third quarter.
Can't remember Oh I didn't look quickly through my model can you provide what that was in the second quarter and the first quarter just to see how that's progressed.
We didn't give it in those quarters, so I'd actually don't even know what it is.
But it was significantly larger do you think that yeah, yeah. It's a significantly larger that's why I said, it's the largest we've had on record.
Okay. So I'm, sorry, I can't give you that I don't know what they are we don't try and track it back then.
So the last question is on the seasonal seasonal strength in the fourth quarter.
And if youre seeing the impact at all from the supply chain issues to demand for CPM.
Demand or C. P. M. I mean, some companies instead of AD budgets will not be as strong as usual in the fourth quarter, others are selling I mean package I guess I look at it as its portfolio specific on which companies are suffering. So maybe you can talk about how if at all you are seeing any impact of the supply chain challenges on your customers.
It's really hard to predict.
These things leading into Thanksgiving and Christmas.
They do have some variability to them.
It's not really affecting us of you mean like companies and auto or whatnot that have chip problems are.
Sort of the other.
Where.
I don't think we're seeing that.
The impact of that if anything it seems like advertising is coming back.
And coming back nicely from our perspective.
Most of the people, we're talking to either as prospects of our clients are trying to figure out how to increase their budgets not decrease them now with that being said I think as you know, Brian or our business has seasonality in it.
No.
It's typically.
Weaker in the first half of the year and stronger in the second half.
Okay, great. Thank you.
Thank you Brian.
And once again it is star one for questions moving on we'll go to Erin Warwick with breakout investors.
Hey, Richard Walley.
I hope you're doing well today one quarter.
Hey, I wanted to ask you.
A little bit more about the Twitter deal. If you could comment on that maybe expand just in terms of what you expect in terms of the potential there compared to the previous.
Current business you have like with with some of your other clients on valet click.
Yeah, maybe.
Importantly for context that I think we know we live in this sort of digital modern world, where there are a lot of places you can advertise and so.
The more I guess adapt you are right.
Understanding the nuances of each channel Twitter being one of them. Obviously it has a number of uniqueness to it that are different than other social media channels.
Then the better you'll be at that meeting the needs of your clients. So that the answer is we.
We.
We've been adding we add new channels you know.
Semi regular basis because of the you know you can't do everything.
But we did in Twitter find you know.
A pretty responsive company Twitter.
Interested in working more with companies like ours and actually allocating.
Internally resources that could help us become better at using their channel and that's not as common in.
And then the other larger social media platforms, where we have relationships. So as a result, we've seen good good performance.
Good results and we expect to scale it.
Oh that sounds very promising thinking.
Within turnkey you know you had mentioned that $10 million sounds really good and then.
The additional you know the whatever it was 7% to 87%.
Rfps year over year in terms of the dollar amount what are you seeing though in terms of client retention and then you know even current clients expanding their campaigns are you are you pretty well keeping all of your clients.
Getting them expand what what are you seeing there.
Yeah.
Interesting thing about media is clients can actually come and go and of course, they don't always spend their money kantar.
Continuous they like they thought they might.
In one quarter, and then take a pause for another and then startup in another quarter.
In fact, we've had clients I think you know who.
Maybe for two quarters, and then stopped and then started back up the next year. So it's a little difficult to kind of.
Figure out what constitutes a lost client.
Well versus not lost a client and we have certainly lost some clients, but there's so few of them that I don't even remember who they own how's that and when we do lose clients.
Clients, we've tended to lose them because we're working with an agency and that agency lose them.
Because when we work with agencies they maintain the relationship with the client and we're really just a service provider in that environment.
So I think as I've said, maybe time and again with the intent key the performance is strong and the.
Approach, we have produced as such.
Valuable strategic insights because it's really honing in on the reasons why people are doing things as opposed to who they are.
We tend to keep the clients because they they see things they've never seen before and it opens up the ability to market to.
Things, they've never been able to market to before because of the constraints of the existing consumer data.
Okay. Thank you for that I appreciate that.
Did I hear you correctly I know you've been saying here recently that.
You know that you can sort of leverage some of the clients that intent key get them over to valid click but did I hear you mentioned something in your opening remarks about integrating certain aspects of in turnkey and the AI into valid click or was that a misunderstanding on my part.
No that's exactly right.
Social and search so valid has an extreme lee robust competency in media buying and.
In social and search and doing that for many many years and so now we're offering that.
In combination with all of the other channels that the intention.
<unk> provides the connected TV in the display and video and streaming audio et cetera.
Yes, and we've now incorporated.
AI.
Directly into the social and search based media campaigns that we're running which was you know.
Pretty cool.
To be able to add that value add.
Into those channels and as a result identify audiences like within those platforms and then market to those audiences.
Using.
Identifiers created by our artificial intelligence. So that was a that was a big step in our.
Mines towards our desire to want to go in and sell directly to clients.
Recognizing that we have a huge competitive differentiation within the so called programmatic.
Base.
But recognizing also that when you try to sell those bigger deals you've got clients who.
Don't want to have multiple multiple vendors.
It becomes difficult for them to manage let's just say I do my social buying somewhere in my search buying somewhere else and I do I do.
No video somewhere else and programmatic somewhere else Theres a lot of them.
Sort of call it half a billion to a $1 billion a year companies, who would rather just have the single provider of those services.
When we find as a result of the.
The clients that we were able to sign in and work on in the third quarter. We now have this ability, which we've wanted to have to go out and sell these bigger deals, which we plan to start doing in 2022.
Yeah fantastic it sounds like you're set up for that.
I guess the final thing for me then would be.
You had talked on the last.
One or two calls I think about a potential acquisition with the cash that you have and just wondering what the what your thinking is on that right now is that something that's still you know.
On the radar or is it something that you kind of pushed aside for now.
We did push it aside aaron but not because we don't want to do it.
More like the growth as you can tell has been so.
From.
That we find ourselves I guess in a good position of of you know.
Having to be 100% focused on not dropping the ball.
On.
Client relationships that we have now closed.
And so we don't want to be distracted.
And we don't want the resources of the company to be distracted.
To have to work on integration.
As a result of the acquisition of a company not right now.
With that said, we still believe that an acquisition.
Physician of some kind.
Should be in our future.
And I think as I've said on prior calls my preference right now would be to acquire.
Marketing and advertising and digital marketing and advertising consultancy.
In large part because.
The resources in those.
Consultants in CS tend to be more knowledgeable about the complexities associated with advertising.
And as a result.
Tend to be more successful at selling bigger deals where clients.
Value.
The consulting that comes with a sale.
Well guys I appreciate your time and I'm looking forward to the end of this year and 'twenty two.
Keep up the good work thank you.
Thank you Sir.
And that does conclude the question and answer session and I'd like to turn it back to management for any additional or closing comments.
Thank you operator, and I'd like to thank everyone, who joined US on today's call. We appreciate your continued interest in our company.
Yeah.
And that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.