Q4 2021 Inuvo Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the innovative fourth quarter and full year 2021 financial results conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Walter Pinto, Managing director of K C. S E strategic communication. Please go ahead Sir.
Thank you operator, and good afternoon I'd like to thank everyone for joining us today for the renewable fourth quarter and full year 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 we'd like to remind our shareholders that we anticipate filing our 10-K with the Securities and Exchange Commission. This evening March 17th 2022.
Before we begin I'm going to review the company's Safe Harbor statement.
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.
Using this call the words anticipate could enable estimate intend expect believe potential will should project and similar expressions as they relate to a new vote 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 newborn at this time. In addition, other risks are more fully described in numerous public filings with the U S Securities and Exchange Commission, which can be reviewed at SEC dot Gov with that I'd now like to turn the call over to CEO Richard Howe.
Thanks, Paul and thanks, everyone for joining US today, we had another very strong fourth quarter, where for the three months ended December 31, 2021, we delivered $19 7 million in revenue, which was up 53% year over year and up 17% sequentially.
Revenue for the year was also up significantly at 34% to $59 8 million for the year.
Now what is particularly encouraging about revenue within the year 2021 is how it accelerated between Q2 and Q4, where the company's growth rates year over year were 66%, 83% and as previously mentioned.
A second ago, 53% in the fourth quarter.
Overall gross margins remained strong at an average of roughly 73% for the year on.
On a revenue basis about the valid click and the intent key platforms were up materially year over a year.
Additionally.
And as we had been messaging throughout 2021, we were successful in delivering a positive adjusted EBITDA in the fourth quarter of 2021 and I'm pleased to report that that adjusted EBITDA was $466000.
Our balance sheet remained strong as of December 31, 2021, with no debt and over $13 million in cash and marketable securities.
The company has access to an unused $5 million line of credit and we are currently in the middle of renegotiating that with new terms and conditions.
With a number of different vendors, who we're talking to them, we expect to be able to.
Talk about that.
It more probably on the Q1 conference call.
Company is not currently in need of additional capital.
Now we had a number of significant first in the company's history in 2021, and I'd like to talk through a number of those with you here today.
At the end of 2019, and just before the pandemic.
Approximately 64% of our company revenue was concentrated in a single client.
We had a strategy to reduce that risk and I'm pleased to report for the first time in the company's history revenue was more evenly distributed across clients in fact in the fourth quarter. The top five clients amounted to roughly 22%.
<unk> percent, 13%, 12% and 8% percent respectively of the revenue in that fourth quarter.
As was mentioned in my opening remarks, we also grew an impressive 66%, 83% and 53% year over year in the second through fourth quarters.
And this was in part because we also had an average cash balance of roughly $16 million in the year.
Both of these growth rates.
And the availability of cash to fund those growth rates were first for a new vote.
Strategically we've long recognized that the solutions provided by the valid click and intent key platforms, we're not all that dissimilar.
As such we knew we could command larger media budgets by packaging, our media and technology service that included the social and search channels of valid click with the programmatic channels of the intent key.
In 2021, the valid T click team delivered over $3 million of revenue that was attributable to clients shared with the intent key.
This was a first for our company.
Additionally, and as part of serving these multichannel solutions to several clients in 2021.
We learned that many of those clients wanted to also place ads within traditional TV.
We saw this as an opportunity to insure as traditional TV continues to migrate to connected TV.
<unk> would be the company that could move that budget across those channels for that client.
We delivered roughly $2 $5 million of linear TV for clients in 2021, using the power of the intend keys artificial intelligence to help us make decisions about program placements.
This was a first for Nova.
Now one of the consequences of running multichannel media solutions is the development and management of the various client based data warehousing reporting and optimization technologies associated with reporting on the performance of these solutions for those clients.
These capabilities were successfully deployed for our clients in 2021 and this in turn has given us the confidence that we can now scale. These services.
The deployment of systems necessary to support this level of media complexity.
It's also a first for our company in 2021.
Larger media clients all have creative agencies, they work with who provide us with the creative assets necessary to deliver our service using artificial intelligence.
As the intent key has grown so too has our involvement with these creative agencies, where we are routinely being asked by our clients to present the insights from the intent key to these creative agencies. So they can have ideas from which to.
All of those assets.
This shift.
From creative assets focused on who people are to creative assets using the intent key based on why people are interested.
Is having a meaningful effect on our clients' businesses and is another significant differentiator associated with our technology.
This level of creative involvement was yet another first for a newbuild.
As it relates to the marketing of our own company.
We signed the deal in 2021, we're in a new vote will be a premier sponsor for a new category of conference within advertising built specifically around.
Artificial intelligence.
We expect this event to occur around midyear.
And in New York.
This will be a first in our company's history.
Shifting now to a few technical first.
As you all know the intent key brain.
Works much like a human brain in that our brains are giant libraries and the neurons in our brains are the books and that library.
We make decisions by linking together these books.
Now while the human brain is limited to understanding only the things it has ever been Todd.
The intent key understands the collective knowledge contained within the internet because the internet was in effect it's teacher.
Updating the core intent key brain is not something that needs to happen frequently.
Is it already possesses trillions of individual connections between known concepts.
So while for example, the intent key would be able to link an iPhone with Apple it.
It might only be able to indirectly link the newest iPhone 13, with Apple because that direct connection and had not been trained.
In 2021, we expanded the number of concept understood by the intent key and in so doing.
Also designed to framework for enhancing yet again.
Turnkey in a way that.
Allow it to be able to understand some of the newer elements of our lexicon.
Talking about things like hashtags and Emojis for example.
This major revision to the brain behind the intern Keith was a first for us.
In 2021, we also deployed and signed new clients for the SaaS version of the 10-K.
This product was primarily designed to serve the needs of the agency market.
Our media agencies typically want to run campaigns for their clients directly.
This was a first for a new low and it has provided the means to expand our markets and our gross profits.
Within our valid click platform, we have recognized that media buying opportunities in search and social tend to be opportunistic and of limited duration.
This meant that we needed to develop technologies that could adapt to these opportunities by automatically accelerating and decelerating media purchasing on behalf of clients. So we could take advantage of these just in time changes.
We implemented this technological capability in 2021, and it was a first for the valid click platform.
Now we also had some clients first in 2021.
In the fourth quarter, we delivered a net 10 key driven multichannel media program for our Universal Pictures adaptation of our successful book.
This was particularly challenging because the marketing program itself required execution over a short period of time.
It was a great test of the <unk> ability to deploy quickly and.
And a testament to the AIG proficiency at identifying and marketing to prospective moviegoers in real time.
This was another first for Nova.
In addition to this movie client we had several other wins in the year that included an electric vehicle manufacturer of pet technology provider and enterprise software vendor universities, a bank an online game manufacturer of high end, Jim and many many.
Anymore.
Across all these and other customers the intent key continued to exceed expectations, having delivered on average roughly 50% improvement over the goals. These clients set for us within the year.
What our performance and these first should signal is that we have a technology. We have the people we have the services.
And the market required to build a large company.
When this readiness is complemented by a once in a decade consumer privacy driven catalyst for which our technology has a solution we get excited about our potential.
The use of consumer data has been the foundation of advertising for decades.
Privacy concerns among consumers is going to eliminate the use of that consumer data for prospecting new clients and win it takes hold it will impact $200 billion of media spend.
We have a solution to this industry challenge.
With that I'd like to now turn the call over to Wally for.
A more detailed assessment of our financial performance.
Thank you rich good afternoon, everyone.
I'll recap the financial results of our fourth quarter, the fourth quarter of 2021.
As rich mentioned <unk> reported revenue of $19 $7 million for the quarter ended December 31, 2021.
This compares to $12 $9 million reported in the fourth quarter of the prior year.
Both platforms valley click and turnkey exceeded the prior year valid click revenue exceeded the revenue in the fourth quarter of the prior year by 26% and the turnkey revenue for the three months that ended December 31 2021.
Ceded the prior year quarter by approximately 121% primarily due to the acquisition of new customers some of the customers that rich referred to earlier.
And <unk> revenue represented 41% of the total revenue in this year's quarter compared to 28% in the same quarter last year, we expected turnkey revenue to continue to grow as a percent of the total revenue.
<unk> gross margins decreased in the fourth quarter to 57% compared to 83% in the same quarter last year.
The intent key gross margins were 37% in the fourth quarter compared to 45% 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 we attempt to optimize gross margins, we wanted to deliver to customers to multichannel campaigns that they require.
Valley clicks gross margins were 71% in the fourth quarter compared to 99% in the same quarter last year.
As mentioned, we have now integrated the valid click services with the intent key services as part of delivering this multichannel capability to clients.
Whereas in the prior year most of the valley click cost with traffic acquisition and as such not included in the cost of revenue in 2021 for clients, where we did deliver a multichannel solution. The media expenses were considered cost of revenue.
Operating expenses were $12 $3 million in the fourth quarter of 2021 compared to $12 $6 million in the prior year a decrease of $300000.
The largest component of operating expenses marketing costs marketing costs are predominantly traffic acquisition cost associated without valid claim.
It is the largest expense associated with a valid click platform.
Marketing costs were $7 $4 million in the fourth quarter of this year compared to $8 3 million in the same quarter last year.
Compensation expense.
Was $2 $9 billion in the fourth quarter this year compared to $2 4 million in the prior year, primarily due to higher stock based compensation expense and to a lesser degree higher employee salary cost.
Our full time employment with 75 on December 31, 2021, compared to 71 on the same date in 2020.
The majority of the increase in the head count occurred within sales sales support and account management for the 10-K.
Selling general and administrative expense increased $50000 in the fourth quarter this year as compared to the prior year due predominantly to depreciation and amortization expense.
Net interest expense was $50000 in the fourth quarter of 2021 compared to $2000 expense.
In the same quarter of last year.
This year's expense is approximately $11000 that is associated with leasing of equipment and other ongoing commitments.
Also the larger component in this year's quarter is approximately $39000, resulting from the re class of marketable securities as available for sale and showing its fair market value change in other comprehensive income.
We had other expense of $158000 in the fourth quarter of this year due to an unrealized loss from marketable securities.
Losses, partially offset by an unrealized gain of $54000.
That's associated with debt Securities and is now included with the other comprehensive loss.
Okay.
We reported net loss of $1 $2 million or one cents per basic share compared to a $715000 net loss of <unk> <unk> per basic share in the same quarter last year.
Non cash base expenses totaled approximately.
One $5 million in the quarter.
Adjusted EBITDA for the quarter ended December 31, 2021 was $466000 compared to $347000 last year.
On December 31.
Of 2021, we had cash and cash equivalents and marketable securities of $13 3 million and a net working capital of $12 4 million.
In addition, we have a $5 million working capital line of credit, which currently has no outstanding balance.
We maintain a simple cap structure with.
$119 5 million.
Common shares outstanding approximately 4 million.
Employee stock restricted stock units outstanding through an equity incentive plan.
About 300000 warrants for the purchase of common stock.
With that I'd like to return the call to rich for closing remarks.
Okay, yes, thanks, Wally we had a very strong year with a compounded quarterly growth rate between Q1, and Q4 of approximately 23% we.
We had a year over year overall growth rate of 34% and we had accelerated growth rates between Q2, and Q4, a 66% to $83, 53% year over year.
We had a positive adjusted EBITDA in the fourth quarter of $466000.
We expect year over year growth in the first quarter of 2022 to remains strong.
With this once in a decade opportunity associated with privacy.
We plan to run the business as close to breakeven on an adjusted EBITDA basis for the year. So we can optimize towards capturing market share over the next few years, while enterprises are open to a change in service providers because of the challenges facing this industry.
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 needs to raise capital.
I will now turn the call over to the operator for questions Kyle.
Thank you, ladies and gentlemen, if you would like to ask a question. Please see note by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function Houston after a low you'll seen that to reach our equipment.
Press Star one to ask the question you posed for just a moment to allow everyone an opportunity to see a couple of questions.
We take our first question from Brian <unk> with Alliance Global Partners. Your line is your line is open. Please go ahead.
Hi, This is Matt in for Brian.
First of all how many active logos that you have running campaigns with turnkey.
December quarter compared to the end of 2020.
Okay.
I don't know the answer I think we had a roughly 90 or so different ones I don't know how that compares against the prior year Matt.
Oh it was around 90 now.
Yes understood.
And a second part of that question is can you.
Possibly quantify how much of <unk> growth.
Is it related to these new logos compared to larger campaigns or increased usage from existing.
Customers.
Not a lot of the growth is on the back of new clients not existing clients by the way existing clients are growing as well, but yes. We the growth rate has been accelerated in large part by signing up bigger.
Clients with bigger media budgets.
Understood. Thank you.
What's the average size of a campaign.
And in <unk> would be running today.
Have you seen growth in the average size of a campaign from six or 12 months ago.
I don't know what the average size is but its definitely bigger now than it was 12 months ago.
Okay, and with the changes that prohibit cookies.
The prospective brands responding to that.
So the AI AD Tech that uses first party data and what does the company do to accelerate that.
Yes, so I'm going to rephrase.
The question, we don't use any data at all and that's part of the significant advantage of our technology.
When you refer to first party there is somehow a misnomer that just because of the data is yours you have free reign to use the consumers' data and technically there are workarounds for doing that and some companies may be designing solutions for that but we think strongly.
Youre going to be opposing the desires of the actual consumers themselves. So that's not a path we ever wanted to go to so our technology does not require any consumer data know why there was weather per first party second Party third party Nobody's party. It doesn't use any and that is the advantage of it and I'd say the answer is.
As a result of the growth rate that youre seeing.
Our message is responding and resounding with clients and prospects because they they recognize one that theres. This privacy issue in and two there is a solution here.
Works and works better than actually using consumer data. So you might ask yourself why wouldn't why wouldn't everybody want to give it a role.
Great. Thanks, so much.
Beth.
Okay, and just a reminder press star one to ask a question we'll take our next question from Jack Vander <unk> with Maxim Group. Your line is open. Please go ahead.
Great Hi, rich Hawalli congrats on the strong results.
Thanks for taking my Jackson's.
So last quarter, you announced 10 million plus of new <unk> orders during the third quarter I think that was new customer orders received.
Which are expected to be delivered over the next nine months or so.
Just a couple of things on that.
Can you provide what new <unk> orders were for for this fourth quarter and then of the 10 million from last quarter, how much of that was recognized during the fourth quarter.
I don't know how much of it.
It was in the.
First quarter, Wally you might know that I don't know can you answer some of these questions of the $10 million, we signed how much of it was.
For one I don't know the answer to that question.
Yes, so a small a small portion was was actually recognized in December.
And.
But it was a small percentage of the $10 million.
Probably.
Probably we're probably less than 50% by.
By the by February so.
They are still there still.
There is still a 50% to 60% to go on to $10 million.
Got it.
Color Jack Yes, if I could say something else about that mean in at least one case that I am aware of we've already signed.
Uh huh.
Our renewal if you will right for some added number of months as is the case, so I don't think.
Don't want people to think we signed up these deals and theyre going away that's not how it works right. We've done a pretty good job for these clients and we fully expect to just renew them and as I said in one case I know where we.
Were renewing one right now.
Got you understood understood and then.
As far as <unk> turnkey SaaS I think you guys mentioned some comments on that I didn't quite catch that so can you just provide maybe a summary recap of what's going on with the <unk> SaaS from a revenue perspective.
Client demand for it and then.
How you see that growing in turnkey SaaS going forward.
Yes, it's fair, it's a non material component of our overall revenue at this point, but we've had a number of clients.
That we delivered the service for within the year.
Basically understand.
What are the nuances associated with having to do that because it is a bit of a different beast.
Our primary.
The demand right now seems to be coming from direct clients, who want us to run the service ourselves.
<unk>.
And I think.
Candidly over the next little while that's probably the best idea for us because if we are in control.
Of the deployment of our own technology, and the running of the campaigns associated with our own technology.
We're probably going to do better than that.
Turning it over to someone else to do that.
So we will sell and continue to sell the SaaS version of the product, but that component won't be growing probably as fast as we might have thought earlier simply because we think the demand right now is coming from the full service side.
Okay understood.
And then just maybe.
Are you noticing any pickup in.
New clients potential clients.
Knocking on your door because of this this looming kind of upcoming cookie with future.
With Google to 800, 800 pound Gorilla are you starting to get a sense of like.
If there is any sort of panic or theres, just confusion or.
Any change in behavior.
From potential clients and existing clients and how theyre going to run AD campaigns, when they can't use third party cookies.
I think the word you used confusion is probably the best word.
I don't know most of the people that we deal with and the clients we deal with are pretty sophisticated.
Panic is probably not a word that you see but I do think there's a lot of confusion.
And in part I think that confusion is coming from the existing vendors who are telling them that.
Maybe the problem is not as bad.
They've got a pretty good solution for it and and maybe thats, reducing the panic.
But confusion yes.
And an increased.
Discussion like an increasing amount of clients who want to have this discussion specifically about this I would say absolutely on that fact.
It's kind of what we're leading with these days so that we have laid right out there on the table that we do have something that.
That can work here.
Yes.
Got it and then just.
Where would you say you are it's my last question in terms of the overall integration of emerging of the technologies <unk> click.
Maybe and maybe theres not a finite plan, but where would you say you are in there in the in terms of like if we were to do a baseball analogy in terms of merging the capabilities together.
What you are starting to realize they are capable of doing.
I hate to say, we're there, but we're serving multiple clients now.
With both sides and it's all working fine and we just recently signed up another one where we're using both that it's like it's working and.
And both sides are doing what they're supposed to do.
Yes, like I said I don't want to say, we've got all figured out because there's always things that come up but I'm not worried anymore about that which is why in my script. I said were now pretty confident that we can scale. This.
I'll have to worry about it meaning by final another one tomorrow.
<unk> tomorrow or 10 tomorrow.
Teams know how to do with sort of the the people issues associated with that so I think we're we've got that figured out.
Excellent that's great to hear that's it for me I appreciate it congrats again on the results. Thanks.
You bet Jeff.
Once again, ladies and gentlemen, please press star one to ask a question.
Okay.
It appears there are no further question at this time.
The conference back to you for any additional or closing remarks.
Thanks Kyle.
Of course, as always I would like to thank everyone, who joined us on the call today and we appreciate your continued interest in our company.
Yeah.
This concludes today's conference. Thank you for your participation you may now disconnect.
Yeah.
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Yes.
Okay.
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