Q1 2022 Inuvo Inc Earnings Call
Okay.
Good day and welcome to the <unk> first quarter 2022 financial results Conference call. Today's conference is being recorded at this time I would like to turn conference over to Sally Era Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone I'd like to thank everyone for joining us today for the new gold first quarter 2022 shareholder update call.
The new those Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz will be your presenters on the call. We will also like to remind our shareholders that we anticipate filing our 10-Q with the Securities and Exchange Commission. This evening before we begin I'm going to review the company's Safe Harbor statements. The statements in this conference call there.
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 Andy.
Estimate intend expect believe potential will should project and similar expressions as they relate to <unk>, Inc. Are such forward looking statements listeners are cautioned that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by new well at the time in addition.
The risks are more fully described in public filings with the U S Securities and Exchange Commission, which can be reviewed at www SEC Gov. The company makes no commitment to disclose any revisions to forward looking statements or any type of events or circumstances. After the date hereof that bear upon forward looking statements. In addition.
Today's discussion will include references to non-GAAP measures. The company believes that such information provides an additional measurement.
Since then historical comparison of its performance often association of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website with that I'll now turn the call over to CEO Richard Howe.
Rich.
Thank you and Italia and thanks, everyone for joining US today, we had another very strong quarter, where for the three months ended March 31, 2022, we delivered $18 6 million in revenue.
Which was up 75% year over year.
Our trailing 12 month year over year growth rate now stands at an impressive 69%.
Both product lines experienced significant growth in the first quarter.
In turnkey and valid click up roughly 280% and 24% respectively.
But this growth in perspective in the prior year period. The intent key was roughly 20% of overall company revenues and valid click was 80%.
In the current period that split with 44% and 56% respectively.
For those shareholders new to our story the valid click platform delivered add principally through social and search channel.
While in turnkey delivered mostly connected TV online video and display channels.
Recently, the two platforms are used to deliver multichannel media solutions to joint clients.
Our artificial intelligence technology influences decisions across channels.
Typically within our industry.
There is seasonality associated with media budgeting that generally leads to less advertising spending in the first half of the year versus the second half of the year.
Delivering $18 6 million in the first quarter.
The foundation for yet another strong year overall in 2022.
Unaudited April revenues are coming in north of $7 million, which if continued would set the second quarter up nicely for a continuation of our strong year over year growth.
As was mentioned on the year end conference call, we have significantly reduced our revenue concentration risk.
In Q1, our largest client represented 22% of our total revenues.
Fiscal year 2019, 65% of our revenue was concentrated in a single client.
Gross margins remained healthy in the first quarter at roughly 53, 5%.
Adjusted EBITDA was a loss of roughly $703000.
With the strong demand we are experiencing the 'twenty 'twenty 2022 plan.
Is the optimized for growth while.
While keeping gross margins steady throughout the year to produce an overall positive adjusted EBITDA.
Which should also keep our cash and marketable securities roughly flat throughout the year.
A positive adjusted EBITDA on the year would be a material improvement over the $2 1 million adjusted EBITDA loss, we experienced in 2021.
The balance sheet remains strong on March 31, 2022, with no debt and approximately $9 million in cash and marketable securities.
The company is also in the final stages of securing an $8 million financing facility.
The combination of cash and marketable securities and financing availability means we are well positioned to internally fund our growth and are therefore, not currently in need of additional capital.
Strategically we could not be in a better position.
The advertising market. We serve is on the verge of a significant change the consequence of which is almost certainly to be diminishing returns on approximately $200 billion worth of annual advertising spend that occurs across the open web.
The catalyst for this change is privacy.
The real issue behind privacy is the use of consumer data for target and brand marketing.
This consumer data is the cornerstone of virtually every competing service and or technology provider that serves this industry.
This consumer centered view of marketing permeates every aspect of advertising and from what we can tell the market remains ill prepared and confused about the technical implications of this in selling change.
If you can't identify an individual you can attach data to that individual and therefore, you can't make an advertising decision about that individual.
This new paradigm for advertising is already playing itself out across Safari, and Firefox, whose browsers control roughly 40% of the market.
The advertising community is largely ignoring media within these browsers and countering web content and the reason they arent bidding is because these browsers have already eliminated the cookie.
And in some cases.
Default that their browsers to hide IP address.
Which again means our competitors' technology can no longer identify the consumer.
This in turn suggests our competitors advertising technology is still lack the means to make an educated decision about whether to show their clients add when these browsers are present and in many cases, they are simply opting to ignore the AD inventory entirely.
This is a precursor for what will occur in 2023, when Google who owns roughly 50% of the U S browser market follow suit.
In turnkey is already taking advantage of this disruption by purchasing iOS inventory at attractive prices.
Behalf of our clients.
Optimizing our business for growth now allows us to capture as much of this early adopter market share prior to the industry change.
While also setting ourselves up.
But the more important post change period, when we believe advertisers will be experiencing significant performance degradation.
That we can then capitalize upon competitively.
We continued to add new clients in the quarter, while growing existing clients.
Performance has now exceeded on average client goal by over 50% of the last nine straight quarters.
We ran our largest campaign to date in the first quarter and we rolled out our custom performance dashboard reporting capability for many of our key clients.
The growth and the demands of an increasing client base have identified product and process opportunities.
One of the challenges with our technology is the simply presenting in an automated fashion the insights being generated by the artificial intelligence.
The product team is in the process of rolling out a graphical user interface into these insights in the second quarter that we believe will be a game changer for our clients and prospects ultimately making.
Making it easier to visualize and action the audience groups. The AI is exposing as potential opportunities.
We hired an experienced head of sales in the first quarter and we recently had our first companywide sales rally in two years.
The delay a consequence of Covid.
Our sales teams have once again started attending more in person events.
And we are the premier sponsor for our first ever conference on artificial intelligence in advertising, which is now scheduled for June eight at the brand New hard Rock Hotel in New York City.
We have also been invited to and we'll be attending the prestigious Cannes Leon Festival of creativity.
In late June .
Collectively these tactics are designed to raise the awareness of our company and its solutions within our markets ahead of the 2023 date when Google makes the final changes to its browser.
As was mentioned on the year end call.
We now have many clients, where we are the multichannel advertising product and service provider.
The ability to meet this market need is only possible because of the skills, we have developed with invalid click in.
In the fourth quarter 11, 5% of overall revenues were generated because of the valid click services offered to intent key clients.
That number has risen to 14% in the first quarter.
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.
Ill recap the financial results of our first quarter of 2022.
As rich mentioned <unk> reported revenue of $18 $6 million for the quarter ended March 31, 2022, an increase of 75, 3% compared to $10 6 million reported in the first quarter of the prior year.
Both platforms Valley click added 10 key exceeded the prior year.
Valid click revenue exceeded the first quarter of last year by 24% and the turnkey revenue exceeded the prior year quarter by approximately 280% primarily due to the addition of new customers.
Revenue split between <unk> and valley click was 44% versus 56% respectively. In the current period and that compares favorable favorably to the 20% at 82% respectively. In the same period of last year, we expect we expect that.
And Ted key revenue to continue to grow as a percent of total revenue.
Our revenue is less concentrated in 2022 than ever before.
Our largest client represents 22% of our total revenue in the quarter and as a retail consumer product manufacturer and marketer.
The same quarter last year, our largest client Google represented 40% of our revenue. So Google represented still remains as an important customer.
In the current year quarter. It represented only 40% of the total revenue.
Gross profit for the first quarter ended March 31 2022.
<unk> totaled $9 9 million as compared to $9 2 million for the same period last year.
Gross profit margins for the first quarter of 2022 was 53, 5% as compared to 86, 3% in the same period last year.
The <unk> platform has lower gross margins than the valid click platform, but it has a greater overall net margin.
The <unk> gross margin decreased as <unk> revenue became a greater percentage of the total revenue.
Quarters past cost of revenue was predominantly payments to website publishers and App developers that hosted advertisements we serve through the valley quick platform, yielding a very high gross margin.
So this continues to be the case, serving ads to web publishers is a significantly smaller percent of our business today.
As Ian turnkey gains market recognition and share it has a larger percent of our revenue and cost of revenue.
And turnkey cost of revenue was predominantly payments to advertising exchanges that provide access to a supply of advertising inventory, where we serve advertisements using information predicted by the <unk> platform.
This is a greater cost than payments to publishers, but at the same time it is more profitable.
The very high valid click gross margin serving publishers comes at a high cost of traffic acquisition that is found in the marketing cost.
The intent is not burdened by such costs.
Our gross margins are also dependent upon the advertising channel serving the client.
Many of our clients require a multichannel digital media solution.
One of our advantages is the ability to serve highly targeted prescriptive ads across multiple channels such as video mobile connected TV linear TV display social search and native.
Each of these channels yield varying gross margins, depending on supply and demand.
The optimization of the media mix for clients can vary from client to client and vary over time.
Generally speaking search and social are lower margin channels as we have to work within walled gardens of large internet platforms.
We have better opportunities for margin expansion in other channels and the open web we.
We expect <unk> gross margins for the remainder of the year to be roughly in line, where we are today.
The first quarter.
Operating expenses were $12 1 million in the first quarter of 2022 compared to $11 8 million the prior year, an increase of $285000.
Yes.
The largest component of operating expenses marketing costs.
Note that as I previously mentioned marketing costs are predominantly traffic acquisition costs associated with our owned and operated websites.
Marketing costs were $7 $2 million in the first quarter of this year compared to $7 $3 million in the same quarter last year.
Marketing costs as a percent of revenue will continue to decline at serving ads to owned and operated properties will be a lower percent of the new bulbs operations going forward.
Compensation expense was $3 2 million in the first quarter of this year compared to $2 7 million in the prior year, primarily due to higher employee salary costs and higher stock based compensation expense our.
Our full time and part time employment was 84 at the end of March of this year and that compares to 77 at the end of March of last year.
The majority of the increase in head count occurred in sales sales support and account management for the intensity.
As anticipated selling general and administrative expense remained flat in the first quarter this year compared to the same quarter last year.
Okay.
Net interest expense was $1 in the first quarter of this year compared with $22000.
In the first quarter of last year.
We had other income of approximately $18000 in the first quarter of this year due to an unrealized gain.
Marketable securities.
We reported a net loss of $2 1 million or <unk> <unk> per basic share compared to $2 1 million net loss or <unk> <unk> per basic share in the same quarter last year.
Noncash expenses total approximately $1 $4 million in the quarter.
The adjusted EBITDA loss for the quarter ended March of this year was $703000 compared to a loss of $878000 last year.
The prior year period included a onetime.
Other income benefit of $470000.
On March 31 of this year, we had cash and cash equivalents and marketable securities of $9 million.
We have net working capital of $11 $2 million and in addition, we have a working line of credit of $5 million, which we currently have no outstanding balance.
We maintain a simple capital structure with $119 8 million common shares outstanding.
Five 3 million employee restricted restricted stock units outstanding.
And that's 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.
At 75% year over year growth, we had a very strong start to the 2022 year, our trailing 12 month growth rate in DAU growth rate now stands at 69%.
With April's unaudited revenue north of $7 million, we would expect second quarter growth year over year to also remains strong.
With over 200 billion in annual advertising spend across the open web we plan to capitalize.
This unprecedented change that is underway within the industry.
As a means to rapidly gain market share and establish a dominant market position.
We have a proprietary technology that has proven itself to be superior time and time again.
Complemented by a transformational market catalyst.
For which that technology was.
In fact designed.
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.
I will now turn the call over to the operator for questions.
Thank you, ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please.
Please ensure that the mute function opex telephone is switched off to allow your signal to reach our equipment.
Please press star one to ask a question.
Our first question comes from <unk> <unk> of Maxim Group.
Hi, This is Jack <unk>, calling for Jack Vander art. Thank you for taking my questions.
In turnkey or intend to your brother I think in Q4, you referenced gross being accelerated by bigger clients with bigger budgets can you speak on that trend and give any color on client retention and renewal.
That trend continues.
Yes, we are signing clients up now.
Most of the sites for which is material.
Cereal I mean.
<unk>.
250000 to one and then a $5 million a month.
<unk>.
Where we expect it to be ultimately with the product.
As part of its evolution.
And so thats a big positive.
As we've said in the past, we rarely lose clients and when we do lose them.
Almost.
Always because we were doing business with an agency who lost the client.
Yes, that's amazing.
I was kind of in that same line I was wondering how you are feeling on new custom customer orders coming in.
<unk> 22, and the rest of 'twenty two.
Also wondering if youre seeing any further pickup in terms of in turnkey SaaS revenue.
Yeah. So.
Clearly demand continues to be strong within the company.
And I think Thats, probably most notable by performance that we saw year over year for the first quarter end.
As I pointed out in my script April came in north of $7 million, which.
If you just.
Flattened to that you could see that the growth trend.
Year over year would be continuing.
<unk> two <unk> I guess $12 $6 million, we did in the second quarter of.
<unk> 2021, so that's the best indication I can give you about <unk>.
Adding new clients and the demand for the products or services was there a second question there that I've forgotten.
Yeah.
Yeah.
Just wondering if theres anything material.
<unk> in the SaaS revenue part of the business.
Yes, so no theres nothing theres, nothing changing there and we're adding SaaS clients slowly but.
But I believe I said.
Something about this on the yearend call. So maybe it's worth.
Restating it here.
There's so much demand for the.
The full service capability that we do see a continuation.
The majority of the growth at least for the foreseeable 12 X 12 months coming from services.
It's not because we couldnt, we couldnt be selling the SaaS version of the product is just we can only focus our attention in so many places and right now there's a lot of demand on the services side. So we're focusing there.
Okay understood and if I could ask one last.
A lot of tech companies are struggling to find talent.
Doesn't seem to be affecting you guys ability to get revenues, but are you seeing any problems on that front with like acquiring.
Adequate talent.
The labor market is tight.
Salaries.
All in with benefits and whatnot.
For sure are moving up and yes it.
It's harder to find.
And higher <unk>.
Qualified talent, probably about as hard as I've seen it.
In decades with that being said.
It's not slowing us down.
Yes.
We're still hiring.
Good news with the way our model works right now we've got a very strong overall engineering and data science team.
And we really don't need.
A lot more people on those teams if you don't get me wrong, we're still hiring on those teams, but it is not a situation where we suddenly need.
40 more data science.
And engineers.
So we can probably solve that problem.
The place where we're growing.
Our resources is really on the sales account management and the marketing areas. The go to market component of our business, where we we just need more bodies.
And more.
Awareness in the marketplace.
Those people are also.
Harder too.
Find at a higher rate now, but they're not nearly as hard as the engineers that gives you some perspective.
Yes, that's amazing I appreciate the color and I'll hop back in the queue.
Thank you.
The next question comes from Nicole Kaufman of Black Ridge capital.
Hi, guys. Thanks.
Congratulations on the strong growth in the first quarter.
So I know you talked about it a bit during the call, but how big is the problem when cookies go away.
And specifically as it relates to Google, which is really the 900 pound gorilla in the space.
And along those lines can you talk about how companies are preparing.
Yes. Thank you.
Nicole.
The market problem is substantial and.
It's a little bit like.
The ostrich with its head in the sand.
We canvass the marketplace and we're out.
It doesn't seem in talking to.
Cmo's.
<unk> of agencies.
Quite understand.
The full implications of the changes that are coming and we surmise.
That's in large part because the existing vendors that are serving those clients are telling them that they've got the situation under control, which we believe.
To not be the case.
Based on our experience.
And one of the reasons people don't understand is because fundamentally it's very technical.
Thing that's going on.
But it does.
Very much attacked the very foundation of the way marketing is done and that makes it a transformational change so.
I think.
We see acceleration.
Demand in part because I guess the early adopters of the change are starting to realize they should do something and then we expect.
In 2023 win when Google Finally does.
We make the shift in their browser.
That our demand will only increase at that point because all of those companies that are being served by existing providers today, who have been telling them they haven't solved.
The proof will show up then and we expect the performance to degrade and then we can jump in.
And give those clients a solution that performed even better than what they used to have before the cookie and the <unk>.
The address and consumer data were being is.
Thank you I appreciate that color I'll hop in the queue. If I have another question.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one.
There are no further questions at this time.
Alright, well, thank you very much operator, and I'd like to thank everybody who joined US on today's call. We appreciate your continued interest in our company.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation you may now disconnect.
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