Q2 2023 Inuvo Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to interval.
Inc. Second quarter 2023 conference call at this time and note that all participant lines are in a listen only mode, but following the presentation. We will conduct a question and answer session and if at any time during this call you'll be quiet, but you did assistance. Please press star zero for the operator also note that the call is being recorded on Thursday.
The August 2023.
And I would like to turn the conference over to an Italian Rodman Investor Relations. Please go ahead.
Thank you Colby and good afternoon, everyone I'd like to thank everyone for joining us today for the new gold second quarter 2023 shareholder I'll be call today, New Roche Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz will be your presenters on the call. We would also like to remind our shareholders that we.
File the 10-Q with the Securities and Exchange Commission. This afternoon before we begin I'm going to review the company's 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 like 95. He told of those statements are subject to risks in them.
Certainties and actual results may differ materially when do you think its call. The words anticipate could enable estimate intend expect believe potential will should the jackup and similar expressions as they relate to <unk>, Inc. Are such forward looking statements.
There's a question that all forward looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by a nickel at this time. In addition, other risks are more fully described in our new world public filings with the U S Securities Exchange Commission, which can be reviewed at www Dot Dot Gov company makes no commitment to disclose any revisions to forward.
Looking statements or any facts 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 and consistent historical comparison of its performance a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news.
Our website with that I'll now turn the call over to E E.
Richard go ahead rich.
Thank you so much <unk> Italia and thank you everybody for joining us today.
We are pleased to report that for the quarter ended June 30th 2023, and Yuval revenue has grown 40% sequentially, having delivered $67 million in revenue as compared to $11 8 million in the first quarter.
On a year over year basis, Q2, 2023 was down roughly 26%. However, as I will discuss later in my closing remarks current trends suggest that we could be back to year over year growth within the third quarter.
We had a roughly $1.8 million adjusted EBITDA loss in the quarter.
And while yes, not audited the July and August trends for revenue and adjusted EBITDA have continued to improve as we head into the typically stronger second half of the year.
At 86% gross margins were quite strong at the end of the quarter.
Also as reported at the end of May we raised an additional $4 million.
Within the quarter.
As a result, we have a strong solid balance sheet with approximately $5 million of cash and cash equivalents.
No debt.
And an unused borrowing facility, a $5 million, which provides us with the resources to support our aggressive growth strategy.
Let me now turn to some of the operational highlights.
In 2021, we began working with one of our larger indirect clients on our new products they were planning to launch.
2022, we were beta testing media associated with that product.
And building out the various custom capabilities required to support the anticipated growth and deliverables associated with the launch.
The project was launched at the beginning of 2023.
The scalability potential of this initiative is now reflected within the increase in our indirect sales, which represented roughly 80% of overall revenue in the second quarter.
Included in this development project for any of those with design of the system, but the customization and enhancement of landing pages that has led to improvements in conversion and performance.
Concurrently and also as part of this initiative, we made investments that have improved our media buying tools and supporting infrastructure.
These collective capabilities become increasingly important as the demand for these kinds of marketing services continues to grow.
Client in question has also required the scalability of content and AD copy.
Including video.
We have adopted several AI based third party tools for these services.
Difficult may decrease the resources required to deliver these capabilities, while also allowing us to leverage this development for future customers.
Across our client base and excluding our largest customer we are currently delivering roughly 80 revenue generating campaign kind of 20 of which are new in the quarter.
Performance against client Kpis remains very strong across these campaigns.
We added 10, new advertisers to the new little roster in the second quarter across industries that include financial services Entertainment government.
And travel and tourism.
As we have stated in the past, we've yet to find an industry, where the intent he has not been able to perform.
Notably we also had two clients return to a new vote during the quarter.
Those clients cited the insights generated by our AI combined without support as the key reasons behind their return.
Throughout 2023, we have seen a steady increase in the frequency of articles and interviews that feature new though.
Most recently, we were interviewed for a national segment on artificial intelligence within advertising.
On Yahoo Finance.
Collectively we have been interviewed and we're excited at least a dozen times already this year and notable publications like AD exchanger did you day media post and more.
In our home state, Arkansas business had an excellent cover story about our company and how we are changing the advertising paradigm.
We've continued to increase the number of associates within the sales marketing and account management team.
The total number within that organization now stands at 21.
At the end of the second quarter, we had 84 associates.
Leading our go to market strategy and execution and a member of the executive team as our newly appointed President Barry Lowenthal.
Barry brings a significant collection of knowledge experience and relationships across the advertising industry.
Having most recently he's been the CEO of the agency media kitchen.
Among various considerable successes include the distinction of having been a founding member of one of the industry's first programmatic advertising trading desk.
Yeah.
As mentioned in the announcement that accompanied Barry appointment.
Is that an important milestone in its evolution.
We were well ahead of the competition with our vision that using consumer data and identity for advertising was to become obsolete.
In the nearly six years since we started building out our large language model generative AI to meet that future various governmental and technological changes have made this prediction a virtual certainty.
Technologically.
<unk> has been systematically incorporating changes designed specifically to eliminate all methods used to identify consumer.
They now for example allow their users to access a private VPN, which office scape the consumer's IP address.
They have completely eliminated third party cookies, which has been the place where identity has historically been stored.
They now allow the users to generate alias E mail addresses.
And then their latest iOS release have now also added changes.
Bank consumer tracking within the U R L address.
[noise] legislated Lee.
The general data protection regulation in Europe was enacted in 2018.
Shortly thereafter by the California Consumer Privacy Act and now there are at least 11 states with consumer data privacy laws and another states with.
Five of them actually with active bills.
Adding to the legislature.
Barry short term mission is to ensure we have the pipeline organization products and services to meet the growing demands of this changing industry specifically.
Specifically for the electrification and targeting of audiences without identity. We remain many years ahead of any other comparable solution.
As a technology company at the forefront of artificial intelligence.
We continue to make significant product advancement.
We launched an enhanced version of our client Geely that includes an integration with chat GPT.
We launched the first online portal, where any audience can be generated on demand for any product.
Ms or brand.
We designed.
The first of its kind AI system that predicts suitable TV programs.
On the reasons behind why audiences are interested in any brand.
And we made generally available a significant advancement in machine learning wherein our AI can now predict and report the performance contribution of media across channels.
This latter development addresses the number two industry challenge behind finding and targeting audiences facing marketers.
Keyless privacy first future.
All of these developments and many more to come.
Our increasing the technological barriers between a new vote and its competitors.
I would now 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, I'll recap the financial results of our second quarter of this year 2023.
As rich mentioned <unk> reported revenue of $16 $7 million for the quarter that ended in June 32023.
That $6 million lower than the $22 7 billion reported in the second quarter of last year.
As has been discussed in prior calls the lower revenue. This year was due mostly to the loss of a direct customer in the fourth quarter of last year.
Due to the loss of that customer and as rich discussed the launch of a new product with an indirect customer the revenue mix has changed.
This year's second quarter revenue was composed of 80% from indirect customers compared to 46% last year.
The change in revenue mix has had a positive impact on gross margins.
As we expect revenue from our indirect customers to continue to grow this revenue mix should persist for the remainder of the year.
Cost of revenue was $2 $4 million in the second quarter of 2023 compared to $9 3 million in the same quarter last year.
Cost of revenue is predominantly predominantly payments to advertising exchanges that provide access to a supply of advertising inventory and to which we serve advertisement using information predicted by the turnkey artificial intelligence. These advertisements are placed on behalf of our clients.
Gross profit for the second quarter ended June 32023 totaled $14 $3 million as compared to $13 4 million in the same period last year.
Gross profit margin for the second quarter of 2022 was 86% as compared to 59% for the same period last year, reflecting the higher margins of the indirect customer business.
We expect <unk> gross margins for the remainder of the year to be roughly in line with the results of this quarter.
Operating expenses were $17 $6 million in the second quarter of 2023 compared to $16 $2 million in the prior year, an increase of $1 4 million, we had roughly $1 6 million of these operating expenses that were noncash base.
<unk> expenses.
The largest component of operating expense.
As marketing cost.
Marketing costs are predominantly traffic acquisition cost.
Marketing costs were $12 $1 billion in the second quarter of this year compared to $11 billion in the same quarter last year.
Going forward, we expect marketing cost as a percentage of revenue to continue at a similar pace as in the second quarter of this year.
Compensation expense was $3 $3 million in the second quarter this year compared to $3 $2 million in the prior year, primarily due to higher employee salary cost.
Our full time to part time employment was 84 individuals.
June 32023, and that's compared to 83 at June 30 of last year.
The majority of the increase in headcount occurred within sales sales support account management and corporate.
Corporate administration with the hiring of a president.
General and administrative expense increased by $301000 in the second quarter of this year compared to the prior year due to higher doubtful account allowance depreciation and amortization expense and professional fees.
This was partially offset by lower marketing expense and lower travel and entertainment expense.
Net financing net financing costs were 38000 in the second quarter of 2023 and that compares to $3000 of income in the same quarter last year. The expenses, primarily associated with the maintenance of our line of credit that we have and various.
Yes.
Equipment leases that we also have.
We reported a net loss of $3 4 million or <unk> <unk> per basic share compared to $3 2 million net loss or <unk> <unk> per basic share in the same quarter last year.
At June 32023, we had cash and cash equivalents of $5 million, a networking capital of $2 million.
In addition, we have a 5 million dollar working working capital line of credit that had no outstanding balance at June 30th.
During the quarter, we raised $4 million in gross proceeds in a registered direct offering through the sale of an aggregate of 16 million shares of our common stock.
In addition in April we sold 174000 shares under an at the market agreement with an investment banking firm.
Yeah.
We maintain a simple capital structure with 138 million common shares outstanding $6 9 million employees.
Strictly stock units outstanding 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 for closing remarks.
Yeah.
Thanks Wally.
Had a strong sequential growth for the quarter up 40% to $16 7 million.
Within the first half of the year, we continued to make significant advancements both in the technology and services that will be required to scale our company and we have an initiative with one of our larger clients that is scaling.
Consequently, we are forecasting to be back to year over year growth within the third and fourth quarters of 2023 and.
And expect to turn the corner to positive free cash flow within the second half of the year.
Both June and July unaudited revenue was up double digit year over year.
We will continue to invest in sales and awareness programs. So we can capitalize on the demand associated with the changing market driven by privacy concerns from government technology and consumers.
And to this end. We've also recently retained well respected New York based PR firm to help us capitalize on this growing demand for information related to artificial intelligence and its applicability to the privacy challenge facing the advertising industry.
I will now turn the call over to the operator for questions operator.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a tweet on prompt acknowledging you recall.
And if you would like to withdraw from the question queue. Please press star followed by two and if you're using a speakerphone you will need to Chris left the handset before pressing Andy Keys. Please go ahead and press Star one now if you have any questions and your first question will be from Brian <unk> at Alliance Global Partners. Please go ahead.
Hi, there this is serving on for Brian Congrats on a nice quarter.
Thank you could you could you talk about how the continued pressure in the AD market is impacting in times key is it translating a longer sales cycle still are smaller campaign sizes and are you seeing any signs of improvement.
Hey, Brian it's always difficult at our size too.
Tried to put your finger on whether this is a challenge for us or not I mean by that is like whatever $80 million in revenue, we're not big enough yet.
Where we can experience the kind of challenges you might have you ever have a $1 billion of your company you've got.
Maybe clients, who are spending who now is $50 million to $60 million.
We're not seeing.
Changed much change at all.
With regard to what we're doing the sales cycles are pretty much staying the same it take longer to sell direct clients.
Indirect clients can take probably no no no less than three months after six months.
So yeah, that's that's kind of our perspective on it right now and we do have a bit of a unique position and I spoke on this before but.
The catalyst.
That is privacy is not going away.
So regardless.
What happens with regard to media spend overall.
Advertisers have to solve this problem and the ensuing next let's call it 24 months.
And we've always believed that this time would come and that should create continue to create demand for us.
Yeah.
That makes sense.
Next question last quarter, you underline that your close rates are efficient, but the struggle is being able to get it splitting or how are things progressing in this space with sales and marketing you said remaining elevated are you planning to increase your sales head count in the coming quarters and should we expect buried oversight to drive an increased mix of direct sales starting next.
Year.
Maybe I'll answer the last question first.
We've had.
From a sales perspective, our primary focus has always been to the to support the agencies, who have the budgets and.
Barry not surprisingly as he has come in has.
And underneath that and that is world, which is one of the reasons why we brought <unk> into the fold here.
And as a result.
The hyper focused on that channel to market and that makes perfect sense given that is the channel that we established.
So thats for Barry what was the first question sorry, Brian I missed it.
The first question now.
Yes.
Last quarter, you mentioned that.
Getting the foot in the door in front of executive is the main issue closing aside but the main issue is being seen.
So just looking to see what changes you've made and how you are progressing in this space, if you've made any sort of progress.
Well.
It tells us that we're making some progress.
The challenge there remains.
So if I've spoken on this before which I suspect I have.
But maybe for people who might be new to the answer.
Sure industry.
Aversion to changes.
There is not a simple thing to overcome and thats.
Probably the biggest challenge we have is buyers not recognizing.
The challenge ahead of them.
I would say in the last year.
That is getting.
Easier, but I don't want that to be interpreted as easy it's getting easier as the sort of D day.
On <unk>.
Identity approaches.
Approaches.
Alright, Thank you and one last question regarding the Google contract renewals are coming every month, but has there been any sort of communication yet about a larger contract coming sooner.
Yeah.
Yes, So I think no we don't like to talking about our clients at all.
In fact in many cases, we don't have the right to.
So my answer to this is yes.
Yes.
Alright.
Ill hop back in the queue.
Thanks.
Thank you once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
And your next question will be from Jack Vander Ark.
Maxim Group. Please go ahead.
Okay, great. Congrats on the strong results rich thanks for taking my questions.
Can you talk about the 10, new clients and two returning clients and a little more detail.
Maybe particularly.
How large are the two returning client campaigns just relative.
Are they increasing in scale are they similar too.
What they produced last quarter.
Any color around the two returning clients first it would be helpful.
Yes, the two returning once they go out more than like a quarter. So it was quite some time ago I don't remember the exact amount of time when they werent clients anymore, but it's at least more than a year, maybe even two so the answer to that one is there is still small, but thats how everybody starts.
Alright, everybody we bring on.
For the most part starts.
Small campaigns.
Which which then get added to us as the performance is realized.
True universally.
The new campaigns and the new clients that are for the most part they're.
The programmatic component of what we do is where they are.
Not the open web.
Connected TV display advertising online video and display.
Or kind of what theyre doing in there.
Good sizes. The negative there are good the good names that could be big accounts, they don't start off as big accounts.
Got it.
That's helpful and actually probably a positive side since they were clients over a year ago or so and they came back and must be doing something right. That's good to hear.
How many of the 10, new clients are going to are expecting to turn on in the third quarter.
And then it sounds like that's kind of the driver of giving you confidence for year over year growth.
What's the likelihood of these 10, new clients turning on the third quarter and then also.
Potential them, returning an increasing in scale in the near future.
I don't know procure Jack but.
I think they're all on now so the answer is no.
I guess near 100% without me, knowing exactly 100% right that there'll beyond the third quarter okay.
Fantastic, Okay, Great and then Richard it sounds like you've really ramped up your sales and marketing hiring.
Just based on your expectations I'm curious how long does it typically take or from your perspective for your sales associate to achieve optimal productivity levels is it like six months a year.
Thanks.
But.
Curious to hear your thoughts.
Okay.
First three months of training and learning and of course given.
We changed the approach that we take to be able to find audiences different Jack than what everybody has been trained for the last 30 years, even when they went through school. So there's an educational component of learning component getting comfortable with the materials. So it's using zero to three months they don't typically.
Closed any deals.
Unless they've got a friend somewhere that they've known for a long time and they've managed to get the deal in the first three months of their tenure as a sales executive but then they start becoming productive in the three to six month period.
And if they're not productive.
Let's call it six to nine months periods, then we start wondering whether or not theyre going to ever going to be productive with would be probably the cadence that we look at it.
Yes, sure sure makes sense.
And then just one last thing because it was such a.
It took the wind out of the sales for a little bit was that large client that large direct customer that left.
What I didn't hear you say is any new clients have left or that you've lost any other major clients and it doesn't sound like that's the case, but I would just like to get your thoughts.
Was that really truly a one and done.
Unique situation that was one off isolated.
Are you confident that you are kind of past those bumps.
We do lose clients and I've spoken to this in the past.
And most of those cases, not all of them, but in most of those cases.
The result of an agency, we're doing business with who lost the client.
And so that's how we lose it but there really aren't many of them in our client retention rate is quite high I don't know the exact number but its way up.
Past 80, it may even be in the 19th I don't know that's why I want to be careful that I don't give you a number that's not true, but the client retention rate is very strong.
The technology works and when it's implemented properly when it's used properly and when the client is educated about a new way to think about audiences.
It always works.
Yeah.
Okay, Great well, Hey, fantastic results again, and great to see the are you guys gaining momentum and bounce back.
It for me thank you.
Thank you and at this time it appears we have no further questions. Please proceed with any closing remarks.
Thank you.
Sylvia I would like to thank everyone, who joined US on today's call. We appreciate your continued interest in our company.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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