Q3 2023 Inuvo Inc Earnings Call
Greetings and welcome to the Nouveau third quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Natalya Rudman you may begin.
Thank you Holly and good morning, everyone and I'd like to thank everyone for joining us today on a new vote third quarter 2023 shareholder update call Wally Ruiz CFO I've had a family emergencies on today's call. It's gonna be Richard Howe, Chief Executive Officer, and Alicia Paris corporate controller.
We would also like to remind our shareholders done today is a fertile holiday we plan on filing our 10-Q with the Securities and Exchange Commission on Monday before we begin I'm going to review the company's Safe Harbor statement. The 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.
Turning to the Securities Litigation Reform Act of 1995.
We're 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 wells should project and similar expressions as they relate to new <unk>, Inc. Are such forward looking statements.
Those are cautioned that all forward looking statements involve risks uncertainties, which may cause.
Cause actual results to differ from those anticipated by Novo at that time. In addition, other risks are more fully described in our new house public filings with the U S Securities and Exchange Commission, which can be reviewed at www Dot O T. SEC Gov. The company makes no commitment to disclose any revisions to forward looking statements or any facts events or circumstances. After the date hereof and 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 consists historical comparison of its performance reconciliation of non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website with that or the way I'll now turn the call over to CEO Richard Howe.
Go ahead rich.
Thank you and Italia and thanks, everyone for joining US today, we are pleased to report that for the quarter ended September 30th 2023, new low delivered the highest quarterly revenue in its history growing 44% year over year.
And 48% sequentially to $24 6 million.
And that compares to $17 1 million and $16 7 million for the prior periods respectively.
We delivered roughly $32000 of adjusted EBITDA in the quarter following a $1 $8 million adjusted EBITDA loss in the second quarter of 2023.
On a cash flow basis, the company has been generating free cash flow for the last five months, averaging roughly 800.
Per month or approximately 11% of average monthly revenue for that period.
As we've leaned into our indirect channels in 2023 gross margins have consequently increased to 91% in the third quarter of 2023.
Our cash and cash equivalents position remained strong measuring roughly $7 million at the end of September.
Additionally, at the end of the quarter, we had no debt and a $5 million unused borrowing facility.
During the quarter, we also resolved our dispute with a large advertising platform that was first disclosed in the second quarter of 2020 to Alicia we'll talk more about the quarters financial results in her section of the call.
Let me now turn to some of the operational highlights.
As mentioned earlier and on previous calls this year.
We've leaned into our indirect channels at the beginning of 2023.
We are also described on previous calls our indirect channel is one where we gain access to advertisers through that advertisers platform N or its service.
Service providers.
We continue we continue to see strong demand through this go to market channel as evidenced in the revenue mix change year over year between indirect and direct as disclosed within our financial statements.
We have a number of potentially significant initiatives underway with a few of the larger clients within the direct channel that we believe will continue to contribute to strong revenue growth into Q4 and 2024.
Our sales team was very active in the third quarter, adding roughly a dozen new advertisers to the roster.
Ross industries that include the nonprofit sector entertainment oil and gas.
Salting and retail.
The sales team has narrowed its focus to the empowerment of midsized agencies through the incorporation of our technology and services.
This strategy allows these agencies to better serve their clients with improved performance and differentiation, while mitigating the current and future privacy risks associated with using consumer data.
We currently have 21 total associates within our go to market team.
Yeah.
Our awareness and marketing outreach activities had continued in key increase throughout 2023, driven principally by our attendance at industry conferences.
And the increase in media coverage related to our proprietary artificial intelligence AD targeting technology.
More specifically, we have seen an uptick in media coverage since March having appeared in various publications roughly 20 times.
This has included well respected industry journals like advertising week did you day in media post.
And the last four months, we have also announced enhancements to our audience discovery portal.
Enrichment to our safari targeting capabilities and a significant augmentation of our AI generated client dashboards.
Each of these technological advancements represent never before delivered features and or capabilities by any AD Tech company and are the direct result of our proprietary large language generative artificial intelligence.
At the end of Q2, we reported that we had delivered roughly 80 different campaigns in a year.
As of the end of Q3, we are projecting to have delivered roughly 100 campaigns by year end.
Performance against client Kpis remained strong across those campaigns.
As was the case in the second quarter.
We also had two former clients return in the third quarter.
As we have continued to message for the better part of two years. Our industry is in the midst of a transformation that will impact every single aspect of how marketing has been done for generations.
This transformation at its foundation is all about how our industry uses consumer identity and data for AD targeting.
This change mostly impact the non walled garden open web.
Apple's latest iOS release in September included yet again changes that will sport conventional identity based advertising technology.
Google has already stated they will begin disabling third party cookies in the first quarter of 2024.
And have recently also stated.
They are working on IP blocking technology, which they plan to release within chrome in February of 2024.
The intent key artificial intelligence technology, we have developed could not be better positioned given the series of significant technological.
And legislative events, all occurring simultaneously.
As a solution for marketers, who want to target the open web outside the walled gardens, we continue to have the best future proof offering available within the market.
Our AI locates and target audiences for any product service or brand without identity or consumer data.
Predicts just in time, which channels and campaigns will perform some media budgets can be adjusted in real time.
It generates detailed insights that highlight the reasons why audiences are actually interested.
Regenerates Demographical information.
Informs cable TV buying in ways never before possible.
I would now like to turn the call over to Alicia.
For a more detailed assessment of our financial performance within the quarter Alicia.
Thank you rich and good morning, everyone.
I'll recap, our third quarter financial results.
As mentioned, our new Valley reported revenue of $24 6 million for the quarter ended September 32023 or.
44% increase or 7.5 million higher than the $17 1 million reported in the third quarter of the prior year, the highest quarterly revenue ever achieved by the company.
As rich also maintained this here, we can't and go to market focus to pursue and are currently.
During the year, we like new products and enhancement directed at these indirect customers and as a result, the revenue mix has changed.
This years third quarter revenue was 88% from indirect customers compared to 55% last year.
And agency customer may have multiple advertisers, which card.
Our sales team now composed of 10 team members have contracted with approximately 40, new customers, both direct and indirect since the start of the year.
We believe this momentum will give us a strong head start into next year.
We expect revenues from our indirect customers to continue to grow and there's revenue mix to persist for the remainder of the year.
Cost of revenue was $2 3 million in the third quarter of 2023 compared to $6 8 million in the same quarter last year.
Cost of revenue is predominantly payment to advertising platforms that provide access to supply of advertising inventory.
These advertisement I place on behalf of our clients.
Gross profit for the third quarter aimed at September 30th 2023 totaled $22 3 million as compared to $10 3 million for the same period last year.
Gross profit margin for the third quite a bit here it was 91% as compared to 60% for the same quarter last year.
The change in revenue mix has had a positive impact on gross margin where indirect customers generally have higher mine.
We expect a new boat gross margins for the remainder of the year to be in line with the results of this quarter.
Operating expenses were $23 5 million in the third quarter of 2023 compared to $14 1 million in the prior year, an increase of nine 4 million, which reflects higher marketing expenses associated with the indirect channel.
The largest come out component of other operating expenses is marketing cost.
Marketing costs were $17 6 million in the third quarter of this year compared to $8 6 million in the same quarter last year.
Going forward we.
Marketing costs as a percentage of revenues to continue at a relatively similar pace.
During the quarter, we settled an outstanding dispute with a large advertising network that was supposed to be part of in June of last year.
We are satisfied with the settlement and it has been recorded as an offset to marketing expenses.
Compensation expense was $3 5 million in the third quarter of this year compared to $3 2 million in the prior year due to higher employee salary costs commissions and accrued incentive expense.
Our full time and part time employment was 86 on September 32023, compared to 92 on September 32022.
General and administrative expense increased by 129000 in the third quarter this year compared to the prior year due to higher doubtful account allowance depreciation expense and I T cost, partially offset by lower professional fees and travel and entertainment experience.
Net financing costs were 20000 income in the third quarter of 2023 compared to 37000 expense in the same quarter last year.
This year's income is due to a decrease in utilization of our line of credit and an increase in our bank interest income.
We reported a net loss of $1 2 million or one penny per basic share compared to a $3 8 million net loss or <unk> 30 cents per basic share in the same quarter last year.
We had a positive adjusted EBITDA for stock based compensation expense and as Rich mentioned, we have also had positive monthly free cash flow since may.
We define free cash flow as net cash used in operating activities less capitalized costs.
On September 30 of 2023, we had cash and cash equivalent of 7 million and net working capital of $1 7 million.
In addition, we have a 5 billion working capital line of credit, which had no outstanding balance.
We maintain a simple capital structure with 138 million common shares outstanding $6 9 million employee restricted stock units outstanding.
Equity has been a plant and 107000 of out of the money wine.
Now I'd like to turn the call back to rich for closing remarks.
Thank you Alicia.
We had an exceptionally strong year over year and sequential growth for the quarter up 44% and 48% respectively.
At $24 6 million of revenue for the quarter. We are now approaching the revenue run rate, which generating free cash flow becomes more typical.
Through the first nine months of the year, we've continued to make significant advancements both in the technology and the services that will be required to continue scaling our company.
We also have numerous initiatives underway that provide us with a positive outlook for the future of our business.
We 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.
The growth rate in the third quarter was significant and consequently, our client support organizations are first and foremost focused on client satisfaction.
As a result, we are forecasting to be up between 30, and 40% year over year in the fourth quarter of 2023.
I will now turn the call over to the operator for questions Ali.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment.
It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question for today is coming from Bryan Keane Slinger with Alliance Global partners.
Great. Thanks, Super quarter, which is amazing given today trade desk disappointed the market so badly.
Wanted to better understand the drivers to the quarter as demand in such a challenging ad market.
Is it existing customers getting more comfortable within turnkey or your technology show. The campaigns are much larger is it AD agencies are seeing the benefits and so they're pushing your technology to their customer base, which you weren't a little bit more sense of you know what drove such dramatic growth.
Yes, Brian it's both and so we definitely have seen some scale.
Scaling.
And as a result of increased demand from existing customers and the second part of your question with AD agencies is true and I believe in the script I said, we find.
12, new customers new customers for us by the way are often either a new agency or a new brand within an agency. So it's both.
That we've seen.
Strong strong performance with them.
And I'll just add.
But I will add because obviously we're in November now.
There's there's a lot there's a lot of good things, let's just say that are in the pipeline.
For US you know, we can't count on all of them, but it will be coming into next year I feel pretty good as we are starting to plan for our next years.
<unk>, just given sort of the plan.
Plethora well potential opportunities that are floating around.
And what are the issues that I believe I believe you'd agree that new votes had a.
Rather challenging time getting to our ability to bring into market and that everyone knows you're nouveau. These numbers suggest maybe youre doing a little more effect may be a more effective job at that is that at the agency level or have you done something differently in order to get there.
You know get the brand better recognized.
It's.
We've done the ladder and focused on the ladder.
In when Barry joined US in April one of the first things he did well, but very low emboldens our precedent for those who don't know he brought in a public relations agency and we've made that we've never had a hum affirm like that you know that professional working with us before.
And you know that.
That was done in large part to try to generate more awareness for the company given what you've just said Brian It's like look we are.
Even at our 25, whatever it almost $25 million, which was like a $100 million run rate I guess for US you know we're still small in the context of 150 200 plus billion dollar market. So yes getting awareness of who we are the capabilities. We have the technology, we possess the differentiation of our company. These are all things we knew we needed.
And to do more of and I'm very pleased actually with the number of publications.
And articles and interviews.
That we've had and I think that's obviously going to have an important.
Impact.
I think actually the bigger impact O'brien is just quite frankly when markets change the way the AD industry is changing my history with with changing markets as clients wait till the last minute I mean sure. There are some early adopters, who recognize the problems there and they jump on it, but but but people tend to wait.
Until the problem hit.
Before they sort of act on it so 2024, and 2025 are probably going to be interesting years for renewable.
And then trade desk comment this morning.
Adjusted at a minimum temporary weakness in autos and media segments of their business. The latter on the media strike Uh Huh.
He would strike show.
Assuming you don't have much exposure right now to those two regions to be putting up what you sound like a solid fourth quarter and what you do.
This quarter.
We do have some larger clients in auto, but but actually they grew and have grown in 'twenty to 'twenty three.
<unk> media, we have you know I would say limited exposure, we've got some clients there, but not a lot of it.
Brian It could just be because traders because so much larger than we are you know they they see the influence more across the customer base, where we got the opposite problem, you know where to kind of the 25 million relatively small and we're growing so.
We're not seeing those kinds of impact at least not at this size.
And then a few quarters back your largest 10 key user left and you go over what I believe was a disagreement on strategy.
You mentioned some customers have returned was that one of them.
No it was not.
Okay last question I have got.
Again, it's great to see the modest profit.
Don't mean to underestimate the job you've done, but I'm curious as the business scales here.
How much of the revenue incremental revenue falls to the bottom line is it 10% reasonable given your cost structure on marketing costs I'm, just trying to think about as you scale past 100 million how much of that is EBITDA.
Yeah.
We've long said and you've been covering us for a while Brian. So you know you know this but we've long said that once we can break through the $100 million run rate.
We should start you know <unk>.
<unk> generated cash.
I guess this quarters.
Proof that that was correct.
I would not like I don't think it's fair to take like for example, our adjusted EBITDA and just multiply by four and say that's the adjusted EBITDA that you're going to get for a year. If we were at 100 million it'll be higher than that.
Maybe at least you know if we could if we can get to that 100 million dollar plus run rate next year.
Maybe somewhere between.
Somewhere around 5%, maybe I'm not sure at this point I mean, it's you know it's the first time, we're headed here, but it doesn't scale. It scales better maybe it is the way I think is the question you're asking right. We don't have a lot of incremental cost associated with increasing the revenue at this stage.
Great. Thanks, so much for your answers.
Yeah. Thanks, Brian.
Once again, if there are any questions. Please press star one.
We have reached the end of the question and answer session and I will now turn the call over to Richard for closing remarks.
Thank you Holly and I'd like to thank everyone, who joined US on today's call. We appreciate your continued interest in our company and we look forward to speaking with you again following our year end.
Okay.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.