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spk01: Thank you. Good day, everyone, and welcome to the Anufo Incorporated Third Quarter Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Walter Pinto, Managing Director of KCSA Strategic Communications. Please go ahead.
spk02: Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the ANUVO Third Quarter 2020 Shareholder Update Conference Call. Today, ANUVO's Chief Executive Officer, Richard Howe, and Chief Financial Officer, Waller-Louise, will be your presenters on the call. I would like to start by letting listeners know that as a consequence of the COVID-19 pandemic, our office in San Jose, California, has remained closed. In our Little Rock facility, we are rotating teams in and out of the office on a voluntary basis in a manner that limits the potential risk of infection through interaction with colleagues. We would also like to remind our shareholders that we anticipate filing a 10-Q with the Securities and Exchange Commission tomorrow, Tuesday, November 10, 2020. 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 1995. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. When using this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, reject, and similar expressions, as they relate to a new link, 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 a new law at this time. In addition, other risks are more fully described in the public filings with the U.S. Securities and Exchange Commission, which can be reviewed at SEC.gov. With that, I'd like to now turn the call over to CEO Richard Howe.
spk04: Thank you, Walter, and thanks, everyone, for joining us today. For the three months ended September 30, 2020, we delivered roughly $9.2 million in revenue, with approximately $6.2 million coming from the valid click platform and $3 million coming from the intent key platform. Sequentially, NUVO grew 21.4%, valid click grew 10.4%, and the intent key grew 53.4%. We think these sequential growth rates are a strong signal that we are coming out of the COVID-19-related downturn that hit us hard in the second quarter of 2020. Year over year, while we are still down 33% this quarter, the decline has been significantly curtailed from the 46% we experienced in Q2, and we anticipate this will be further reduced in the fourth quarter. For the nine-month year-over-year period, we are down roughly 27%. As we have mentioned on previous calls, COVID-19 impacted both the intent key and ValidClick. The pandemic resulted in significant reductions in advertising budgets across the industry. However, we have been able to continue to grow the intent key through these difficult times, and that platform is now up 16% year over year, both within the third quarter and through the first nine months of 2020. For the intent key, the consequence of COVID-19 has been more about a slowdown in the 2020 expected growth that was forecasted to come from new accounts. The existing intent key clients have continued to grow in spite of COVID-19. which we think is a strong indication of the performance we've delivered for clients. On an adjusted EBITDA basis, while we lost $1.3 million in the quarter, both revenue and margin trends heading into the fourth quarter are pointing towards improvement here. As a result of progress in the third quarter, we have recently started hiring again, with active searches underway for campaign managers account managers, and sales professionals. We currently have 66 full-time employees, up from 57 in the prior year period. The Valacos platform had its lowest revenue month of the year in May. Since then, we have experienced steady, sequential monthly improvements, with October revenue expected to be roughly 115% when compared to this May low point of 2020. Our largest clients within Valisic are Yahoo and Google. The Valisic team has used this downturn to rethink the overall strategy within this marketing services component of our business, concentrating on diversification with a focus on cash generation which in a pre-COVID world has historically been strong and consistent. In the third quarter, revenue from Yahoo contributed roughly 33% of valid click, Google roughly 43%. The remaining 23% of valid click revenues came from a collection of other clients. These same two clients accounted for roughly 22% and 29% of total renewable revenues within the third quarter. This diversification represents a big change in our historical revenue dependencies as a company. We were also recently successful in renewing our Yahoo agreement for another two years within the quarter. We believe all other client relationships associated with ValueClick currently remain secure. The objective within Valtech has always been to deliver high quality consumers to our major clients. Media buying and the technology to facilitate optimized media buying have always been an important component of this business model. Scalability within the business has at times been delayed due to limitations of credit lines with media partners. We have recently been successful at expanding those credit lines, a direct consequence of our stronger balance sheet. Valid net margin, after including these media buying costs, has continued to improve following a low in April. The Intenkey platform has continued to deliver exceptional results for clients, where on average in the third quarter, that performance exceeded our clients' goals by over 30%. Gross margins for the Intenki platform were roughly 50% in the quarter, and we had over 30% more active campaigns running within the quarter sequentially. In the third quarter, we have been successfully expanding existing clients and onboarding new clients within industries that include education, automotive, tourism, insurance, health, retail, and nonprofits. We recently put out a press release related to political campaigns, and while this was a small budget, we learned much from this campaign that should prepare us to capture a larger share of advertising dollars the next time we go through a political cycle. As mentioned on our second quarter conference call, we ran an important and significant connected TV campaign early in the third quarter. The results were strong and we were able to prove that the intent key AI and data work equally as well within this media placement as it does for us within display and video advertising. This in turn not only allows us to offer this capability to existing and prospective clients but do so in a manner that unifies the data and insights we can bring to those clients across these three different choices for media placement. In the coming quarters, we anticipate the launch of a software as a service version of the intent key. We are actively recruiting beta clients for that product now. This product is designed to expand the intentee's market reach by packaging the core technological components of the platform in a manner that allows clients to use their own resources, marketing, and campaign platforms. This is particularly important for our agency clients who prefer more direct control over these services. Concurrently, And because this strategy allows for greater distribution of the technology and data, we expect to be disrupting what is currently a $19 billion annual third-party marketing data market with a product designed and compliant with expected future data and privacy constraints. When fully deployed, this capability will be available to clients across the various demand side or campaign platforms they may be using with an initial launch integration through AppNexus. We recently signed an amendment to our current agreement with AppNexus for this purpose. The intent key is already a technological marvel adept at generating custom artificial intelligence models capable of continuously evaluating in excess of 20 million different audience features, while simultaneously now capable of evaluating up to 2 million requests for advertisements from publishers per second. This version of the Intenki platform will put the power of our artificial intelligence, the data created by that AI, its sophisticated modeling capabilities and these insights about audiences directly in the hands of our clients. With that, I would now like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter.
spk03: Thank you, Rich. Good afternoon, everyone. I'll recap the financial results of the third quarter. As Rich mentioned, the NUVO reported revenue of $9.2 million for the quarter ended September 30th of this year. This compares to $13.8 million reported in the third quarter of last year. The decrease in this year's revenue is due to lower valid click revenue, partially offset by higher intent fee revenue. Valid click revenue in the third quarter of this year was $6.2 million, and that compares to $11.2 million in the same quarter last year. This lower Valley Click revenue was primarily due to reduced advertising budgets associated with the COVID pandemic. In spite of reporting lower year-over-year revenue, Valley Click's recovery began in June, following May's low, and as of October, as Rich mentioned, we're up 115% off that low. Intensity revenue was 16% higher in the third quarter this year compared with last year. The new growth margins increased in the third quarter to 82% compared to 64% in the same quarter last year due to the intent key where growth margins had increased to 49% in the third quarter compared to 29% in the prior year. The intent key represented 32% of the overall third quarter revenue this year compared to 19% last year resulting in its higher margin having a greater weight on the overall renewable gross margin this year. Valid click revenue is generated predominantly from ads served to websites and therefore, as a result, there's only a small cost associated in the cost of revenue associated with valid click revenue. Operating expenses were $1.2 million lower in the third quarter of 2020 compared to the prior year. The largest component of operating expenses is marketing costs. Marketing costs are primarily traffic acquisition costs associated with ValorQuint. It is the largest expense associated with the service. Marketing costs were $5.7 million in the third quarter this year compared to $6.9 million in the same quarter last year. The lower expense this year compared to last year is primarily due to the lower valid click revenue that we experienced this year. Compensation expense was $2.5 million in the third quarter this year compared to $2.2 million in the prior year. Again, primarily due to the higher employee salary cost. As mentioned, our full-time employment at September 30th of this year was 66 employees, and that is compared to 57 employees at September 30th of last year. We expect compensation expense to remain relatively flat for the remainder of the year. Selling, general, and administrative expense decreased $211,000 in the third quarter this year compared to the prior year. due primarily to lower IT costs, where we completed our computing facilities consolidation program earlier this year. Interest expense was $26,000 in the third quarter of 2020, compared to $144,000 in the same quarter last year. The interest expense in this year's quarter is primarily related to the outstanding debt on our line of credit, which we now have fully paid up as of the end We had other income of $54,000 in the third quarter of this year, and that was associated with the recognition of deferred revenue from a contract to license dollar click technology. Other income in the third quarter last year was $3.3 million associated with the breakup fee received for a merger that did not consummate. We reported a net loss of $2.4 million, or $0.02 per basic share, compared to $788,000 net income, or $0.02 per share, in the same quarter last year. The adjusted EBITDA for the quarter ended September 30, 2020, was a loss of $1.2 million, compared to a loss of $769,000 last year. This year, the adjusted EBITDA loss reflects, in part, the lower operating margins that occur with invalid as the platform begins to recover and scale. Those margins continue to be up in October. And should they hold, we would expect adjusted EBITDA to improve significantly in the fourth quarter. Our balance sheet at September 30, 2020 had cash and cash savings of $9.5 million and outstanding financing debt of $2.3 million, which included a CPC loan of $1.1 million and SBA EIDL loan of $150,000 and financing leases for IT equipment. In September, we applied for forgiveness of the PPP loan as made available under the CARES Act. We expect to receive a decision from the SBA by year end or early January. In the quarter, we completed our capital raising activities with an underwritten follow-on public offering of 21.5 million shares of common stock. We raised gross proceeds of 10 and three-quarter million dollars. And with that, I'd like to turn it back over to Rich for closing remarks.
spk04: Thanks, Wally. We've seen a steady upwards trend in our business since its COVID-impacted low point in May of this year. The Intenki platform has continued to grow throughout 2020, despite COVID. And while ValidClick is down year over year, it is expected to be up in October 2020. roughly 150%, 115% office low point in the year, which was May. Strategically, Anubo has been using this time to develop the technologies necessary to facilitate our transition into a technology-enabled services and ultimately SaaS-based business model. Now, while COVID continues to make forecasting difficult and unpredictable, Based on the revenue run rate coming out of October, we would expect sequential growth in the fourth quarter between 25% and 40%, which in turn, you should also improve adjusted EBITDA heading into 2020. And with that, I will turn the call over to the operator for questions. Christy?
spk01: Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. If you're calling from a speaker phone, please make sure your mute function is off to ensure your signal can reach our equipment. Again, throw on to ask a question. And we'll go first to Brian Kinstinkler from Alliance Global Partners. Your line is open.
spk04: Hi, this is Jacob on for Brian. Thanks for taking my questions. You mentioned 25-40% sequential growth for intent key and 4Q. Can you give us an idea of where this is coming from? Is there a reason that your customer wins have been slower in 3Q? Also, can you give the average campaign size compared to the year-ago period? There was quite a few questions in there. The growth rate that we're seeing is coming both from new clients and from existing clients. I don't know what the exact distribution is between those two as I'm sitting here on this call, but I can tell you that the majority of it is coming from existing clients that we had. you know, leading into COVID, which, as I mentioned, in our minds, given the way budgets, you know, had been declining across the industry for marketing, it's probably as great a testament to the performance of the technology as anything. And so what was the second question, Brian? Sorry. Yeah, no, this is Jacob. But, yeah, is there a reason... Jacob, sorry. Can you... Yeah, that's okay. Also, can you give the average campaign size compared to a year ago? I don't have that number handy either. We can certainly get that to you, you know, what the average number is. But I would, just as a general statement, like a lot of companies, I mean, we have a You know, on the high end, meaning we've got some large customers and we've got some smaller customers. Yeah, we'll have to get it to you offline. I don't know the number off the top of my head to give it to you.
spk02: That's okay. And then is there a reason that new customer ones have been slower? Is this because of advertising budgets?
spk04: So the question is, is there a reason why new clients being signed has been slower than expected? Was that the question, Jacob? Yeah. Yeah, I think the answer to that is quite simply COVID. You know, when COVID hit, you know, what happened was people who had budgets, you know, paused them and started to think about, you know, what they're going to do. And so that impacted our sales, you know, efforts at that point one. So just the natural cause related to marketing budget constraint. And the second one was, you know, in a COVID world where you're no longer face-to-face, trying to sell directly to clients, which in our case with the technology we have, you know, is required to some degree. You're forced to have to try to do the same through, you know, through, you know, video conferencing and that's had an impact as well given, you know, just the nature of people adapting to a new model. So, you know, the combination of those two things, you know, definitely reduced what we were forecasting to have been, you know, what we thought was going to occur with, uh, with new sales related to the 10 key, but we kind of made up for it. And then some, given the growth rate, you know, with COVID, uh, within COVID, we can thank you on, on, uh, on growth of new clients of existing clients. Right.
spk02: Okay.
spk04: And a few more, have you been, have you begun seeing a recovery in advertising budgets and if so, what industries and what are customers communicating about new campaigns? The answer is yes, and that's probably more evident on the ValidClick side of our business, given ValidClick serves a much larger audience of brands and advertisers because our two biggest clients there are among the two biggest marketing platforms on the platform, Yahoo and Google. So the answer is yes, we've definitely seen an increase an increasing number of budgetary movements upwards and money coming back into marketing. So again, sorry, Jacob, what was the second part of the question? What are customers communicating about new campaigns? I think we're seeing customers revisiting their marketing budgets and preparing I guess inevitably for a world, you know, less dependent on what's going on with COVID. And we think, you know, actually today's announcement with Pfizer is probably a good indication that 2021 may be, you know, at least partially back on track. I'm not sure, you know, if we would say it's going to be on track, you know, back to normal. But I think these are good indications that marketers will start spending money again, given that there's some, you know, hope at the end of the tunnel, if you would. as related to COVID. Yeah, and you talked a little bit about political contributions or political ads. Could you give a little idea of how that's contributed to each segment? And yeah. Yeah, so the political work that we did was entirely related to the intent key. We get it indirectly through ValidClick, but we don't track it that well. So when I was making that statement, it was really related to the intent key. We know for a fact that the intent key, you know, is a powerful tool, you know, for politics. And so, you know, the campaign that we ran this year, which was small, you know, just reinforced enough that, you know, we have a product there that we can sell to people. to whatever party it is that wants to use it. And so, you know, next time around when the budgets become available, we'll be, you know, actively, you know, recruiting, you know, for that given we have now some history of success and some results we can point to.
spk03: Okay.
spk04: Can you quantify your revenue trends in the last couple of months, August, September, October? For both segments. I don't have it handy on me. Wally, I don't know if you know what those numbers are off the top of your head. We typically, Jacob, don't give it on a month-to-month basis. I think we typically give it on a quarterly basis. But I would say if it's revenue, well, actually, I'll take it one step further. As far as I know, as far as I can recall, both revenue and margins have gone up steadily since the low point in May. Every month. Okay, and then one last one. How do you expect the holidays will impact revenue? Typically, you see an increase in demand for advertising during the holidays, and, you know, that seems to be happening again this year, albeit, you know, with the COVID backdrop, you're not quite sure. Is it budgets coming back in because of the holidays, or is it just budgets coming back in because people are starting to think that there's, you know, an end to COVID in sight? But generally, you know, the fourth quarter tends to be up, which we are seeing.
spk02: All right, great. That's all from me. Thanks. Thank you, Jacob.
spk01: And that's the end of our questions today. Thank you so much for participation today. We do appreciate your participation, and please, you may now disconnect.
spk04: Thank you, operator, and thank everyone.
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