Inuvo, Inc.

And welcome to the INUVO, Inc. 2020 Year-End and Fourth Quarter 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 KCSA Strategic Communications. Please go ahead.

Thank you, Operator, and good afternoon. I'd like to thank everyone for joining us today for the INUVO Fourth Quarter and Full Year 2020 Shareholder Update Call. Today, the Midwest Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz, will be your presenters on the call. I'd like to start by letting listeners know that as of today, and as a consequence of the COVID-19 pandemic, our office in San Jose, California, remains closed. In our Little Rock facility, we continue to rotate small groups in and out of the office on a voluntary basis in a manner that permits the potential risk of infection through interaction with colleagues. I'd also like to remind our shareholders that we anticipate filing a 10-K to the Securities and Exchange Commission this evening. 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, project, and similar expressions as they relate to a NUVO 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 NUVO at this time. In addition, other risks are more fully described than NUVO's public violence, which is the U.S. Securities and Exchange Commission, which can be reviewed at SEC.gov. With that, we'll now turn the call over to CEO Richard Howe.

Hey, thanks, Walter, and thanks, everyone, for joining us this afternoon. For the three months ended December 31st, 2020, we delivered roughly $12.9 million in revenue, which was up 40% sequentially, and yet another strong quarterly indicator following Q3's 21% sequential growth that the business was and that's continued to recover following the impacts of COVID-19, which for a new vote hit us at a low point in May of the year. Of that 12.9 million, ValidClick delivered 9.3 million, which was an increase of 48.5% sequentially, and the intent key delivered 3.6 million, which was an increase of 22% sequentially. ValidClick was still down, 40% year-over-year in the quarter. However, the intent key was up significantly at 34% year-over-year in the fourth quarter. For the full year, the company delivered $44.6 million, which is down roughly 27% year-over-year. But as we've mentioned in the past, the Valiclick business, which contributed roughly $34.2 million of the annual revenue in 2020, was hardest hit by COVID-19. But as can be seen from the third quarter and fourth quarter trajectories in 2020 have been recovering strongly. And barring any unforeseen additional COVID issues in 2021, we would expect to be roughly back in that business to its pre-COVID 2019 revenue run rate sometime in 2021. The intent key delivered $10.4 million of revenue in a year, growing 22% year-over-year despite COVID. And we would expect this product line to continue its double-digit growth rates overall into 2021. For the intent key in 2020, we believe COVID effectively constrained the growth rate of the product. Both of our product lines serve the marketing and advertising industry. These are pocket products. excuse me, there are pockets within this industry, notably like insurance or home refinancing that have continued to do well in spite of COVID. And then there's others like travel and entertainment that have lagged. We expect to return to a more predictable market sometime in the second half of 2021 after, you know, the vaccines find their way into the population. Valid click gross profit after traffic acquisition costs was down roughly 35% in 2020, and this is a consequence of the COVID impact on the revenue from that product line. However, the intent key gross profit was up almost 90% in 2020, and this is a reflection of the steady increase in gross margins that have occurred throughout the year in this product line. Adjusted EBITDA in the fourth quarter of 2020 was approximately $340,000, and for the full year was a loss of roughly $2.4 million. Now, the value-to-business has historically been a strong contributor to cash flow, and it is in a rare category of marketing and advertising business models where there are risks of collections is relatively low and the majority of the payables in the business go out after receivables are collected. The business is actually up over 100% in December and compared to its low point of May in the 2020 year. Most importantly, the primary relationships within the business, which are with Google and Yahoo, are secure. with one of them having been renewed in 2020, and the other is in the final signatures renewal process as we speak. For ValidClick, COVID really has offered the company the opportunity to rethink both the go-to-market and the revenue concentration for the business while going through COVID in 2020, so that we could redesign a better business to come into 2021 with, a business better focused maybe on the future as opposed to the past. Consequently, we have increased our direct marketing capability within the business, which in turn has provided greater control over our traffic acquisition, has allowed us to have a tighter integration with our publishing platform, and we believe positions the business well as it continues to recover to do so at higher margins. Revenue mix within the business has, by design, changed dramatically in 2020 and will continue to change into 2021. As of December 2020, revenue generated within ValueClick was roughly a third of from each of Google, Yahoo, and then a third from a collection of other demand sources. Now this compares to December 2019 where Yahoo was 70% of the revenue of the product line. So this represents quite a significant and we believe a positive diversification change in this business. designed to put the business in a position where it can scale and scale at higher margins. In 2021, and to ensure that these strategies are executed on, we have assigned our chief operating officer a more direct day-to-day role in the activities of the business and its important partnerships. And so that will be one of his primary responsibilities in this year. The market for the services of this business measures in the tens of billions of dollars annually. And as a result, you know, we've never not believed that there was plenty of market share here. There are no issues with respect to the business's ability to actually scale and ultimately return and surpass its pre-COVID cash contributions to the enterprises. The intent key has continued to deliver outstanding results for clients throughout 2020. We now know in head-to-head tests against the competition we are likely to win. Our job really now is to continue building out a world-class sales and account management team around what is truly a unique and proprietary product. The reason we win is because our AI creates audiences in near real time that only we know exist. And therefore we have an ability to message those audiences on behalf of our clients before our competitors can. And this results in better performance for our clients. We ran 251 campaigns for clients in 2020. with approximately 40% of those campaigns coming from new business within the year. In the fourth quarter, we exceeded our clients' goals on campaigns by roughly 36%. Now, for the year, we exceeded client goals by 46% on average. Now, since these goals our clients give us are likely based on the performance of our competitors, these accomplishments are really a proxy for how much better the intent key is versus that competition. Throughout the 2020 year, the sales team closed many new brands across a variety of industry verticals, which itself is a testament to the technology's ability to identify and reach audiences. regardless of the product or service being offered by that client. With the launch of our software as a service version of the platform in 2021, we significantly expanded the market size for the intent key by allowing clients who do not require a fully managed service to adopt the core differentiating components of this platform, which are really the AI modeling and data components. Coming out of 2020, we now have new clients in retail, nonprofit, automotive, casinos, pharmaceuticals, and tourism. We did source a record number of RFPs in the third and fourth quarters of 2020, and the pipeline thus far in 2021 looks healthy. Now, COVID's impact remains unknown to us. But typically, the first quarter of a new year is our slowest quarter. Marketers tend to reassess their budgets for the year in that quarter. Now, since we've not gone through a quarter where we have a business cycle combined with lagging impacts of a pandemic, we don't really know how this will impact the distribution of client media spend throughout the year. You will recall that COVID's impact last year for Renewable really began in April and May of the second quarter, and as a result, we really have no past experience beyond that to guide us here. Technically, we made a number of major advancements in 2020, and we believe that this positions us well and was designed to position us well for 2021 and then beyond. The first of these advancements was the launch of our real-time solution. Now, while our AI was always able to identify audiences quickly, the infrastructure that supports that AI and the delivery of our clients' ads was not. So what we had to do was we had to significantly improve this connection between the hardware technology and the software technology. And I'm pleased to report that we can now process up to a staggering 100 billion transactions per day and have the capability to actually act on in-market audiences within five minutes of the AI identifying them, which we believe is well ahead of any of our competitors. Our technology was designed from the get-go to be anonymous and not dependent necessarily on third-party cookies for its targeting, albeit while they remain, we will use them and do use them. In 2020, we successfully tested and have now deployed a version of of the core artificial intelligence engine that does not use those cookies and we did not see a material change in the overall performance of the platform which is good news it signals that we are well positioned for any coming changes in privacy as that situation evolves we expect um that those changes to to not uh come into play in 2021 but moreover probably in 2022 but either way we have our technology in a position where it can it can work regardless of what occurs there and finally in terms of technological advances within the year that were significant we were well ahead of our projections when we launched the SaaS version of the platform in January of this year. Up through the end of 2020, we really had been selling the intent key as a managed service. And while this had the benefits of giving us greater control over the campaign since we were running them, it did limit the market for the sale of the product, essentially by excluding sales to prospects who perhaps wanted to run those campaigns themselves. This is now no longer the case. The SaaS version is expected to expand our market potential, and while doing that, it will do it at higher gross margins. The product was successfully client tested at scale in the fourth quarter of 2020. And this is the principal reason why we decided to accelerate the launch of the product in 2021 and effectively put it in the bags of our salespeople so they could get out there and start promoting this version of the product alongside the managed service product. Now, before I turn the call over to Wally, I also want to address strategy, company strategy. As you all know, we now have roughly $18 million of cash, we have no debt, and we have an unused credit facility we could draw on at any time up to $5 million. And our market capitalization has been hovering somewhere around $200 million. Strategically, our focus is to consider using our strong financial position to accelerate the growth of the intent keys. As such, we have retained an investment banking firm to help us identify, qualify, and hopefully purchase acquisition candidates, including possibly digital advertising agencies and consulting firms, which have clients that could benefit from the insights and performance gains that existing Intente clients have experienced. I should note that many of our intent clients today are in fact themselves digital marketing agencies. So we've learned a lot about what they do and how they do and we see this as a strong fit where we're acquiring first and foremost clients and don't have a lot of technology to have to deal with in those acquisitions. It's really more of a client-based acquisition strategy. Now, not only would these potential acquisitions get us client relationships that we would be expected to grow because of improved performance, but we believe it would also allow us to eliminate the costs within the acquired business that are related to technology, technology the intent key would replace, and the result would likely lead in an acquisition to increased margins within that acquired business. Now, interestingly, At a small scale, we've already proven this model out with a business that we acquired in 2019, albeit it was a small business, where we saw in this particular small acquisition both an improvement in client retention and in margins. Now, with that, I'd like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter. Wally?