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spk06: Good afternoon, ladies and gentlemen, and welcome to Innovo, Inc. second quarter 2023 conference call. At this time, 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 require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, August 10, 2023. And I would like to turn the conference over to Natalia Rudman, Investor Relations. Please go ahead.
spk07: Thank you, Sylvie. And good afternoon, everyone. I'd like to thank everyone for joining us today for the Nouveau Second Quarter 2023 Shareholder Update Call. Today, Nouveau's Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Ruiz, will be your presencers on the call. We would also like to remind our shareholders that we filed a 10-key with the Securities and Exchange Commission this afternoon to 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 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, projects and similar expressions as they relate to ANUVA Inc. are such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by ANUVA at this time. In addition, other risks are more fully described in ANUVA's public filings with the U.S. Security and Exchange Commission, which can be reviewed at www.sec.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 reference to non-GAAP measures. 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 release on our website. With that, I'll now turn the call over to CEO Richard Howe. Go ahead, Richard.
spk05: Thank you so much, Natalia. Thank you, everybody, for joining us today. We are pleased to report that for the quarter ended June 30th, 2023, ANUVA revenue has grown 40% sequentially, having delivered $16.7 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 it's yet 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 of $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 a new product they were planning to launch. Throughout 2022, we were beta testing media performance 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 ANOVA was design of a system for 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 that have significantly decreased 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 campaigns, 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 Enugo 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 key has not been able to perform. Notably, We also had two clients return to ANUVO during the quarter. Those clients cited the insights generated by our AI combined with our 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 ANUVO. Most recently, we were interviewed for a national segment on artificial intelligence within advertising on Yahoo Finance. Collectively, we have been interviewed and or cited at least a dozen times already this year in notable publications like Ad Exchanger, Digiday, 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 is our newly appointed President Barry Lowenthal. Barry brings a significant collection of knowledge, and relationships across the advertising industry, having most recently been the CEO of the agency Media Kitchen. Among Barry's considerable successes includes the distinction of having been a founding member of one of the industry's first programmatic advertising trading desks. As mentioned in the announcement that accompanied Barry's appointment, Anubo is at 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, Apple has been systematically incorporating changes designed specifically to eliminate all methods used to identify consumers. They now, for example, allow their users to access a private VPN, which obfuscates 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 their users to generate alias email addresses, and in their latest iOS release, have now also added changes that prevent consumer tracking within the URL address. Legislatively, the General Data Protection Regulations in Europe was enacted in 2018, followed shortly thereafter by the California Consumer Privacy Act, and now there are at least 11 states with consumer data privacy laws and another state with five of them actually with active bills heading through the legislature. Barrie's short-term mission is to ensure we have the pipeline, organization, products, and services to meet the growing demands of this changing industry. Specifically for the identification 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 advancements. We launched an enhanced version of our client GUI that includes an integration with ChatGPT. We launched the first online portal where any audience can be generated on demand for any product service, or brand. We designed the first of its kind AI system that predicts suitable television programs based 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 in a cookie-less, privacy-first future. All these developments, and many more to come, are increasing the technological barriers between Inuvo 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?
spk01: Thank you, Rich. Good afternoon. I'll recap the financial results of our second quarter of this year, 2023. As Rich mentioned, Inuvo reported revenue of $16.7 million for the quarter that ended in June 30th, 2023. That's $6 million lower than the $22.7 million 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 is 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 payments to advertising exchanges that provide access to a supply of advertising inventory into which we serve advertisements using information predicted by the intent key, artificial intelligence. These advertisements are placed on behalf of our clients. Gross profit for the second quarter ended June 30, 2023, 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 Inuvo 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 non-cash-based expenses. The largest component of operating expense is marketing cost. Marketing costs are predominantly traffic acquisition costs. Marketing costs were $12.1 million in the second quarter of this year, compared to $11 million in the same quarter last year. Going forward, we expect marketing costs 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 costs. Our full-time and part-time employment was 84 individuals on June 30th, 2023, and that's compared to 83 on June 30th of last year. The majority of the increase in headcount occurred within sales, sales support, account management, and corporate administration with the hiring of a president. General and administrative expense increased by $301,000 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 costs were $38,000 in the second quarter of 2023, and that compares to $3,000 of income in the same quarter last year. The expense is primarily associated with the maintenance of the line of credit that we have and various IT equipment leases that we also have. We reported a net loss of $3.4 million, or 3 cents per basic share, compared to $3.2 million net loss or $0.03 per basic share in the same quarter last year. At June 30, 2023, we had cash and cash equivalents of $5 million, a net working capital of $2 million. In addition, we have a $5 million working capital line of credit that had no outstanding balance at June 30th. During the quarter, we raised $4 million in gross proceeds and a registered direct offering through the sale of an aggregate of 16 million shares of our common stock. In addition, in April, we sold 174,000 shares under an at-the-market agreement with an investment banking firm. We maintain a simple capital structure with 138 million common shares outstanding, 6.9 million employees restricted stock units outstanding through an equity incentive plan, and 300,000 warrants to purchase common stock. With that, I'd like to turn the call back over to Rich for closing remarks.
spk05: Thanks, Wally. We 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 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 a changing market driven by privacy concerns from government technology and consumers. And to this end, we've also recently retained a 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?
spk06: 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 three-tone prompt acknowledging your request. 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 press left-hand set before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from Brian Kinslinter at Alliance Global Partners. Please go ahead.
spk03: Hi there. This is Shervin on for Brian. Congrats on a nice quarter. Thank you. Could you talk about how the continued pressure in the ad market is impacting IntentsKey? Is it translating to longer sales cycles still or smaller campaign sizes? And are you seeing any signs of improvements?
spk05: It's, you know, Brian, it's always difficult at our size to try to put your finger on whether this is a challenge for us or not. I mean, by that, it's like, you know, at whatever 80 million in revenue, we're not big enough yet, where we can experience the kind of challenges you might if you're a half a billion dollar your company, you've got, you know, maybe clients who are spending, who knows 50 60 million. So we're not seeing change much change at all, you know, with regard to what we're doing. The sales cycles are pretty much staying the same. It takes longer to sell direct clients. You know, indirect clients, you know, can take probably no less than three months, you know, often six months. So, yeah, that's kind of our perspective on it right now. And we do have a bit of a unique position, and I've spoken on this before, but, you know, the catalyst – You know, that is privacy is not going away. So regardless of what happens with regard to media spend overall, advertisers have to solve this problem in the ensuing, you know, next, let's call it 24 months. And we've always believed, you know, that this time would come and, you know, that should continue to create demand for us.
spk03: That makes sense. Next question. Last quarter, you underlined that your close rates are efficient, but the struggle is being able to get a foot in the door. How are things progressing in this space? With sales and marketing, you said, remaining elevated, are you planning to increase your sales headcount in the coming quarters? And should we expect Barry's oversight to drive an increased mix of direct sales starting next year?
spk05: Maybe I'll answer the last question first. You know, we've had... from a sales perspective, our primary focus has always been to the, to support the agencies, you know, who have the budgets and, and, uh, Barry, not surprisingly, as he's come in has, you know, gotten underneath that. And that is his world, uh, which is one of the reasons why we, you know, we brought Barry into the fold here. Um, and, and as a result, he's, you know, hyper-focused on that channel to market. And that makes perfect sense given that is the channel, you know, that we established. So that's for Barry. What was the first question? Sorry, Brian. I missed the first question now.
spk03: Last quarter, you mentioned that getting the foot in the door in front of executives is the main issue. Closing is fine, but the main issue is being seen. So just looking to see what changes you've made and how you're progressing in this space, if you've made any sort of progress.
spk05: Well, growth tells us that we're making some progress. The challenge there remains. And so if I've spoken on this before, which I suspect I have, but maybe for people who might be new to the answer, in a mature industry, aversion to change is not a simple thing to overcome. And that's probably the biggest challenge we have is buyers not recognizing the challenge ahead of them. I would say in the last year that 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 identity approaches.
spk02: All right, thank you. And one last question.
spk03: regarding the Google contract. I see renewals are coming every month, but has there been any sort of communication yet about a larger contract coming soon or?
spk05: Yeah, so I think, you know, we don't like talking about our clients at all. In fact, in many cases, we don't have the right to.
spk02: So my answer to this is yes. All right. I'll hop back in the queue.
spk06: thank you once again ladies and gentlemen if you do have any questions please press star followed by one on your touchstone phone and your next question will be from jack vanderhart at maxim group please go ahead okay great congrats on the strong results rich um thanks for taking my questions uh you know can you talk about the 10 new clients and the two returning clients in a little more detail um maybe particularly
spk04: How large are the two returning client campaigns, just relative, and are they increasing in scale? Are they similar to what they produced last quarter? Just any color around the two returning clients first would be helpful.
spk05: Yeah, the two returning ones, you know, they go out more than like a quarter, so it's quite some time ago. You know, I don't remember the exact amount of time when they weren't clients anymore, but it's at least more than a year, maybe even two. So the answer to that one is they're still small, but that's how everybody starts, Jack, right? Everybody, you know, we bring on, for the most part, starts, you know, small campaigns, you know, which then get added to as, you know, as the performance is realized. So that's true universally. The new campaigns and the new clients, they're, you know, for the most part, they're, you know, the programmatic, you know, component of what we do is where they are, right? uh not the open web um you know connected television display advertising online video and display you know they're kind of what they're doing and they're you know they're good sizes and they're good they're good games that could be you know big accounts they don't start off as big accounts guys no that's that's helpful and actually that's probably a positive sign since they were clients over a year ago or so and they and they came back they must be doing something right so that's good to hear um
spk04: How many of the 10 new clients are expected 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 in the third quarter and then also potential of them returning and increasing in scale in the near future?
spk05: I don't know for sure, Jack, but I think they're all on now. So the answer is, you know, I guess, near 100% without me knowing exactly if it's 100%, right, that they'll be on in the third quarter.
spk04: Fantastic. Okay, great. And then, you know, Rich, 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 associates to achieve, you know, optimal productivity levels? Is it like six months, a year? Typically it takes a year, I think, but I'd be curious to hear your thoughts.
spk05: The first three months are training and learning and, of course, given the approach that we take to be able to find audiences different, Jack, than what everybody's been trained for the last 30 years, even when they went through school. So there's an educational component, a learning component, getting comfortable with the materials. So it's usually zero to three months. They don't typically close any deals. you know, unless they've got a friend, you know, somewhere that they've known for a long time and they've, you know, they've managed to get us a deal in the first three months of their tenure as a sales executive. But then, you know, they start becoming productive in the three to six month period. And if they're not productive, you know, in this, let's call it the six to nine month period, then we start wondering whether or not, you know, they're going to ever going to be productive, which would be probably the cadence that we look at.
spk04: Yep. Sure. Sure. Makes sense. Um, And then, you know what, just one last thing, cause it was such a, um, it took the wind out of the sails for a little bit with that, that large client, that large direct customer that left. Um, what I didn't hear you say is any new clients have left or 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. Um, was it, was that really, truly a one and done kind of a unique situation that was one off isolated? And are you confident that, you know, you're, you're kind of past those bumps?
spk05: We do lose clients, and I've spoken to this in the past. In most of those cases, not all of them, but in most of those cases, it's 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, and our client retention rate is quite high. I don't know the exact number, but it's way up past 80%. 80. It may even be in the 90s. 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.
spk04: Okay, great. Well, hey, fantastic results again, and great to see you guys gaining momentum and bouncing back. That's it for me. Thank you.
spk06: Thank you. And at this time, it appears we have no further questions. Please proceed with any closing remarks.
spk05: Thank you, Sylvie. I would like to thank everyone who joined us on today's call. We appreciate your continued interest in our company.
spk06: 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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