Inuvo, Inc.

Good day, ladies and gentlemen, and welcome to the Innovo, Inc. second quarter 2025 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press door zero for the operator. This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference call over to Katie Cooper, Director of Marketing. Please go ahead.

Thank you, Operator, and good afternoon. I would like to thank everyone for joining us today for the ANUVO Second Quarter 2025 Shareholder Update Call. Today, ANUVO's 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 plan to file our 10Q with the Security and Exchange Commission this evening. 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 used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to Inuvo, Inc. are as such a forward-looking statement. Investors are cautioned that all forward-looking statements involve risk and uncertainties, which may cause actual results to differ from those anticipated by ANUVO at this time. In addition, other risks are more fully described in ANUVO's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.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 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 release on our website. With that, I'll now turn the call over to CEO Richard Howell.

Thank you, Katie, and good afternoon, everyone. For the second quarter of 2025, Inuvo has delivered robust year-over-year growth with revenue up 25%. While seasonality and some fluctuations in client spend did lead to an expected sequential decline of 15%, our five-year compounded annual growth rate through the second quarter of 2025 now stands at approximately 24%. reflecting sustained momentum in our business as we approach our goal to break through the $100 million in sales this year. Gross profit, adjusted EBITDA, net income, and free cash flow all improved year over year. And while operating expenses were up because of increased revenue, they were not up at the same rate as revenue, which highlights our ongoing focus on cost controls. Notably, financing and other income improved year-over-year, reflecting favorable external factors, and operating cash flow was $144,000 in the quarter. Wally will discuss our financials in greater detail in a few minutes. Let me now turn to a discussion about our go-to-market and client activities. In Penke, self-serve adoption is accelerating. With 18 new deals set up in the quarter, and 300% quarter-over-quarter growth. Our managed services pipeline remains healthy, and we are seeing more direct clients interested in leveraging our intent key measurement, artificial intelligence, for channel-level performance insights. We signed four new managed service deals in the quarter. I'd like to remind shareholders that our self-serve intent key product was designed to be a scalable, easy to use and deploy media technology any company of any size can use. It's also the highest margin product we possess. It does not take many millions of dollars in self-serve revenues to materially improve the ANUVO bottom line. Within media, there is a market that's referred to as curation. This refers to a process of selecting, organizing, and packaging advertising inventory curated to meet specific needs of these audiences. Anubo's AI can curate instantly any audience an advertiser wants to place their ads against. There is literally no other technology on the planet that is as easy to use, as flexible, and performs as well. Last Friday, for example, we had 12 of our newer self-serve clients continue their campaigns in a single day. And while the media spend against these intent key AI curated audiences remains modest, the scaling and retention is an indication of a significant opportunity for future growth and margin. Connected television is an area of rising interest with more clients including our solutions in their RFPs. CTV remains our highest services margin channel. Feedback from clients continues to validate our privacy-compliant concept-based targeting as a clear differentiator with several reporting substantial lists and conversions and campaign performance. The platform product line was defined by substantial volume expansion and disciplined investments in quality throughout the quarter. Although revenue per click declined sequentially due to seasonal and geographical mix, the strategic direction of the market favors higher quality lead generation, a trend that plays well and directly to Inuvo's strengths and longstanding investments in compliance and quality advertising. As the market increasingly rewards trusted, transparent suppliers, we are exceptionally well-positioned. Operationally, we made significant enhancements to our intent key reporting dashboards, which we've now rolled out to most clients, receiving overwhelmingly positive feedback. We've also increased our sales support activity, which in turn has driven more local market engagement and in-person meetings, as well as the hiring of our first sales development representative focused on direct client outreach. Our two largest intent key services clients both grew sequentially and year over year. Let me now discuss product and technology activities. The second quarter of 2025 was defined by strong operational growth and deliberate investments in both the quality and scalability of our platform product line. We experienced over 60% quarter over quarter growth in leads delivered to advertisers. an important indicator of both demand and the efficiency of the marketplace we've created with this product. However, it's important to note that this impressive growth was managed with a disciplined approach. We deliberately constrained the onboarding of new ad campaigns within the quarter to ensure compliance and safety and ultimately the long-term scalability of our platform product. Our marketplace for this product is most easily categorized by proprietary advertising technology coupled with publishing capabilities. To support this expansion of the platform product, we launched more than a dozen new high-quality websites into the platform network in the quarter with a particular focus on vertically oriented content. This represents a 50% increase over the first quarter and directly strengthens our ability to attract higher value advertisers. Leveraging advanced AI tools, we've also significantly increased the pace, scale, and quality of our content creation and deployment within the platform product line, allowing us to now create original, unique images and explore niche verticals like we've never been able to before. These investments are deepening both the breadth and the depth of our content, further elevating the overall value of our offering to our clients. Despite these strong operational indicators, we did see a decline in revenue per ad click, which we attribute primarily to seasonality and a change in geographic mix, as impressions from developing markets grew strongly within the platform product line portfolio. This is a common trend in this industry and our focus remains on building a high quality resilient marketplace that can deliver for advertisers across varying market cycles and geographies. We are also seeing a notable shift across the broader market ecosystem towards higher quality advertising standards in general. One of our major clients has implemented stricter and more targeted quality enforcement mechanisms specifically designed to reward high integrity suppliers in an effort to improve advertising outcomes by filtering out lower quality leads. We have seen this kind of focus in the past, and it has historically favored suppliers like Anuvo, who are always committed to compliance, transparency, and ultimately client results. As the market raises the bar, we are well ahead of the curve due to two years of investment in compliance-oriented infrastructure, lead quality monitoring, and a scalable set of technologies. On the agencies and brands product line development front, our team continues to expand and refine the commercial application of our predictive media mix modeling artificial intelligence. What previously took significant manual analysis can now be accomplished in a fraction of the time, allowing us to deliver actionable channel level performance insights to both agency and direct clients. This is especially valuable to direct clients who are increasingly leveraging this technology to optimize spend and evaluate true channel effectiveness. against actual business goals as opposed to a collection of what might be called convoluted marketing metrics. As discussed earlier, a self-serve adoption continues to accelerate because we are providing customers with easy-to-deploy, low-risk access to our audience modeling capabilities, which in turn is also driving strong engagement with our audience discovery and targeting platform. We are actively developing the next generation of our self-serve portable, which will provide clients with an improved set of insights and a more intuitive interface to understand those insights. For those listeners unfamiliar with the IntentKey product line, like other large language-based artificial intelligence technologies, the IntentKey audience discovery process begins with a simple prompt. For our self-serve customers, we've now also introduced automated optimizations that have already produced tangible performance improvements. These enhancements are designed to further streamline the client experience and drive higher margins for a new vote. Finally, we are pursuing new integrations with additional demand-side campaign platform providers. a move that will increase our flexibility for managed clients and facilitate future international expansion and new product innovation. Across our product portfolio, the clear differentiator remains in Henke's privacy-compliant, large-language, concept-based targeting. Clients consistently cite this capability as a primary reason for choosing Anuvo. with some reporting significant lifts in conversion rates and performance following their adoption. The introduction of enhanced client reporting capabilities has further strengthened our value proposition by delivering greater transparency and actionable insights. In terms of industry validation, it's worth highlighting a unique perspective that emerged this quarter. We recently tasked several leading AI systems, including Gemini, Grok, and ChatGPT, to independently research and evaluate Inuvo's intent key technology against what they considered to be nine of the world's top programmatic advertising solutions on the market. Each AI was asked to assess effectiveness in a forward-looking world taking into account critical privacy trends like the deprecation of cookies, VPN adoption by consumers, consumer tracking limitations with companies like Apple. Now, across all three AI systems, the research results were the same. Inuvo's intent key was recognized as the best solution. This was an amazing outcome. This external, unbiased endorsement by the latest generation of artificial intelligence chat technologies underscores the differentiated value our technology provides to clients facing the evolving challenges within digital advertising. In short, Inuvo's product suite continues to evolve rapidly, supporting both operational scale and the strategic shift towards higher quality privacy first solutions that we believe will define the future of advertising. At this time, I would now like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter.

Thank you, Rich. Good afternoon, everyone, and thank you for joining us today.

I'm pleased to share our financial results for the second quarter of 2025, which was marked by strong revenue growth, client expansion, and operational efficiency. Revenue for the quarter was $22.7 million, representing a 25% increase year over year. The growth was primarily driven by sustained demand from our platform clients, which generated approximately $19.7 million in revenue. Our two largest platform partners expanded their engagement, one scaling a successful product launched in 2023 that focused on improved technology, high-quality content, and compliance, and the other ramping a new campaign introduced in the fourth quarter of last year. Revenue from agencies and brands totaled approximately $3 million for the second quarter. We onboarded 22 new clients in the second quarter, 18 of whom adopted our self-serve solution. This builds on the 20 new clients that we added in the first quarter of this year. While individually small, these clients represent a future growth potential as they scale their advertising budgets. Cost of revenue increased to $5.6 million, up from $2.9 million in the second quarter of last year. This was driven by the new campaign with one of our platform partners. As a reminder, cost of revenue primarily reflects payments to website publishers and app developers who host our ads, as well as media costs for our agencies and brand clients. Gross profit was $17.1 million, an increase of 12% year over year. Gross margin declined to 75.4% from 84%. which was anticipated due to the scaling of the new platform campaign, which is accounted for in the cost of revenue. Operating expenses totaled $19.1 million, up 12% year over year. The largest driver was an increase in marketing costs aligned with our platform revenue growth. Compensation expenses increased by $170,000 primarily due to accruing incentive expense. Headcount remained stable at 82 employees at quarter end versus 83 a year ago. G&A expenses increased $260,000, largely due to the absence of a $255,000 allowance reversal that was recorded in the second quarter of last year. Other income was $560,000 compared to zero in the same period last year. In June, we received an IRS refund of $606,000 related to the employee retention credit from the second quarter of 2021. Of that, $525,000 was recognized as other income, and $81,000 was recorded as interest income. Net financing expense was $18,000 down from $42,000 a year ago and includes the $81,000 in interest income I just mentioned. Adjusted EBITDA improved to a loss of $629,000 compared to a loss of $686,000 in the second quarter of last year. Net loss narrowed to $1.5 million or 10 cents per share versus $1.7 million or 12 cents per share in the year-ago period. We ended the quarter with $2.1 million in cash and no outstanding debt. In June, we completed a one-for-ten reverse stock split. This strategic action was intended to improve the marketability of our shares and better position Inuvo to attract institutional investors. Following the reverse split, our outstanding shares totaled 14,473,843 shares as of June 30th.

With that, I'd like to return the call to Rich for closing remarks.

Thank you, Wally. In summary, the second quarter of 2025 showcased both the resilience and adaptability of our business. Despite the expected seasonality in the quarter, we continued to build on our multi-year trajectory of robust annual growth and operational improvements. Revenue for the first half of the year is roughly $49.5 million, which is up 40% year over year. We are successfully driving adoption of our highest margin products. We are expanding our footprint with both agencies and direct clients, and we're gaining some meaningful traction into emerging channels like connected television, where our intent key solution is increasingly being recognized as a market leader. Looking ahead, Anubo remains exceptionally well positioned as industry dynamics continue to shift towards privacy first, high integrity digital advertising. Our investments in compliance, scalable technology, predictive analytics are all paying off. This is enabling us to anticipate and meet the evolving needs of our clients while setting the bar high for the marketplace generally. We continue to see strong momentum in our pipeline and a growing number of new deals, particularly in self-serve, and overwhelmingly positive feedback from clients leveraging our enhanced reporting and AI-driven insights. Our team remains focused on executing our strategic roadmap and delivering best-in-class results for both advertisers and partners. And as always, I want to thank our shareholders, clients, and employees for their ongoing support and commitment. With our technology, team, and strategy, we believe Anuvo is uniquely positioned to drive continued growth and to lead our industry through this next phase of its transformation. With that, I will turn the call over to the operator for questions. Jenny?

Yes, thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the one on your touchtone phone. If you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one. Could you wish to ask a question? Your first question is from Brian Genslinger from Alliance Global Partners. Your line is now open.

Great. Thanks so much. First question is, is there anything that has occurred in the last three or four months since we last were on one of these calls in the market, or particularly as it relates to Inuvo, that gives you more or less confidence in your ability to hit that $100 million annual target this year?

Yeah, Brian, we feel pretty good about the 100.

I mean, you know, it's not like we're not without some view of where the clients are and the growth rate on the clients are. So sitting here right now, I think, you know, the 100 million, you know, looks good this year. Generally speaking, you know, within the market or the industry as a whole, you know, every quarter that's going by, I guess, you know, we're getting – more confident that people are starting to realize that there's, you know, there's better technology out there for, you know, to improve the marketing activity and maybe better understanding the nature of the problem that exists. So those are all in our favor.

Yeah. And then maybe talk about the evolution these days of a new customer, you know, especially with this new technology that they're taking. You've signed a bunch of new customers. Is it very small? Day one? a little bit bigger? Just take me through the evolution of when some of the campaigns by new customers become a little bit more meaningful and impact the results.

So far, generally, at least for the last few years, the process has been pretty much the same, Brian. We'll sign up a new customer. If it's a services customer, and whether it's self-serve, it's kind of the same. although we don't have as much history, obviously, with self-serve. So, you know, my statements there probably, you know, are less, you know, confident because I just don't have enough of them. But on the services side, you know, we typically sign up a client and it's usually they start off with some, you know, smaller amount of spend and then they see the performance gains and then they just keep adding money. And I think, as I've said in the past, if we lose a client there, it's almost always because the agency we're supporting, if it's an agency client, lost them. On the self-serve side, we've got a bunch of them now. I think we said we got another 18 or so this quarter, and I think in the first quarter, there's maybe 15 or so, if I remember right, self-serves. They're all really small, but we're seeing an increase. And I think I pointed to that, like a 300% increase. And so we're seeing an increase in the actual let's say revenue generated from those self-serve, even though the revenue we're generating from that is small. But we're seeing quite a nice increase, which is an indication of the fact that they basically, you know, are running our models, they're seeing they're working, and so they're applying more media spend against them. And, of course, that's, you know, in that model, you know, the revenue we take is only the net, right? So we take the, you know, it's whatever we get out of that. That's why it's a, you know, it's a very high margin product for us. So we see less revenue than we would for services clients. That's a long answer, Brian, but it's the best thing to do.

Two more questions. Is there a case where a self-serve customer, especially if they're larger, decides to at that point transition and see the benefit of you taking it over, or do you not generally see the opportunity to transition these self-serve customers?

It hasn't happened yet, but I think the question is a good one, and I would expect – that yes, we'll have some of those as those self-serve customers grow. And particularly, I would say if those self-serve customers are maybe on the bigger side, you know, they may decide, hey, why don't we just let, you know, Anuvo, you know, run these things for us? Maybe that's more efficient. I could see that happening, although it hasn't happened yet because we've only been, you know, effectively selling self-serve for, I don't know, maybe less than a year, right?

Yeah, okay. My last question is, Year over year, revenue grew by more than $4 million, almost $4.5 million in the June quarter. Your operating loss is about $300,000 to $350,000 more. So I'm wondering why with that scale, I get the gross margins lower, but that's supposed to be offset by what I thought was lower marketing costs. So I'm wondering why is it the marketing costs are going up I'm just curious why that higher revenue has brought a lower operating profit.

Yeah, I think – hi, Brian. I think you hit it on the head. The margins, the gross margins are lower year over year, and there's a number of reasons for that. One is the product mix that we now have. It's different than it was last year. And the second reason for it is, yes, our marketing costs are running a little bit higher, so between the two. If you look at the other operating costs, although they are higher, compensation is about $200,000 higher this year over last year, and that's primarily because last year we did not accrue an incentive expense, and this year we are. And the other one is the general and administrative is up about $200,000 also, about $250,000. And that's because we had a reversal of an allowance last year, which we don't have this year. But yes, it's a combination of those increases and somewhat lower gross margins.

And I might add one thing to what Brian, to what Wally said is like, you know, I think you know this, Brian, because you've followed the company for quite a while, but like there's always one quarter in the first half of any year that's like, let's just call it a down quarter in this industry we're in. And, you know, down can be, you know, like top lines down and, but down can also be like the demand supply economics, you know, are such that, the margins are down. And, and that's, we saw, we saw that in, in Q2 though, you know, like, you know, for, for particularly in the platform business, right. That like growth was still robust, but, but, but margins were a little compressed there. So, and we would expect that to reverse.

The demand supply economics in June were more favorable in buying marketing space, marketing space, whereas in the June quarter, it was less favorable. And that's why the marketing is growing while the margins come in. Is that right?

Yeah, and I think maybe, yes, to some degree, yes. And I think the answer is, like, we expect those margins to improve, right, as the seasonality of that quarter. It ended up being Q2 this year, right? You know, some years it's Q1, some years it's Q2. I don't know, you know. So, you know, we would expect margins to, you know, to improve somewhat.

Great. Okay, thank you.

Thank you.

Your next question is from Scott Buck from H.C. Wainwright. Your line is now open.

Hi. Good afternoon, guys. Just one question from me. As demand, you know, appears to be accelerating, I'm curious whether or not you guys are seeing opportunities to improve your selling process and maybe even optimize pricing at more attractive levels.

Always. You know, it's probably the thing we spend a lot, you know, I don't know, a big part of our time on, Scott, is how do we, well, maybe I'll say this a different way. I mean, I said it on the conference call, you know, look, you know, these AI systems that are out there, not ours, but others, I mean, they're, you know, they're equivalent to, you know, really, really great consultants now. And so, you know, anybody who's on this call can just go ask it and you'll get the same answer we do if you ask it the right question. And the answer is, we know our product is the best product on the planet for discovering audiences and targeting audiences in the open web. There's no doubt about it in my mind. No doubt about it. So, you know, we're always sitting around like, how do we unlock the value of that? We know our brand recognition, you know, is okay, but it's not, you know, a name brand yet. We know we, you know, we never have enough salespeople out in the, you know, in the field, most notably because we know we have to constrain how many salespeople we can actually hire just because we've got the balance sheet and the liquidity reserves that we have. So we're always trying to figure out how do we do this better. We spend a lot of time on it.

I appreciate that. Like I said, that's all I had, guys.

Thank you for the time. Thank you, Scott.

Thank you.

Once again, please press star one to do wish to ask a question. Your next question is from Jack Codera from Maxim Group. Your line is now open.

Hi, Rich. Hi, Wally. This is Jack Codera calling in for Jack Vendor. A quick clarification question on the numbers of new clients. So you mentioned, I think it was 18 new self-serve deals and then four new managed service deals. Is that the right segments? And then are those all new customers? Are there any repeat deals in there?

Those are all new. Yeah, they're all new and they're all on the agency's brand side, Jack.

Okay, wonderful. And then you mentioned something at the very end there. I just wanted to clarify. There's some sort of partnerships that maybe can get you to expand a little bit more. You kind of hinted at it. I don't know if you can give any more clarification of what that meant.

I'm going to guess at what you think what that question might be, but I did mention in my notes that we've been working on some new demand side platform integrations. For people in the audience listening to this who don't know what that is, just think of it like the campaign systems. There's a number of companies that have developed great campaign systems, and we try to get our AI technology, which finds audiences and targets audiences, integrated into those. And we've, you know, we're working on a new integration with a new demand side partner that we think, you know, could offer us some new opportunities.

We already have, you know, some of those, right?

But we're working on a more direct one right now. Okay.

Yeah. That's what I just wanted to clarify.

I don't know if that was, was that what you were asking, Jack? I wasn't sure. I was kind of guessing a little bit. Yeah, precisely. Thank you.

And then I had one more kind of general question. It might be a little bit strange, but, you know, Given some of the antitrust suits that I think people are kind of assuming there may be some shakeup with kind of Google standing with Safari and, you know, I think some kind of newer users in search may think that some of the LLMs may become like the default search engine. Do you have any view as to how that may affect, you know, the ecosystem and how that may affect your business? Thank you.

It's a good question, but it's very difficult to answer at this point because it's so evolving. I don't think there's any doubt that the AI chats, the Gemini GROK, GPT, they are growing in popularity, maybe is a good way to say it. Now, if you look at the big player on the block there, it's always been Google and it continues to be Google. And Gemini, you know, is a great AI just like the other ones are. And, you know, they've now integrated that into their browser and they figured out a way, you know, to be able to sort of co-mix both the AI capability and the regular search capability in a way that still monetizes for them. So that's a long way of saying I don't know at this point. It's not impacting us now. It will certainly impact, I guess, what conventionally has been thought of to be you know, a browser, but I think we'll have to wait and see, Jack.

Okay, yeah, fair enough. I appreciate you taking my question. Thank you. Yep, thank you.

Thank you. There are no further questions at this time.

Please proceed.

Thank you, Jenny. And, of course, I want to thank everyone who joined us on the call today. We appreciate your continued interest in our company.

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.