Kubient, Inc.

Good afternoon and welcome to QBN's second quarter 2022 earnings conference call. Joining us for today's call are QBN's founder, chairman, chief executive officer, chief strategy officer, and President Paul Roberts, and chief financial officer, Josh Weiss. Following their remarks, we will open the call for your questions. Before we get started, I need to alert you to our safe harbor statements under the Securities Litigation Reform Act of 1995. During this call, we will be making forward-looking statements, including statements related to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Listeners should not place undue reliance or on forward-looking statements since they involve known or unknown risks, uncertainties, and other factors which are in some case beyond our control and which could and likely will materially affect actual results, levels of activity, performance, or achievements. Any forward-looking statements reflects our current views with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations results of operations, growth strategy, and liquidation. These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. Furthermore, listeners are referred to the documents filed by Kubian Inc. with the section including our annual report on Form 10-K filed with the SEC on June 30, 2022, with the understanding that our actual future results may be materially different from what we expect which includes these and certain other important risk factors. We qualify all of our forward-looking statements by these cautionary statements. Also note that the forward-looking statements on this call are based on information available to us as of today's date. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements even if new information becomes available in the future. Please refer to Kubient's SEC filings, specifically its registration statement on Form S-1, initially filed on December 12, 2020, for a more detailed description of risk factors that may affect the company's results. During the call today, management will discuss adjusted EBITDA and non-GAAP financial measure. In the company's press release and filings with the SEC, both of which are posted on the company's website, You will find additional disclosures regarding this non-GAAP measure, including reconciliation of this measure with its comparable GAAP measure. Non-GAAP financial measures are not intended to be considered in isolation from, a substitute for, or superior to GAAP results. The company encourages you to consider all measures when analyzing its performance. Now I would like to turn the call over to Paul Roberts. Sir, please proceed.

Thanks, Operator. and thanks to everyone who has joined us today. In our last call, or midway through the second quarter, we discussed a dramatic shift in our short-term operations by transitioning to a sustainable, low-cash-burn model in order to better position Kubient to the existing global headwinds and to better position ourselves for strategic alternatives. To briefly reiterate, we began the process of pulling back on certain non-essential positions in evaluating whether our divisions within our business might be streamlined further in order to conserve the company's resources. This translated to direct savings in our operating expenses, something we've been recognizing in early August, and subsequently allows Kubian to present the market with predictable and conservative burn looking ahead to the coming quarters and years. During the implementation of these measures, close care was kept to maintaining the necessary components of our organization on the development and operation side of our core technologies. Over the previous quarter, we spent time further cleaning up our balance sheet and securing our cash position, a point Josh will touch on a bit later in the call. The goal of these measures was to extend Qubient's runway, allowing greater time to further grow top-line revenues via organic measures, minimize our operating expenses, and take advantage of strategic alternatives via inorganic measures. On that note, a key emphasis has been on the optimization of CHI, the artificial intelligence-powered fraud protection technology operating within the audience cloud. To this point, we've received great feedback on CHI, especially from the enterprise level. However, the largest hurdle in unveiling the true potential of this technology faces is scalability. As the returns of implementing this comprehensive tool into a company's digital advertising strategy truly shines, when there's larger amounts of data processed for a single entity. This results in greater opportunity for CHI to catch and funnel out fraudulent activity and dead ends at a significant and undeniable scale. It's because of this success and utility of CHI that this technology has been the centerpiece for Qubient's M&A-related strategic alternative initiatives. This further validates the angle that we've positioned ourselves as an extremely attractive target for reputable advertising-centric companies looking to find a proper solution to the storied, fraud-ridden digital advertising ecosystem. Our comprehensive supply-side platform with direct publisher integrations coupled with CHI is primed to be a prominent divider for companies looking to lead the current and next generation of ad tech. One thing we've learned over the last few months is M&A discussions differ depending on the size and scope of the conversations. Larger, enterprise-level discussions require a much deeper, thorough layer of due diligence while we explore opportunities. Additionally, we continue to field commercial opportunities synergistic to our core business that have the potential to bolster both our supply and demand side of our audience cloud offering. With these efforts, we look to deliver lasting value for our shareholders. We look forward to providing further updates on our acquisition and strategic alternative efforts when appropriate. The focus on inorganic opportunities has not stopped Kubin from operating and delivering at a high level and servicing our existing client base. This quarter was highlighted by multiple wins, emphasized by some renewals where the scope of work with existing customers expanded. The first example I want to share is with an entertainment company that increased their budget by over 50% from the start of 2022 due to the positive results they have seen via the direct media spend with Qubient. Next, another client in the entertainment vertical has started putting on live events again at a larger capacity post-COVID and has decided to increase their direct media spend through 2022 with Qubient. The increase in media spend is a direct confirmation of the results Qubient can provide advertisers. Additionally, a client in the large mattress retail space that tested direct media spend with Qubient in Q1 decided to renew for Q2 and beyond, increasing their overall budget for 2022 as well based on the result of the initial media spend. And finally, we also have a deal with a well-known printer manufacturer and distribution company where the client decided to expand the scope of work. These, among others not mentioned, point to the quality of results we've delivered via our engineering and could-be managed services teams despite the smaller staff. We look to continue this trend of cash conservation while growing our top line through quantity and quality of client relationships through the close of 2022 and far into 2023. Our value partnerships with Yahoo and Google have continued on the DSP front, and we've expanded those partnerships over the quarter to include a new integration with Viant to help deliver targeted, fraud-free CTV inventory for their Tier 1 advertising clients. While we celebrate winning partnerships with industry leaders such as Yahoo and Google, the connection with these partners is one part of the revenue generation equation. As an example, once Google was able to vet Kubient in our technology, we completed an integration between the Kubient SSP, which includes CHI, and Google's DSP. Once that is done, our team then needs to contact the brands and agencies using the Google DSP and direct them to spend media dollars on the Kubian marketplace. We are confident, based on these current conversations, that CHI, combined with a direct marketplace of publishers, is a big advantage compared to other offerings within the ad tech ecosystem. Now, I'll hand this call over to Josh, who will provide additional color on the quarter from a financial perspective. Josh?

Thanks, Paul, and good afternoon, everyone. Thanks for joining our call. I wanted to start off by piggybacking off of Paul's previous point in that we've made strategic efforts on the financial front to clean up our balance sheet and ensure we're in the best possible position for any strategic alternatives that may come along. That said, due to severance and cancellation costs incurred from certain third-party vendors and services during the second quarter, the normalization of our burn rate did not take effect until the beginning of August. Kubian expects that our third-quarter results and beyond will reflect the lower cash burn rate. We have a very strong cash position with over two years of runway and are pleased with our financial status for the time being. Now to our financial results for the second quarter ended June 30th, 2022. Net revenues for the second quarter of 2022 were approximately $400,000 compared to approximately $498,000 in the same period last year. The decrease was primarily due to a decrease of net revenues associated with a major customer whose contract renewed in the first quarter of 2022 at a reduced scope as compared to the 2021 period, partially offset by revenues generated in the 2022 period related to the customer contracts acquired in connection with the acquisition of Media Crossing in November 2021. Net revenues for the six-month period ending June 30, 2022 were approximately $1.6 million compared to approximately $1.2 million in the same period last year. The increase in net revenue was primarily attributable to customer contracts acquired in connection with the acquisition of MediaCrossing in November 2021. Now, turning to our expense line items. Technology expenses increased to approximately $959,000 from approximately $620,000 in the same period last year. The increase was primarily due to an increase in headcount costs, hosting fees, non-cash stock stakes compensation, amortization, and software expenses, partially offset by a decrease in consulting expenses. General and administrative expenses increased to approximately $1.5 million compared to approximately $1.1 million in the same period last year. The increase is primarily due to an increase in headcount costs, state taxes, non-cash stock-based compensation, insurance expense, office expense, director fees, news and software subscriptions, all partially offset by a decrease in professional services and consulting expenses. During the three months ended June 30, 2022, we recognized a one-time GAAP accounting non-cash impairment loss on intangible assets of approximately $3 million. GAAP net loss attributable to common shareholders was approximately 5.8 million or 41 cent loss per basic and diluted share compared to a net loss of approximately 1.7 million or 12 cent loss per basic and diluted share in the same period last year. Adjusted EBITDA loss, a non-GAAP measure, increased to approximately $2.2 million or $0.16 per basic and diluted share for the three months ended June 30th compared to an adjusted EBITDA loss of approximately $1.6 million or $0.12 per basic and diluted share in the same period last year. On a six-month basis, our adjusted EBITDA loss increased to approximately $5.9 million or $0.41 per basic and diluted share compared to an adjusted EBITDA loss of approximately $3.1 million or $0.24 per basic and diluted share in the same six-month period last year. As of June 30, 2022, we had a cash balance of approximately $17.7 million. That concludes my financial summary. For a more detailed analysis, please reference our Form 10-Q, which we plan to file today. I will now turn the call back over to Paul. Paul?