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spk02: Thank you. Thank you. Greetings and welcome to Mobivity's third quarter 2020 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Maas of Hayden IR. Please go ahead.
spk05: Thank you, operator. I'd like to welcome everyone to Mobivity's third quarter 2020 earnings call. Hosting the call today are Dennis Becker, founder and chairman and chief executive officer, and Lynn Tiscarino, chief financial officer. Before I turn the call over to management, I'd like to call everyone's attention to the company's safe harbor policy. Please note that certain statements made on this call will be forward-looking statements, which are subject to considerable risks and uncertainties. We caution you that such statements reflect the management's best judgment based on factors currently known and that the actual results or events could differ materially. Please refer to the documents filed by the company from time to time with SEC, and in particular, its most recently filed annual report on the Form 10-K. These documents contain and identify important risk factors and other information that cause actual results to differ from those contained in the forward-looking statements. Any forward-looking statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented during this call may not contain current or accurate information. Except as required by law, the company assumes no obligation to update those forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if the new information becomes available in the future. Today's call may include non-GAAP financial measures, which require a reconciliation to the most directly comparable financial measures, which are calculated and presented in accordance with GAAP and can be found in today's press release, along with our recent corporate presentation, which is also available at Mobility.com. With all that said, I'd like to now turn the call over to Dennis Becker. Dennis, the floor is yours.
spk03: Dennis Becker Thanks, Brett, and thanks, everyone, for joining us on our call today. As we round the corner toward the end of a memorable year, I couldn't be more proud of our team for staying the course and remaining focused on executing our plan. We met these chaotic times head on. I'm proud to announce that we drove substantial revenue growth, increased gross margins, and ultimately achieved profitable operations. The race is on to transform businesses in every industry. As Satya Nadella, CEO of Microsoft wisely stated, every company is now a software company. Our core restaurant market is racing to figure out how to adapt to the new digital reality while under intense pressure from the COVID-19 pandemic. The product and technology investments we've made over the last few years have prepared us well to capitalize on the vast opportunities in the marketplace. With the shift in focus to low or no contact, businesses need the ability to market and sell their goods and services remotely across digital channels. Our one platform strategy is helping our customers quickly pivot to the digital commerce that consumers demand. Our unified mobile messaging solution was recently recognized in September for the best mobile messaging-based marketing solution award by Martech Breakthrough. We joined an impressive group of winners from other categories, including Shopify, Adobe, The Trade Desk, Axiom, and many others. Simply put, our platform is recognized alongside some of the largest brands who, together, are innovating to solve the problems of today's circumstances. The financial strains in the restaurant industry are forcing marketers to focus on maximizing the return on marketing spent. Traditional marketing channels, such as television, outdoor, and print, where the majority of pre-pandemic marketing budgets were spent, are being challenged as people spend less time commuting and listening to conventional radio. Our cloud-based free currency platform uses artificial intelligence to map point of sale data to marketing investments so that brands gain a clear picture of which marketing investments are working and enables them to efficiently target consumers with the right message at the right time. Our technology drives high returns for our customers during a time where the margin for error couldn't be smaller. Our customers, such as Subway, have publicized a 10 times return on their investment in our technology. These results show that Mobivity is a leading solution in delivering high ROI through a volatile marketing environment. I'm also pleased to report that our relationship with Pepsi continues to progress. We are now featured in Pepsi marketing plans and materials, and we have trained approximately 400 Pepsi sales reps on the benefits of our recurrency platform for restaurant operators. Pepsi is actively communicating the benefits of our platform to their customers, large and small. Roughly half of the restaurant industry serves Pepsi products, and many of these customers are facing unprecedented pandemic-related challenges. Recurrency can help them compete and, in some cases, can help them capture market share. Though the relationship with Pepsi is in its early stages, we are seeing a meaningful pipeline develop and expect equally meaningful revenue impact. I will now turn the call over to Lynn for a more detailed view of our financial results. And then I will come back for a few summary comments. Lynn?
spk01: Thanks, Dennis. As mentioned, we're very excited to report a profitable third quarter. Net income for the third quarter of 2020 was $39,000, an improvement of $2 million compared to a loss of $1.9 million in the year-ago quarter. Additionally, we achieved positive operating income of $105,000. an improvement of 1.8 million compared to a loss from operations of 1.7 million in the third quarter of 2019. These improvements are a direct result of new recurring revenues, higher margin non-recurring revenues, along with lower operating expenses as we embrace new ways to sell and reach our customers without traveling and outside of industry events that have been canceled due to the pandemic. We ended the third quarter with approximately a half million in cash and our accounts receivable was approximately 1.2 million. Importantly, cash used in operations during the first nine months of the year has dropped 87% to 500,000 from 3.8 million during the same period last year. Our revenue for the third quarter of 2020 was 3.2 million compared to two and a half million in the third quarter of 2019. reflecting an improvement of 28%. Year to date revenues increased 43% to 10 and a half million compared to 7.3 million during the same period in 2019. Our gross profit for the third quarter of 2020 increased 150% to 1.3 million and our gross margins increased to 70% for the third quarter of 2020 compared to 36% in the third quarter of 2019. For the nine months ended September 30th, 2020, we reported gross margins of 64% compared to 40% in the same period of 2019. These improvements in gross margin were the result of increased revenues on carrier surcharges that we were previously unable to charge for due to contractual obligations coupled with an increase in higher margin non-recurring revenues earned during the third quarter. Total operating expenses for the third quarter of 2020 decreased by 17% to 2.1 million compared to 2.6 million in the same period in 2019. Most of the third quarter operating cost savings are coming from a reduction in travel and trade show costs that have been sidelined during the pandemic. We believe that our savings and spend and travel related costs will continue through the remainder of this year at a minimum. I will now turn the call back over to Dennis for his closing remarks. Dennis?
spk03: Thanks, Lynn. As the pandemic sent our society and economy into chaos back in March, we maintained focus on executing growth and achieving profitability. Nine months into this year, we've already exceeded all of 2019 revenues, lapped 2019 gross margins by more than 50%, and expanded and diversified our customer focus and growth trajectory. This exemplifies the strength of our business model, the quality of our technology, and the demand for our solutions. I've been amazed by our team's commitment to delivering on these objectives while working entirely from home and without any in-person customer or marketplace activities. We're proud to say that our dedication and perseverance paid off, and in a great time of uncertainty and chaos, we achieved profitability for the first time. We're confident in and excited about our plan for continued growth and profitability. And thank you for tuning in and for your continued interest in mobility. We'll now open up the call for Q&A.
spk02: We will now begin the question and answer session. To join the question queue, you may press star, then one, on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as Corda is doing the queue. The first question comes from Jeff Porter from Porter Capital. Please go ahead.
spk04: Good afternoon. Dennis, I believe on the two prior calls you mentioned that the company was trying to open up some new verticals and that you thought the Pepsi relationship might prove critical in sort of getting into new verticals. I think you'd mentioned grocery, media, maybe convenience. Can you just give a little color on how that effort's proceeding?
spk03: Yeah, absolutely. And thanks for the question, Jeff. So I think one of the things that, to your point, that we're excited about with their partnership is that beyond the restaurant space, of course, they're a major consumer packaged goods company. They also, I'll remind everyone, they own Frito-Lay as well. So that goes beyond restaurants. That goes into the convenience store space. Of course, they sell products in, you know, venues, entertainment, then, of course, grocery. And we were in a relationship with a large global grocery brand pre-pandemic. That opportunity is still live and kicking, and we're working through the opportunity with that brand now. as the pandemic has changed some things a little bit. But more recently, we've seen a lot of demand from the convenience store sector. We're really excited about that space. We're also very optimistic that we can branch out from the restaurant space into the convenience store industry. A lot of people don't realize this, but the convenience store sector is actually one of the fastest growing competitors to quick serve food. You know, brands like 7-Eleven and Circle K and whatnot, now they, you know, they serve a lot of, you know, hot meal products, pizzas, burgers, and things like that. So their customer profile fits the restaurant space, and that's where the success we've had in the restaurant space will translate to the convenience category, I think, quite well. So, you know, I just had a call with one of the major research, industry research groups a couple weeks ago, and they had we're explaining that demand for SMS text messaging had really accelerated now that, you know, with the pandemic in full swing. And so we're seeing that as well, not just from the restaurant industry, but, you know, beyond the grocery space that we have this opportunity to swing with, the convenience store industry has now become very interesting to us, and mobility has become very interesting to some opportunities in that industry that we're very excited about.
spk04: As just a follow-up to that, I see our gross margin is expanding nicely. Is some of that attributable to the ability to upsell data analytics, or is it just coming from scale, or is it a combination of both?
spk03: It's a combination of both. We've now brought in billions of full-basket point-of-sale transactions, whether it's These were sales that happened because mobility marketing transaction happened, whether it was a text message coupon or a receipt coupon or a loyalty engagement. We see in a lot of our customers, we see all of their point of sale data, so cash and credit. And because we see all that data, that's allowed for us to make decisions with our product that we know have been able to bring more value to our customers. So like, for example, last year we announced with Subway that all of their offers and promotions, whether it's in their app, which we don't power their app, but now we power the virtual wallet and the digital promotions in the app, their email program, which we are not running their email program, but scannable digital offers and coupons in emails are powered by Mobivity. So... Yes, to your point, a lot of the expansion in the gross profit has been because of our customers consuming a broader portion of the features that our platform now provides, namely the digital offers and promotions, which, unlike text messaging, it's just software. So we then start enjoying the really high gross margins of just a pure software product, unlike text. Text messaging, which we still have some fixed costs of goods as the carriers charge us some hard costs to move those text messages. Software is just the code we've created. We can create it once and sell it many times. So expanding the product because we've learned what our customers need from the information that data has told us has created these new product offerings like digital offers and promotions that have much higher margins. Thank you. Thank you, Jeff.
spk02: Once again, if you have a question, please press star then one. The next question comes from Bruce Evans, private investor. Please go ahead.
spk00: Hey, Dennis, congratulations on a fabulous quarter. Thanks, Bruce. Good to hear from you. How many salespeople did you have before expanding your sales force to 400 people?
spk03: Right. So, you know, we're really excited about the Pepsi partnership because, as I pointed out, they have hundreds of sales reps across the country that are helping restaurants, you know, and other food operators on a daily basis. our sales force. And to your question, you know, we've only ever carried around a, you know, a bench of, you know, call it 10 or 11 folks in our sales team that both tend to new customers as well as selling and cross-selling our customers. So, so this is a massive expansion, a very efficient expansion of getting sales reach marketplace because, you know, thanks to our partnership with Pepsi and just the scale that they operate at.
spk00: It seems like it could have a pretty dramatic effect on your sales with a 40X expansion of people selling our product.
spk03: Yeah, no, we're very excited about the potential there. And, you know, it's not just the direct sellers. You know, Pepsi also has a marketing team that's backing up those, you know, their account teams. And we've worked very closely with their team teams as well. So it's a great investment to have that extension for direct selling, but also to increase just the volume of awareness and advertising for our products and services that the partnership can produce.
spk00: I presume that these sales reps, you don't pay them anything unless they produce it?
spk03: Well, I can't speak to the specifics of the relationship and the partnership with Pepsi, but, you know, just suffice it to say that, you know, the mission for Pepsi is to drive consumption of both their Pepsi and their Frito-Lay products in the food services industry. And, you know, time and again, as brands like Subway and Papa Geno's and others have published, you know, public-facing case studies, we know that we can drive a higher income purchase frequency with consumers. So right now, too, I think it highlights that with I think it's common knowledge in the restaurant space, you know, takeout and delivery orders tend to have a lower incident rate of attachment for drinks and snacks. And so at no time is it more important that, you know, CPGs like Pepsi get help from technologies like ours that can help increase those attachment rates, you know, given the changing the changing ways that consumers are interacting and transacting with restaurants.
spk00: Great. Good job, Dennis.
spk03: Appreciate it. Thanks, Bruce.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Dennis Becker for any closing remarks.
spk03: Thank you. Appreciate everybody for joining us on our call today. We're excited to end the year strong and informing everyone on our results here in the future as we get past the end of the year. Thank you.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
spk03: Thank you.
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