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spk01: Greetings and welcome to Mobivity's first quarter 2021 earnings call. At this time, all participants are in a 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 Moss of Hayden IR. Please go ahead.
spk04: Thank you, Operator. I'd like to welcome everyone to Mobility's first quarter 2021 earnings call. Hosting the call today are Dennis Becker, Founder, Chairman, Chief Executive Officer, and Lisa Brennan, 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 risk and uncertainty. We caution you that such statements reflect management's best judgment based on factors currently known and that the actual events or results could differ materially. Please refer to the documents filed by the company from time to time with the SEC, and in particular, its most recently filed annual report on its Form 10-K. These documents contain and identify important risk factors and other information that may cause actual results to differ from those contained in forward-looking statements. Any forward-looking statements made during this call are being made 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 these forward-looking statements publicly or or to update the reasons actual results could differ materially from those anticipated in the forward-looking statement, even if the new information becomes available in the future. Today's call may conclude non-GAAP financial measures, which require a reconciliation to the most directly comparable financial measures, which are calculated and presented in accordance with GAAP, as we 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 call is yours.
spk05: Thanks, Brett. And I appreciate everyone on the phone for taking the time to join us on our call today. First, I'd like to congratulate our team at Mobivity for innovating and growing through the height of COVID. We dealt with some headwinds in the first quarter as our customers also persevered through continued closures and stay at home orders. And we supported our customers with creativity, innovation, and support as they worked through the financial uncertainty at the peak of the pandemic in January. Through these challenges, we foresaw significant developments on the horizon, and we began ramping up our sales and marketing operations in preparation for what we predicted would be a significant increase in demand for our products and services. And we were right. Our sales pipeline has grown more than 500% in just the past few months. We predicted two key developments that we believe are certain to drive outperforming demand, growth for Mobivity's digital loyalty and text message marketing solutions. First, a Supreme Court decision on April 1st has significantly reduced the legal risk in operating SMS marketing programs and expanded the addressable universe. Second, major moves by Apple and others to protect consumers' privacy from third-party advertisers increases the need to engage consumers directly, a need perfectly served by our targeted, opted-in text messaging programs where consumers subscribe for targeted promotions and offers versus having their privacy pirated by third-party websites, apps, and social networks. I'm excited to dive further into why we believe we're well-positioned to capitalize on these key market trends and are still pursuing a record year, despite a start impacted by the pandemic's peak. I'd like to start off by talking about the landmark decision by the Supreme Court in the Facebook v. DeGioia case. The SMS text marketing industry has historically been hampered by a 30-year-old law called the Telephone Consumer Protection Act, or the TCPA. On April 1st of this year, the Supreme Court released its highly anticipated and unanimous decision, which greatly reduced the liability risk for companies operating SMS text marketing programs. Before this ruling, TCPA litigation had become a multibillion-dollar industry, that we believe had kept some of our addressable market from pursuing SMS marketing programs. With reduced legal risk relating to SMS, our addressable market has expanded drastically, and we're already seeing demand accelerate from brands that had formerly stayed on the sidelines. We also believe that this ruling will incentivize our existing customers to accelerate growth of their own programs through Mobivity, which could lead to increasing revenues. Just as importantly, The privacy decisions of some of the largest tech companies have turned marketing and advertising on its head. Businesses will need programs like SMS text messaging to have direct relationships with their consumers versus relying on third-party media advertising to promote their products and services. Apple recently rolled out its highly anticipated app tracking transparency feature with iOS 14.5. which lets users decide whether apps track their activity for targeted advertising. Overwhelmingly, users seem happy to disable app tracking. Only 4% of all iPhone users in the U.S. have agreed to app tracking after updating their device, according to the latest data from Verizon-owned analytics firm Flurry. Forrester's Prediction 2021 B2C Marketing Report explains that An unprecedented pandemic rendered B2C marketers' existing plans and strategies moot, and new announcements from Apple and Google put data deprecation on a fast track. But these trends aren't a flash in the pan, the report says. In 2021, marketers must prepare for an ecosystem without third-party cookies and device identifiers, all while navigating an unpredictable economy and reduced budgets and headcount. The report further forecasts that marketing message volume will increase by 40% next year as brands try to hold on to customers and drive new purchases. Mobivity's opt-in targeted SMS marketing programs are the perfect solution for marketing's new normal. Consumers opt-in to the program, which removes any doubt about privacy concerns, and are connected to an ecosystem that drives efficient, effective, data-driven marketing. We believe this is a seismic shift in the industry that will drive demand for mobility solutions and drastically accelerate growth. To capitalize on these trends, we've been hard at work ramping up our marketing operations to ensure maximum awareness of Mobivity's products and services as brands race to find solutions to engage an increasingly elusive digital consumer. Along with launching a new website that more clearly positions our services around SMS text marketing, We've executed on strategic marketing events, including a very well-attended webinar featuring Greg Cree, former CEO of Young Brands. The result has been a material increase in lead volume, and our sales pipeline has grown more than 500% since February. I will now turn the call over to Lisa for a more detailed view of our financial results, and then I will come back for a few summary comments. Lisa?
spk00: Thanks, Dennis. I'd like to start off by addressing our cash positions. We ended the first quarter with approximately $1 million in cash, and our accounts receivable were approximately $1.4 million, which we believe is sufficient to support our operations for the foreseeable future. Our decrease in cash was primarily due to slightly lower gross margins, along with lighter revenue in the quarter due to the peak of the pandemic. We also increased our sales and marketing investments during the first quarter, to prepare for the expected increase in demand as Dennis described earlier. Our revenue for the first quarter of 2021 was 2.5 million compared to 4.5 million in the first quarter of 2020, reflecting a decrease of 44% on a year-over-year basis. The decrease is primarily due to 1.3 million non-recurring ASC 606 revenue in the first quarter of 2020, along with lower customer usage revenues in the first quarter of 2021 as the pandemic affected the marketing budget of our largest customer. In turn, our gross profit decreased 54% to $1.4 million for the first quarter of 2021, compared to $3 million in the first quarter of 2020. Although, please bear in mind that $1.2 million of revenue in the first quarter of 2020 was related to ASC 606 revenue treatments. Given the first quarter of 2020 was essentially prior to the pandemic, I would like to point out that on a sequential quarter basis, comparing the first quarter of 2021 to the fourth quarter of 2020, the revenue and gross profit declines were less dramatic. First quarter 2021 revenue was only down 10% versus revenue in the fourth quarter of 2020 of $2.75 million. Additionally, Gross profit decreased from 1.75 million in the fourth quarter of 2020 to 1.4 million in the first quarter of 2021. Again, due to reductions in service fees from our largest customer as they navigated the peak of the pandemic. Total operating expenses for the first quarter of 2021 decreased by 22% to 3.1 million compared to 3.9 million in the same period in 2020. Most of the quarter year-over-year operating cost savings are due to ASC 606 related expenses, recognized in the first quarter of 2020, partially offset by a 10% increase in sales and marketing expenses from the same period a year ago. I would like to point out that our sales and marketing expenses in the first quarter of 2021 were 896,000, reflecting a 55% increase over the fourth quarter of 2020. again, to address the accelerated demand for our services as our target markets get back to normal operations and growth. I will now turn the call back over to Dennis for his closing remarks. Dennis?
spk05: Thanks, Lisa. We're confident that the downturn in the restaurant industry is behind us. In February, restaurant sales were still almost 20% below pre-pandemic levels. Yet in March, Same as Dave's Barbecue, a Mobivity customer, had same-store sales skyrocket almost 44%. All indicators point to a strong rebound in the restaurant space, while heavy use of technology throughout the pandemic is leading the market to our solutions as they map out the new future of engaging consumers in a digital-first world. Beyond the restaurant space, we're seeing accelerating progress in the convenience store market, with a growing list of prospects following our successful launch and rapid growth of SMS marketing for the world's second-largest C-store chain. We expect recurring revenues from this segment to grow well beyond seven figures through the year. Although we've had to endure some headwinds in our revenue performance over the past few quarters, we believe the combination of our resurging target markets, changing consumer privacy dynamics, and the reduction in legal risk for SMS text messaging have created several paradigm-shifting tailwinds propelling mobility towards another record year of growth. I continue to be amazed by our team's valiant efforts to serve and innovate for customers and markets most affected by the pandemic. It's truly energizing to see our customers finally emerge from a historic crisis poised for a strong rebound, and I've never been more optimistic for the future of Mobivity and the markets we serve. Thank you for tuning in and for your continued interest in Mobivity. We'll now open up the call for Q&A.
spk02: Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment please for the first question. And our first question comes from Brad gold with all calls consulting. Please proceed with your question.
spk03: Oh, Dennis. Hey, how are you? I'm good, Brad. How have you been? Pretty good. Thanks. I was just wondering whether you might be able to put a little meat on the bones and talk about rather than percentages, talk about the number of accounts that you're potentially have in the pipeline, potential size of the accounts and, uh, some indication of how much time that you think it takes to turn these accounts around from coming into the pipeline to whether you actually are going to be signing deals. And I guess the last question would be, you say it's a record year of growth. Can you expound on that a little bit more?
spk05: Yeah. And I think the latter is related to the first part of your question. So we have, You know, no guarantees, but we have a bigger sales pipeline than we've had before. I think one of the things that might be confusing about the first quarter that's not obvious that I'd like to point out is that, you know, our services are typically paid for out of the marketing budgets of these brands, particularly franchise brands like the Subways of the World and whatnot. So they usually form those budgets as a percentage of sales. that's usually done the year prior. So, in other words, throughout, say, 2019, they're accumulating their marketing budget for execution in 2020. And so, you know, we were able to defend against some of the initial impacts of the pandemic in, you know, the middle of 2020 because we were still being paid for out of budgets from 2019, arguably. So, Then as those budgets waned because sales were down for so many brands in the thick of the pandemic, you see a lag time kind of there in Q4, Q1. And so that impacted the performance of the number of customers. At the same time, February is when things started rebounding and brands started formulating their plans to bounce back quickly. So we've got right now, about a dozen brands that are all six-figure to seven-figure ARR upside brands. We're seeing sales cycles. I would use the example of the major convenience store chain that we won in the fourth quarter. That's a seven-figure customer now in terms of ARR that was about a 90-day sales cycle. We think the sales cycles are going to contract. We think that With the Supreme Court ruling de-risking SMS text marketing coupled with the clear and obvious benefits of digital engagement that were made throughout the pandemic, brands are going to move much more quickly and our ability to then also get them revenue bearing can be much faster than it's been in the past as well because Again, for example, that convenience store chain, thousands and thousands of store locations. And we grew their program close to 500% in just the three or four months, kicking off this year since we signed them in November and launched them late December, early January. So I think that that's why we're optimistic that a record year is still achievable because the size of the brands that are in our pipeline right now are still very large. You know, we just finished off a convenience store chain launch that went from, you know, essentially zero to seven figures of ARR in a few months. So it's only going to take, you know, a handful of winning those deals to, you know, to build a revenue base above what we did last year.
spk03: Okay. So that all sounds great. So you're saying record year growth. You're talking about not number of clients, but you're talking about revenue growth. Right.
spk05: Right. The majority of our revenue growth this year will come from new client acquisition. We did have a bit of a downturn in revenues from existing clients just because we accommodated their decreasing their usage when budgets were tight December through February. So we expect that existing customer run rate to rebound. But of course, that would just get us back to kind of par on what we did last year. Our goal this year is to continue the strong growth rate. Again, no guarantees, but what we do see with just the market situation from the TCPA Supreme Court ruling to the issues that digital advertising is having now that the hundred and some odd billion dollar digital advertising markets under threat with all of new privacy rules that, you know, the market's really coming our way. Our pipeline has accelerated in the last 60 days, you know, a lot faster than I've ever seen. It's still heavily slanted towards larger brands. And so to your direct question about customer count, you know, we're still talking, you know, in the say couple dozen customer wins this year. with large ARR profiles being, you know, the current targets that are the dominant portion of our sales pipeline. But, you know, of course, we expect that to expand as well kind of towards the end of the year. But in terms of getting done, achieving our goal for this year, which is to beat last year's performance, it's really about the couple of dozen brands that have all, you seeing sales cycles 60 to 90 days and sale to revenue timelines, you know, of 30 to 60 days there. So if we can get that done and we can win a reasonable proportion of that pipeline, you know, we should be able to get to our goal.
spk03: Okay. Sounds good. Thank you.
spk05: Appreciate it, Brad. Thanks.
spk02: As a reminder to register for a question, press the one followed by the four on your telephone. And there are no further questions over the phone lines at this time. I will now turn the call back to you.
spk05: All right, very good. I appreciate everyone joining us on our call today. I appreciate the questions, and we're looking forward to a strong year here.
spk02: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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