This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Please stand by. The conference will begin momentarily. We thank you for your patience. I ask you to please remain online. Thank you. Thank you.
spk01: Good day, and welcome to the Mobivity third quarter 2022 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1, followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Brett Moss. Please go ahead. Thank you, operator.
spk03: I'd like to welcome everyone to Mobivity's third quarter 2022 earnings call. Hosting the call today are Dennis Becker, founder, chairman, and chief executive officer, Kim Carlson, chief revenue 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 risks and uncertainty. We caution you that such statements reflect the management's best judgment based on factors currently known and that the actual results or results could differ materially. These refer to the documents filed by the company from time to time with the SEC, and in particular, the most recently filed annual report on 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 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 the 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 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 reconciliation with the most directly comparable financial measures, which are calculated and presented in accordance with GAAP, which can be found in today's press release, along with our recent corporate presentation, which is also available at Mobivity.com. With all that said, I'd like to turn the call over to Dennis Beckett. Dennis, the floor is yours.
spk04: Thank you, Brett. And thanks, everyone, for taking the time to join us on our call today. Earlier this year, we began to transform our business to address the mounting challenges facing the multi-billion dollar digital advertising industry, building what we're now calling the Connected Rewards Cloud. With pandemic-related debt levels, macroeconomic policy changes, the ongoing invasion of Ukraine, inflation, and the threat of a recession, marketers and advertisers are facing unprecedented pressure to deliver profitable returns on marketing budgets. Furthermore, The privacy pilfering targeted digital ads that marketers have relied on for two decades are being blunted by new privacy protections. Thanks to the relentless effort by our team to address these profound headwinds through the third quarter, we accelerated growth in this new business and achieved several milestones to capitalize on the unique and innovative opportunity that Connected Rewards presents. The Connected Rewards Cloud powers the connection between digital businesses and real-world rewards at brick and mortar brands such as restaurants, convenience stores, fuel stations, and many more. In the second quarter, we reported that early trials matching restaurant and fuel rewards to mobile casual game players had proven successful, and our goal was to scale the business from that success. Our strategy to scale was built first on adding more gaming partnerships, second, Leveraging the network effect where the value of connected rewards grows as more real-world reward partners gets connected. And finally, third, maturing the revenue model into a scalable business built on transaction fees we earn as game publishers reward game players or brands reward their consumers for playing mobile games, both of which yield far higher transaction fees than our legacy business of sending brands SMS text messages. I'm pleased to report that throughout the third quarter, We made great strides on all fronts. Our pipeline of game publisher opportunities expanded throughout the third quarter. Game publishers are live and die by their ability to attract and retain players. For all of the macroeconomic reasons I described earlier, publishers are suffering from skyrocketing advertising costs and increased hurdles in effective advertising. A variety of key measures are used to determine if game publishers' marketing investments are attracting and retaining players profitably. our early trials have proven that Connected Rewards deliver exceptional results. As visibility of our Connected Rewards results proliferated throughout the gaming industry and we saw the enormous opportunity in this market, we focused on bringing experienced executive leadership to lead our growth in the gaming industry. I was elated to bring gaming veteran Kim Carlson to our executive team in September as our Chief Revenue Officer. Kim brings more than two decades of experience building leading revenue growth for traditional and digital media organizations. Most recently, she was head of global revenue at ARKI, a mobile demand-side platform, which was acquired by leading mobile games platform, Skills, in 2021 for $150 million. Being intimately familiar with the growing headwinds facing the digital advertising space, Kim believes our connected rewards technology is the right solution at the right time. uniquely leveraging brand audiences to help mobile app marketers drive efficient new user acquisition and retention. Having spent the past 10 years focused on driving hundreds of millions of dollars of value for game developers, Kim brings a vast Rolodex of gaming partner relationships and a deep understanding of the industry to Mobivity. She has already accelerated our pipeline over the past couple of months since joining our team. As Chief Revenue Officer, Kim will be building the market for Connected Rewards, based on our early success and leading our sales, marketing, and customer success teams to accelerate growth. Our growth strategy for Connected Rewards includes capitalizing on a strong network effect where game publishers and real-world brands compound the potential transaction volume and value that our platform can drive between digital and non-digital audiences and locations. While adding proven leadership from the gaming industry enhances our ability to add game publishers, I couldn't be more pleased with our team's progress in adding new brands from the restaurant, convenience, and fuel industries during the third quarter. Our most exciting win was our new partnership with P97 Networks, which we announced at the end of September. This partnership brings more than 65,000 fuel stations across major brand names such as Chevron, Phillips 66, and Exxon to our Connected Rewards platform. Game publishers, as well as any digital-first business, to now leverage fuel and convenience offers at practically any gas station across North America to attract and retain customers. Fuel rewards have proven extremely valuable to consumers in early tests, and this partnership further entrenches our Connected Rewards cloud platform as a unique and differentiated opportunity for any brand to leverage fuel rewards to drive profitable growth at a massive scale. In addition to bringing a vast portfolio of fuel rewards to our platform, our team did a great job adding additional restaurant and convenience store brands in the third quarter. The reaction that we're seeing from the convenience and restaurant industries indicates that we're delivering a timely solution as raising labor and supply chain costs continue to squeeze marketing budgets. We signed four new regional convenience store brands and added three new restaurant brand customers as well, most notably Sizzling Platter. Sizzling Platter currently operates more than 650 restaurants across the United States, and Mexico. Their franchisee brands include Red Robin, Sizzler Steakhouse, Dunkin', Wingstop, Little Caesars, Jamba Juice, Cinnabon, and Jersey Mike's Subs, all of which provide a beachhead into outstanding brands representing a variety of restaurant segments. We will begin to design and launch programs for Sizzling Platter in the fourth quarter, then scale through their portfolio early next year. Our Connected Rewards platform now spans a broad marketplace, including nearly ubiquitous fuel rewards, full-serve to quick-serve restaurants, and a variety of local and national convenience store chains. It's still very early in our go-to market, but we're pleased and excited by the demand as well as the velocity by which we're expanding both the game publisher and brand sides of the Connected Rewards marketplace. Before I hand the call over to Lisa to report on our financial metrics for the third quarter, I'd like to discuss the emerging revenue model we're developing for the Connected Rewards Cloud. Historically, we've helped brands connect with their customers through SMS text messaging, where our fees consisted of a software subscription plus transactional fees for each SMS text message we executed for brands to their customers. These fees were usually in the sub-penny range per message, and thus, we were heavily reliant on brands amassing large subscription lists along with executing high volumes of SMS text marketing messages to those consumers. The value of delivering offers and promotions with Connected Rewards is much higher. In fact, we have some opportunities in our pipeline where our Connected Rewards cloud platform delivers food or fuel rewards to incentivize consumers for installing and playing games. And game publishers are paying as much as $15 per transaction. These premiums that game publishers are willing to pay largely depend on whether the consumers installing their games prove to be profitable to their player monetization model. We now have several test campaigns under our belt where the results, such as retention rates and return on ad spend, are proving that consumers who are installing and playing games as a result of connected rewards incentives are worth several dollars per transaction to game publishers. While it's still early, we have a growing pipeline of game publishers looking to allocate marketing budgets to connected rewards and away from the declining return on investment from legacy advertising channels, such as social media or targeted digital ad networks. As another leg to our Connected Rewards business, we are building a pipeline of opportunities where we are charging a fee to brands for launching and delivering their food and fuel offers to gaming audiences. In this case, we work with game publishers to insert brand promotional offers into popular mobile casual games where the brand offers, such as free food or fuel, become a part of the gameplay itself. For example, you could be playing your favorite game where certain achievements in the game award you with 20 cents off at your local gas station. Fuel, food, and convenience brands have expressed strong interest in the value of having their products featured as a part of gameplay as it offers a new channel to drive consumer traffic and sales to their stores. As with game publishers willing to pay several dollars to acquire game players, we believe brands will pay similar fees when game players receive and transact their brand rewards earned from gameplay. We're very excited for the opportunity to monetize in both the game publisher and the brand side of the Connected Rewards marketplace. It's important to note that Mobivity's technology is purpose-built to power these transactions and this marketplace. Protected by numerous patents and years of expertise developing this technology and infrastructure, Mobivity's technology is the right solution at the right time. We expect measurable revenue results from these programs going forward as you transition from the test-improve phase of our go-to-market to expanding sales and marketing operations under Tim Carlson's leadership. I will now turn the call over to Lisa for a more detailed view of our third quarter financial results, and then I will come back for a few summary comments. Lisa?
spk00: Thanks, Dennis. I'll start with our cash position. We ended the third quarter with approximately $1 million in cash. We completed a pipe in August of this year that added an additional $1.2 million to the balance sheet, and we expanded our credit facility to $6 million. Total revenue for the third quarter was $1.9 million, up 1% over second quarter revenue in 2022, and down 18% year-over-year from the third quarter in 2021. We continue to see the effect of the termination of the contract for our legacy smart receipt product, that was restructured last year due to financial hardship incurred by one of our large customers due to the COVID pandemic. Revenue from our new Connected Rewards cloud solution continues to ramp, and we expect to see a resumption of overall growth in our top line, thanks to the accelerating momentum of this new revenue stream. Gross margin for the quarter fell to 4.5% of revenue as we expense the one-time application costs that we are currently disputing. Excluding this cost, gross margin was 34% versus 56% in Q3 of 2021. Again, this decrease is primarily due to the restructuring of our legacy customer contract for smart receipt from last year. We expect to see meaningful improvements in gross margin as connected rewards grows into a high proportion of overall revenue. We're pleased to report that total operating expenses for the third quarter of 2022 decreased by 19% to $2.5 million compared to $3 million in the same period in 2021, excluding non-cash expenses in G&A of $238,000 relating to an asset impairment write-down. Net loss for the quarter was $2.8 million versus $1 million in 2021 due to lower gross margin and increased interest expenses partially upset by the expense decline. I will now turn the call back over to Dennis for his closing remarks. Dennis?
spk04: Thanks, Lisa. Over the past several years, we've amassed a customer base spanning regional and national restaurant and convenience store brands reaching most of the U.S. population. Furthermore, we've recently compounded our reach by adding large-scale connectivity to more than 65,000 fuel stores. Mobivity's technology now operates a one-of-a-kind last-mile gateway to the point-of-sale, loyalty, and promotional code platforms that power marketing and commerce for brands reaching most of the U.S. population. In a matter of months, our team has done an amazing job leveraging these assets and innovating a new paradigm of advertising that uniquely addresses the disruption across the multi-billion-dollar digital advertising industry. While it's still early in the transformation of our business model, We believe that adding Kim Carlson's proven and experienced revenue leadership to our management team will accelerate the velocity of our sales pipeline into new gaming partnerships as well as other market opportunities. We are now set to scale beyond our legacy SMS text messaging business, and we expect Connected Rewards to become the majority of our revenue run rate. Thank you for tuning in and for your continued interest in Mobivity. We'll now open up the call for Q&A.
spk06: Thank you. If you'd like to register a question, please press the 1 followed by the 4 on your telephone, and 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. If you're using a speakerphone, please lift your handset before entering your request. Once again, that's 1-4 to register for a question.
spk08: One brief moment for the first question. And we have a question from the line of Jeff Porter with Porter Capital.
spk06: Please go ahead. Your line is now open.
spk07: Hey, Dennis, is Kim there with you also? Because this is really a question for her.
spk04: Yeah, absolutely. Kim said this as well. Good to hear from you, Jeff.
spk07: I'm here. So, Dennis, you gave a very good description of the major disruption to the digital advertising industry that Connected Rewards Technology addresses. Kim, maybe could you elaborate more on the scale of that disruption and how that scale translates to mobility's growth potential? I'm just trying to gain a sense of sort of the magnitude of the opportunity that's in front of us.
spk09: Absolutely. Thanks for the question. So over the last 10 years since mobile advertising really hit its stride, which was marked pretty much when Facebook successfully launched their first mobile app, Brands and app publishers have benefited from granular device targeting, advertising to efficiently acquire new users and reengage with their customers. Because of these efficiencies, over the last decade, we saw advertisers really scaling their mobile acquisition and reengagement spend to the tune of hundreds of thousands of dollars to even a million per day across multiple channels. But what's happened over the last 18 months, as you might have read in the news, Apple began requiring consumer consent to allow for this device tracking, this granular device tracking. Marketers, as a result, have lost the signals needed to find new audiences to remarket or gain new customers, which is driven, ultimately, costs are way up and return on ad spend is down. So, therefore, these advertisers are quickly pulling back on ad spend. This is prolific throughout the mobile space right now, and these marketers are desperately searching for new alternatives. When I was introduced to Mobility's Connected Rewards solution, I saw the potential for such an alternative that was both proprietary and poised for this big scale that I mentioned earlier in terms of daily spend. I've only been with the company just for a short bit now, but my early outreach and adoption by the publishers and advertisers is really reaffirming that believe that the potential is there as a result of the disruption, but that site is quite big.
spk07: And we're able to demonstrate quantitatively to these marketers that they're getting a very high return on their investment through connected rewards. We have data on that.
spk08: Yeah, absolutely.
spk04: Kim, maybe talk about the metrics that the game publishers like to see, and then I can attest to the trials that we've run with some of the publishers we've worked with here just in the short period of time we've had this in market have delivered really good results. But Kim, you've been doing this a lot longer than I have, so maybe you can elaborate on what those metrics are.
spk09: Absolutely. So What's really unique with Mobivity's solution is we are selling to game developers on a fixed transaction cost, so cost per install. However, what game developers really look at is their return on ad spend over time. That could be seven days, 14 days, 30 days, or ultimately over a year's time. What we've seen thus far with the adoption of Connected Rewards is not only are they getting a fixed price, but the return on ad spend is at or exceeding their metric or their KPI. So those results are quite encouraging because that is a lifeblood of a game developer or any app developers. What are they getting in return of the marketing spend? And the early results are quite good.
spk07: Okay, that's helpful. And our solution with Connected Rewards, would you characterize it as unique? Is there anything else there that's similar to it that we're competing against?
spk08: I could take that. Well, I've spoken. Go ahead.
spk04: Yeah, no, good. Yeah, I think, so from our perspective, what we've seen with all of our experience with brands is, you know, they haven't encountered a solution like ours that gets their digital codes and promotional offers in-game. And then I'll pass that question over to Kim to give kind of a gaming industry perspective of how what we've seen in terms of there being competitive or alternative offerings that are similar to what we're doing.
spk09: Right, so like we mentioned, game developers or app developers leveraging a brand-owned media channel is quite unique to Mobivity. So we're able to leverage those channels to drive acquisition for an app, but in return, the brand is getting transactions to their establishment, mostly foot traffic, as those customers redeem those offers. So in summary, again, what's very unique from a game developer's perspective, if you tie it back into the mobile channels that are becoming more expensive, like a Facebook, Snapchat, TikTok, because of the lack of device targeting, they're looking for alternatives. So for Mobivity to allow and bring a brand to a game developer to drive downloads is very, very unique.
spk04: Yeah, I want to just also highlight the proprietary technology that we've been spending years building and have a portfolio of patents that protect, which is the ability to get into these brands' point of sale systems and infrastructure and to pull unique redeemable codes instantly so that they can be delivered in the real-time nature of, say, gameplay or installing a game. It's not trivial to present somebody with a code that you can just walk into any one of, say, Subway's 20,000 locations within minutes of getting that code out of a game and get a discount on on food or drinks or beverages or discounts at the pump, that's a product of years of development that we've invested in to create this proprietary technology platform so this connected rewards opportunity can be marketed. So I just wanted to highlight that as well.
spk07: Well, thanks a lot. That'll do it for me. Very, very exciting. Sounds like we've got a huge opportunity in front of us.
spk08: Great. Thanks, Jeff. Thanks, Jeff. Once again, as a reminder, to register for a question, please press 1-4 on your telephone. And we have a question from the line of Bob Prague with DCG.
spk06: Please go ahead.
spk05: Thanks. Dennis and Kim, exciting prospects here. First off, what's the ability to scale something like this? I would sense that, Kim, coming in from the industry, I'm guessing and maybe hoping that the same people that you've had on speed dial that you've been selling to for years would be the identical people that you would be dialing again to bring this opportunity. So, one, am I right on that? And, two, what's our ability to scale?
spk08: Sure. Yeah, go ahead and take that, Kim. Yeah. Yep.
spk09: Yeah. Yes. So good question. I think, as I mentioned before, if you think about the dollars spent in media, mobile media channels, historically over the last decade, let me break that down to transactions. So these game developers are known to be driving tens of thousands of downloads per day. So we have a big opportunity in terms of that transaction. I'll tie it back to what Dennis mentioned earlier in terms of the cost per transaction that they would pay for such downloads. So you can think of it in dollars. I mentioned 100,000 a day to a million per mobile channel, but you can think of it in terms of transactions, so a number of installs. So the scalability is there. And as these other channels become... much more expensive and lacking the ROA they once had, these marketers have to spend to survive. And driving new users into either a new game or a game that's been around for a while is critical for them. To the question on my speed dial, yes, these are the exact same customers that I've been interacting with for the last several years. So the opportunity is there for us to reach them. And the scale is there, as I mentioned, in terms of number of transactions. We're kind of looking at this as a number of transactions per day for Mobivity, and that would be installed per day.
spk05: Okay. And then when would we expect to see some of this revenue work its way into our quarterly numbers?
spk04: So we've gotten through, as I described, what we call our test and prove phase. The question about the metrics that was, I think, posed earlier in terms of does Connected Rewards deliver the results to game publishers to warrant increasing investment? We feel confidently we've delivered on those results over the last couple of quarters. Recall, we really just began working with a couple of game publishers in the mid-second quarter through the third quarter to accumulate those proof points. So from here on out, we're expecting that the revenue from the Connected Rewards business line starts to show in our results kind of from the fourth quarter and beyond. We also expect, or at least our goal over the next year is that it also becomes the predominant proportion of our revenue of our revenue run rate going forward.
spk05: And Dennis, what's the flow of funds on this? So are you guys paid as the transaction happens? Do you have to carry receivables? What's the flow of funds?
spk04: Yeah, we do have to carry receivables. So when a transaction occurs, whether it's, you know, again, those transactions are either somebody takes an offer from a convenience store or Restaurant brand in in a game and on that delivery that triggers a billable event both to the game publisher and maybe to the to the brand also when games are installed and I think one thing that that we're excited about is that these Billable events so far in the deal flow that we've begun booking here is The receivable timeline is much shorter than what we saw kind of in the enterprise software model that we had when we were serving SMS text marketing platforms to brands where, you know, we could have payment terms upwards of 90 to 120 days. With game publishers, we're seeing terms in the 30 to 60-day range. So the cash cycle is a lot faster. And then I'd also add to that that points out too that the sales cycle is shorter usually with this type of connected rewards business model because whereas with the SMS text marketing business, we had to go through a call it 90, 120-day cycle just courting a new brand and winning them and contracting with them. Then we had to set up their SMS services and they had to start to market and promote it and gain subscribers before we saw material revenues. And that could take upwards of six months. Whereas we talked to a game publisher tomorrow, we put them in market with a free fuel offer that gets put in front of, you know, all of Circle K's customers, or, you know, we start running advertisements for it immediately. And, you know, the revenue production there is a lot faster than, you know, the legacy enterprise SMS marketing model.
spk05: Okay, I got one more small question, just so I can wrap my arms around this. So you are, at this point, I think, you're strictly offering as far as the rewards or the ransom for people to download a game or hit a certain level of success in a game. Am I right in saying that at this point you're strictly offering goods and services and discounts on your existing branded customers? Or is there an opportunity for some other branded company out there that they may, for whatever reason, feel like their brand would fit really well with this that either a gaming company brings them to you or they come to you to be included in this program. So how do you – so Kim's on the side of going out and marketing to the gaming company. What, if anything, do you need to do to market to the other side of that equation?
spk04: Number one, yes, our existing customer portfolio of restaurant convenience brands are – are entering the market with Connected Rewards. That's some of the test and prove campaigns we've already run and that's also driving a lot of the short-term revenue upside because we already have them deployed and they're already customers. That said, many of the new brands, we also announced today that we added a handful of new convenience store as well as restaurant brands and including our P97 partnership, which gives us a pathway to essentially the entire fuel industry. So all of those have been brought to Mobivity specifically because of our early marketing of Connected Rewards. So we're really excited about that because I think that's also a proof point of how Connected Rewards brings in and allows us to capitalize on our pre-existing position in the restaurant and convenience store space, plus compound that with additional fuel relationship. So we really see Connected Rewards being a higher velocity acquisition offering there to get more restaurant brands and convenience stores, etc. So it's not just our existing customers. We expect quite a few more brands and increased volume of new brands coming in from the convenience store side and restaurants. And then, of course, P97. We're really excited about the reach we have now in fuel.
spk08: Good stuff. Well, best of luck and good conference call. Awesome. Thanks, Bob.
spk06: I believe that's all the time we have for questions. That concludes today's call. We thank you for your participation, and that's how you please disconnect your line.
Disclaimer