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spk01: Good afternoon, ladies and gentlemen, and welcome to the Mobivity First Quarter 2023 Earnings Results Conference 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 and zero. As a reminder, this conference is being recorded. I would now like to turn the call over to Brett Moss of Hayden IR. Please go ahead.
spk05: Thank you, operator. I'd like to welcome everyone to Mobivity's first quarter 2023 earnings call. Hosting the call today are Dennis Becker, founder and chairman and chief executive officer, Kim Carlson, chief operating 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 uncertainties. We caution you that such statements reflect 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 companies from time to time with the SEC and, in particular, in 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 statement. 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 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 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 Mobivity.com. With all that said, I'd like to turn the call over to Dennis Becker. Dennis, the floor is yours.
spk06: Hello, everyone, and thank you for joining us today for Mobivity's Q1 2023 earnings call. I'm Dennis Becker, CEO of Mobivity, and I'm eager to update you all on the significant growth and continued transformation of our business. Earlier this year, we launched Connected Rewards, a platform that has proven to be a resounding success. We're delighted to report that the platform's appeal has been proven and evidenced by the continued expansion of brands and customers using the Connected Rewards platform. Even more promising, we're experiencing a rapid acceleration in our month-to-month revenue and expect it to continue through the year. This strong performance is not just a result of the platform's inherent strengths, but also our efforts to focus and expand leadership and our organization on the growing demand for connected rewards. We remain firmly committed to nurturing and growing connected rewards, and as stated earlier in the year, aim to evolve it well beyond our former SMS text marketing business model. This platform is shaping our future, and we're excited about what it holds. In the gaming industry, return on ad spend is a vital metric that publishers constantly scrutinize. Game publishers perpetually seek profitable advertising channels and they increase investments in channels where positive returns are delivered. In the last few months, our increasing portfolio of game publisher customers has more than doubled their acquisition budgets on our platform, which is a testament to the effectiveness of Connected Rewards. They're seeing positive returns on their ad spend and getting profitable players for their games, which has resulted in our daily game install volume growing more than 900% since January. Moreover, As we scale more and more transactions, we're building a unique and highly valuable database of mobile phone numbers and mobile game preferences. This database allows us to optimize future campaigns to yield higher revenue and profitability. Before we move on, it's important to frame these achievements within the broader market landscape. DataAI's State of Mobile 2023 report shows that mobile ad spending will hit $362 billion in 2023, up from $155 billion in 2018. Consumer spending on mobile games is projected to rise concurrently. This shows that game publishers are investing heavily in acquiring players. Our platform offers them a unique and highly valuable method to do so. These market dynamics show that the opportunity for our Connected Rewards platform is significant, and we are well positioned to capitalize on it. I'm also pleased to report that we completed a financing with existing shareholders to support our momentum through the year. This strategic move provided us with the essential funds to continue executing on our ambitious growth plan and goal of cashflow positive operations later this year. We're grateful to our supporting shareholders who see the potential of connected rewards and we're determined to unlock its full potential to drive our path to profitability. In line with our growth, I'm thrilled to announce that Kim Carlson has been promoted to Chief Operating Officer. Since joining us as Chief Revenue Officer late last year, Kim has been instrumental in driving the adoption and growth of our Connected Rewards platform by game publishers and brands. Her deep experience in the mobile gaming industry has been essential to guiding our transformation not only in driving game publisher demand, but in how we execute our broader business model transformation. Going forward, Tim will be leading our operations, product, and sales and marketing teams to further accelerate our growth. I will now pass the call to our CFO, Lisa Brennan, who will provide a more detailed review of our financial results. Lisa?
spk07: Thanks, Dennis. I'd like to start off by addressing our cash position. We ended the first quarter with approximately $2.6 million in cash, and our accounts receivable was approximately $750,000. which we believe is sufficient to support our operations for the foreseeable future. First quarter revenues slightly decreased to $1.9 million compared to $2 million in the first quarter of 2022. This decrease was primarily due to non-recurring revenues in 2022 related to a large one-time project for a specific customer. That said, I'm pleased to report that on a sequential basis, Q1 2023 revenues grew 12% over Q4 2022 revenues of $1.7 million, driven primarily by our growing connected rewards business. I'd now like to draw your attention to our gross profit margin for the first quarter of 2023. We saw a slight increase in this figure compared to the same period last year. Specifically, our gross profit margin stood at 43% in Q1 of 2023, up from 42% in Q1 of 2022. What's more impressive is the sequential improvement. Comparing the first quarter of 2023 to the fourth quarter of 2022, we see a significant boost in our gross profit margin. It climbed from 35% in Q4 of 2022 to 43% in Q1 of 2023, marking a 23% improvement. Again, This uptick is primarily attributed to the higher margins yielded by connected rewards. We're encouraged by this trend and will continue to focus on maintaining and enhancing our margins moving forward. Our operating expenses increased to $3.2 million for the first quarter of 2023, up from $2.6 million in the first quarter of 2022. The primary drivers of this increase were stock-based compensation and non-cash expenses associated with foreign conversions during the first quarter of 2023. Excluding these expenses, operating costs were relatively flat year over year. I will now turn the call back over to Dennis for his closing remarks. Dennis?
spk06: Thanks, Lisa. As we wrap up this earnings call, let's underscore the incredible growth and strategic advancements we've made this year, particularly in growing our Connected Rewards platform. We're generating thousands of mobile game installs daily, leading to increased consumer rewards, value for our game partners, and importantly, accelerating revenue growth. Game publishers' doubling of their user acquisition budgets for our platform is testament to the efficacy of Connected Rewards. Additionally, Kim Carlson's elevation to Chief Operating Officer highlights our dedication to leadership and underscores our transition towards the Connected Rewards business model. The $362 billion market is vast, and we've only just begun to tap into it. The early adoption and robust revenue growth seen in the first five months of this year signal a promising future. We're focusing the company to capitalize on this opportunity, armed with the right team, sufficient capital, and unwavering determination. I want to express my profound gratitude to the entire Mobivity team whose tireless work, dedication, and innovation have driven our success. We'll continue to keep you updated on our progress.
spk03: Thank you for joining us, and we now welcome your questions in the Q&A session. Thank you.
spk04: If you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. Your line will then be accessed from the conference to obtain information. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. Once again, that's 1-4 to register for a question.
spk03: One brief moment for the first question. Once again, as a reminder, to register for a question, please press 1-4.
spk04: We do have a question from Jeff Porter with Porter Capital. Please go ahead. Your line's open.
spk00: Hey, Dennis, I've got a couple questions here. So this is great news about the rapid growth in user acquisition budgets from game publishers and 900% increase in daily game install volume since January. Can you provide a little color around that? Is that growth rate sustainable? And how does that translate into revenue growth expectations?
spk03: Hey, Jeff. Yeah, great question.
spk06: So, you know, while we've seen this increase in game install volume, I think what is really important about that is that, you know, one of the most important things is that we show a return on advertising spend. In other words, these game publishers invest in the Connected Rewards channel that we're delivering quality players to their game titles. And I think that what we've seen so far is that that's a resounding yes. And in light of the privacy protections and other moves that are happening on at the macro level in the advertising space, that's probably the most important thing to game publishers and advertisers is finding new channels that provide profitable returns. So I think in general, I think this first quarter was with the dogs eat the dog food. We had a handful, a couple of game publishers trying out some of our brand channels, those brands being everybody from Circle K to Sonic Drive-In, Checkers and Rally, et cetera, these restaurants and convenience store brands that we have, in terms of engaging those consumers to install and download and play games in exchange for rewards. That's shown a great success. I'll point back to when we were operating our business model predominantly to engage consumers directly on behalf of brands. It was kind of a dial tone business, charging fractions of a penny or a couple pennies per text message engagement, whereas here game publishers will pay a bounty of anywhere from $2.50 to $15 to acquire a game player. And that's what we're most excited about, was that that if they're going to spend that amount of money through us to engage consumers through brands, that they're getting a multiple on that spend. And with the increase in their budgets applied to connected rewards, you know, it's got us very, very excited there. You know, we'll need to continue innovating and adapting and adapting to how You know, we operate different promotions for different game publishers and match them to the right brands, but so far, so good. We don't need as much transactional volume executing just mass SMS marketing promotions directly from a brand as we might need in terms of matching the right consumers who frequent restaurants and maybe gas stations or convenience stores to certain game titles. So I think that what we saw here in summary from the beginning of the year until now was that, you know, we had a couple of game publishers at the beginning of the year kind of trying this out. We brought some other game publishers in thanks to Kim Carlson and her team. They have vast reach across the gaming industry. That brought a number of other game publishers in. They started running campaigns. And most importantly, the profitability that those game publishers saw from the consumers that we brought to those games through these brand channels was very strong. So going forward, again, pointing back to also the overall market, game publishers spend billions of dollars on marketing to get these game players to their game titles. So we're really excited about that progress that we saw and that growth rate. And again, relative to the margins and the unit In other words, fractions of a penny versus dollars on these transactions that connected rewards drive, you know, we're really excited about how we've seen that not only grow through the year, but that growth being driven because of the success that the game publishers have seen from the return on ad spends.
spk00: Okay, I've got a follow-up two-part question there. So I totally see where the game publishers are eating this up. It's great for them, customer acquisition, increase gameplay, whatever. The brands you mentioned are sort of the same brands that I've been hearing around our prior SMS business. So maybe you can give me a flavor of how we're working to expand the number of brands we're engaging with. And the second part of that question is, Are we looking to expand into other verticals of in-app advertising beyond gaming publishers?
spk03: Great question. On the first question, the short answer is we address a
spk06: real big challenge that's facing marketing in terms of the marketing efficiency for brands. And I'll get back to that here in a second. The second answer is absolutely yes, we see opportunities in other verticals. So on the first question, I think that, you know, in this macro environment of, you know, quote, unquote, efficiency, you know, I think all across industries, the profitability, the cash flow performance of businesses is of vital importance, and that affects marketing dollars, meaning every brand, restaurant, convenience store, and otherwise is really getting a lot more focused than they had been on the return on marketing spend that they have with their media. And I'll speak to a program we just ran with a very, very large multibillion-dollar brand The goal of their marketing program was to acquire digital subscribers, and that could be signing up for the SMS program, signing up for the brand's loyalty program. There are other digital campaigns, email subscriptions, even brands sometimes operate their own miniature games and sweepstakes. And all of that, they're trying to get consumers to engage in those channels because once they engage in those channels, there are rewards. that consumers earn through those channels, whether it's loyalty, they accumulate points, and they can turn those points in for products, et cetera. They can enter into sweepstakes and win prizes. In all of those cases, the brand is going to spend a certain amount of dollars on media, TV, billboards, Facebook, Snapchat, social advertising. And at the end of the day, they're going to calculate that total spend divided by how many consumers engaged and they're going to get what's called an acquisition price. It costs them, for example, $5 per consumer to get the consumer into the sweepstakes or the loyalty program, et cetera. We ran a program where we engaged consumers through mobile gaming. So the brand agreed to promote games, and the games agreed to promote the brand. And ultimately, the game publishers We're footing the bill. We call it partner-funded media. So the game publishers said, look, hey, brand, hey, restaurant brand, convenience store brand, you promote our games. And for everybody that joins the games, we'll also promote your brand to get them to play your sweepstakes or to join your loyalty program. And when we compared the cost of acquisition, ultimately the brand looking at, look, if I do this gaming program with Mobivity, I don't really have to spend anything. a gaming publisher through a cross-promotion will put the bill through partner-funded media, or I just go buy ads in Facebook and TikTok or TV. The acquisition cost for the brand was $5 to $12 if they spent on traditional media channels. Through Mobivity's program, they essentially spent nothing. And we outperformed the acquisition volume for the brand, meaning we got more people into their loyalty program or gaming program or email list, about three to four times higher volume than what they were spending on traditional advertising. So when we think about the value we're delivering to brands and our existing customers, the Sonics, the Subways, et cetera, there's a lot of upside there, and that's our key value proposition. And we issued a press release a couple months ago basically stating that we can deliver brands kind of this zero media cost channel to acquire customers. And it's really important right now in the macroeconomic climate. In parallel to that, as we're starting to get word out and they're starting to become visibility and the potential for that, there's absolutely all kinds of other verticals, such as personal care, which would be hair salons, nail salons, etc., And other venues, you know, fuel is a very close cousin to convenience. And so we see a lot of upside there, too. And I think all of these industries are thinking about how do they most effectively acquire relationships to consumers at an economy of scale that's better than the returns they were getting through traditional advertising. So all of these programs, I think, are both expanding our existing customer activity, but also opening up for new verticals.
spk00: And are we bumping up against any significant competition that's trying to play the same game that we're playing?
spk06: Well, I'm going to kick that over to our gaming industry veteran, Kim, our new chief operating officer, Kim Carlson. So, Kim, I think You and the team have been out there in the marketplace, and you've been talking to a lot of game publishers. I can speak from the brand side in all of our engagements, and I think this is reflected even with most importantly with our existing customers. These are all new campaigns. This is a new concept of brand. And the adoption cycle, we think, is very fast because, of course, they don't. have a lot of upfront investment here, and this is an environment where that's very attractive. But on the game publisher side, Kim, maybe you can comment to what you're seeing in the gaming industry.
spk02: Yep, sure. So there's really no one else in the space as it relates to brand rewards in game and then games in brand. What you have in the marketplace are what's known as offer walls, which is Typically, you do something in-game to earn another advancement into another game, and the reward there is something more typically along the lines of a gift card or something that's readily available. But no one's really bringing brands to the caliber that we have to marry these two together. There is a lot of discussion in the market around what we call brand product placement. And there are some programmatic players that are out there doing that. But again, they fall short of this idea of rewarding users. So download an app, a game app in a brand's SMS channel or their own media and get that reward. So we really fit a place in the market where we have a physical real world reward that is redeemable in real life in person versus a gift card, which I think has a tremendously different value to it. So we're not, to answer your question, Jeff, we're not really seeing anybody doing this as it relates to specifically the most well-known brands in the QSR and C-Store space specifically and marrying them up with a gaming community. I'll also add that I think you were asking too, will we move into other app businesses beyond gaming, potentially a finance app or a that kind of an app. And we really think we're best suited to just keep focused on what we'll call this large group of casual gaming marketers as a predominantly largest group of app spenders and our QSR, cooks of restaurants and C-stores. And the reason we believe that is that those index very high together. I've had several game developers tell me, yes, we've done focus groups and I can tell you that a solitaire game, a match 3D game, or other type of casual game indexes very well with pizza or sandwiches or hamburger chains. So we're going to stay there. We think there's a really, really big business we can build there, and I don't think it's what we want to do to dilute that and move into other app spaces right now.
spk00: Okay. I've just got one more, my last one. Dennis, you mentioned that as you scale transactions, we're building this incredibly valuable database of phone numbers and mobile game preferences and players. How do we leverage that into revenue?
spk06: Well, so it's still very early, but I think that one of the you know, what we learn through even just operating text messaging programs for large brands is when you know what consumers like, you're a lot more efficient and you can get consumers to do a lot more. So with that, you know, I would basically describe what we're doing with Connected Rewards is in that when building this marketplace where we're bridging a connection between people who like food and fuel and other sorts of things, to people who like to play games, there's a lot of intelligence that can be gleaned from understanding how those relationships mean or how those relationships relate to higher productivity in terms of converting people to play games, converting people to play games and play them a lot more, more often, they monetize better. I think we can all relate to the fact that when advertisers show us something that we like, that we tend to participate a lot more. So, you know, look, in light of all that's gone on in this $100 billion-plus mobile casual gaming industry that's been built largely upon, you know, looking at consumers without there being explicit consent. I mean, that's really how the gaming industry has built itself, by learning what types of games people like and when, and getting them to play more often by way of looking at what they do on their phone. And Apple put an end to that a couple years ago. Google is following suit. And what that means is that the standard is a lot higher in terms of trying to work with the consumer and give them what they want and also get consumers who give the game publishers what they want, which is, you know, better financially performing games. So what we're doing here is we're, by way of, you know, connecting these consumers that have opted in, they have subscribed, they have chosen to be a part of these brands' audiences, whether it's Sonic's, you know, SMS program or Circle K to receive discounts and promotions. I mean, these are consumers that, you know, with SMS text messaging in particular, I mean, the bar is very high. It's a double opt-in. I mean, these people have to say, you know, they have to text in, I want to join, and then they have to agree again, yes, I really want to receive these text messages. And so that creates a highly curated audience. And as we run these campaigns, as we give people fuel discounts and food and things like that, we're learning what types of games people also want to potentially play. And that will make our system all that much more efficient. And again, since we're primarily running what's called a performance marketing program, meaning people, you know, game publishers, advertisers, they only pay on success. that our ability to optimize and generate higher margins, higher revenues, et cetera, is all going to come down to conversion rates and price per conversion. And we know that all of those perform much better if we're giving the consumer greater value, better relevant, right message, right time, right offer, right time. And so the system should get smarter as we continue to execute and scale campaigns.
spk00: Okay, that's all for me. Thanks.
spk03: Thanks, Jeff. If you'd like to register for a question, please press 1-4 on your telephone. There are no further questions at this moment. We'll turn the call back to Dennis Becker. All right, thank you very much. I really appreciate everyone joining us on our call today. We're really excited to keep everyone updated on their progress as the year progresses. Thank you that this concludes the call for today. We thank you for your participation. I ask that you please disconnect your lines.
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