Inuvo Third Quarter 2023 Financial Results Conference Call

Participants

• Richard K. Howe; Executive Chairman & CEO; Inuvo Inc
• Alicia Parris; Corporate Controller; Inuvo Inc
• Natalya Rudman; Senior VP & Director of Market Intelligence; Crescendo Communications, LLC
• Brian Kinstlinger; Analyst; Alliance Global Partners

Presentation

Operator

Greetings, welcome to the Inuvo Third Quarter 2023 Financial Results Conference Call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Natalya Rudman. You may begin.

Natalya Rudman

Thank you, Holly, and good morning, everyone. I’d like to thank everyone for joining us today on Inuvo’s third quarter 2023 shareholder update call. Wallace Ruiz, CFO, had a family emergency, so on today’s call, it’s going to be Richard Howe, Chief Executive Officer, and Alicia Parris, Corporate Controller. We would also like to remind our shareholders that as today is a fertile holiday, we plan filing our 10-Q with the Securities and Exchange Commission on Monday.

Before we begin, I’m going to review the company’s State Harbor Statement. The statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events, and as such, all forward-looking statements are made pursuant to the Security Litigation Reform Act of 1995. These forward-looking statements are subject to risk certainties and actual results made different materially.

When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to Inuvo, Inc., are such forward-looking statements. Investors are cautioned that all forward-looking statements involve risk uncertainties, which may cause actual results to differ from those anticipated by Inuvo at this time. In addition, other risks are more fully described in Inuvo’s public filings with the US Securities and Exchange Commission, which can be reviewed at www.scc.gov.

The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. In addition, today’s discussion will include references to non-GAAP measures. The company trusts that such information provides additional measurement and consists of historical comparison of its performance. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures is available on today’s news release on our website.

With that out of the way, I’ll now turn the call over to CEO Richard Howe.

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Richard K. Howe

Thank you, Natalya. Thanks, everyone, for joining us today. We are pleased to report that, for the quarter ended September 30, 2023, Inuvo delivered the highest quarterly revenue in its history, growing 44% year-over-year and 48% sequentially to $24.6 million, and that compares to $17.1 million and $16.7 million for the prior period, respectively. We delivered roughly $32,000 of adjusted EBITDA in the quarter, following a $1.8 million adjusted EBITDA loss in the second quarter of 2023.

On a cash flow basis, the company has been generating free cash flow for the last five months, averaging roughly $800,000 per month, or approximately 11% of average monthly revenue for that period. As we’ve leaned into our indirect channels in 2023, our gross margins have consequently increased to 91% in the third quarter of 2023. Our cash and cash equivalents position remains strong, measuring roughly $7 million at the end of September.

Additionally, at the end of the quarter, we had no debt and a $5 million unused borrowing facility. During the quarter, we also resolved a dispute with a large advertising platform that was first disclosed in the second quarter of 2022. Alicia will talk more about the quarter’s financial results in her section of the call. Let me now turn to some of the operational highlights.

As mentioned earlier and on previous calls this year, we’ve leaned into our indirect channels at the beginning of 2023. As we have also described on previous calls, an indirect channel is one where we gain access to advertisers through that advertiser’s platform and or its service providers. We continue to see strong demand through this go-to-market channel, as evidenced in the revenue exchange year-over-year between indirect and direct, as disclosed within our financial statements.

We have a number of potentially significant initiatives underway with a few of the larger clients within the indirect channel that we believe will continue to contribute to strong revenue growth into Q4. Our sales team was very active in the third quarter, adding roughly a dozen new advertisers to the roster across industries that include the non-profit sector, entertainment, oil and gas, consulting, and retail. The sales team has narrowed its focus to the empowerment of mid-sized agencies through the incorporation of our technology and services.

This strategy allows these agencies to better serve their clients with improved performance and differentiation, while mitigating the current and future privacy risks associated with using consumer data. We currently have 21 total associates within our go-to-market team. Our awareness and marketing outreach activities have continued to increase throughout 2023, driven principally by our attendance at industry conferences and the increase in media coverage related to our proprietary artificial intelligence ad targeting technology.

More specifically, we have seen an uptick in media coverage since March, having appeared in various publications roughly 20 times. This has included well-respected industry journals like Advertising Week, Digiday, and Media Post. In the last four months, we have also announced enhancements to our audience discovery portal, an enrichment to our Safari targeting capabilities, and a significant augmentation of our AI-generated client dashboard. Each of these technological advancements represents never-before-delivered features and or capabilities by any ad tech company and are the direct result of our proprietary artificial intelligence technology.

At the end of Q2, we reported that we had delivered roughly 80 different campaigns in a year. As of the end of Q3, we are projecting to have delivered roughly 100 campaigns by year-end. Performance against client KPIs remains strong across those campaigns. As was the case in the second quarter, we also had two full-time clients retuned, in the first quarter.

As we have continued to message for the better part of two years, our industry is in the midst of a transformation that will impact every single aspect of how marketing has been done for generations. This transformation, at its foundation, is all about how our industry uses consumer identity and data for ad targeting.

This change mostly impacts the non-walled garden open web. Apple’s latest iOS release in September included, yet again, changes that will thwart conventional identity-based advertising technology. Google has already stated they will begin disabling third-party cookies in the first quarter of 2024 and have recently also stated they are working on IP blocking technology, which they plan to release within Chrome in February of 2024.

The intent key artificial intelligence technology we have developed could not be better positioned given this series of significant technological and legislative events all occurring simultaneously. As a solution for marketers who want to target the open web outside the walled gardens, we continue to have the best future-proof offering available within the market. Our AI locates and targets audiences for any product, service, or brand without identity or consumer data. It predicts just in time which channels and campaigns will perform so media budgets can be adjusted in real time. It generates detailed insights that highlight the reasons why audiences are actually interested. It generates demographical information, and it informs cable television buying in ways never before possible. I would now like to turn the call over to Alicia for a more detailed assessment of our financial performance within the quarter.

Alicia Parris

Thank you, Rich, and good morning, everyone. I will recap our third quarter financial results. As Rich mentioned, Inuvo reported revenue of $24.6 million for the quarter September ended 2023. A 44% increase or $7.5 million higher than the $17.1 million reported in the third quarter of the prior year. The highest quarterly revenue ever achieved by the company. As Rich also mentioned, this year we changed our go-to-market focus to pursue indirect channels. During the year, we launched new products and enhancement directed at these indirect customers, and as a result, the revenue mix has changed.

This year’s third quarter revenue was 88% from indirect customers compared to 55% last year. An agency customer may have multiple advertisers we can serve. Our sales team, now composed of 10 team members, has contracted with approximately 40 new customers, both direct and indirect, since the…