Yahoo Finance Inuvo, Inc. (AMEX:INUV) Q1 2024 Earnings Call Transcript
Inuvo, Inc. (AMEX:INUV) Q1 2024 Earnings Call Transcript May 8, 2024
Inuvo, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen. Welcome to the Inuvo, Inc. First Quarter 2024 Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. And this call is being recorded on Tuesday, May 7, 2024. I'd now like to turn the conference over to Natalya Rudman of Crescendo Communications. Please go ahead.
Natalya Rudman: Thank you, Luo [ph], and good afternoon, everyone. I'd like to thank everyone for joining us today for the Inuvo's first quarter 2024 shareholder update call. Today Inuvo's Chief Executive Officer, Richard Howe; and Chief Financial Officer, Wally Ruiz will be your presenters on the call. We would also like to remind our shareholders that we will file our 10-Q with the Securities and Exchange Commission this afternoon. Before we begin, I'm going to review the company's safe 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 Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties and actual results may differ 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 risks and 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 U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. 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 reference to non-GAAP measures. The company believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the 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, Rich Howe. Please go ahead, Rich.
Rich Howe: Thank you, Natalya, and thanks, everyone, for joining us today. We are pleased to report that for the quarter ended March 31, 2024, we delivered a strong 44% year-over-year quarterly growth with $17 million in revenue. This builds on the 32% growth rate we experienced in the second half of 2023 and provides us with continuing confidence in growth expectations for the remainder of the year. Our financial goals as a corporation have not changed. Our objective remains to grow revenues above $100 million annually, which is approximately the revenue level at which we expect to become adjusted EBITDA and free cash flow positive. As Wally will point out in his summary of the quarter, we also saw improvements year-over-year in adjusted EBITDA and free cash flow.
We aren't yet where we want to be, but we are on the right path. In the first quarter, the revenue split was 16% for agencies and brands and 84% for platforms. We tend to lead into our platform relationships in the first quarter where the number of end clients is larger and because the agencies and brands tend to still be reviewing annual budgets in the first quarter. We generated $165,000 in revenue from the newer higher margin products we discussed on the year-end call in the first quarter. What I'd like to do now is spend my time bringing you up to speed on our industry, our products, and our clients. Let's begin with the industry. In the first quarter, Google delayed again the elimination of third-party cookies within their Chrome browser.
This is the third time Google has delayed this inevitable change. The takeaway from this delay is how dependent the advertising industry and by extension, the Internet is on the use of these cookies. As we have mentioned on previous calls, there are virtually hundreds of companies that serve the advertising industry whose business models have been built around and depend on these cookies and the consumer information that these cookies provide access to. These are the very companies lobbying to delay this chrome related change and in many ways, a signal of just how far ahead Inuvo is of these advertising-related competitors and indirectly how serious an issue this is within the advertising industry. Google has been working hard to satisfy these positions, having created the Privacy Sandbox as an alternative approach to the use of third-party cookies within Chrome.
The IAB, which is the industry organization that provides advertising standards, has been testing along with no less than 65 companies this new approach. The first task force report released earlier this year stated that most of the necessary advertising use cases were either explicitly not supported or had been degraded to the point of being untenable. Our position remains that there is no turning back from a future devoid of the technological mechanisms that have supported identifying and tracking consumers around the Internet. Apple put the nail in that coffin when it introduced intelligent tracking prevention into its browsers to 2017 when it blocked third-party cookies in 2020 and when it introduced app tracking transparency in 2021. They have subsequently embedded into their browsers many other features that prevent determining a consumer's identity.
And as we may have stated in the past, Safari now holds 55% of the U.S. mobile browser market share. And despite the recent delay for Chrome, we observed that only 33% of the remaining third-party tracking cookies in circulation are actually useful after one day. You simply can't track people around the Internet or measure the actions they are taking when their cookie tracker is no longer stable. Let's shift now to products and clients. In 2023, we made significant progress towards being able to widely distribute a self-service version of our artificial intelligence. This was a natural evolution of our managed services business model where we typically use existing campaign management systems powered by our AI to deliver media services to our clients.
What we haven't discussed previously was that a part of this exercise, we also significantly re-architected the foundation of our AI. We wanted to not only provide a simpler way to deploy the audience selection and targeting capabilities, but also an easier way to access the rapidly expanding knowledge and insights our AI possesses. While the work for this is ongoing, we ultimately have a vision that would allow third-parties to use an API into our AI from which they themselves could build applications. While it remains very early in our efforts, we have reason to believe because of our own internal usage that the knowledge our AI possesses could, for example, be predictive of all sorts of future events or even things like product sales. This new foundation for our AI could open new use cases for the insights generated by our proprietary AI.
Our three largest client categories remain auto, retail, and technology. The retail client we referenced signing in our year-end call is scaling. And we've had several similarly larger prospects in our pipeline. Within the quarter, we are seeing an acceleration in requests for proposal demand. Our performance for existing clients remains strong. And we signed three new brands in the quarter. We continue to hire new salespeople. We've also had an expansion in the clients we serve within the non-profit sector. Industry conferences remained a great place to generate leads. And we've already attended seven of those so far this year. Concurrently, we continue to gain more brand recognition. And in the quarter, we had roughly 25 Inuvo media mentioned.
We recently made a significant update to our portal, which, as you know, is a scale-down version of our AI for public consumption. This portal also serves as a source of leads for Inuvo. The ability for our AI to generate audiences instantly means we can message prospects on LinkedIn and immediately send them a model, representative of the audience associated with their product servicer brand. This kind of instantaneous audience generation has never been possible before. We've seen a growth in both our LinkedIn followers and in the consumption of our LinkedIn newsletter. This new version of the portal and our client-facing AI can now better and more timely associate transient trends within audiences in a manner that has never been possible before.
Today, for example, we posted on LinkedIn how the Inuvo AI was able to predict both the sentiment and audience changes associated with the bourbon brand, Woodford Reserve, recognizing that they were a premier sponsor for the once yearly Kentucky Derby. In that post, we showed the influence of the Derby on Woodford brand according to our AI. You can access that post at the Inuvo company page on LinkedIn. The ability to understand and generate the influence of events on brands in real time has never been possible before with this level of accuracy. At this time, I would now like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter.
Wallace Ruiz: Thank you, Rich. Good afternoon, everyone. I'll recap the financial results of the first quarter of 2024. As Rich mentioned, Inuvo reported revenue of $17 million for the first quarter of 2024 that compares to $11.8 million for the same period last year, that's a 43.7% increase year-over-year. The higher revenue this quarter compared to the prior year was due to accelerating growth with our largest platform client and to a new platform client we signed on at the end of last year. This accelerating growth with our largest platform client is a result of the strategic initiative brought to market in 2023 last year, which we mentioned in our last call. Strategically, we continue to focus on scaling revenue from platform clients and signing new midsized agencies as well as brands directly.
84% of the first quarter of 2024 revenue was from platform clients and 16% from agencies and brands. That compares to 66% from platform clients and 34% from agencies and brands in the first quarter of last year. For the full-year of 2023, approximately 80% was from platform clients and 20% from agencies and brands. Cost of revenue was $2.1 million for the first quarter of 2024 compared to $3.2 million for the same period last year. The increase in the cost of revenue for the three months ended March 31, 2024, as compared to last year was due to revenue mix, where revenue from platform clients were a greater percent of the overall net revenue in the current quarter. Cost of revenue is primarily composed of payments to advertising exchanges that provide access to digital inventory where we serve advertisements.
To a lesser extent, the cost of revenue includes payments to website publishers and app developers that host advertisements. Gross profit improved in the first quarter of 2024. We reported a gross profit of $14.9 million compared to $8.7 million in the same quarter last year, a 72% increase. The gross profit margin in the fourth quarter of -- on the fourth quarter of last year increased 87.7% compared to 73.1%, actually, that's not right. The gross profit margin in the first quarter of this year increased to 87.7% compared to 73.1% last year. The higher gross margin in the current year as compared to the prior year is due to the change in revenue mix, where a greater percentage of the revenue this year was from platforms, which has a higher gross margin.
Operating expenses for the first quarter of 2024 totaled $17 million compared to $12.1 million for the same period last year. The increase was due to higher marketing costs. Marketing costs were $13.1 million in the first quarter of this year compared to $7.1 million in the same quarter of last year. Marketing costs increased primarily because of media expenses associated with higher revenue from platform clients. Compensation expense for the first quarter of 2024 was $3.2 million compared to $3.4 million in the same quarter of last year. Compensation expense was lower for the first quarter this year compared to last year due primarily to lower commission expense and lower incentive accrual expense, partially offset by higher payroll. Our total employment, both full and part-time was 93 in the first quarter of this year compared to 85 at the same quarter of last year.
General and administrative expense for the first quarter of this year was $688,000 compared to $1.6 million in the prior year. General and administrative costs were lower in the 2024 quarter compared to the same quarter last year, primarily due to an adjustment to expected losses from accounts receivable for a balance that was due from a former client that now pays consistently and has significantly reduced its outstanding amount owed. Net financing expense was approximately $20,000 in the first quarter of 2024 compared to an expense of $19,000 in the same quarter last year. There was no other income or expense in the first quarter of this year. And that is compared to $14,000 of other income in the first quarter of last year. The income last year was due to an unrealized gain in trading securities.
Net loss improved in the first quarter of 2024 was $2.1 million or $0.02 loss per basic and diluted share compared to a net loss of $3.4 million or 3% -- or $0.03 loss per basic and diluted share for the same period last year. Adjusted EBITDA loss also improved in the first quarter of 2024 where it was a $1 million loss compared to $2.3 million loss in the same period of last year. On March 31, 2024, we had cash and cash equivalents of $2.4 million. In addition, we maintained a $5 million working capital line of credit, which has no outstanding balance. Our capital structure is composed of 139 million common shares outstanding, 8.4 million employees restricted stock units outstanding and 108,000 out-of-the-money warrants. The company cut its cash burn by 50% in the first quarter compared to the first quarter last year and by 27% compared to the fourth quarter of last year.
We expect to continue to see improvement throughout 2024. Now with that, I'd like to turn the call back over to Rich.
Rich Howe: Thanks, Wally. We had a year-over-year first quarter growth of 44%, which is a strong start to the 2024 year. From a development perspective, we continue to innovate in a manner that makes the bar high for our competition. From a market perspective, we continue to increase the size of our go-to-market and marketing organizations to both increase the awareness of our solutions and our pipeline of prospects. As we have mentioned in previous quarters, Inuvo's financial metrics begin to change at a threshold of roughly $100 million in annual revenue. At this level, we anticipate gross margins would absorb much of our fixed costs and therefore generate positive adjusted EBITDA and cash flow. I will now turn the call over to the operator for questions. Operator?
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