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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?

Operator: Thank you, presenters. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Kinstlinger of Alliance Global. Your line is now open.

Brian Kinstlinger: Can you talk about revenue growth in terms of new logo revenue versus increased wallet share from existing customers, at least at a high level?

Rich Howe: Well, I mentioned that we signed some new brands up in the quarter. And the Lion’s share of revenue is recurring again this year. I don’t think we provide that have provided historically that split, but that’s the answer, Brian.

Brian Kinstlinger: Well, I guess, as you look at the last four quarters of customer additions, which that will be part of my next question, is that a meaningful piece to revenue? Is it 10% of revenue comes from new customers at in the last four quarters? Is it a much smaller share given they’re generally smaller new programs and be trying to gauge the contribution without exactly?

Rich Howe: Yes. I’d have to go look at the numbers myself. But I can do some mental math in my head just based on what I know. And it’s probably 10% to 20% is the new piece.

Brian Kinstlinger: Great, great. And then can you guys provide you added three customers count today versus last year? And then I know you mentioned conferences more advertising, more press coverage. All great things you’ve talked about getting your brand out there and you clearly are doing everything to do that. Are you able to identify which avenues of marketing are driving more success in which maybe — are having less success early on in these changes in these new avenues?

Rich Howe: I don’t think we’ve provided specific client counts in the past and I don’t have them at my fingertips right now. I think we’ve generally provided some sense of how many clients, let’s just say, make up the agency and brand section. So we’d have to take that up afterwards, Brian. As it relates to the marketing activities, while we see — we’re kind of doing three things to support a field sales team which is primarily the method through which we closed the deals. One, I mentioned in the script, which is the portal that we created is itself a lead gen source us making our AI available online for anybody to use, does solicit input. So that’s one avenue. The second is just we have found conferences to be useful, probably because you can meet more people in one place than hand-to-hand combat in the field.

So those are good sources of leads for us. And the third is just being picked up, more generally, which as we’ve said has accelerated in the last year, mostly because the end of the cookie approaches. So more media outlets are hunting around, interested in two things, one, anything with artificial intelligence tied to it, which clearly we’re a good candidate for. And the second is, yes, what’s going on with, the cookie story in advertising. So those three things are all done to try to make our brand awareness easier for our salespeople in the field.

Brian Kinstlinger: Great. And then within your existing customer base, where they’ve already tested and are using the technology. What are they communicating about their future plans in a world without cookies and without the ability to track consumers? And is, there a concern and the reason they don’t scale so much larger? Because I know their wallet sizes are larger. Is it the size of your company? Is it not allowing you shift away from other ad-tech companies? I’m just trying to understand while you have fantastic growth, it sounds like you’re solving a problem. Others aren’t solving. So I’m wondering what the reluctance to use more is if they already understand your technology?

Rich Howe: I think size of our company — size of anybody’s company has an impact, particularly the larger the client is, so that definitely has an impact. But I don’t know that that’s a new phenomenon with Inuvo. I mean it’s been the same with every company that started. So that does exist and it’s real but it’s no different for us than it was for anybody. The second question, part of that question, I think, is also a good one. Generally, what we find is the marketplace itself is less aware and knowledgeable about the underpinnings of how people actually do get tracked around the Internet than we might want them to be. A consequence of that is a lack of a thorough understanding of how that all works leads some potential prospects to be complacent in the decisions they’ve already made, where they’re getting input from existing vendors who tell them the problems going to be fixed in some other way.

So I think it’s a combination of those two things that are still in front of us. And it’s all it’s kind of the same, Brian. It’s like there’s always a certain subset of people who are early adopters. And then there’s everybody else to wait until it’s already happened. And then they start scrambling around trying to find a solution that works. That’s not a general statement because obviously, some people are working on this. But I will tell you, some people are working on the wrong problem, right? And so that happens too, right? They’re convinced that there’s a certain path that’s going to yield the right outcome, and oftentimes, it won’t. There’s a lot of that going on.

Brian Kinstlinger: You mentioned a plan to hire more salespeople. Can you talk about how many direct sales folks you have and where you hope to end the year at?

Rich Howe: You think we’d know the exact answer to this by now. I think it’s been asked a few times, Brian. So I don’t know what the exact number is and I’d rather give you the exact number like what’s in that organization. So maybe Wally can follow-up and tell you exactly what it is, you go to accounts because we’ve been hiring and some people we’d let go. And so I don’t know where the net is on that right now.

Brian Kinstlinger: Okay, thank you. All right. I’ll get back into queue. Maybe another question or two.

Operator: Thank you so much. Your next question comes from the line of Jack Codera of Maxim Group. You may now ask your question.

Jack Codera: Hi, congrats on a solid quarter. This is Jack Codera calling in for Jack Vander Aarde. I wanted to touch on the DSP stuff. So in early March, you put out a press release announcing the self-serve availability of the [indiscernible]. I was wondering if you could give any additional color. How has this progressed? How many platforms are you on? Any additional color there would be helpful.

Rich Howe: Any major DSP can access our AI and run campaigns against it. There’s a lot of DSPs, but is it the ones that matter, there’s no challenge with that. We have — we’ve built an integration for that. It’s still slow going. I mean we only really had what I would call beta clients. Go ahead. Was there a question in the middle there or should I just continue? I guess I’ll continue. We really only started materially signing beta clients for the self-serve in 2023. So this is the first year we’re actually populating a sales force to go do it. In fact, we hired our first salesperson to go do that I believe, in the first quarter of this year.

Jack Codera: Okay. That’s actually really helpful. And then kind of take the Google approach again, given that they started phasing out third-party cookies. Can you give any other additional color, how is this impacting conversations on the consumer decision-making side? Are you about to close deals and this is a major lever. Can you give any additional color there?

Rich Howe: Yes, like anything, somebody is large and successful and powerful as Google is. It can complicate peoples’ decisions and confuse potentially peoples’ decisions. And I think that’s probably the best way to look at it. Again maybe pointing back to what I said earlier in that there’s a lot of buyers we encountered who legitimately in our opinion, don’t understand all of the implications to their business. They can be maybe misread something like this and think, oh, it’s like this problem is not going away at all. In which case, I can just keep going with what I’ve got. That’s one potential thought that could go through the minds of someone, right?

Jack Codera: Okay, that’s helpful color. Congrats again for the quarter. I will hop back in queue.

Rich Howe: Thank you.

Operator: Thank you so much. [Operator Instructions] Your next question comes from the line of Jon Hickman of Ladenburg. Your line is now open.

Jon Hickman: Hi, could you — according to kind of my historical numbers and maybe I’m wrong here, but it seems like the media buying, the marketing expenses were somewhat higher than they have historically been for the level of revenues. Was there something going on in the first quarter that made that happen?

Rich Howe: Wally?

Wallace Ruiz: I think it’s — no, if it’s higher, it’s just the cost of media. I mean it’s, supply and demand. But no, there was nothing going on in the quarter that would increase the media spend, more than the prior quarters.

Jon Hickman: Okay, thank you.

Operator: Thank you so much. And we have a follow-up question from Brian Kinstlinger of Alliance Global. Your line is now open.

Brian Kinstlinger: Can you help us with what the expectation you might have or the impact on the election on your business? In which quarter also, if there is an impact, do you expect to begin to see it? And how will we see that?

Rich Howe: At this point, Brian, and we may have answered this before. But there will be virtually no impact from the election on us, only because we purposefully try to stay away from the election area for now. There’s plenty of other opportunities for us. With that being said, I should be clear about this. We have run some smaller states in local election media. But as a rule, as a company, it’s not an area that we’ve chased actively rightly or wrongly. We just haven’t. So I don’t expect any impact on us one way or the other from that.

Brian Kinstlinger: Understood. Thank you so much.

Operator: Thank you. [Operator Instructions] And there are no further questions at this time. I would now like to turn the call back to Richard for closing remarks.

Rich Howe: Thank you, operator. And of course, I’d like to thank everyone who joined us on the call today. We appreciate your continued interest in our company.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect. Have a good day.