Ladies and gentlemen, thank you for standing by. Welcome to the Inuvo, Inc. First Quarter 2012 Conference Call. [Operator Instructions] Today's conference is being recorded, May 14, 2012. I would now like to turn the conference over to Alan Sheinwald of Alliance Advisors. Please go ahead.

Thank you operator and good afternoon, everyone, and all our shareholders. Welcome to Inuvo's first quarter 2012 financial results conference call. Joining us on the call today are President and CEO, Peter Corrao; our CFO, Wally Ruiz; and Rob Roe, our Senior Vice President and General Manager. I'd like to remind everyone that today's comments include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially from those expressed in the forward-looking statements. These risks and uncertainties will be outlined at the end of this conference call and are also detailed in our filings with the SEC. Before handing the call over to Peter, let me review how we measure our financial performance. In addition to the standard GAAP measurements, we utilize certain profitability based metrics to evaluate our period-to-period and year-over-year performance. They are EBITDA, earnings from continuing operations before interest, income tax, depreciation and amortization; adjusted EBITDA, EBITDA is adjusted for noncash compensation expenses and nonrecurring items; adjusted income loss and adjusted income loss per share. A description of the reasons for utilizing these measures, as well as the definition of them and the reconciliation to the corresponding GAAP measurements can be found in the earnings release we issued today. To comply with the SEC's guidance on fair and open disclosure, we've made this conference call publicly available via audio webcast through the Investor Relations section of our website at www.inuvo.com, and a replay of this conference call will be available for 90 days. I'd now like to turn the call over to our President and CEO, Mr. Peter Corrao. Peter, the floor is yours.

Thanks, Alan, and good afternoon, everyone. Thanks for joining us on the call today. The past few months have been busy time at Inuvo. We've achieved much in the first quarter, including our first month of combined operations and have seen improvement in both of our business segments. Much of our focus at Inuvo has been on integrating the operations of the 2 companies. Now that the integration is fully underway, our next focus is to assimilate our products and set the stage for growth in the future. We have expanded our product portfolio and can now access a more diverse set of strategic partnerships. We plan to further develop these relationships in order to realize the greatest return on a product-specific basis. By integrating and modifying our existing portfolio, we plan to deliver the most viable products into the rapidly growing mobile and tablet market space, as well as enhance our current delivery into the traditional platform. We also expand -- we also plan to expand geographically into countries not currently served. We've already begun our geographic expansion and currently serve 24 countries and offer our product in 7 different languages. Recent additions over the past quarter are Italy, Turkey and Russia. At this point, I'd like to remind everyone that the company's consolidated financial statements as of March 31, 2012 include only one month of operations and financial results of our Vertro subsidiary, as well as closing costs of the merger between Inuvo and Vertro. Revenue for the quarter was $8.8 million with $4.4 million of that amount from our first month of combined operations. I'm also pleased to announce a positive adjusted EBITDA of $212,000 for the first quarter. Now since only one of the 3 months in the first quarter included results from combined operations and…

Thank you, Peter. Good afternoon, everyone. Thank you for joining us today. My comments will be in regard to the financial results for the first quarter of 2012. As mentioned, the first quarter was unusual as it had a number of onetime financial entries associated with our merger with Vertro on March 1. For example, only 1 of the 3 months of the quarter of March had the combined operations of both companies. Also, the quarter saw charges to operations for the cost of closing the merger. And the ending balance sheet included the purchase accounting entries to record the assets and liabilities acquired in the merger. Also of note is the fact the new combined company called for new organizational structure. More streamlined than former organizations of either company prior to the merger. As described by Peter, we organize around 3 business segments, software search, publisher networks and partner programs. Inuvo today reported net revenue of $8.8 million in the first quarter of 2012, $2.2 million higher than the immediate preceding quarter and $3 million lower than the same quarter last year. In the current quarter, the publisher network segment contributed $5.6 million or 64% of the total revenue. Software search contributed $1.8 million or 20% of the total revenue and partner programs contributed $1.4 million or 16% of the current quarter's total revenue. On a go forward basis, we expect the revenue to be allocated approximately as 50% being software search and 25% each for the publisher network and the partner program segments. The publisher network segment reported $4.2 million lower revenue compared to the first quarter of last year. This segment is comprised of the Inuvo Platform, which allows web publishers to operate search-related sites to have pay-per-click sponsored ads on those sites. This segment also includes…

[Operator Instructions] And our first question comes from the line of Ryan Bergan with Craig-Hallum Capital Group.

I want to start with kind of your -- in your -- the publisher network segment continuing to see some residual impacts from the traffic situation with Yahoo!, Bing. You said that there could be some volatility going forward. I wonder if you can kind of dig a little deeper on that and adjust it further?

Sure. This is Peter, Ryan. Yes, so what's happened is beginning last year, Yahoo! and Bing began to question some of the traffic quality that was coming both through the third-party network at Inuvo and the owned and operated sites at Inuvo. As you know, that resulted in some pretty big chargebacks for last year, over $1 million, and then surprisingly, actually, it resulted in another $200,000 and whatever it was, $38,000 here in Q1, which of course reduced revenue pretty dramatically, but also caused us to take a good look at what we were doing in terms of the publisher network and the traffic that we were sending through to them. So I think we've got internally, a really good team, especially now that we've combined the 2 teams that knows how to source good traffic and knows how to source traffic that comes only from the best possible sources which we want to then put through back at our friends at Yahoo!. To do that, though, we have to kind of sort through what we've got in the thousands of publishers on the network side and what kind of traffic we were putting in to our own site, mostly through the Yellowise site. We've done that now. We think we've kind of got that revenue down to where it's going to be on a continuing basis, which is quite a ways off from where it was at the end of last year and beginning of this year. But I think we sort of hit bottom there. And even if we were to lose some more revenue, like I put it on to my script, Ryan, I don't think there's much more margin to lose as that our next largest publisher that I am frankly concerned about their traffic…

Okay, that's helpful. Now, is there going to be any additional costs that go with the buying the traffic internally, as opposed to the prior method that you would incur?

No. The prior method was to -- Inuvo, I think exclusively, I don't think any of their own buying when they were standalone, did it all through third-party buyers and agents, Ryan, and paid hefty fees to do that. Rob, I don't know, are we going to do any additions to costs? We might add a person or 2 internally.

Not [indiscernible]. But, I think its [indiscernible]

But the plan right now is to go with the team that we've got and handle all the buying internally, Ryan. So we think we can do a better job of buying by deploying our skill set, build Vertro's skill set against the buying. And secondly, we would have better margin because there's not a middle man to pay, we do it ourselves. And for now, it looks like we'll use our existing team led by Rob to do all of that buying. And not add an additional people to it.

Got you. I follow you. Okay. I want to talk on the partner programs. Versus my model, the revenue there was down about $850,000 compared to what we were modeling. That could be an aggressive forecasting in our part for the quarter or is there something else that maybe you didn't quite see the revenue impact that you were hoping for? I'm wondering if you could just dig in a little bit further on your -- on the -- how that segment rolled out in the first quarter.

Ryan, no. I think that wasn't so aggressive as much as it was -- a lot of the partner program revenue was coming out of the old Vertro, not out of the old Inuvo. So you ended up not being able to count the revenue because of the 3-and-1 period, the 3 months of Inuvo and 1 month of Vertro. So let me just tell you, kind of on these big piece parts how that business is going. So retail affiliate programs are as strong as they've ever been as a stand-alone inside of there and growing. Our display network, this month we'll do over $400,000 in displays, so you're talking a run rate of $1.2 million plus at display alone, which has fabulous margins for us. Most of that display is on the homepage and you'll recall, Ryan, that only several months ago, we had almost -- we didn't have a homepage. When did we actually introduce that, January, Rob?

The display?

January, February, something like that?

It was end of Q4 I believe.

Right. So December, January is when we introduced it, so that's all net new revenue, Ryan. We just didn't get to report it because 2 of the months, Vertro wasn't in it. The Kowabunga program, no revenue to be had yet, it only launches May 21. But I'm frankly pretty excited about our test in North and South Carolina and think that we really could be the #1 consumer alternative, or only alternative, frankly, to Deal of the Day, email delivered sort of Deal of the Day programs in rural America, which round figures makes up 20% of all of the households in America. And then our BargainMatch product really was doing no revenue before we merged the 2 companies and we're on track to do more than $150,000 in BargainMatch this month alone. So I'm frankly pretty darn proud of what we're doing with the partner revenues. I think it's nowhere but up. And even though we've had falloff, to think that we're 50% search and 25% partner revenue today and 25% inside the publisher network and are still, with that much falloff in the publisher networks, still able to deliver EBITDA positive and still be able to talk about growth quarter-on-quarter. I couldn't feel better about it.

Great. How about headcount? How has that changed since you gave your merger update about a month...

Our headcount is down actually a little bit, I think we've got 45.

45.

45 people as of today and we don't anticipate any, really, any increases or decreases going in to next quarter. Rob's looking at bringing on one developer I think, hopefully keep our fingers crossed during the next couple of weeks. So loosely, we're going to stick at this 45 number and then as that ties to a big piece of the $2.2 million in cost synergies that we anticipated for this year and $2.9 million on an annualized basis, we're at or ahead of that pace on both this year's cost-saving synergies and the annualized cost-saving synergies. Now, we've only had $2.2 million and $2.9 million to pull out of it so when I say ahead, we were talking about $100,000 or $150,000 on an annualized basis. And -- but still we're tracking far better than we thought we would be on that front.

[Operator Instructions] Our next question comes from line of Eric Martinuzzi with EM Research (sic) [Craig-Hallum Capital Group LLC]

I'm just curious to know, on the balance sheet, so I want to start there the -- given we've now got the 2 companies combined, we're expecting a stair step throughout the year on the top line. Does that also imply that we've based on the balance sheet as far as where the cash is right now?

The cash will be in that neighborhood but it will fluctuate depending upon our operational needs. So, for example, the accounts payable at the end of March was $10 million and we'll use some of that to bring down the -- those payables but it will fluctuate based upon the operational needs. But yes, we expect it to certainly be in the 7 digits.

Right. And the other reason that he's hedging a little bit here, Eric, is we've had some recent, really good luck on the buying side for bringing more distribution in through the ALOT network. And we haven't gone crazy with it. We're still paying for all that from cash from operations at our existing balance sheet. But of course, if we lucked into dramatically more distribution per day, we would want to take the opportunity to go get that and that would of course change the balance sheet too as we bought more of that distribution. But I think Wally said it right, we anticipate being about where we are for the rest of the year and actually increasing cash on the balance sheet as we get to late in the year. And for sure, other than that one piece which is if we luck into -- being able to buy some really big distribution on a daily basis, we don't anticipate any needs on the balance sheet beyond what we've got.

Okay. And then that's where I was headed next, actually, because the 7 million, growing to 10 million, that's pretty exciting and obviously implies about 1 million a quarter. What's the -- you talked about these new potential distribution partnerships, would these be coming on in that sort of linear like that? Or would it be lumpy in taking where you can get them with 10 million as the goal?

Well I'll answer the -- I'll let Rob answer the lumpy part, he'll get the tough one and I'll answer the more linear one. So we're increasing and been successfully increasing sort of slow as you go. Our distribution on a daily basis, right now, we're distributing on any given day, just under $100,000 and spend it in the what, 65 to 70 range I guess on a daily basis today, maybe a little more than that, a little less. I'll let Rob talk about some of the opportunities with bundles but when we get them, they would be lumpier, if you will. So up Rob, you want to talk about where we've been and maybe walk through the testing of bundles and why. And then when we get them, how we would charge through...

Sure. Eric, things have been -- I mean actually, we've had fairly smooth and steady increases both in our advertising-driven distribution and in our bundled distribution. That's because we've been taking small bites on the bundle side but every -- occasionally, we'll get a big opportunity and we'll see it in kind of a stair step increase in distribution. But generally, we're pushing on both fronts. So, hard to predict that we might -- may get a big opportunity on bundles that might push things up dramatically. Certainly over time, as we grow our population too, we also have a need to grow the daily distribution rate. So it's not really -- it will be going up as well to keep pushing that number higher. But generally, it's been smooth, fairly smooth with occasional small increases in the bundle side.

So just from your own -- from management's point of view, would you be disappointed if you're below 8 million as we have this earnings call 90 days from now on Q2?

Yes, I mean, we're -- that's the trajectory we're headed for. So certainly, we would anticipate that and we would hope for that.

See, our reason for that, Eric, has been like this 400 to 500 per month. Rob said, as the base gets bigger, it becomes a little bit more difficult to get it. But certainly we're feeling good about 10 million by the end of the year and for now, we're still growing at that clip. Now, when you get to the 8 million or 8.5 million -- last time we kind of run through this, if you recall, Eric, it gets more difficult as you get there. But we were just talking in the cab on the way down to the Alliance offices, it looks like the path to 10 million, 10.5 million live users is a pretty clear one for us and we would be disappointed on the 8 million and disappointed if we didn't get to this 10 million number by the end of the year for sure.

And remember, we're speaking in aggregate terms here, global distribution. So we've been pushing in to new markets, we added 3 new markets this last quarter. Some markets produce greater increases in the user number but of course, that doesn't always, the revenue doesn't always scale on the same level. So we would certainly trade, for instance, a lower growth in a population number if that came with greater value. So there's, mix is also important.

It's great [indiscernible].

Yes. The only thing I'd say about that, Eric, is if we were going to change our mix dramatically, we would signal that in advance. So you don't need to worry that we say, "Oh, we got the 10 million but it was all Indian consumers that are worth 1/8 of, what, domestic consumers." Our plan is to continue to grow at the same trajectory by market that we're doing it. Other than that, we are announcing new markets as we enter them like we just talked about Turkey, Russia and Italy.

I'm showing no further questions at this time. I'd like to turn the conference back to management.

Okay. Well, thanks, everybody, for joining us on the call today. We think we had a pretty good quarter. We think we did a good job of explaining to you where we're strong and where we've got our weakness. Even on our weak areas, we think we've got a good plan behind us where we can go bolster that and bring that -- bring those revenues and margins back better than they ever were inside of our publisher network. We're excited about the work we're going to do with that. We've got one of our managers, Lorne [ph] himself, is exclusively focused on fixing this with us. And we think we're off to the races and can't wait to talk to you throughout the quarter and again, at our next quarter call when we have full company to report on both quarters. So thanks for joining us on the call today and we look forward to talking to all of you soon.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.