Ladies and gentlemen, thank you for standing by, and welcome to the Inuvo, Inc. Second Quarter 2012 Results Conference Call. [Operator Instructions] Today's conference is being recorded, August 9, 2012. I would now like to turn the conference over to Alan Sheinwald, of Alliance Advisors. Please go ahead, sir.

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the Inuvo, Inc 2012 results conference call. Mr. Peter Corrao, Chief Executive Officer, and Mr. Wally Ruiz, Chief Financial Officer of Inuvo, will be your presenters on the call today. Before we begin, I'm going to review the company's Safe Harbor statement. 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 a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties which may cause actual results to differ from those anticipated by Inuvo, Inc at this time. In addition, other risks are more fully described in Inuvo, Inc's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. With that, I would now like to congratulate management on a strong quarter and introduce Mr. Peter Corrao, CEO of Inuvo. Peter, please go ahead.

Thanks, Alan. Thanks, everyone, for joining us this afternoon for the second quarter 2012 Inuvo conference call. Management is pleased with the financial results and strategic initiatives that the company has achieved during the quarter. We increased overall revenue to $12.9 million and gross profit to $6.8 million and we anticipate continued quarter-over-quarter top line growth going forward. The company has already announced $4.6 million in revenue for the month of July and expects the third quarter total revenue to show significant growth compared to our Q2 numbers. We believe that all the one-time expenses related to the merger have been put behind us and our operations are now fully integrated. We fully expect to really hit our stride in terms of quarter-over-quarter revenue growth in Q3. We further anticipate cost savings and revenue increases will bring about increased adjusted EBITDA, an already positive number for us as we trend towards profitability. I'll now give you quick overview of the recent past and near-term future for our 3 revenue segments. Our Software Search segment revenue was $5.5 million for Q2, compared to $1.8 million for Q1 2012. As a reminder, the Vertro merger closed on mid-quarter on March 1, 2012 and Q1 2012 results are only 1 month of Vertro operations. During Q2 2012, the company was able to increase the number of Tier 1 search queries and the user base of our alOt Appbar. The total search queries from the alOt Appbar and alOt Homepage products in Tier 1 markets increased 15% in the second quarter of 2012, compared to the first quarter of 2012. This news comes on the heels of the recent announcement that alOt has alone achieved 18% live user growth in the United States, our most significant revenue generating country in the company's Tier 1…

Thank you, Peter. Good afternoon, everyone. Thank you for joining us today. My comments will be in regard to the financial results for the second quarter of 2012. This is the first full quarter of combined operations and financial results since the closing of our merger with Vertro. Inuvo today reported net revenue of $12.9 million in the second quarter of 2012, an increase of 39.7% compared to the 3 months ended June 30, last year and an increase of 46% compared to the immediate preceding quarter. In the current quarter, Software Search contributed, as Peter had mentioned, $5.5 million or 43% of the total revenue. Partner Programs contributed $2.5 million or 20% of the current quarter's total revenue and the Publisher Network segment contributed $4.8 million or 37% of the total revenue. The revenue stream from the Software Search segment is entirely search revenue from the alOt Appbar and homepage businesses. We began recognizing this revenue as of the merger date, March 1st of this year. Net revenue from the Partner Programs segment increased to 131% for the 3 months ended June 30, 2012. That compares to the same period of 2011, primarily due to revenue derived from partner programs associated with the alOt operations acquired in the merger with Vertro on March 1st of this year. This segment also includes revenue from BargainMatch, Kowabunga and the Inuvo affiliate platform. Revenue from the Publisher Network segment decreased to $4.8 million for the 3 months ended June 30, 2012, compared to $10.5 million in the same quarter last year. The decrease is primarily due to fewer number of transactions driven through our owned and operated website using the ValidClick platform. Much of this contraction was due to suspect traffic acquired through third parties. We have taken extensive measures to rid…

Thanks, Wally. In addition to all the achievements that we've experienced through the first half 2012, we expect to have additional success in our third quarter and throughout the calendar year. Our Software Search business is growing. Additionally, we have made numerous improvements to our BargainMatch platform. In addition to that, a redesigned website that is more user-friendly, we are incorporating a real-time comparison engine to BargainMatch. This will allow shoppers to instantaneously compare prices on their purchase to ensure that they are getting the best deal possible. We are also are working on improved social networking integration and engagements that will allow users to shop and share their experiences with friends. Going forward, Inuvo is protecting Bargain Match app for use on mobile environment and this should even more increase our user retention BargainMatch. The benefits of the cash-back programs are immediately evident even to the first time user due to the high rates of savings that they incur. Our intent is use our unique and proprietary direct marketing efforts and expertise to attract customers and to leverage Bargain Match to incentivize them to becoming repeat buyers on our Affiliate Network of well-known consumer outlet. These improvements should enhance our Partner Programs revenues even further. We are also really excited about our recently launched Local.ALot initiative, and we are pleased with the early results from this initiative and look forward to growing that business throughout Q3 and beyond. We are really excited with the prospects that lay ahead in 2012, and look forward to providing additional information on our operational and financial achievement. Now that the company is reporting full quarters of integrated financials, we believe that Inuvo can be more accurately modeled and more properly valued by the investment community. With all of the opportunities that surround the company and the strong growth we are experiencing in our high-margin Partner Programs segment, we believe we are currently undervalued. We believe the company is now on path to have double-digit quarter-on-quarter top line revenue growth throughout the rest of the year and we are very excited about the company's prospects, so on behalf of the entire team at Inuvo, I want to thank you all for joining us today. We look forward towards increasing shareholder value. With that, let me turn the call back over to the operator. We would be glad to entertain questions.

[Operator Instructions] Our first question comes from the line of Ryan Bergan with Craig-Hallum.

First, Peter, you had collect this contract to reach $10 million live users by year end, and then have you started thinking about goals for live users for 2013 yet?

Yes. That's a great question, Ryan. I do think we'll probably hit the $10 million by year end, so I will -- I'll try to do a little extra explanation in the script here, so we had an opportunity during Q2 and we're still limited [ph] now to get incremental really high quality users and of course they come at a higher price in the U.S. and other parts of Tier 1, so I actually thought we might go down in live users and we didn’t, stayed stable at 7.6, because revenue is up because we get so much more revenue I mean the Tier 1 live users. My anticipation is that we'll continue to be able to get those live users out of Tier 1 and with the extra money that will be flowing through then because of the lead leg on cash we'll be able to get going again towards mid of May or now middle of the year towards the end of the year on our other tiers as well, so I definitely think we'll be able to still hit numbers at our above rather $10 million by the year end. If we don't, we'll be very close, but way ahead on revenue, because the increments will be coming from these predominantly Tier 1 users instead of rest of the world, so that's for sure. Now in terms of 2013, we haven't gone forward with that, but I can tell you nothing happens at the end of the year, besides continued growth. Our best monetizing segment is everything regarding and around our ALOT live user base, so everything that spins off of that from our various partner programs requires that base to be stable and growing, so our intention would be the March right through into Q1 and beyond and to have a similar growth rate to what we've enjoyed this year, so I could apply numbers to it next quarter, Ryan, but I can assure you now it would be a continuation of the growth that we've got into Q1 and beyond for 2013.

Now you were aggressive in acquiring Tier 1 users during the quarter. Did that contribute to the cash balance being down sequentially?

Yes. Actually, we have been aggressively monetizing the Tier 1 particularly, and we have been focusing cash in that area and spending in that area. That's right, Ryan.

Is there anything more to the cash balance being down sequentially then just an aggressive spend to acquire higher monetizing users or…

That's primarily it. In fact, you remember, Ryan, I kind of boasted earlier on that we've actually on fixed operating expenses were way the heck ahead what we predicted. Only in March, when we first put the companies together, we were predicting 2.2 in calendar year savings on the fix [ph] and we are actually at 900,000 greater than that already, so we're pretty bullish on what we're doing with the fix [ph]. Look, we've got for our little company that was really only in March, we've kind of got the tiger by the tail right now, we've got revenue growing, we're on a run rate way the hell beyond what we thought it would be going back only to March when we struggled so much with our third-party publisher network, so we believe we've got the cash that it takes for their bank facility to go and grow with the company. We're going to put every dime we can to continuing to grow this thing, which is why I thought of let the cat out of the bag and our expectations for Q3 and Q4, was not giving clear guidance, but we are say we got to grow this thing double digit on a quarter-on-quarter basis and feel good about it.

Okay. Want to move on to that additional ad display unit you are showing on the alOt Homepage. Can you give us some metrics into quarter on how that was impacting the financials? Any additional metrics at this point since that point you issued the press release on the success of the ramp-up in revenue seen from a second head [ph] display.

Yes. I can tell you just generally, it's about the same. We've seen no depreciation at all in click ensuing from the homepage on search. That's good news. We've seen no change at all in rate from clicks ensuing from the homepage. That's good. Honestly all we've seen is an increase from the 2 ads. Now remember you don't get double the revenue. Thus our increase has been running like 15%, so if you are running X units was one ad, you are now getting X plus about 15%, Ryan with 2 ads, with no deterioration any place else or over [Audio Gap] there’s no incremental cost for us other than a minor internal cost for our sales guy’s commission that operates, so it's all incremental money and it looks good all the way around. Frankly we are not doing any testing any more. We have completely rolled, I believe, every lick of all of our homepages have rolled down onto 2 ads. Now one of the reasons that we think we got to stabilize on this and are comfortable in that number continuing is when we first rolled it out in some cases we were getting repeat ads. Not our fault so much as some of the networks that were coming into it, so instead of having an airline ad and a next to it perhaps a hotel ad, we had 2 of the very same airline ads, because that doesn't do anybody any good, right, so we've fixed that, and that seems to be behind us now. We've always got varying ads on the page and we seem to be holding it into 15% to 20% more output from the 2 ads. We test [ph] and we can push our guidance just 3 ads which they currently do, but that will be next before we go back to one. All is good on the 2 ad front.

Okay. I want to shift over to the Publisher Network segment. You seem to in your prepared remarks spoke much more positively this time around than you have last few quarters, were there actually charge backs in the June quarter?

No. No charge back in the June quarter, so look we had just focused it on the path with, thank god, seems to be behind us. That business was in real trouble. Wally talked about versus last year being off, I don't remember the percentage now, Wally, 40-some percent versus prior year, some big number. We've stabilized it being in the third-party portion of the Publisher Network seems as stabilized now in the $1.8 million to %1.9 million range and we are not forecasting growth there, but I wouldn't be surprised if we get some growth. It doesn't look like it's falling apart. Our traffic that we're bringing in is coming from new smaller publishers that have really good quality of traffic, so we are not getting any pushback on that. In fact, our margins in the business has kind of stabilized well at a lower level, because business is smaller, are actually better than they were [Audio Gap] falling apart of late last year and then into merger time, so that part of the business is great. Second part of our business was remember, we completely took all of the traffic out of our Yellowise business, because of suspicions about the quality of the traffic in the Yellowise business. That business went from something substantial in the old co to really nothing in the new co, but now we're rebuilding with our own traffic and our own efforts towards getting consumers inside of our local Local.ALot initiative, and I am certain we're getting only high quality traffic into that because we control it completely ourselves. There's no third-parties being put into it. That business is growing substantially, I couldn't be happier with anything in the company beyond our Local.ALot initiative and we think we will see growth there, so look we hit bottom, we built up from the bottom, we increased the margins in the business that was left and we've got a business that I believe we can grow from here and be proud of it and the traffic quality that in spite of it not have to look back anymore.

Then can you prove me with the headcount number, perhaps as of today a possible end of Q2?

I think 42.

43.

43, I was thinking 42, 43 people.

43 today? Is that where it was at the end of June?

Yes. It must be generally June, 44?

44. I think we're one down. No big redirection there, so look in terms of direction besides generally everything we’re positive that's why we are talking about it The only directional difference and I want to make sure I said is that we are doing really well with our highest quality tier. It's more expensive on a per unit to get there, but we get more output on it per unit basis to. If that has anything to do with slowing down our live user base, then so be it, but I still think we are going to provide base to this $10 million number and at the same time to have redirected towards more high quality users. Alongside to minimize our new country entrees, we want to keep doing that, but if we can get these Tier 1 users at the right rate and still get our target margin we're going to do so and I believe that we will do it at the expense ultimately still getting to our goal of $10 million and certainly aren't changing our direction in terms of growth in our live user base beyond that.

Our next question comes from the line of Eric [indiscernible] with Lake Street.

I want to revisit the balance sheet, specifically the debt part of it because it looks like the cash were perceivably unchanged down about $200,000, but on the balance sheet I was just wondering, the term and credit notes payable is the bulk of that shift, which I have calculated rising from about $5 million at the end of March to about $7.9 million at the end of June. Is that roughly $3 million rise, or is that all dedicated spending on the switch cost side or is there other things in there?

If you look, Eric, we're at $7.9 million in debt at the end of June. If you look at it at the end of December, it was approximately $2.9 million. Right? $2.9 million, so a lot of that had to do with the merger and the cost associated with the merger and the fees that were payable associated with that. Then the rest of it had to do with supporting of the search expense and the customer acquisitions expense associated with the alOt Appbar.

Okay. Then you talked about the sequential growth, but if I do the blunt instrument math with a double-digit being 10% minimum growth sequentially is that, maybe talking about at least a minimum of $14.2 million in revenue for Q3?

I only said double digit. 10 is lowest double digit, so if that's sort of works I'd be happy with that for sure, Eric.

Like I said, I am just didn't really sharpen the pen so much.

No. That's right. We think, if you've been following Eric, since the move, but we already released July's number and we are comfortably growing into August after that, so we do think that for the quarter this 10% is kind of the minimum level of double-digit growth. I just don't want to get too exuberant, because if I come and promise something greater we miss it by 1%, it looks like a miss. Right now we're on a role. We want to keep going that way.

No, I appreciate that. I took the one month and quarter rise didn't come up with 13.8, so 14.2 isn't too far from that. I follow you there. The growth sustainability in the Tier 1, which for me was the most impressive part here this Tier 1 growth. You are growing across all the business, but is there --characterize where is the focus here. Is it still pull both levers at the same time or to press harder on one than the other?

Yes. We're still pulling all levers across the 22 countries at the same time. Our effort is still against our target margin. As you know well, we target way more than countries we target more 1,500, 1,600 1,700 verticals in any one time. Each one of them has a target margin of approximately 35% is what we are trying to hit. If we can hit those margins and of course that money out now on an expectation is 35% late of course that they are modeling, if we can hit those margins, we keep spending like crazy. It just happened that we had some opportunities that were unusual in Tier 1, even more unusual in the U.S. and Tier 1, so while we put -- we kept both feet on the gas for all 22 countries, we put a little led in the U.S. portion of the gas and overspent there, but all for good. Great margins coming out of it and we were able to get it, so we did.

[Operator Instructions] I am showing no further questions in the queue at this time. I would like to turn the conference back to management for final remarks.

Well, thank you, operator. That's it for us then.

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