Good day, and welcome to the Inuvo Incorporated 2014 second quarter conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Alan Sheinwald with Capital Markets Group, LLC. Please go ahead sir.

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the Inuvo second quarter 2014 shareholder update conference call. Mr. Richard Howe, 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. 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 as 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 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. Well, with that out of the way, I'd now like to congratulate management on another very successful quarter, and introduce Mr. Richard Howe, CEO of Inuvo. Rich, the floor is yours.

Thank you, Alan, and thanks everyone for joining us today. It's been a busy and exciting time in Inuvo, and I'd like to review some of the highlights of the quarter ending June 30. I'm very pleased to report that Q2 was another profitable quarter, delivering $382,000 of net income or $0.02 a share. To the first half of 2014, we've already delivered $1.1 million in net income, more than double the net income delivered in the entire fiscal year 2013. And it may be interesting to note that on a cumulative basis, we've been GAAP net income positive over the last seven quarter period. We expect this trend to continue throughout the remainder of the year. At the beginning of 2014, we reiterated our strategy to transition away from our toolbar product. The execution of that strategy, which began in 2013, meant that for 2014 revenues might decline on a comparative basis to 2013, but profitability and cash flow would be greatly improved. We had expected Q1 2014 to be the point at which our new growth-focused initiative would reach scale and begin to outpace the topline revenue decline associated with the transition. I'm pleased to report that revenue growth has in fact paced as we had planned. In Q2, we delivered nearly $11 million in revenue. That represents an 8% growth rate over the prior quarter and signals a crossover point, where the growth and new initiative is now exceeding the clients associated with the toolbar. We currently expect revenue to continue to grow steadily throughout the remainder of the year. July unaudited revenue is expected to be approximately $4 million. For the remainder of the year, we expect the toolbar product to run between 1% and 3% of monthly revenue. It was 3% in July. Sequential growth…

Thank you, Rich. Good afternoon. Thank you for joining us today to review the company's financial results for the second quarter of 2014. Our 10-Q as of June 30 will be filed with the SEC and be available this afternoon. Inuvo reported revenue of $10.9 million in the second quarter of 2014 compared to $10.1 million in the first quarter of this year, and compared to $13.1 million in the second quarter of last year. $5.6 million came from the Partner Network and $5.4 million from the Owned and Operated Network. The Partner Network delivers advertisements to our partner's websites and applications. The $5.6 million reported by the Partner Network in the second quarter of this year was 35% lower than the same quarter last year, but 2% higher than the first quarter of this year. The revenue decrease in the current quarter compared to the same quarter last year is due in part to the planned program we initiated in the fourth quarter last year that was designed to improve overall traffic quality through the deployment of technology and the enforcement of publisher contract. The result of these changes was lower revenue compared to last year, but higher revenue per click due to better quality. The Owned and Operated Network, which delivers advertisements to the ALOT branded websites and applications that Inuvo designs, builds, and markets, represents 49% of the company's total revenue in the current quarter. The Owned and Operated Network reported $5.4 million of revenue in the second quarter of this year, a 16% increase over the same quarter of last year, and a 15% increase over the first quarter of this year. The increases are in spite of lower revenue in the segment due to our decision to transition away from the toolbar product. The toolbar…

Thanks, Wally. We had a positive second quarter and we're off to a great start for the first half of 2014. We remain excited about our prospects for the remainder of the year. Let me now summarize what has been said today. Owned segment of the business grew sequentially, but more importantly sequential growth signals a crossover point, where the new initiatives are outpacing the reductions associated with the toolbar, which now represents 3% of revenue. The sites and mobile apps business grew 31% sequentially and has had a compound growth rate of 9.5% per month over the past 12 months. This business is up 154% over the same quarter in 2013. Revenue from mobile sources in Q2 was greater than 40% of our topline. Now, considering we entered 2014 at 15%, this represents a significant and positive shift in the business. Net income for the first half of the year was $1.1 million, already more than double the net income delivered in all of 2013. And finally free cash flow was strong in the first half and materially improved over the comparable period in 2013. Looking forward to the second half of the year, we expect revenue to exceed the first half and profitability trends to continue. And perhaps, before I turn the call over to the operator, I would like to remind you that we also added in the quarter an exceptional new board member. Bill Conner brings an incredible background in telecommunications, softwares and service, marketing, and is himself an accomplished operator. Having recently and very successfully sold his Entrust business, we had a rare opportunity to catch Bill at just the right time. I expect Bill to be an instrumental part in helping us refine our strategies. Bill has already demonstrated his commitment to a new role through an ownership in the company that now exceeds 1%. With that, I will now turn the call back over to the operator for questions-and-answers.

(Operator Instructions) And we'll take our first question from Eric Martinuzzi from Lake Street Capital Markets.

Thanks for taking my question and congratulations on the good progress in the quarter. That growth that you're seeing there on the Owned and Operated side, are you seeing it -- you're obviously seeing it into the mobile side, but are you seeing the same on the non-mobile parts of the business? Is it also strong or is it all coming from the mobile?

I'd say the line share of the growth is coming from mobile, Eric.

And is it any particular application partner or just you're figuring out which mobile partner is -- sorry, which mobile apps are working best?

So from an operating perspective, practically we've been designing the entire environment to support our mobile audience. From a marketing perspective, we are equally targeting, if you will, mobile audience. So it may not be all that surprising that the mobile number there, are so impressive. Well, it's that way, because we're targeting it that way. We want that audience and we're designing for the audience.

Now, you mentioned that the July revenue, I think you said it was at a $4 million run rate unaudited. Is that correct?

That is correct.

Is there any seasonality in the business that would cause that to decline in August or September?

Not typically in the third quarter.

And then on the gross margin side, you've been talking about a 52% to 55% gross margin expectation. You're able to put up the 57% number. Is that sustainable?

We think that we said in the first quarter that we'd been going back hit to historical rate, because the first quarter was fairly high gross margin. And yes, we think that the rate that we're at now in Q2 is sustainable. Yes.

And then just on the OpEx side, you did mention that you expect the market cost to increase and the compensation cost to increase. Can you get a little bit more specific in that, just given what we saw here? You've been running now, I guess there was a $5.8 million -- $5.7 million, $5.8 million. Is this something that jumps up 10% sequentially or is it going to be more modest than that on those two growing expense lines?

I think the marketing cost are going to grow in the very similar relationship to revenue that you've seen in the past, so I don't think that's going to be out of line. The compensation to grow should -- it will grow a little bit from where we are at now, but there will be some steady growth, because the company is growing and we're going to need additional employees to help fuel that growth. But you're not going to see an unusual spike or anything like that. And the SG&A, I think that you're going to see is going to be rather flat.

Our next question will come from Howard Halpern from Taglich Brothers

Congratulations guys. Great quarter. My first question relates I guess, to the hiring. How many new employees did you have in Q2? And what do you expect for the balance of the year.

Right now we have, at the end of June we have 38 employees. So we brought on about two or three employees during the quarter in Q2. And we're probably going to see that rate or a little bit more into Q3. So it's not, like I said before you're not going to see a big spike, but you are going to see a gradual increase in compensation expenses associated with that.

And would it be possible for you to, on the Owned and Operated side to go through the seven and rank them in term of average daily revenue generation for the quarter?

We don't disclose, Howard, the individual contributions and revenue from the seven sites, but I'll speak more generally to this, and I think, I'll try to answer the question as best as I can in light of that. So when we went down this path with this business unit, we had a design construct in mind and the construct was every new vertical we enter, we should be able to achieve a revenue run rate somewhere around $25,000 to $30,000 a day, which is roughly $900,000 or $1 million, if you want to round everything up, say about a $1 million a amount. And of course it takes time to build up that kind of revenue stream. What I will say is that the first two sites that we launched, the very two first two verticals, which was our local vertical and our health vertical are both exceeding our underlying construct. The remainder of the sites are all making progress towards that goal and we're pleased with the progress overall.

And in terms again of the marketing cost, I know they're going to go up incrementally, but like the two sites, that your first two sites, have those marketing cost stabilized or gone down, and then there is sort of a reallocation to the new site with maybe some added marketing cost?

So the way I want to think about looking at this is, if you're trying to build an audience like we are, a substantial audience in today's day and age, you got to spend some money into marketing. I think everybody probably realizes that that's how it's done. So no matter whether you'd be selling out a website or you're selling a product, you got to find an audience for it. The way that typically manifests itself is you spend some money and with any luck you don't loose your shirt while you're trying to build that audience. And if you're being successful at it, your margins should increase steadily, because you're getting more people coming to the site on a regular basis. I would say that that's typically the way to look at it. With the more mature sites, we actually see margin expansion. If we're seeing margin expansion there is no reason for us to stop spending money, particularly if that margin expansion is positive, which it is by the way, with the two sites we're talking about. In fact, it's incumbent on us to go ahead and spend some more money. We're making money, so why not, and attract an even wider audience. With the newer sites, you tend to go in a situation where you're running a loss at first, and then it starts getting better, and it starts getting better, and hopefully it starts getting better, and depending upon the sites design, the content, all these sort of peripheral things that you do to make sure you have to operate a positive environment. And then they get positive and you keep going from there.

And it appears there are no further questions at this time. Mr. Howe, I'd like to turn the conference back to you for any additional or closing remarks.

All right, thank you, operator. I'd like to thank everyone who joined us on today's call. We appreciate your continued interest in Inuvo and we look forward to reporting our progress over the coming quarters.

This concludes today's conference. Thank you for your participation.