Good day, and welcome to the Inuvo 2019 Second Quarter Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Valter Pinto, Managing Director of KCSA Strategic Communications. Please go ahead, sir.

Thank you, operator, and good afternoon. I’d like to thank everyone for joining us today for the Inuvo’s second quarter 2019 shareholder update conference call. Today, Inuvo’s Chief Executive Officer, Richard Howe; and Chief Financial Officer, Wally Ruiz will be your presenters. 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, 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 sec.gov. With that, I’d now like to turn the call over to CEO, Richard Howe.

Thank you, Valter, and thanks, everyone, for joining us today. For the three months ended June 30, 2019, we delivered $14 million in revenue, compared to $15.5 million and $19 million for the three months ended March 31, 2019 and June 30, 2018, respectively. For the six months ended June 30, 2019, we reported revenue of $29.5 million, compared to $39.5 million for the six months ended June 30, 2018. Overall, gross margins were 59.6% for the second quarter. Lower year-over-year revenues have been in part the result of the disruption associated with the merger, which was terminated in June 2019, a planned reduction in support for certain products, and as it relates to the first and second quarters of 2019, seasonality, wherein the Q2 sequential decline has averaged about 6% over the prior three fiscal years. Given these issues, we realized that this quarter is not indicative of the larger opportunity we have in front of us, which I’ll explain later in my comments. Let me now touch briefly on the impact associated with the terminated merger and the defocusing of certain products. In total, between the time we first started merger talks and the termination of the agreement, we had incurred roughly $1.3 million in expenses and close to a year of time and energy. The majority of the revenue impact associated with the merger can be attributed to the ValidClick business. While we cannot quantify this impact, the core value proposition of the combined companies involved the integration of the IntentKey with certain e-commerce technology. And this focused shift, along with merger planning, had an impact on our core business. While the parties involved in the transaction were all disappointed, one thing did become clear as we conducted the road shows for the deal. The IntentKey, which…

Thank you, Rich. Good afternoon, everyone. I will recap the financial results of our second quarter. As mentioned, Inuvo reported revenue of $14 million for the quarter ended June 30, 2019 and $29.5 million for the first-half ended June 30. This compares to $19 million reported in the second quarter of last year and $39.5 million reported in the first-half of the previous year. The revenue decrease of approximately $5 million in the second quarter and $10 million in the first-half is primarily due to the ValidClick business, where the company was slow to adapt to fluctuations in pricing because of the disruption associated with the merger transaction that was pending during the quarter. Additionally, as mentioned, we made a decision last year for market reasons to reduce emphasis on the supply side of the business. So we could focus IntentKey resources on the demand or advertiser side, where the IntentKey data platform solution has a considerable market advantage. This resulted in a reduction of revenue in the current year compared to last year of $963,000 in the second quarter, compared to the same quarter last year and $2.5 million in the first-half of the current year compared to last year. Gross margins decreased in the second quarter to 59.6%, compared to 63.2% in the same quarter last year, due primarily to the lower revenue just described, yet not realizing an equivalent lower cost. Overall, operating expenses are comprised of marketing costs, compensation expense and selling, general and administrative expense. Operating expenses were $2.3 million lower in the second quarter of 2019 compared to the prior year, that is $10.5 million in the second quarter of this year versus $12.8 million in the same quarter last year. ValidClick revenue is generated predominantly from ad serve to websites and, as such,…

Thanks, Wally. With a merger now behind us, we have returned to our primary focus, which is to build a world-class client base around the disruptive and transformational artificial intelligence data platform that is the IntentKey. Within this product line, revenue has never been stronger, margins have never been better, RFP win rates continue to climb and performance for clients continues to exceed benchmarks. We believe the IntentKey Platform to be a unique and powerful data product built for the 21st century and anticipate, it will give Inuvo the ability to challenge existing marketing information and service providers. Our strategic plan will focus resources and investments towards scaling the IntentKey, while ensuring a stable ValidClick business, where opportunities are evaluated on a case-by-case basis. With that, I’d like to now turn the call over to the operator for questions. Operator?

Thank you. [Operator Instructions] And our first question today comes from William Gibson with ROTH Capital Partners. Please go ahead, sir.

Thank you. I wanted to delve a little bit more into the hiring process on new salespeople. Has anyone new been hired yet? And what do you think the timeline to getting each person in?

Yes. Thanks, Will. No. The answer is no new hires in our sales force have occurred. Of course, we only just closed the capital raise here over the last few weeks. And the plan was to hire one in August and then there’s a series of hires between August of this year and mid-2020 to the tune of roughly 14 salespeople. That is the plan.

Thank you. And is there anyway to take the progress on IntentKey to leverage ValidClick at all?

Yes, but we would rather focus resources towards the IntentKey and the market that it’s in, i.e., it’s better use of resources with a higher growth potential and higher margin potential, though, that’s – we can’t do everything, so we’re focused there.

Got it. Thank you.

Thank you.

And our next question comes from Eric Martinuzzi with Lake Street Capital. Please go ahead, sir.

Long time no chat, guys.

Hey, Eric.

I know it was disappointing for all parties to not be able to get the ConversionPoint transaction finished. But at least, we’ve got clarity. So let’s look forward from here. I wanted to specifically dwell on IntentKey for a moment. Certainly, given the strength that you saw in June, it’s safe to say that IntentKey was up second quarter versus first quarter. Did you – I know, you’re not commenting forward-looking. But did you disclose the IntentKey contribution in the first quarter or in the first six months?

I think I said it did $2 million of the $14 million that we did in the second quarter. We didn’t disclose what that number was in Q1, but it was materially lower. I also said that January number for the media piece was $95,000 and the June media piece was $900,000. So you can see that’s the kind of the massive growth rate that occurred there.

Yes.

With that said, July and August tend to be weaker months and we are seeing that. So, I don’t see a $900,000 July, but it’s not far off. And so, we kind of expect July and August to be a little bit lower on that business, simply because of the seasonality, because it was summer and then it should bump back up and it’s going to rise from there, again, with, hopefully on the kind of growth rate we’re expecting.

Yes. You were you kind of – you kind of answered my next question, which was that you do, in fact, expect that part of the business to be up in Q3 versus Q2, is that correct?

Yes.

Okay. The headcount, you mentioned the headcount in your press release that included both full and part-time employees. Just wondering what the comparable number was at December 31? I think your 10-K says 60, but that was just a full-time. How many full and part-time was it at the end of December?

Wally, do you know those numbers? And I don’t have those numbers off the top of my head.

Well, maybe if you could just give me the full-time for June, strip out the part-time?

Wally?

Well, let me move…

Oh, I’m sorry, I had it on mute. June, are you talking about June of last year?

No, I was – what I was trying to get was the comparable full-time employees December of 2018 versus June of 2019?

Okay. So at June of this year, we had a total of 62 employees, of which 58 were full-time.

Okay.

And in – do you have the December number, or do you need it?

Yes, I got the December number from the K, but it says 60 full-time in the K.

Okay.

Okay. And then I wanted to shift over my next question has to do with the – your commentary about break-even. You talked about getting to break-even, I wanted to make sure I understood it. Your commentary about Q3 of 2020, with that, you expect the business in its entirety to be to break through that cash flow positive by Q3 of 2020, or is that comment specific to ValueClick – sorry, IntentKey?

No, we were talking about the [Multiple Speakers] yes.

Yes. Sorry, Wally.

Yes, company overall.

Yes. Well, overall business by Q3 of 2020. And next question would be the – you did the raise in July. So can you give me a pro forma cash number and a pro forma debt number for July 31, Wally?

Sure. So yes, where we were is one second. So the debt – the notes were – in July were $1.5 million. And the bank debt was approximately $3.5 million. And what was the other question? I’m sorry?

I was looking for the pro forma cash, kind of post the raise, the net cash plus the cash you had before, but if you have the cash number for July 31?

Yes. I don’t have the exact number here. But it was about $2.5 million.

Okay. So pro forma, we’ve got $2.5 million in cash and roughly $5 million of debt. And the assumption here is that $2.5 million takes you through Q3 of 2020, is that correct?

That cash with the operating – with what we were able to do through operations, yes, and our credit line, yes.

Okay. And then, lastly, this really – that is exciting the momentum that you’re seeing in IntentKey. I know one of the appealing parts of the merger – the acquisition that didn’t go through was the ability to get the word out quicker. Are there other things you can do besides hiring of direct sales reps, Rich, to get the word out on IntentKey and what it can do for brands and agencies?

Yes. The answer to that is yes. We have – as a result of our capital constraints, Eric, really not done any significant marketing of the IntentKey itself in – the weird thing about that is, we believe we’re one of the best audience building companies in the planet, but we haven’t spent any money ourselves simply because we didn’t have it. So we do need to get ourselves out there, spend more time at events where people who could use our technology gets exposure to it. Because obviously, what we’re seeing in the field through our salespeople is, we’re winning business at a pretty nice rate when we get in the room and we show people what it is that we have. So we’ve got to do more of that, not just through direct sales, but through our own marketing publications, et cetera, get the word out. No, we’re not known.

Understand. Thanks for taking my questions and good luck.

Thanks, Eric.

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

All right. Thank you, operator. And I’d like to thank everybody who joined us on today’s call, and we appreciate your continued interest and look forward to reporting our Q3 results sometime in November.

And this does conclude today’s call. Thank you so much for your participation. You may now disconnect.