Greetings, and welcome to the Inuvo, Inc. Investor Teleconference First Quarter 2020. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 14, 2020. I would now like to turn the conference over to Laura Blank. Please go ahead.

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the Inuvo First Quarter 2020 Shareholder Update Call. Today, Inuvo's Chief Executive Officer, Richard Howe; and Chief Financial Officer, Wally Ruiz, will be your presenters on the call. I would like to start by letting listeners know that as a consequence of the COVID-19 pandemic, both our offices in San Jose, California and Little Rock, Arkansas remain closed. We are monitoring the federal and state recommendations for reopening and expect to do so only when we feel comfortable that we have all the safeguards in place to protect our employees and their families from any potential virus transmissions among coworkers. We would also like to remind our shareholders that we filed our 10-K on Tuesday, May 12, 2020, having taken advantage of the 45-day regulatory relief provided by the Securities and Exchange Commission. We plan to file our first quarter 2020 10-Q tomorrow. Before we begin, I'm going to review the company's safe harbor statement. The statements in this conference call are not -- 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. With that, I'll now turn the call over to CEO, Richard Howe.

Thanks, Laura, and thanks, everyone, for joining us today. For the 3 months ended March 31, 2020, we delivered roughly $15 million in revenue, with approximately $13.1 million coming from the ValidClick platform and $1.9 million from the IntentKey platform. ValidClick was down 8% and the IntentKey was up 45% year-over-year, reflecting our continued focus on growing the higher growth and margin potential associated with the IntentKey. As we had mentioned on our year-end 2019 conference call, Q1 is typically our weakest quarter seasonally. Adjusted EBITDA in the first quarter was a loss of $1.4 million. Now this adjusted EBITDA does not include a $500,000 ValidClick licensing fee that was received in the first quarter and will be recognized over time. We did not experience a material impact on our business from COVID-19 in the first quarter. We did begin to experience a significant pullback in marketing budget within the ValidClick business beginning in April and expect that to continue throughout Q2. The IntentKey was roughly flat year-over-year in April and is tracking in May above 70% year-over-year. Gross margins within the IntentKey were 49% in the first quarter, up almost 10% sequentially and up 80% year-over-year. We believe this is a positive indication of the potential of this business as it scales. Because of the impact of COVID-19 on our business, we are unable at this time to predict, with any certainty, how 2020 will play out given our business generally depends on marketing budget allocations, which themselves tend to go up or down based on economic productivity. If the economy could be generally back up by the end of Q2, we might expect, but are not counting on, our typical seasonal upswing in the second half of the year. As a result of this uncertainty, we are focusing…

Thank you, Rich. Good afternoon, everyone. I will recap the financial results of our first quarter 2020. As Rich mentioned, Inuvo reported revenue of $14.9 million for the quarter ended March 31, 2020. This compares to $15.5 million reported in the first quarter of last year. The decrease in this year's revenue is due to lower ValidClick monetization from advertising inventory sold to our largest demand partners where first quarter seasonality typically results in marketing budget reductions. The lower ValidClick revenue is partially offset by a 45% increase in the IntentKey revenue. Gross margins increased in the first quarter to 77% compared to 57% in the same quarter last year due primarily to revenue mix and to the IntentKey, where gross margins continue to increase. Gross -- IntentKey margins for the first quarter of 2020 were 49% compared to 27% in the same quarter last year. Operating expenses were $3.3 million higher in the first quarter of this year compared to the prior year, primarily due to increased marketing costs. Marketing costs are primarily traffic acquisition costs associated with ValidClick. Marketing costs were $9.6 million in the first quarter this year compared to $6.5 million in the same quarter last year due to higher cost of traffic acquisition for ValidClick. ValidClick revenue is generated predominantly from ads served to websites and therefore, has a lower cost of revenue associated with it as the expense is mostly marketing or traffic acquisition costs. Compensation expense was $2.3 million in the first quarter of this year compared to $1.8 million in the prior year due to higher stock compensation, incentive expense and to the hiring of salespeople for the IntentKey. The full-time head count at the end of March was 64, that compares with 61 in the prior year. At March 31, we…

Thanks, Wally. We are navigating our way through the economic turmoil resulting from COVID-19 and we're taking this opportunity to better align ourselves around higher value, higher margin components of our business. The IntentKey markets, as we have said in the past, is large. Our client proof points are numerous now. Our performance results have been outstanding. Our differentiation and competitive advantage is strong, and our product road map is exciting. All that is needed for this business to be significantly larger is more exposure to prospects through sales the product itself delivers. Operator, I will turn it over to you for questions and answers.

[Operator Instructions] Our first question is from the line of Ryan Meyers with Lake Street Capital Markets.

I just want to make sure I understand this correctly. You didn't see a lot of weakness in March for IntentKey, correct?

Yes. We -- actually, Ryan, what actually happened in March for us was we signed 2 very notable brands who -- the answer to your question is, no, we didn't. But -- so this is kind of follow-up to it, so this is important. We signed actually 2 notable brands. One was a well-known airline and the other one was a well-known hotel. And neither of them started their program, they paused them. So they're still clients of ours but they're paused because as you can -- with those 2 clients, in particular, that's probably the industries that have been impacted the most. But we did not see any impact of the IntentKey, other than those 2 clients that we had expected to be in Q1's numbers, right, for March. So that was the impact. It's the loss of the revenue we were expecting from them. And I think as I said in my script, April was -- we did see an impact, and revenue year-over-year for April was flat. But May, we already have commitments for, as I said in my script, I don't know, 70% year-over-year upwards.

Okay. That's helpful. And then you guys announced last call that you would freeze hiring across the company. So when do you guys expect to kind of ramp this back up and get some sales reps out there?

We're going to wait, I think, like everybody else is and see what is the government's plans both at the federal level and the state level to reopen the economy. And if we see that happening, then we'll hire some more salespeople, but it doesn't make a lot of sense for us to hire trained salespeople who, for the most part in our business model, are on the road in front of prospects, while the country is still working from home. So that's why we paused that.

Sure. Yes. And then what have you [ heard ] from some of your bigger advertising partners as far as what sort of recovery they are expecting?

It's hard for us to gauge that -- like we said on the call, the ValidClick side is a better representation, I would say, of the market, the country because the marketplace itself is much larger. And we've definitely seen, on average, some pullback there. So that's telling us that people are doing what you typically see in the economic downturns, they're holding their budgets and waiting for the -- I guess for the storm to pass. And that's why I said in my script that it's hard to predict what will transpire as a result of the COVID and the government -- and the economy opening or not opening because if it opened back up, and we sort of went back to some semblance of normal, you'd expect those budgets to come right back in, like they always do, hard in Q3 and Q4. As it relates to the IntentKey, the -- it's -- we're not really seeing it. We're seeing it sporadically in some clients, but the growth of the IntentKey is such that -- and the pipeline is such that we're still seeing growth, right?

[Operator Instructions] And I'm showing no further questions at this time.

Okay. Thank you very much, operator, and I'd like to thank everyone who joined us today on the call, and we appreciate your continued interest in our company.

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your line.