Good day and welcome to the Inuvo Inc.'s 2020 Year End and Fourth Quarter Financial 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.

Thank you, operator. Good afternoon. I like to thank everyone for joining us today for the Inuvo fourth quarter and full year 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'd like to start by letting listeners know that as of today and as a consequence, the COVID-19 pandemic, our office in San Jose California remains closed. The Little Rock facility will continue to rotate small groups in and out of the office on a voluntary basis in a manner that permits the potential risk of infection through interaction with colleagues. We would also like to remind our shareholders that we anticipate filing our 10-K with the Securities and Exchange Commission this evening. Before we begin, I'm going to review the company's Safe Harbor statement. Statements in this conference call that are not description 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 using this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions, as it relates 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 of public filings with the U.S. Securities and Exchange Commission, which can be reviewed at sec.gov. With that, I will now like to turn the call over to CEO Richard Howe.

Hey, thanks, Valter, and thanks everyone for joining us this afternoon. For the three months ended December 31, 2020, we delivered roughly $12.9 million in revenue, which was up 40% sequentially. And yet another strong quarterly indicator following Q3's 21% sequential growth that the business has continued to recover following the impacts of COVID-19, which for Inuvo hit us at a low point in May of the year. Of that $12.9 million, ValidClick delivered $9.3 million, which was an increase of 48.5% sequentially and IntentKey delivered $3.6 million, which was an increase of 22% sequentially. ValidClick was still down 40% year-over-year in the quarter. However, the IntentKey was up significantly at 34% year-over-year in the fourth quarter. For the full year, the company delivered $44.6 million, which is down roughly 27% year-over-year. But as we've mentioned in the past, the ValidClick business which contributed roughly $34.2 million of the annual revenue in 2020 was hardest hit by COVID-19. But as can be seen from the third quarter and fourth quarter trajectories in 2020 has been recovering strongly and barring any unforeseen additional COVID issues. In 2021, we would expect to be roughly back in that business to its pre-COVID 2019 revenue run rate sometime in 2021. The IntentKey delivered $10.4 million of revenue in the year growing 22% year-over-year, despite COVID. And we would expect this product line to continue with double-digit growth rates overall into 2021. But the IntentKey in 2020, we believe COVID effectively constrained the growth rate of the product. Both of our product lines served the marketing and advertising industry. There are pockets within this industry, notably like insurance or home refinancing that has continued to do well in spite of COVID and then there's others like travel and entertainment that have lagged. We expect to…

Thank you, Rich. Good afternoon, everyone. I will recap the financial results of our fourth quarter of 2020. As rich mentioned, Inuvo reported revenue of $12.9 million for the quarter ended December 31, 2020. And this compares to $18.2 million reported in the fourth quarter of last year or the prior year. The decrease in this year's revenue is due to lower ValidClick revenue, which in the fourth quarter of this year was $9.3 million, compared to $15.5 million in the same quarter of 2019. The lower ValidClick revenue was due to reduced advertising budgets associated with the COVID pandemic. In spite of reporting lower year-over-year revenue, ValidClick's recovery began in June, following May's low and by December of 2020, it was up 116% off that low. IntentKey revenue was 34% higher in the fourth quarter of this year compared to the same quarter last year. The IntentKey represents 28% of the overall fourth quarter revenue, compared to only 17% of the overall revenue in the fourth quarter of 2019. Inuvo gross margins increased in the fourth quarter to 83% compared to some 70% in the same quarter last year, due primarily to a decision to bring in-house historically outsourced campaign delivery services for ValidClick, both improving cost effectiveness and control. In addition, IntentKey gross margins increased to 45% in the fourth quarter, compared to 41% in the prior year, contributing to the higher overall gross margin improvement. Going forward, we expect IntentKey gross margins to continue to improve, as we have launched the SaaS version of the IntentKey, where margins are expected to be in the neighborhood of 90%. Operating expenses were $12.6 million in the fourth quarter of 2020, compared to $14.1 million in the prior year quarter. That's a decrease of $1.5 million. The largest component of…

Thanks, Wally. We've seen a steady upward trend in our business since its COVID impacted low points in May of this year, which gives us confidence that the 2021 could be a good year for Inuvo. We've seen the ValidClick business recover quite strongly in Q3 and Q4 of 2020. It's not where we want it to be yet, but we would expect that business to be back to its 2019 financial performance in 2021, barring any remaining unforeseen COVID issues. And tuning [ph] IntentKey business continue to grow in 2020, despite COVID and we would expect that business to continue growing into the future. We couldn't be more excited about the collection of technologies, results, clients that we've amassed associated with that business. And finally, we do see an opportunity to accelerate the growth within the IntentKey while also taking advantage of our strong financial position by exploring acquisitions that might bring with them clients who meet the IntentKey Client Profile and we've retained an investment bank to help us execute on this strategy. With that, I would now like to turn the call over to the operator for any questions.

Thank you. [Operator Instructions] And we will take our first question from Brian Kinstlinger with Alliance Global Partners.

Hi, guys, thanks for taking my questions. I've got a whole bunch from the last few [ph], and then I'll let someone else ask before I get back in place. The first question I have, you mentioned getting back to pre-COVID levels and ValidClick at some point this year. Comparisons in ValidClick haven't recovered much. You're still down 40% year-over-year in the season, which is a seasonal business in December, which is similar to September. Does that change during the current quarter of those year-over-year trends and what gives you the confidence that the markets is going to return to pre-COVID levels so quickly instead of gradually?

The trajectory of the business that gives us the confidence is going to get back to where it was. The interesting thing about the COVID situation is no it dropped quickly, but it doesn't recover as fast as it drops. But with that being said, as I said in my prepared remarks, I mean, you know, the December revenue that businesses have 100% over the May low period. So that's a pretty steep trajectory on the business. And it's that that's giving us the confidence that that business can get back in 2019, you know, numbers, which I think 2019 was somewhere around $50-plus million for that business, again, with strong cash. You know, that business has always been a very strong contributor to cash. So we feel pretty good about it.

But the current quarter should be weaker than December quarter, given the seasonality, right?

Well, the seasonality in that business has tended to be, first half, lower than the second half. You know, that's a marketing oriented phenomenon more than it is that business, you know, it's an industry that it's true [indiscernible] as well.

And then in past discussions, we've talked about your growth and IntentKey is mostly coming from existing customers increased usage or increased quiz [ph] campaigns. With ad budgets beginning to improve, are you finding new customers beginning to evaluate new ads? I know you mentioned, you're starting some new logos. And I guess, you know, when do you see that new customer acquisition beginning to improve?

It's starting to already, I referenced the increase in the RFP productivity that we saw in the Q3 and Q4 and then we're seeing that again, here in Q1. So I think it makes sense. You know, if you think in 2020, with COVID, that a new client for us who already has a provider, you know, that they've been using, might want to, in a COVID world stay with what they have to mitigate risk, and not, take a look at something new, in spite of the fact that that new may be so much better. So there was sort of two phenomenon going on, you know, one, they were using [indiscernible] and trying to mitigate risks now as a result of actually reducing the budget. So that was kind of, that caused us to, I would say, have less new sales in 2020, than we had expected when we were projecting 2020 in 2019 before we knew about COVID. But despite that, we did sign a whole bunch of new clients. So there was a bunch of them that wanted to go ahead and get the best performance they could get. And the point 20 seems to be abating. It's not over, I'll say that it's not like the budgets that the brands we're working with are back to 100% of what they used to be. It's just coming back is probably the answer.

I guess. The second part of that question is, are some of those new logos may have delayed using some new technology? Are you starting to see more campaigns from those new customers? And then once you have a range of a reasonable growth, great in 10-Q, given you've got the existing customers, more campaigns, and you have campaigns now for new customers as well? Should we accelerate? Should we just try and get a sense of that growth of that business.

So I think as you know, Brian, you know, COVID, and we're not trying to avoid this question, but it's really difficult. You know, nobody's ever been through a scenario like this with the pandemic. And I still, we still don't know, we're still in it to some degree. So I know, it's hard for me to project the business. But I do know this. And I said in my remarks, I mean, there's no reason why that business is going to continue with double digit growth rates and things are abating. So it should grow, technically faster than it did in 2020, right in 2021? And to answer your question, specifically, I mean, I said it in my notes, but look, we ran 250, something campaigns in 2020, and 40% of them were new campaigns. So, those new campaigns are a function of new clients and existing clients who gave us new things to do. But that's a pretty healthy number, on the top of the population. I said it, and I'll say it again, that we could not be more bullish about, this platform now that we've seen enough clients and case studies and results and performance like I said, in my prepared notes. We go head to head and where the head to head is fair, meaning everybody's got the same metrics, when every time.

One more question, then I'll get back in the queue with my others. And, of course, we've talked obviously, the ad market seasonal as you're ramping up smaller numbers on in 10-Q notwithstanding COVID. Do you think we'll see seasonality in this business as well in the first quarter, or because you're increasing the number of campaigns or increasing usage, you're getting new customers, this business small enough right now to grow through seasonality, as we head into 2021?

Hard to tell, the high level question, forget about the size of the business, this business is like every other marketing, or advertising oriented business has uncertainty in the first quarter. You don't know whether the brand internally has finished their own marketing budget allocations have gotten approval for them. And, again, with the pandemic still on, does that mean that where they would normally get through that process and not have to worry about the pandemic in the first couple of weeks, so the first month of 2021? Now, it's maybe in March or February? I don't know. I mean, I just don't know, I've never been to it. So we'll see, like, we do know this. I mean, overall, regardless of whether or not there's a weaker quarter or somewhere in the year, you know, we'll end up better than we did last year with this product. And certainly probably, you know, the good news is the pandemics likely to have a baited provided with many vaccines distributed in the US by the summer and that means we come into the highest quarters of our year Q3 and Q4 with a bunch of hopefully pent up demand for spend from RFPs that we're actually responding to now. And we do that, you know, the bulk of our RFPs. Interestingly, for the second half of the year, the intently are occurring right now. You know we're negotiating and involved in prospecting for RFPs that have budgets for us in Q3 and Q4.

We will take our next questions from Gary [ph] with ROTH Capital.

Hi, this is Dillon [ph] on for Gary, thanks for taking my questions. I wanted to ask about the SaaS component of the 10-Q. I mean, you can talk about expanding your market reach. Is there any way to sort of quantify that? And then I guess, where do you see the balance of SaaS versus your manage clients, I guess, in 2020 as a percentage of revenue?

Yes, so the first question is the quantification of the marketplace, you know, that we can play and you can buy both of SaaS and managed service pieces somewhere near $100 billion market. So, that's one of these gigantic numbers, so there's plenty of market. Clearly, having a SaaS version, and a managed service business version opens us up to people who would not have bought it, because they wanted control over their clients, they were making money from running services, so they want to know, to do that themselves. And that's why we're excited about that. At the size that we're at, it's hard for me to quantify what's the split going to be, it's probably easier to conceive having done this, before that we could be running a business here, at some point in the future, where half the revenue is services, managed services, and half is SaaS. And just, you know, as a side note, this is typically what happens when you do have a SaaS version of the platform, there are always clients who don't want to do it themselves, they want you to do it, and you're not going to turn them away. You know, you want those clients, sometimes by the way, they end up being the biggest of the clients. So, it's 5050, like that, which is probably where sort of no ends up that would probably be about right, which we would expect, if you can do the math, the managed service piece of the business runs about 50% margin, and the SaaS version will probably run about nine months, or if it's half and half, we'd end up with a business here that's -- I don't know, if I use my head, 70%, maybe -- loan growth, gross margins, which is healthy on the combination.

And then sort of follow up to that, what is the timeframe look like for monetizing some of those clients that you talked about being in beta? Is it few months? Is it that ramp a second half nature of ‘21?

Yes, we're done with the beta program, now the beta program and in Q4, and that's why we're excited because we got through the beta program way faster than we had expected. If our shareholders will remember, I believe, I had messaged that we wouldn't actually be in a market with our SaaS product until the second half of 2021. And we just had an opportunity in the fourth quarter with clients to basically put the fast version to it. Its numbers, if you will to run it that scale and, and work out all the remaining issues. So there's no more beta, we're in go to market with this product. And we know, it works, we prove it works, it scales. Now there are some things we have to do internally to support a SaaS product or some training and whatnot. And we've got to gear up for that but we're doing that now.

Last one for me. Are you seeing any specific, I guess, strength in certain clientele like something like connected to the giving, just where that markets been going over the past? I guess, basically, 2020 and then sort of in the future?

Yes, we have seen it. And we've got, we've had an increased number of connected TV RFPs, and have delivered on quite a number of connected TV campaigns. So we do see that as a growing channel for us. And really great news about intensity as it relates to connected TV as it's one of the few products that we are aware of where you can actually have this audience building capability, there's some technical challenges associated with connected TV, because of the way that devices are technically designed in the apps on those devices. But we've worked that we worked around that solution and our AI and the modeling and the data, that it's that we've proven, it's so powerful in video and display showing itself to be just as good with the connected TV side, which we believe will give us an advantage and we've seen good performance on those campaigns. So connected TVs a good channel, we've run, just to add, it's not just connected TV, but we've run a couple of our first times ever connected equivalent connected radio. In fact, one of our Casino customers with a connected audio -- and we knew, we had all the plumbing in place to make that work. And we knew it would work. But it was only in the fourth quarter, we started running some campaigns for various clients. And once again, we're seeing really strong results there, just as a compliment to the connected TV question.

[Technical Difficulty] Alliance Global Partners.

Two follow ups, the first on the SaaS offering, as it relates to go to market strategy. If you're targeting existing customers, well, that cannibalize your existing revenue and how should we think about the larger upfront campaigns versus, and the revenue impact on maybe doing a monthly service. Does that mean lower revenue, but much higher margins?

Yes, so Brian, we're not targeting existing clients, and maybe get your head around it this way is, like I said, from the get go. Selling a managed service, and selling a SaaS version really are kind of two audiences to that some people just don't want a managed service. So, you maybe you could take it, just like the ones that we've already sold, who are running services for wanted a managed service. And that's why we were able to close them. So I don't see us cannibalizing those. It'll be a net new.

Perfect. Yes, it's good. And then lastly, on one hand, you mentioned, the less space working from home, it sounded like a bunch of cuts to operating expenses. On the other hand, you've got, slug of increased capital, and you talked about increasing to Sales force and current 10-Q. So maybe, how do we think about way, both of those, should we see OpEx growing from the fourth quarter? Should we see it shrinking, is it kind of flag noise? I think about those two things?

I think that, no, there are a lot of the new employees that we're bringing on and work from home, particularly the salespeople. So we factored that in into our consideration for reducing the space and Little Rock. There are three major components to operating expenses, marketing, compensation and SG&A. So, like we said, we expect compensation to increase next year in 2021, because of the investment we'll make in the Sales force. But the SG&A, it should stay relatively flat throughout the year, which includes facilities.

Great. And then, and in the marketing costs, if I could move it with the -- I think the marketing costs will move up and down with IntentKey; probably IntentKey with ValidClick; yes, with ValidClick, that's right?

One of the things, Brian, maybe I'll just note, because it's related. And it's important for shareholders to understand the advantage we have here, particularly with the SaaS version of the of the platform compared to the competitive marketplace for that product. But no, we noted in our call, and Wally noted in the financial, so we did make some significant decreases in our overall Information Technology expenses in the year, some 600,000 bucks. But what's important here is to recognize is the costs that we have related to how the intent key does what it does, is, for the most part now, other than resources fixed, and this is not typical. Our competitors, who use third party data, which they bring together to offer people the ability to find audiences have an ongoing up tick costs associated with the purchase of that data. We have no such cost, every additional dollar now that we bring in, we have no more costs associated with the productivity, if you will, on the machine. You know, it's for us, we have an ability to not only go to market with our SaaS products with a product that works better because of the artificial intelligence and because of the way that we manufacture information. But we can do it at a lower cost that we choose to, because we can undercut the marketplace because we just don't have that cost burden. It's one of the advantages we have in our go to market.

Great. Thanks for taking the question.

[Technical Difficulty] question and answer session, I would now like to turn the conference back to your host for any additional or closing remarks.

That's great. So thank you very much, operator. And thanks, everyone for joining us on the call today. And we appreciate your continued interest in the company and look forward to catching up in the future.

That concludes today's presentation. Thank you for your participation. You may now disconnect.