Good day and welcome to the Inuvo Second Quarter 2021 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Valter Pinto, Managing Director of KCSA Strategic Communications. Please, go ahead, sir.

Thank you, Operator and good morning. I like to thank everyone for joining us today for the Inuvo Second Quarter 2021 Shareholder Update Conference Call. On today's call, Inuvo's Chief Executive Officer, Richard Howe; and Chief Financial Officer, Wallace Ruiz will be your presenters. I would also like to remind our shareholders that we anticipate filing our 10-Q 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 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 using this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they 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 Inovo 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 like to turn the call over to CEO, Richard Howe.

Thank you, Valter, and thanks, everyone, for joining us today. We had a strong second quarter. For the three months ended June 30, 2021, we delivered $12.6 million in revenue, which was up 66% year-over-year and up 19% sequentially. At our current gross margins, we expect to break even on an adjusted EBITDA basis when monthly revenue run rates exceed $5.5 million, which we expect to be able to deliver before the year ends. Adjusted EBITDA in the second quarter was a loss of $965,000, which was roughly flat sequentially. The balance sheet remains strong with no debt over $18 million in cash and marketable securities and an unused $5 million financing facility. The company is not currently in need of additional operating capital. Of the $12.6 million delivered, development platform contributed $9.7 million, which was up year-over-year by 72%. That platform's growth rate has been roughly 8% compounded monthly through June 2021, off the COVID-related low in May of 2020. As we have previously mentioned, ValidClick's services have been materially revised post-pandemic and this is most evident in the mix of revenue where of the three main clients for ValidClick -- the largest is now Google. As the most dominant advertising marketplace in the world, we decided in 2020 to refocus our effort towards serving the objectives of this client, a strategy we believe offers the most attractive growth prospects. I will remind our shareholders that this client relationship for Inuvo goes back more than a decade -- more on ballots like later [ph] in the conference. The IntentKey platform contributed roughly $2.9 million of revenue in the quarter, growing 50% year-over-year and 37% sequentially. The client performance results associated with this product are nothing short of astounding. In the second quarter, we exceeded our client goals on average…

Thank you, Rich. Good morning, everyone. I'll recap the financial results of second quarter of 2021. As Rich mentioned, Inuvo reported revenue of $12.6 million for the quarter that ended June 30 of this year. This compares to $7.6 million reported in the second quarter of last year, both platforms ValidClick and IntentKey exceeded the prior year. ValidClick revenue exceeded the revenue of the second quarter of last year by 72% and the IntentKey revenue for the quarter ended June 30 of this year exceeded the prior year quarter by approximately 50%. And that was primarily due to the acquisition of new customers. Revenue in 2020 was affected by the COVID-19 pandemic, which had a material impact on advertising budgets beginning in April of last year. As the IntentKey platform revenue has become a greater percentage of the overall revenue, the components of our overall cost of revenue has shifted. Cost of revenue in 2021 was primarily generated by payments to ad exchanges that provide access to the supply of media inventory, where we serve advertisements using information predicted by the IntentKey and to a lesser extent, by payments to website publishers and app developers that host advertisements that we serve through ValidClick. The majority of ValidClick's cost are traffic acquisition-related and therefore are reported as a marketing expense within the operating expense category. Last year, cost of revenue was primarily generated by payments to website publishers and app developers that hosted advertisements that we serve through valid claim. Inuvo gross margins decrease in the second quarter to 82%, compared to 86% in the same quarter last year due primarily to the shift in the cost of revenue that I just mentioned. The IntentKey gross margins were 42% in the second quarter. Going forward, we expect IntentKey gross margins to…

Thank you, Wally. We had a strong second quarter with 66% year-over-year growth and 90% sequential growth. We would expect the third quarter to be up between 45% and 55% on a year-over-year basis. We expect both product lines to show sequential growth in the third quarter. We expect our adjusted EBITDA will improve within the third quarter. We expect the IntentKey's remarkable client performance to continue alongside a growing pipeline with improving win rates. At over $18 million in cash and marketable securities, no debt or balance sheet is strong and consequently, we see no immediate need for additional capital. With that, I would like to turn the call back over to the operator for questions. Operator?

Thank you. [Operator Instructions] And we'll go first to Brian Kinstlinger with Alliance Global Partners.

Hi. Good morning, guys. Thanks for taking my questions. It sounds like you're having a lot of success with new logos from IntentKey. Can you quantify how many customer you ran campaigns for in the second quarter of 2021? What was that number for 2020? And then based on the trends of -- sounds like you're you have more RFPs [ph] with new logos than ever and you're winning more, where might the possible range of outcomes be at the end of the year, customer count for campaigns for IntentKey?

Wow, that was a lot of questions. Some of them, I can't answer. I can tell you what I said in the script, which is I know we ran 84 campaigns in the second quarter and the IntentKey was up 50% year-over-year. So, the number of campaigns run a year earlier is at least half, if not more than half of what it was in this quarter, Brian, because we do see growth from existing clients as well. But we are adding new clients. And like I said in my script -- building a product and a market, which is kind of what we're doing is not easy and then there's sort of a momentum point, the tipping point at which point the market starts to assimilate your technology in how you're doing it and why it's different. And I think we're starting to see that, is the good news. And I think that's evident in the win rates that I talked about. The number of deals, we're actually winning versus the number of deals we won last year, which I said was 70%. It's a big deal. The means we're winning 70% more of the deal counts we have this year than we did last year. What were your other question, Brian?

I guess I'm just curious, do you have 25% more clients in the year though? Is it more like 50% more clients? I know there was a time that customers weren't looking for new ad tech growth. So, I'm just kind of curious with some of those metrics; not the exact something [ph] that you can provide it about 2x?

It's about 2x.

2x? Great. And then describe the evolution of a new customer. Do most start with a small campaign and then the second is a little bit bigger before? They start to give you more of that budget pie? Just maybe take us through what the typical evolution on short [ph] ranges.

It's pretty much the same every time. We'll call it anywhere from three months to nine months sales cycle. We do close deals within three months, but typically, three months the sales cycle -- three to nine. And it always starts the same way, someone wants to test our technology and they want to test us against whatever else it is they're using. And that's our competition and when the test is implemented, and we go head-to-head against whoever the incumbent is, when we win those tests -- and I will tell you, I'm not aware of us ever losing one -- they start spending money with us on a more regular basis and it's incremental. And I think when you look at the number I gave in my script, which I said we beat our clients' performance goals in the second quarter by 74% and throughout the first two quarters of 2021, we've beaten our client goals by 60%. Look at that and think that's how much we're beating our competitors. Because that's what that is. The goals we get are our competitors' performance but that's how we're defined [ph].

And when you say being competitors, that's click-throughs and getting customers to their sites or that's closed loop purchases?

Every customer has got different goals. A retail customer selling a retail product is more likely to care only about how many of the product they sold, a return on their ad spend. Like the retailer we talked about in our script, which happens to be a furniture retailer, a well-known one, we know where we delivered 88-to-1 return on ad spend. Just think about that number. It's a staggering number. We basically for that customer -- by the way, that was the test that we did with them. So, the initial test with that customer is where that 88-to-1 return came in, but they gave us $50,000 to basically spend and we delivered, $4.5 million worth of sales of furniture. It's staggering. And then for other customers, maybe to your point, it might be a click-through rate. Maybe that's what they're trying to optimize towards. They care about how many people are actually clicking through to whatever it is that they're promoting. They could they could definitely use that as a goal. Our AI doesn't frankly care what the target goal is, it will optimize automatically and learn to that goal and they do vary.

Right. And then how should we think about the introduction of the SaaS model from a P&L perspective? Will this lead to slower revenue growth given to us as generally recognized over time? Or is campaigns are all at once? So, this may be at a higher gross margin? And then the second part of that is does each client going forward have the option for SaaS or paper campaign?

There's two flavors of the product. One is fully managed service and the other one SaaS. We will continue to sell both as do most companies who claim they have SaaS products. It's just a natural evolution. Nobody knows how to use the products better than we do. And so, I would say sophisticated client, the most sophisticated clients, they recognize that and they're willing to sort of acquiesce their responsibilities for managing the campaigns to us; recognizing that we're probably going to be doing a better job of it than they are. So, we see that continuing. The services piece of our business and it's still the biggest one and the more majority of deals we're closing right now are the service of the fully managed service components. It's not an 'or', it's not 'and'. I think the SaaS version of the product is very applicable to certain parts of the market. Agencies who are in the business of managing client relationships that want to run campaigns and really, all they want to do is plug into the AI that we have, and allow themselves to be client-facing will probably see more sales to these sort of agencies who want to use the technology that way. And of course, what that ends up being is a driver of the bottom line. The more of that we can do, the more we throw down to the bottom, because the margins on the SaaS version are north of 90. With that said, the managed service components of the business for the IntentKey run anywhere between 40% and 50% and probably average around 50%.

And then on search. Your to Q2 revenue is still about 25% below to Q2 2019. Is the market still in recovery? Or do you think the market has shrunk and budgets are shifted away from search and into other mediums?

No. It's not that the market shrunk or the opportunity side or ValidClick has shrunk. It's more about you can't scale back up as fast as you scale down. It doesn't work that way. And so, what you're seeing with the growth trajectory, a ValidClick is a return and then if our projections are correct and exceeding of where it was prior to the pandemic. What our shareholders should look at when they're looking at our ValidClick [ph], it's that business has bounced back and is recovering very, very strongly. And it's, as I said in my script, it's recovering with a different mix that we believe will allow us to actually scale that business beyond where we were scaling it before.

Great, thank you, guys.

Thank you, Brian.

[Operator Instructions] And we'll go back to Brian Kinstlinger.

Look, I wanted to make sure there are no one else. I didn't take the whole time if somebody else wanted to ask, but I have one more question. You've highlighted your strong balance sheet. Talk about the M&A landscape and kind of your high-level strategy on M&A.

Yes, that's a good question, Brian. And we, I guess opined on this on prior calls and I think our shareholders are well aware, we're sitting on $80 million and it's not our objective to sit on that cash. I think our shareholders gave us that money to put it to use. And we are operationally because we're still burning cash on adjusted EBITDA basis. But that's going to probably end as I've said, towards the end of the year. So, as a result, yes, we are actively in market looking for assets that could help with our growth objectives. But I will say this, we are not in need of technology. The IntentKey is already the most sophisticated advertising technology in the country. And we know this. So, we don't need to buy technology. So, our focus is more around looking for companies of varying sizes. We looked at some that are as small as $2 million a year revenue and we've looked some that are as much as $50 million in revenue. We're focused when we look at those companies that who are their clients. We care more about the client portfolio associated with the company we're evaluating, then we do the other things they may or may not do, for obvious reasons. Because we know the performance of the IntentKey is so strong, we really believe that if we can buy a company that's got a great client list, we will be able to grow that client list and do a better job of performance for each of those clients. So, that's the focus.

Great. Those were all my questions. Thanks.

Thank you, Brian.

And there are no further questions in the queue at this time.

Thank you, Operator, and thanks, everyone who joined us today. We appreciate your continued interest in Inuvo.

And that concludes today's conference. Thank you for your participation. You may now disconnect.