Good afternoon ladies and gentlemen and welcome to the Inuvo, Inc. Second Quarter 2023 Conference Call. At this time, note that all participants are in a listen-only mode. But following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Also note that the call is being recorded on Thursday, August 10th, 2023. And I would like to turn the conference over to Natalya Rudman, Investor Relations. Please go ahead.

Thank you, Sylvie. Good afternoon everyone. I'd like to thank everyone for joining us today for the Inuvo's second quarter 2023 shareholder update call. Today, Inuvo's Chief Executive Officer, Richard Howe; and Chief Financial Officer, Wally Ruiz, will be your presenters on the call. We would like to also remind our shareholders that we will filed our 10-K with the Securities and Exchange Commission this afternoon. 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 forward-looking statements. 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 US Securities and Exchange Commission, which can be reviewed at www.sec.gov. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. The company believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. With that out of the way, I'll now turn the call over to CEO, Richard Howe. Go ahead, Rich.

Thank you so much Natalia. Thank you everybody for joining us today. We are pleased to report that for the quarter ended June 30th, 2023, Inuvo revenue has grown 40% sequentially, having delivered $16.7 million in revenue as compared to $11.8 million in the first quarter. On a year-over-year basis, Q2 2023 was down roughly 26%. However, as I will discuss later in my closing remarks, current trends suggest that we could be back to year-over-year growth within the third quarter. We had a roughly $1.8 million adjusted EBITDA loss in the quarter and while it's yet not audited, the July and August trends for revenue and adjusted EBITDA have continued to improve as we head into the typically stronger second half of the year. At 86%, gross margins were quite strong at the end of the quarter. Also, as reported at the end of May, we raised an additional $4 million within the quarter. As a result, we have a strong solid balance sheet with approximately $5 million of cash and cash equivalents, no debt, and an unused borrowing facility of $5 million, which provides us with the resources to support our aggressive growth strategy. Let me now turn to some of the operational highlights. In 2021, we began working with one of our larger indirect clients on a new product they were planning to launch. Throughout 2022, we were beta testing media performance associated with that product and building out the various custom capabilities required to support the anticipated growth and deliverables associated with the launch. The project was launched at the beginning of 2023. The scalability potential of this initiative is now reflected within the increase in our indirect sales, which represented roughly 80% of overall revenue in the second quarter. Included in this development project for…

Thank you, Rich. Good afternoon. I'll recap the financial results of our second quarter of this year 2023. As Rich mentioned, Inuvo reported revenue of $16.7 million for the quarter that ended in June 30, 2023. That $6 million lower than the $22.7 million reported in the second quarter of last year. As has been discussed in prior calls, the lower revenue this year was due mostly to the loss of a direct customer in the fourth quarter of last year. Due to the loss of that customer, and as Rich discussed, the launch of a new product with an indirect customer, the revenue mix has changed. This year's second quarter revenue was composed of 80% from indirect customers compared to 46% last year. The change in revenue mix has had a positive impact on gross margins. As we expect revenue from our indirect customers to continue to grow, this revenue mix should persist for the remainder of the year. Cost of revenue was $2.4 million in the second quarter of 2023 compared to $9.3 million in the same quarter last year. Cost of revenue is predominantly payments to advertising exchanges that provide access to a supply of advertising inventory into which we serve advertisements using information predicted by the IntentKey artificial intelligence. These advertisements are placed on behalf of our clients. Gross profit for the second quarter ended June 30, 2023, totaled $14.3 million as compared to $13.4 million in the same period last year. Gross profit margin for the second quarter of 2022 was 86% as compared to 59% for the same period last year, reflecting the higher margins of the indirect customer business. We expect Inuvo gross margins for the remainder of the year to be roughly in line with the results of this quarter. Operating expenses…

Thanks, Wally. We had a strong sequential growth for the quarter, up 40% to $16.7 million. Within the first half of the year, we continued to make significant advancements both in the technology and services that will be required to scale our company. And we have an initiative with one of our larger clients that is scaling. Consequently, we are forecasting to be back to year-over-year growth within the third and fourth quarters of 2023. And expect to turn the corner to positive free cash flow within the second half of the year. Both June and July unaudited revenue was up double digit year-over-year. We will continue to invest in sales and awareness programs, so we can capitalize on the demand associated with the changing market, driven by privacy concerns from government, technology and consumers. And to this end, we've also recently retained a well-respected New York based PR firm to help us capitalize on this growing demand for information related to artificial intelligence and its applicability to the privacy challenge facing the advertising industry. I will now turn the call over to the operator for questions. Operator?

Thank you, sir. [Operator Instructions] And your first question will be from Brian Kinstlingler at Alliance Global Partners. Please go ahead.

Hi, there. This is Sharmin [ph] on for Brian. Congrats on a nice quarter.

Thank you.

Could you talk about how the continued pressure in the ad market is impacting IntentKey. Is it translating to longer sales cycles still or smaller campaign sizes? And are you seeing any signs of improvement?

Brian, it's always difficult that our size to try to put your finger on whether this is a challenge for us or not. I mean by that, it's like whatever $80 million in revenue. We're not big enough, yes, where we can experience the kind of challenges you might, if you're a $0.5 billion of your companies invest, maybe clients who are spending, who knows $50 million, $60 million. So we're not seeing change -- much change at all with regard to what we're doing. The sales cycles are pretty much staying the same. It takes longer to sell direct clients. Indirect clients can take probably no less than three months, often six months. So yes, that's kind of our perspective on it right now. And we do have a bit of a unique position, and I spoke on this before, but the catalyst that is privacy is not going away. So regardless of what happens with regard to media spend overall, advertisers have to solve this problem in the ensuing next, let's call it, 24 months. And we've always believe that this time would come and that should create -- continue to create demand for us.

That makes sense. Next question. Last quarter, you underlined that your close rates are efficient, but the struggle is being able to get a foot in the door. How are things progressing in this space? With sales and marketing, you said remaining elevated, are you planning to increase your sales headcount in the coming quarters? And should we expect Barry’s oversight to drive an increased mix of direct sales starting next year?

Maybe I'll answer the last question first. We've had -- from a sales perspective, our primary focus has always been to support the agencies who have the budgets, and Barry, not surprisingly, as these come in, has gotten underneath that, and that is his world, which is one of the reasons why we brought Berry into the fold here. And as a result, he's hyper-focused on that channel to market, and that makes perfect sense given that is the channel that we established. But -- so that's for Barry. What was the first question? Sorry, Brian, I missed the first question now.

Last quarter, you mentioned that getting the foot in the door in front of executives is the main issue. Closing is fine, but the main issue is being seen. So just looking to see what changes you've made and how you're progressing in this space if you've made any sort of progress?

Well, the growth, as you know, tells us that we're making some progress. The challenge there remains. And so if I've spoken on this before, which I suspect I have but maybe for people who might be new to the answer. In a mature industry, a version to change is not a simple thing to overcome. And that's probably the biggest challenge we have is buyers not recognizing the challenge ahead of them. I would say, in the last year, that is getting easier, but I don't want that to be interpreted as easy. It's getting easier as the sort of D-day on identity approaches.

All right. Thank you. And one last question regarding the Google contract. I see renewals are coming every month. But has there been any sort of communication yet about a larger contract coming soon or?

Yes. So I think no. We don't like talking about our clients at all. In fact, in many cases, we don't have the right to. So my answer to this is, yes.

All right. I'll hop back in the queue.

Thank you. [Operator Instructions] Your next question will be from Jack Vander Aarde at Maxim Group. Please go ahead.

Okay. Great. Congrats on the strong results, Rich. Thanks for taking my question. Can you talk about the 10 new clients and the two returning clients in a little more detail, maybe particularly -- how large are the two returning client campaigns just relative? And are they increasing in scale? Are they similar to what they produced last quarter? Just any color around the two returning clients first would be helpful.

Yes, the two returning ones, they go out more than like a quarter, so it's quite some time ago. I don't remember the exact amount of time when they weren't clients anymore, but it's at least more than a year, maybe even two. So the answer to that one is, they're still small, but that's how everybody starts, Jack, right? Everybody we bring on for the most part, starts small campaigns, which then get added to as the performance is realized. So that's true universally. The new campaigns and the new clients for the most part, they're -- the programmatic component of what we do is where they are not the open web connected television, display advertising, online video and display, they're kind of what they're doing. And they're good sizes, and they're good games that could be big accounts. They don't start off a big account.

Got it. No, that's helpful. And actually that's probably a positive size since there were clients over a year ago or so, and they came back, I must be doing something right. So that's good to hear. How many of the 10 new clients are going to -- are expected to turn on in the third quarter? And then it sounds like that's kind of the driver of giving you confidence for year-over-year growth what's the likelihood of these 10 new clients turning on in the third quarter and then also potential of them returning and increasing in scale in the near future?

I don't know for sure, Jack, but I think they're all on now. So the answer is, I guess, near 100% without me knowing exactly it's 100%, right, that they'll be on in the third quarter.

Fantastic. Okay. Great. And then, Richard, it sounds like you've really ramped up your sales and marketing hiring. Just based on your expectations, I'm curious, how long does it typically take from your perspective for your sales associates to achieve optimal productivity levels? Is it like six months a year it takes a year, I think, but I'd be curious to hear your thoughts?

The first three months are training and learning and of course, given we -- the approach that we take to be able to find audience is different, Jack than what everybody has been trained for the last 30 years, even when they went through school. So there's an educational component, a learning component, getting comfortable with the materials. And so it's usually zero to three months, they don't typically close any deals unless, they've got a friend somewhere that they've known for a long time and they've managed to get us a deal in the first three months of their tenure as a sales executive. But then they start becoming productive in the three to six-month period. And if they're not productive in this, let's call it, a six to nine-month period, then we start wondering whether or not they're going to ever going to be productive would be probably the cadence that we look at.

Yes. Sure. Sure. Makes sense. And then just one last thing because it was such a -- it took the wind out of the sales for a little bit. Was that, that large client, that large direct customer that -- what I didn't hear you say is any new clients have left or you've lost any other major clients. And it doesn't sound like that's the case, but I would just like to get your thoughts. Was that really truly a one and done a unique situation that was one-off, isolated and are you confident that you're kind of past those bumps?

We do lose clients, and I've spoken to this in the past, in most of those cases, not all of them, but in most of those cases, it's the result of an agency we're doing business with who lost the client. And so that's how we lose it. But there really aren't many of them and our client retention rate is quite high. I don't know the exact number, but it's way up past 80. It may even be in the 90s. I don't know. That's why I want to be careful that I don't give you a number that's not true, but the client retention rate is very strong. The technology works. And when it's implemented properly, when it's used properly, and when the client is educated about a new way to think about audiences, it always works.

Okay. Great. Well, fantastic results again and great to see you guys gaining momentum and bouncing back. That's it for me.

Thank you.

Thank you. And at this time, it appears we have no further questions. Please proceed with any closing remarks.

Thank you, Sylvie. I would like to thank everyone who joined us on today's call. We appreciate your continued interest in our company.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.