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 would 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 relate to Inuvo are 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 U.S. Securities and Exchange Commission which can be reviewed at www.sec.gov. With that, I would 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 and 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, the 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. 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 by 74%. We would expect this product line to continue its double-digit growth rates year-over-year for the foreseeable future. For the third quarter of 2021, we expect strong continuing year-over-year and sequential revenue growth within both product lines. Let me now provide some additional insights for both the IntentKey and ValidClick. As a result of the continuing performance results associated with the IntentKey platform through the first half of 2021, we have seen a 56% increase in the number of prospective client presentations given and a 70% increase in the number of deals won as compared to the same period in 2020. Market momentum appears to be building. We had 18 new campaigns launched within the quarter, including a first deal sold by our sales representative in Canada as part of our announced expansion into that market. We had 84 total campaigns running in the second quarter. In April, we put out a release about a retail client where the IntentKey had delivered a staggering 88-to-1 return on ad spend. Results for that client have only improved since then, and as a result, they are now allocating more budget towards our service. We also announced recently that we had closed our first casino client, and I'm pleased to report that the client continues to spend media dollars with us as their growth accelerates, having recently surpassed their largest competitor in the state in monthly gaming revenues. We are currently working on an initial proposal for this client, and Casino International, a leading publication within the gaming world, will be highlighting our technology in a September article. Within the quarter, we added state agencies who are looking to promote COVID and vaccination awareness, a financial services company, a healthcare company, a recreational vehicle company, a large retailer, and some tourism clients. We are in active implementations associated with the SaaS version of the IntentKey and we are in discussions with numerous prospects for the same. Because our solution uses artificial intelligence and is therefore not reliant on third-party data, cookies, or IP addresses to make its advertising decisions, we have been experiencing increased interest and prospects resulting from this competitive differentiation as those companies look to select technology providers who can future-proof their ad spend. We would expect continuing interest over the next few years related to this differentiation as brands begin to appreciate the scale of the performance challenges associated with what is fundamentally a change in the very way online advertising is delivered. Google recently extended their timeline for the deprecation of third-party cookies to allow the market additional time to prepare. Since we are already prepared, this added time gives us the opportunity to be working on the next advancement of our platform while our competitors worry about re-engineering their current platform. With a growing list of clients and prospects hiring within the IntentKey to support clients, sales has continued throughout Q2, and we now have 20 people in sales, account management, and sales support roles. Inuvo currently has 78 full and part-time employees. On the development front, we made several scalability improvements designed to accommodate our growing client base and our expansion into Canada. We are also rebuilding and streamlining our internal dashboards as an efficiency improvement for client-facing personnel and as a way to reduce the ramp-up time associated with new hires as our growth continues. We also recently started to enhance our web crawler. Within our system, this crawler is akin to a librarian. It continuously pulls content from the internet, which it then sends to our artificial intelligence for interpretation. In this regard, our AI already has learned from over six billion web pages covering most of humanity's knowledge. It also interprets millions of new web pages every single day. We are working towards enhancing this crawler in a manner that would allow our AI to understand what the sentiment is related to any individual concept within the English language. For example, is the sentiment towards a given brand, or a place, or a product, or a person, or a thing? Currently, and given the predominance of things like emojis and hashtags, we are updating the crawler so we can understand these new language constructs. Turning now to ValidClick, whereas I mentioned earlier, we had a strong 8% compounded monthly growth since the COVID low in May of 2020. Increasing scale within ValidClick's competitive market is often about making small enhancements that can improve yield. This was our main development and operational focus within the quarter. There were two such enhancements that are worth noting. First, we continued to enhance the A/B testing infrastructure we put in place and launched last year. We haven't talked about this before, but it's a good example of the power that incremental improvements can have on revenues. In concert with the needs of our largest client, we ran 17 different individual experiments within the quarter, where we made small adjustments on landing pages to things like color, font size, and content spacing. Of these 17 experiments, 11 resulted in positive increases in revenue. While each improvement typically represents around 1% to 3%, this ability to quickly test in this manner at scale can add up over time. In 2021 so far, we estimate that we've increased relative revenues by about 8% to 10% using this continuous experimentation capability. This increase enables us to better promote websites, be more competitive in the marketplace, and ultimately serve the needs of our clients, while scaling our services to those clients. The second focus I'd like to highlight this quarter was a set of enhancements to our proprietary media buying tools. The technology update makes managing advertising campaigns more efficient. Using these internally developed tools, we were able to double the number of campaigns each of our campaign managers can build every day. This is critical because being effective in online advertising at scale requires optimization, which is achieved by developing campaigns across a wide variety of topics, a process without technology that is manually prohibitive. One of the ValidClick measures we track that might be interesting to our shareholders is the number of web pages into which we serve ads viewed by consumers in any given month. In this regard, ValidClick hit an all-time monthly high within the first half of the year by serving ads into roughly 100 million page views. I would now like to turn the call over to Wally for a more detailed assessment of our financial performance within the quarter.

Thank you, Rich. Good morning, everyone. I'll recap the financial results of the 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, with both platforms ValidClick and IntentKey exceeding 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%. 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 have 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 costs 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 ValidClick. Inuvo gross margins decreased 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 increase as the SaaS version where margins are expected to be significantly higher as a result of mostly fixed costs associated with operating just the AI, the modeling, and the decision components of the platform. Operating expenses were $12.8 million in the second quarter of this year compared to $7.8 million last year, an increase of $5 million. The largest component of operating expense is, as previously mentioned, marketing costs. Marketing costs are predominantly traffic acquisition costs associated with ValidClick. It's the largest expense associated with the ValidClick platform. Marketing costs were $8.2 million in the second quarter of this year compared to $3.9 million in the same quarter last year. The $4.3 million higher expense this year compared to last year is primarily due to our reduction of traffic acquisition activities last year in response to the unusually lower ValidClick revenue associated with the COVID-19 pandemic. Compensation expense was $2.9 million in the second quarter this year compared to $2.1 million last year, and that's due to higher stock-based compensation expenses this year and to higher employee salary costs. Our full-time employment at June 30 of this year was 73 compared to 66 at June 30 last year. The majority of the increase in this headcount occurred within sales, sales support, and account management for the IntentKey. We also hired acquisition professionals within ValidClick to support a strategy to bring that function in-house. Selling, general, and administrative expense decreased $104,000 in the second quarter of this year compared to the prior year, due to lower IT costs where we consolidated our computing facilities to two data centers, also due to lower facilities expense, lower corporate expenses, and lower depreciation and amortization expense. These expenses were partially offset by higher professional and public company expense. Yesterday, August 11, we held our annual shareholder meeting. All four proposals submitted to the shareholders were approved. The cost of holding the meeting was approximately $200,000, the highest meeting cost in recent memory, part of which caused an offsetting higher expense to an otherwise lower SG&A. We believe the higher cost of holding the shareholder meeting is primarily due to brokers surrendering their right to vote uninstructed shares using the discretionary voting authority granted by the New York Stock Exchange. Of the 119 million shares outstanding, approximately a third of our shares are held by insiders, institutions, and large shareholders, leaving two-thirds of our shares being held by retail shareholders. Retail shareholders frequently keep their shares in brokerage accounts and often are not aware that a vote is pending. Proxies not returned to the broker may be voted by the broker. Since the returns from retail holders are often under 25%, the broker's discretionary vote becomes very significant, particularly for a small-cap company. The decline in discretionary voting by brokers is a real concern for many issuers, as it's becoming increasingly difficult and expensive to obtain enough votes to reach a quorum and pass specific proposals. Inuvo incurred the higher expense attempting to reach retail shareholders by contracting an independent third party who attempts to identify and phone shareholders to remind them to vote. Net interest expense was $8,000 in the second quarter of this year compared to $73,000 in the same quarter last year. We had other income of $25,000 in the second quarter of this year due to unrealized gains from marketable securities. The other net expense from the second quarter last year was due to the conversion of convertible debt securities. We reported a net loss of $2.4 million or $0.02 per basic share, compared to a net loss of $1.4 million or $0.02 per basic share in the same quarter last year. The adjusted EBITDA for the quarter ending in June was a loss of $965,000, compared to a loss of $140,000. At June 30 of this year, we had cash and cash equivalents of $17.3 million, marketable securities of $889,000, and a net working capital of $15.4 million. In addition, we have a $5 million working capital line which currently has no outstanding balance, and we maintain a simple capital structure with only common stock and employee restricted stock units through an equity incentive plan. With that, I'd like to turn the call back to Rich for closing remarks.

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, our 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.

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

Hi. Good morning, everyone. Thank you for fielding my questions. It seems you're experiencing significant success with new clients from IntentKey. Can you provide the number of customers for whom you ran campaigns in the second quarter of 2021? What was that figure for 2020? Additionally, considering the trends suggesting you have more RFPs with new clients than ever and are winning more bids, what could be the potential range of outcomes for the customer count for IntentKey campaigns by the end of the year?

That was a lot of questions. Some I can't answer. I can share what I mentioned in the script: we ran 84 campaigns in the second quarter, and the IntentKey increased by 50% year-over-year. The number of campaigns from a year ago is at least half, if not more, than what we had this quarter, Brian, as we see growth from existing clients as well. We are also bringing on new clients. As I mentioned, building a product and a market is challenging, and there's a point where the market begins to accept your technology and understand its unique benefits. I believe we're starting to reach that point, which is encouraging. This is reflected in the win rates I discussed. We're winning 70% of the deals this year compared to last year, which is a significant improvement. What were your other questions, 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 when customers weren't looking for new ad tech growth so I'm just kind of curious with some of those metrics; not the exact numbers that you can provide about 2x?

It's about 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 ranges.

The sales cycle typically ranges from three to nine months. While we do close deals in three months, the process generally lasts between three and nine months. It often begins with a potential client wanting to test our technology against their current solution. When our product competes head-to-head with the incumbent, we usually come out on top, and I'm not aware of us ever losing a test. Once we succeed in these evaluations, clients begin to invest in our services more consistently and in an incremental manner. In fact, as I mentioned earlier, we exceeded our clients' performance goals in the second quarter by 74%, and throughout the first two quarters of 2021, we outperformed their goals by 60%. This highlights just how effectively we're surpassing our competitors' performance, as the goals we receive are benchmarks based on our competition.

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

Every customer has unique objectives. For example, a retail customer focused on selling products is primarily concerned with their sales figures and return on ad spend. Take the well-known furniture retailer we mentioned; we achieved an impressive 88-to-1 return on ad spend for them during our initial test. They invested $50,000, and we generated $4.5 million in furniture sales, which is remarkable. Other customers may prioritize different metrics, such as click-through rates, aiming to increase the number of people engaging with their promotions. Our AI is designed to automatically optimize and adapt to any stated goal, regardless of its nature, and we recognize that these goals can vary significantly.

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 clients, 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 is still the biggest one, and the majority of deals we're closing right now are the service of the fully managed service components. It's not '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 sorts 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 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 of ValidClick is a return and then if our projections are correct, it is exceeding where it was prior to the pandemic. What our shareholders should look at when they're looking at our ValidClick business is that it has bounced back and is recovering very, very strongly. And it's, as I said in my script, 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.

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. We have 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 an 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 the 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 on looking for companies of varying sizes. We looked at some that are as small as $2 million a year in revenue and we've looked at some that are as much as $50 million in revenue. We're focused when we look at those companies on who their clients are. We care more about the client portfolio associated with the company we're evaluating than 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 to 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.