Good day, ladies and gentlemen, and welcome to the INUVO, Inc. Third Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Natalya Rudman. Please go ahead.

Thank you, Keith, and good morning. I'd like to thank everyone for joining us today for the Inuvo Third Quarter 2022 Shareholder Update Call. Today, Inuvo's Chief Executive Officer, Richard Howe, and Chief Financial Officer, Wally Luis, will be your presenters on the call. We'd also like to remind our shareholders that we filed our 10-Q with the Securities and Exchange Commission yesterday. 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 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 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. 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 a reference 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 direct comparable GAAP measure 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. Please go ahead, Rich.

Thank you, Natalya, and thanks, everyone, for joining us today. We are pleased to report our sixth consecutive quarter of year-over-year revenue growth for the third quarter of 2022. Year-to-date, revenues have increased 45% to $58.3 million for the 9 months ended September 30, 2022, compared to the same period last year. On a trailing 12-month basis, revenues have increased 47% to $78.1 million. For Q3 2022, we delivered $17.1 million in revenue. We experienced modest revenue growth for the third quarter year-over-year, which we believe was due, in part, to a deceleration in consumer spending, the carryover effects of unknowingly purchased invalid advertising from a well-known platform that we disclosed in the second quarter and from whom we are now seeking full reimbursement, and the loss of an agency client, which I will discuss in more detail in a few minutes. As it relates to the invalid traffic, Inuvo has reimbursed affected clients, and we are withholding the payment due to the platform until such time as the issue is resolved. In the interim, the platform has shut down our accounts, and we estimate that this contributed roughly $1 million in lost revenue in Q3. We are currently in an arbitration proceeding with the platform regarding the dispute. As you know, Inuvo provides digital advertising, technology, and services across channels. Our ValidClick platform principally serves advertising within the search and social channels while the IntentKey principally serves connected television, online video, display, cable television, and native channels. Through the first 9 months of 2022, both platforms experienced strong growth, with the IntentKey and ValidClick up roughly 121% and 20%, respectively, year-over-year. The social and search-related revenues from ValidClick represent roughly 67% of revenues, while the programmatic revenues associated with the IntentKey represent 33%. For the third quarter of 2022, IntentKey revenue increased 12% and ValidClick decreased 3% year-over-year. As was mentioned in the second quarter transcript, revenues in that quarter were seasonally higher than expected. And as such, we messaged that Q3 could be impacted by a seasonal trend change in 2022 and the potential economic conditions that were looming, which turned out to partially be the case. Gross margins remained healthy in the third quarter at roughly 60% and 58% for the 3- and 9-month periods. Adjusted EBITDA was a loss of roughly $2.6 million. And while this was more than expected, we would expect this to improve heading into the fourth quarter. Adjusted EBITDA in the quarter was impacted mostly by lower revenues. The company's core strategy continues to be a growth-oriented strategy. As we have messaged on previous calls, we believe the industry we serve is not prepared for the implications of a consumer privacy-led future. In fact, McKinsey & Company reported on this issue as early as April of 2021, where they suggested that this shift would begin to threaten the $152 billion annual U.S. digital advertising industry starting in 2022 because that industry would lose access to consumer data. It is well known that incumbents rarely make the transition from one technological paradigm to another. Rather, they continue to hang on and/or adapt the services and technologies they currently use, variably leading to lost market share to companies like Inuvo, who are not burdened by using outdated methods, not aligned with the future. The next few years will define the winners from the losers within the advertising industry, and Inuvo is well-positioned to be among the winners. Our opportunity remains to take market share during this period where these incumbents continue to use outdated technologies and therefore, why growth remains our #1 priority. We have continued to deliver exceptional results for clients within the IntentKey platform where in the third quarter, we performed on average 44% better than our clients' KPIs. We have yet to lose a client due to performance. When we do lose a client, it is almost always related to campaigns we are providing to an agency that owns the client relationship. Most of U.S. digital advertising spend occurs through these agencies. In Q3, we lost an estimated $2 million because of such a situation. In this case, our client, the agency, lost accounts we were servicing to a competing agency. The frustration associated with this case was that one of the brands in question experienced the best months performance in history, immediately preceding the transition to the new agency. That performance was the result of the IntentKey and yet the account was still lost. We have remained in contact with the brand directly. And while they signed a 12-month agreement with the new agency, we may yet have an opportunity to win this brand back directly in 2023 as the performance delivered by the new agency continues to decline alongside the changes that are occurring within the advertising industry overall. On the sales and marketing front, we continue to build out a team of go-to-market executives capable of capitalizing on the opportunities resulting from a changing industry. We are supporting their efforts through marketing activities that raise the Inuvo profile within that industry while aligning our brand with this privacy future. Universally, we see growing concern related to performance within prospects, particularly those who rely heavily on traditional platforms for that performance. We increased the size of the sales and account management teams by approximately 20% in Q3, and they have been busy submitting proposals in preparation for next year's media cycle. As our brand is becoming more recognized, we are seeing larger potential deal opportunities emerge. We noted in our Q2 call how we had started to deploy yet another artificial intelligence-based technology designed to solve an industry challenge itself, an additional consequence of privacy and the deprecation of the cookie. We now possess and make available generally to our clients technology that can determine the contribution of each channel being used as part of the overall media mix to the performance metrics being optimized. This technology can find the patterns and the historical performance related to individual channels and then suggest for any given future period what the optimal mix of media should be without using any consumer identity-based mechanisms. This inability to understand and improperly measure the interactions between channels is a common reason brands fail to expand and why they choose to limit the number of channels they use. For example, we currently have clients for whom we are using this technology who market their products across as many as 10 different advertising environments, both online and offline. The complexity of determining how to optimize across these channels is beyond the scope of most of our industry because it requires significant data science and data warehouse competencies, which Inuvo possesses. For a brand, it is imperative in this multichannel advertising world that they can move advertising budgets away from channels where the demand and supply characteristics are not optimal to channels where they are and then back again when those demand and supply metrics return. This must be done scientifically and just in time. We see this new capability as a significant investment within the industry and has a substantial differentiation as we continue to build an advertising and technology services company capable of meeting the needs of the future. I would like to turn the call now over to Wally for a more detailed assessment of our financial performance within the quarter.

Thank you, Rich, and good morning, everyone. I'll recap the financial results for our third quarter of 2022. As Rich mentioned, Inuvo reported revenue of $17.1 million for the quarter ended September 30, 2022, an increase of 1% compared to $16.8 million reported in the third quarter last year. Both platforms, ValidClick and IntentKey serve our multichannel solutions for our clients. IntentKey revenue exceeded the prior year by approximately 12%, primarily due to new customers expanding their media spend. ValidClick revenue declined by 3% compared to the prior period of 2021 due to incidental issues resulting from the invalid advertising media acquired in the second quarter of last year. Revenue split between the IntentKey and ValidClick was 33% and 67%, respectively, for the quarter that ended in the third quarter that ended September 30, 2022, and that compares to 30% and 70%, respectively, for the same period last year. Our revenue is less concentrated in 2022 than before. Our largest client represented 33% of the total revenue. In the same quarter last year, our largest client, who was different from this year, represented 36% of our revenue. Gross profit for the third quarter ended September 30 of this year totaled $10.3 million as compared to $13.1 million for the same period last year. Gross profit margin for the third quarter this year was 60% as compared to 78% for the same period last year. The IntentKey platform has a lower gross margin than the ValidClick platform, but it has a greater overall net margin. The Inuvo gross margin decreases as IntentKey revenue becomes a greater percentage of the total revenue. In quarters past, cost of revenue was predominantly payments to website publishers and app developers that hosted advertisements that we serve through the ValidClick platform, yielding a very high gross margin. As the programmatic channels associated with the IntentKey continue to grow, they have become a larger percentage of our revenue and cost of revenue. IntentKey cost of revenue is predominantly payments to advertising exchanges that provide access to a supply of advertising inventory into which we serve on behalf of our clients advertisements using information predicted by the IntentKey artificial intelligence. This incurs a greater cost than the historical payments we made directly to publishers, but at the same time, on a net basis, it is more profitable. The very high ValidClick gross margins also have a high cost of traffic acquisition, which is accounted for in operating expenses as marketing costs. The IntentKey does not have these costs associated with it. Our gross margins are also dependent upon the mix of advertising channels that we use to serve our clients. Many of our clients require a multichannel digital media solution. One of our advantages is the ability to serve highly targeted prescriptive ads across multiple channels, such as video, mobile, connected TV, linear TV, display, social, search, and native. Each of these channels yield varying gross margins depending on supply and demand, and the optimization of the media mix for clients can vary from client to client and over time. Generally, search and social are lower-margin channels as we work within the walled gardens of large internet platforms that support these channels. We have better opportunities for margin expansion in other channels related to the Open Web. We expect gross margins for the remainder of the year to be roughly in line with the gross margins that we reported in the first 3 quarters of this year. Operating expenses were $14.1 million in the third quarter of this year compared to $14.8 million in the prior year, a decrease of 5%. The largest component of operating expense is marketing costs. Note, as I previously mentioned, marketing costs are predominantly traffic acquisition costs associated with ValidClick. Marketing costs were $8.6 million in the third quarter of this year compared to $10.2 million in the same quarter last year. The lower marketing cost is due to the overall lower ValidClick revenue. Going forward, we expect marketing cost as a percent of revenue to continue to decline as revenue from the IntentKey platform continues to grow in overall share of Inuvo revenue. Compensation expense was $3.2 million in the third quarter of this year compared to $2.8 million in the prior year, primarily due to higher employee salary costs, higher stock-based compensation expense, and accrued incentive pay. Our full-time and part-time employment was 92 at September 30 of this year, and that compares to 77 at September 30 of last year. The majority of the increase in headcount occurred within sales, sales support, and account management related to the IntentKey. General and administrative expenses increased by $381,000 in the third quarter this year compared to the prior year due to higher doubtful debt allowance, professional fees, and travel and entertainment expenses. This was partially offset by lower facility expenses and amortization expenses. Net financing expense was approximately $13,000 in the third quarter of this year compared to $6,000 last year. The expense was a net of $22,000 of finance charges, partially offset by $9,000 of interest and dividend income from marketable securities. Turning now to other income and expense. We reported an expense of $79,000 that is associated with unrealized losses on trading securities as these securities are marked-to-market at quarter-end. We reported a net loss of $3.8 million or $0.03 per basic share compared to $1.8 million net loss or $0.02 per basic share in the same quarter last year. The greater net loss in the current year quarter over the prior year is due primarily to $2.8 million lower gross profit, offset only by $765,000 of lower operating expense. Net income in this year's quarter also includes $1.2 million of noncash items, including depreciation, amortization, and stock-based compensation. The adjusted EBITDA loss for the quarter ended September 30 of this year was $2.6 million compared to a loss of $338,000 last year. At September 30 of this year, we had cash and cash equivalents and marketable securities of $7.7 million and a net working capital of $5.9 million. In addition, we have a $5 million working line of credit, which we currently have no outstanding balance on. We maintained a simple capital structure with 120 million common shares outstanding, 4.9 million employee restricted stock units outstanding, and 300,000 warrants to purchase common stock. With that, I'd like to turn the call back over to Rich.

Thanks, Wally. At 45% year-over-year growth through the first 3 quarters of 2022, we anticipate delivering solid revenue growth for the year on a year-over-year basis and believe 2023 will be even more transformative for the company. Consequently, we remain laser-focused on increasing the brand awareness and adoption of our IntentKey AI technology, which is garnering extremely positive feedback and is gaining traction within a market where current identity-based targeting technologies can no longer scale. Overall, we are building a highly scalable model and expect to generate positive cash flow during the latter half of 2023 as we continue to grow revenue. We believe our balance sheet remains strong enough to accommodate the working capital needs of the growing business. Should current fourth quarter trends continue, we would expect revenue to be between $19 million and $20 million. I will now turn the call over to the operator for questions.

Thank you, everyone. We will now take our first question from Brian Kitslinger with Alliance Global Partners.

This is Sherman on for Brian. I have a few questions here. I want to start with if you could talk about the pressure on advertising budgets. And if it's turning both of your segments for IntentKey, is it small campaign sizes or fewer campaigns? And on ValidClick, does the pressure on ad search budgets, are you seeing more or less pressure than the corporate overall ad budget?

Could you ask the second question again, please? I got the first one, but I didn't catch all of the second one.

Yes. On ValidClick, do you see the pressure on search ad budgets? Do you see that as generally having more or less pressure than the overall corporate ad budgets?

Let me start with the first question about whether we are experiencing pressure on budgets and if that's reflected in our campaigns. The answer is both yes and no. We are facing an uncertain economic situation, and we believe our clients are experiencing the same. As a result, we've noticed a slight decline in the number of campaigns being run by clients. Therefore, we did see fewer campaigns in the quarter compared to the previous quarter. This trend is apparent across various channels including search and social. I want to be clear that this is an uncertain time, and we are unsure if this situation will persist or improve. However, there are some preliminary signs that advertisers may be hesitating to determine whether the economy will trend upwards or downwards, particularly concerning inflation-related issues.

But for the most part of those, you said maybe slightly fewer campaigns is overall have remained consistent?

Yes. With the reduction.

That's helpful. Could you share the number of new logo wins for IntentKey during the third quarter? Additionally, how have new logo wins trended in the fourth quarter? I'm trying to understand if, during a recession, enterprises will seek out new ad technology or if we should expect new logo wins to be modest in the near term.

The answer to the question is we haven't disclosed how many of the new logos that we have. So, I won't do so right now if I could have to go look it up to see what it is. But I will answer it generally. In almost every seasonal cycle within the advertising industry, you sign up most of the new logos actually heading into the new year. Most companies do not want to make changes to whoever it is that's providing their advertising technology and services in the third and fourth quarters of the year because those are typically, especially in the e-commerce realm, the most significant quarters related to their financial performance. So, there is generally a slowdown in the number of new logos we signed in the back half of the year compared to the front end of the year.

That's helpful. So, the fourth quarter is usually seasonally strong. Can you provide anything to help us understand how you see this coming fourth quarter? Will the fourth quarter be the strongest of the year in terms of revenue? Or will there be that pressure from talking about so the fourth quarter will be below the third quarter? Any details would be helpful.

In my comments summary, I provided some guidance on this. Based on our current situation as of November 15 and the revenue we've observed up to that date, we are projecting fourth quarter revenue to be between $19 million and $20 million.

And then you mentioned that your top clients, your largest client decreased from 36% of your total revenue to 33% of your total revenue. Have they communicated anything to you in terms of its near-term ad strategy related to IntentKey?

Well, we speak with them all. So go ahead, Wally.

I was just going to say, Rich, that those are different clients, right? That wasn't the same client from last year.

But the general answer to the question is we're in dialogue with our clients all the time about the various components of the medium mix associated with the deliverable. And of course, as I mentioned on the call today, which I highlighted, it's actually in the second quarter. I mean we have some incredible technology itself, again, artificial intelligence-based that allows us to actually optimize the media mix across channels in a way that, as far as we can tell, has not been done before and the impact of it is yet again significant. Optimizing this media across channels is probably one of the hardest things to do in advertising, particularly as the number of channels grow.

We'll take our next question from Jack Vander Aarde with Maxim Group.

This is Jack Codera calling in for Jack Vander Aarde. I actually just had one question. I know you guys mentioned already, you're still focusing on growth, which is nice to hear. I'm wondering on an adjusted EBITDA basis, is the goal to operate close to breakeven adjusted EBITDA? And I'm also wondering if you could share some color if you think the macro environment adds any randomness to that? That's my only question. Thank you so much.

Jack, you sort of interrupted.

Wally, do you want to take the question?

Yes, it kind of broke up. I didn't hear the entire question. What was it about adjusted EBITDA that you were asking, Jack?

I apologize. Yes, I'm curious if your goal is to operate near adjusted breakeven EBITDA, and if you could provide any insights on how the macro environment might introduce some variability to that.

Yes, absolutely. Thanks for the question. Jack, we're focused on growing as quickly as possible. As Rich had mentioned in his comments, this is an opportunity for us. It's a window that we see over the next 2 years that's giving us an opportunity to get market share. So, we're growing as quickly as we possibly can within the constraints of attempting to be EBITDA neutral. We're at a negative now, but we have hit quarters where we have been positive, and we believe we can continue to be positive in the future. So, the focus is growing as quickly as we can, but to remain neutral to positive in adjusted EBITDA as quickly as possible also. So yes, that is our goal.

That's an amazing goal. That's the only question I had.

Ladies and gentlemen, this does conclude today's question-and-answer session. At this time, I'd like to turn the conference back to Rich Howe for any additional or closing remarks.

Thank you, Operator. And of course, I'd like to thank everyone who joined us on this call today. We appreciate your continued interest in our company.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.