Good day, ladies and gentlemen, and welcome to the Inuvo, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only-mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Friday, November 8, 2024. I would now like to turn the conference over to Natalya Rudman of Crescendo Communications. Please go ahead.

Thank you, Li, and good morning. I'd like to thank everyone for joining us today for the Inuvo third quarter 2024 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 also like to remind our shareholders that we plan to file our 10-Q with the Securities and Exchange Commission this morning. 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 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 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, Rich Howe. Please go ahead, Rich.

Thank you, Natalya, and thanks, everyone, for joining us today. We are pleased to report that for the quarter ended September 30, 2024, we delivered 23% sequential growth. We were down roughly 9% year-over-year, having come off of the strongest quarter in our history in the third quarter of fiscal year 2023. And that quarter was driven in large part by our largest platform client. For the 9 months ended September 30, we are up approximately 9% year-over-year. The fourth quarter is shaping up nicely, with the first 5 days of November having averaged roughly $290,000 per day in revenue. We are currently estimating double-digit year-over-year growth in the fourth quarter. Adjusted EBITDA improved $310,000 sequentially at a loss of $357,000 in the third quarter of this year. We expect adjusted EBITDA to be near breakeven in the fourth quarter. We have no outstanding debt at the end of September, and we have cash and availability from our $10 million receivables facility sufficient to meet our working capital needs. In the second quarter, I had mentioned that we were in the process of completing a master services agreement with a large retailer, and I'm pleased to report that we signed that agreement. We have consistently delivered exceptional results for this client. Consequently, we do expect this relationship will continue to thrive well into the future. As we have discussed in prior calls, the process for approval by this client was extensive, having taken approximately 1.5 years from the initial interest. Let me now provide some information about our industry, our clients, and our products. Let's begin with the industry. Our platform products and the services we deliver are focused on a very specific component of the advertising ecosystem. This market is roughly $6 billion annually, and typically, it's designed to extend the reach of these platforms to niche websites they do not themselves own or control. Over the past year and a half, this large market has experienced changes, and those changes have been a driver of the growth within our platform clients. These platform companies we work with have had a concerted effort to improve the return on advertising spend resulting from this marketplace on behalf of their advertisers. Now to accomplish this goal, these platform companies have reduced the number of companies they work with, choosing instead to focus with a finite set of partners on improving quality through better technology, better content, and compliance. Inuvo is one of those partners. This shift towards prioritizing quality over quantity, along with the finite nature of the players in this marketplace gives us confidence that this component of our revenue has significant potential to scale. Among our agency and brand clients, the major shifts continue to center around consumer privacy. The browsers that enable that privacy and an advertising industry that has long, some would say too long, relied on a business model dependent on the exchange and sale of a consumer's private information. As a reminder, our AI was designed to find audiences without using this consumer data. The debate within the industry on this issue is probably best summarized by a statement that goes something like one person's tracking, consumer tracking is another person's consumer personalization. Regardless of the debate, the movement towards a digital advertising marketplace where tracking consumers is no longer possible continues to accelerate, both legislatively and technologically. Apple with their Safari browser is already there. As I've mentioned on prior calls, they control over 50% of mobile browser market share. Google with their Chrome browser has been slow to change. In August of this year, they announced a shift in their approach to consumer privacy, stating their intention to empower consumers to make their own choices. They have yet to announce exactly how they plan to do that. Moving now to our clients. Across our platform, agency, and brand clients, we are now actively working with over 100 small and medium-sized agencies. As it relates to the agencies and brands we serve as part of our AI IntentKey products, we signed 4 new agencies and 2 new direct clients within the quarter, while also adding 6 new brands with existing agencies. These new clients were in sectors that included healthcare, entertainment, education, non-profit, and technology. Across those agency and brand clients, we outperformed our KPIs for those clients on average by 43% in the third quarter, growing this component of our revenue by 15% year-over-year. One of our larger clients, an auto manufacturer, is currently forecasted to be up roughly $1.3 million this year. The large retail client I had mentioned earlier will be up tenfold in the fourth quarter as compared to the first quarter of 2024, which is when we first started working with them. Based on our current booked business, we are forecasting this agency and brand component of our revenue to be up sequentially in the fourth quarter. Our platform relationships remain a strong driver of our growth and working capital for our company. While revenue from these clients was down 12% this quarter compared to last year's strong performance, this part of the business is scaling well. As we head into Q4, it is also forecasted to be up sequentially in that quarter. We also made progress selling our IntentKey self-service product during the third quarter. This aspect of our product strategy allows clients to generate and target audiences within their own campaign platforms. While this remains a small component of our overall revenue today, in the quarter, we secured a number of notable brands within hospitality, technology, and the auto sectors. As we have mentioned in prior calls, along with growth, this self-serve product is an important component of our drive towards being cash flow positive because the margins in this part of our business are significantly higher than when we deliver our technology along with campaign services. Let me turn now to our products. Early in the first quarter of 2025, we plan to announce and launch enhanced capabilities within this self-serve AI product, offering media buyers an unprecedented set of tools and ease of use within advertising. These new capabilities should allow Inuvo to scale more easily across both the upper and lower ends of the ad tech market. As I have discussed in prior calls, our AI is a disruptive technology within advertising. It's an intelligence that has and continues to capture the wisdom of humanity as represented in the billions of pages of content available across the Internet. Consequently, it already knows things about any product, service, or brand. However, to implement this technology, the AI also needs to be seeded with information that guides but does not define ultimately its audience choices. Prior to this new launch, which is being tested now, when a self-serve client has signed up, Inuvo itself would have to seed the AI with information captured as part of the discussions with the client. This, not surprisingly, caused some bottlenecks. In this latest version of the self-serve product, clients will now be able to themselves either describe the audience they wish to target verbally and/or provide the AI with a series of URLs that have content in them that may describe their product, for example, or their competitive landscape or for that matter, any other contextual information that they can provide related to the target markets they want to attack. With this information alone, which is captured now in this new version of the self-serve product in an easy-to-use interface, the IntentKey will now be able to immediately generate an audience for any product, service, or brand and be instantly able to action that audience within the client's platform of choice. There is simply no other ad tech competitor even close to providing this level of efficiency, flexibility, and ease of use. As we've seen now for quite some time with the performance of the IntentKey in market, the actual performance for those clients. We will definitely talk more about this on our year-end call. At this time, 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. I'll recap the financial results for our third quarter of 2024. Inuvo reported revenue of $22.4 million for the third quarter of 2024, down from $24.6 million for the same period last year. That's a 9% decrease year-over-year as we had expected. However, revenue in the current quarter is 23% higher than the previous sequential quarter. Through the first 9 months of 2024, we are up 8.5% year-over-year. The higher revenue in the third quarter last year was due to a new product launch with our largest platform client, which experienced rapid growth during the third quarter last year before being scaled back in the fourth quarter in an effort to improve advertiser performance. We continue to focus on scaling revenue from platform clients, as well as signing on new midsize agencies and brands. In the third quarter of 2024, 83% of our revenue came from platform clients with the remaining 17% from agencies and brands. This represents a slight shift from the third quarter of last year, where 87% of the revenue was from platform clients and 13% from agencies and brands. We expect revenue from agencies and brands to increase as a percentage of the total for the remainder of this year. Cost of revenue was $2.6 million in the third quarter of 2024 compared to $2.3 million for the same period last year. Cost of revenue is primarily composed of media payments made on behalf of our agency and brand clients and to a lesser extent, includes payments made to website publishers and web developers that host our advertisements. We reported a gross profit of $19.8 million compared to $22.3 million for the same quarter last year. The gross profit margin for the third quarter of this year was 88.4% compared to 90.7% for the same period last year. The decrease in gross profit this year was mainly due to lower revenue. We anticipate a slight decline in gross margin in the fourth quarter of this year due to a higher proportion of revenue coming from agencies and brands. Operating expenses for the third quarter of 2024 totaled $21.7 million compared to $23.5 million for the same period last year. All components of operating expenses were lower this year compared to last year. Marketing costs were $17 million in the third quarter of 2024 compared to $17.6 million in the same quarter last year. Marketing costs were lower primarily because of lower revenue from platform clients. This quarter's marketing expenses included a one-time noncash impairment charge of $600,000 related to a 2021 referral and support services agreement that is no longer in use. Compensation expense for the third quarter of 2024 was $3.1 million compared to $3.5 million in the same quarter of the prior year. Compensation expense was lower in the third quarter of this year compared to the same quarter last year due primarily to lower stock-based compensation, lower incentive expense, and lower commission expense. At the end of the second quarter, we eliminated 13 positions in an effort to reduce expenses through the elimination of redundant roles. Our total employment, both full and part-time, was 82 at the end of the third quarter of 2024, and that's compared to 86 people at the end of the third quarter of the prior year. We plan to add 3 salespeople by year-end. General and administrative expense for the third quarter of 2024 was $1.6 million compared to $2.3 million in the prior year. The reduction reflects collections resulting in lower doubtful account expense, improved collections, along with lower professional fees and amortization expense. Net interest expense was approximately $101,000 in the third quarter of 2024 compared to a net interest income of approximately $20,000 in the third quarter of last year. Net loss in the third quarter of 2024 was $2 million or $0.01 per basic and diluted shares compared to a net loss of $1.2 million or $0.01 per basic and diluted shares for the same period last year. The net loss this year includes $1.6 million of noncash expenses. For the first 9 months of 2024 compared to last year, the net loss has improved by $2.1 million. Adjusted EBITDA loss in the third quarter of this year was $357,000 compared to an income of $32,000 in the same period last year. For the first 9 months of 2024 compared to last year, adjusted EBITDA has improved by $2.4 million. As of September 30 of this year, we had cash and cash equivalents of $2.6 million. And in July, in the third quarter of this year, we secured a $10 million asset-based working capital line of credit. And as of September 30, there was no debt outstanding. Our capital structure is composed of approximately 140 million common shares outstanding and 12 million employee restricted stock units outstanding. The company has reduced its cash burn during the 9 months of 2024 compared to the 9 months of last year by $227,000 and expects further improvements in the fourth quarter.

All right. Thanks, Wally. We grew roughly 9% in the first three quarters of 2024 compared to the prior year. And while we were down year-over-year in the third quarter coming off a strong prior year comp, we expect to be back up year-over-year at double digits in the fourth quarter. Over the first 5 days of November, we have, in fact, averaged unaudited over $290,000 per day. We continue to execute on a multifaceted strategy that includes the expansion of our markets, which, as noted in my earlier remarks, we are achieving by offering both self and full-service offerings. We continue to lean into our market advantage, which is the ability to quickly identify and target audiences without using a consumer's personal information. Additionally, we continue to enhance our sales and service teams by upgrading the former and better organizing the latter in a manner that incentivizes both growth and retention. We have strengthened our enablement and marketing functions, putting ourselves in a stronger position to support sales and better communicate our value proposition. Furthermore, we have refined our messaging to clearly highlight our strength and value proposition to clients and investors alike. I will now turn the call over to the operator for questions.

Thank you so much, presenters. And ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Brian Kinstlinger of Alliance Global Partners. Please ask your question.

Great. Thanks so much. I have a bunch, so maybe I'll ask a few and then get back in the queue. You talked about the retailer and the car manufacturer, you touched on them. But last quarter, you also mentioned a large technology company as a new mega brand customer. Can you provide any updates on that third customer that you discussed?

Give me some more context on the technology - the technology...

Last quarter you talked about three mega brands using IntentKey.

Yeah. So Brian, I'd have to go back and look exactly what my comments were there. But based on the way you're phrasing it, I think I was really referring there to our largest platform client, which is a large technology company, one of the largest in the world.

Got it. Okay.

Now with that said, we are making progress, and we have signed up actually some other what might be called, you know, in fact, they more than be called, they are large technology companies. They're still small in terms of their, let's call it, revenue contribution to Inuvo, but we are definitely working in the technology sector.

Then let's touch on the retailer, the car manufacturer, which you kind of touched on their growth and kind of expectations. What are they communicating on performance? And if it's going really well, which I assume it is based on the metrics and KPIs you're performing against, are they already from a high level, talking about increased market share in the years ahead?

Budgeting for clients tends to happen in the fourth quarter, late in the fourth quarter, early in the first quarter for any given year. So yeah, there's always ongoing dialogue with clients about what could be, let's just say, in 2025 as compared to 2024. But most of the time, at this time of the year, everybody is just focused on maximizing the return on investment associated with the so-called Halloween, Thanksgiving and Christmas seasons, which are typically the largest parts of the year for people. What I will say is what I've said continuously, the KPIs we're delivering for clients, including these ones that you're mentioning are outstanding. And I will go on record once again, in head-to-head, in fair head-to-head testing against any technology used to find and target audiences, we will win.

So it begs the obvious question I think I've asked so many times, what will it take for your client base that's already using Inuvo and outperforming the competition to dramatically increase their usage of your technology? What do you think when and how does that happen?

Two things are necessary to accelerate that. One is relationships. So in spite of the fact that we're living in a digital world and consequently, people are less likely to want to have face-to-face meetings, the relationship with a client is probably the biggest catalyst to accelerating the relationship. So that's why we've been investing in that with our sales teams and with other relationships we have. We know if we can get in with people and build a relationship with them where we're not being sorted by the plethora of competitors, those relationships will grow. And then the second thing is fear of change. So whenever you've got a disruptive new technology and whenever you've got markets changing, the people involved in those decisions have this aversion to change. So those are the two things, Brian, and we're working on both.

So that leads to the obvious next question. And then I'll get back in the queue because I do have other questions. But you talked about looking to hire three new salespeople. Have you hired any yet in the fourth quarter? And talk about the ideal candidate and how you find that person.

I'm not sure if we've hired one in the fourth quarter. We think we probably did; Wally might know the answer to that. So after I'm done talking, he can opine on that. But we've hired a number of new ones, and we've changed out some others as I mentioned, and we've been trying to do the best we can to get the best people possible. The combination of skills that we look for - well, there's a plethora of things you look for when you're trying to hire the right - the best salesperson. But going back to the prior question you asked, one of the things that we look for quite extensively is what kind of relationships do they possess? And are those relationships long-standing and trusted because that matters. So we care a lot about those relationships that the salesperson comes to the table with. And then the second one would probably be categorized in the bucket of skills that I'll describe as being consultative. If you're going to position technology within the ad tech world, it's unfortunately for salespeople, complicated. There's data and there's analytics and there's segmentation and there's campaign platforms and there's IP addresses and cookies. And I mean the list goes on and on and on. So to do a really good job selling any product in this industry sort of demands that you understand how things work. Those skills are hard to come by. So we look for the two is the answer. The long drawn out answer to your question is strong relationships and an individual who has a strong understanding of how things actually work. That would be the two main characteristics.

Great. Thank you. I'll get back in the queue.

Okay. Brian.

Thank you so much. And your next question comes from the line of Jon Hickman of Ladenburg. Please ask your question. Go ahead Jon. Your line is live.

Yeah. Rich, I was just wondering what the - I don't know, like the M&A landscape looks like in your portion of the ad tech world. Is there a lot of activity going on? Do you feel like there are targets for you to acquire? Or are you a target?

I'll start with the last question. I believe it could be both scenarios. However, our ability to acquire is limited by our balance sheet, which restricts our capacity to proceed without concern for dilution that might affect our shareholders. Yes, we actively look at potential acquisition targets and have ongoing discussions in that regard. On the other hand, being acquired is also a possibility for us. Given our capabilities, the disruptive nature of our technology, and our unique position with the patents we hold in large language generative AI tailored for this specific use case, we are addressing a significant challenge in the industry. Therefore, I anticipate heightened interest in us over the coming period, however one might define that time frame. We are continuously in conversations with companies eager to learn more about what we offer. So, it's indeed a scenario where both outcomes are possible. There’s nothing imminent at the moment, but as expected by our shareholders, we are always engaged in these discussions.

Okay. And one more for me. You have 140 million shares outstanding, give or take. Is there any discussion at the Board level of maybe a reverse split so that the share count was a little less than the share price, maybe a little higher?

I think - so as you would expect, the answer is, yeah, we talk about these things on a routine basis in our Board meetings. And the analysis for that is not simple. So contrary maybe to folks who haven't taken a look at this and looking at the history of it and the history being defined by companies that have done it. There's sort of mixed results in terms of whether or not it worked out in a positive way or in a negative way. So the answer to your question is, if we ever do choose to do this, we would do it under the guise of very comprehensive analytics that sort of make sure that when and if we do do it, that it doesn't yield, I guess, a bad outcome.

Okay. Thank you.

You bet. Thanks, Jon.

Thank you so much. And we have a follow-up question from Brian Kinstlinger. Please go ahead.

Great. Over the last few quarters, I think you and I on this call have talked about advertising and obviously, you have limited capital, but the importance of the effectiveness. I wonder, looking backward, if you could talk about maybe over the last 12 months, the effectiveness of your marketing and advertising? And do you need to make changes? Do you need to keep doing what you are doing because it's working? Just maybe talk about that, please.

Yeah, sure. Well, so we've already talked about the fact that one of the key components to that is the people we have out in the field. We brought Barry, former CEO of an agency in to help us with that, and he has done a great job at, I'd say, improving the professionalism of this part of our go-to-market. Now there are lots of other things we can be doing on the sales side that we are, in fact, doing. One of which points back to the other question you asked about some of the things that matter and relationships matter. So I will say this, Brian, we have contracted with recently some other individuals who, let's just say, have broad relationships within the advertising ecosystem. We brought them on as consultants to help us make introductions, leveraging the strength of their relationships to help us do that, recognizing that, that's so important to this scalability, if you will, of what we can do. With marketing specifically, the marketing stuff, one of the things that we find effective in this new world we're living in where, as I said earlier, it seems like buyers don't want to have face-to-face meetings or at least not as many as they used to. We have found that conferences work pretty well for us because while people don't want to have face-to-face meetings, they do attend the conferences. So these conferences become a really good place for us to network and make those relationships. I'm pretty sure we attended six of them in the third quarter, just as a side note to give you some sense of the scale of the operation there and us leaning into that part of our marketing activity. In addition to that, we've been quite successful at getting ourselves published in industry, reputable industry, you know, trade magazines who have a desire to talk about artificial intelligence and advertising. We're clearly, if not the quintessential company, one of the quintessential companies at that intersection. In the third quarter, if memory serves, we had three of those articles published about us. So that's an increase. We've also seen a pretty strong increase in the number of people who have subscribed to Inuvo on LinkedIn. We've been pretty active within LinkedIn at trying to reach marketing and advertising professionals and consequently, that's working. So I think we have, I don't know, 7,000-ish subscribers now who we push information about Inuvo to. We have a newsletter that goes out, I think it's monthly. And there's 1,000 or so people, 1,000 advertising and marketing professionals subscribe specifically to that newsletter alone that we push that to. And all those numbers are going up, if you will. So forgive the long answer, but I wanted to be thorough.

Great. The last question I have, I think you said you added 60 brand customers to agencies and two new direct logos. How many customers or brands are you actively serving maybe on a quarterly basis right now? Can you share that?

Yeah, that's a good question. I'm not sure I know the answer to that. We probably should follow up afterwards and tell you that so I don't say something wrong.

Okay. All right, great. Thank you.

You bet. Thanks, Brian.

Thank you very much, operator, and thank you, everybody, who joined us on today's call. We appreciate your continued interest in our company. Thank you so much, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Have a great day.