Inuvo, Inc. Q3 FY2025 Earnings Call

Good day, ladies and gentlemen, and welcome to the Inuvo, Inc. Third Quarter 2025 Earnings Call. This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Katie Cooper, Director of Marketing. Please go ahead.

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the Inuvo third quarter 2025 shareholder update call. Today, Inuvo's Chief Executive Officer, Richard Howe; Chief Financial Officer, Wally Ruiz; and Chief Operating Officer, Rob Buchner, 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 evening. 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 a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by 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, I'll now turn the call over to CEO, Richard Howe.

Thank you, Katie, and good afternoon, everyone. For the third quarter of 2025, Inuvo delivered $22.6 million of revenue, roughly flat year-over-year. For the first 9 months of the year, Inuvo has delivered $71.9 million in revenue. We're pleased to report a strong 25% year-over-year growth through the first 9 months. That said, Q3 results fell short of our expectations, primarily due to a deliberate reduction in advertising spend starting in mid-August. This step was essential to align with updated requirements from our largest Platform client, enabling us to sustain and scale our partnership longer term, a move we had previewed earlier. October revenue within Platforms was back up year-over-year. The technologies required to meet the clients' needs are now in place and are already helping Inuvo avoid compliance risks and facilitate future growth within this large client. I will talk more about these products and technological advances later in my comments. Therefore, we experienced a roughly 5% decline sequentially in Platforms and a roughly 29% sequential growth within Agencies and Brands. Both Platforms and Agencies and Brands are up year-over-year through the first 9 months of 2025. Wally will discuss the financials in greater detail during his section. We have 2 notable items to share with you related to the business on this call. First, we've been working on a multimillion dollar contract with a government organization where the government shutdown has delayed the signing. I highlight this deal because it's a prime example of the larger opportunities we will be pursuing. Rob Buchner, who I will introduce in a few minutes, will talk about this during his remarks. Additionally, we have been a party to a large class action lawsuit that has now been settled. According to the attorneys representing the class and the verifiable claims we have, we expect a substantial payout in the first quarter of 2026. We remain optimistic about achieving our revenue goals for 2025 and want to reiterate that Q3's performance was not a function of reduced demand, but rather additional preparation required to onboard demand. Our largest IntentKey clients' 2025 final budgets are now locked in. Based on those budgets, our top 5 clients are expected to have grown over 65% year-over-year by the end of calendar 2025. I'd also like to mention that we recently hired a Chief Operating Officer. Rob Buchner brings to Inuvo a successful career as a CMO, a CEO and an entrepreneur. With his history as a deal maker, Rob is uniquely positioned to help Inuvo monetize the industry-leading AdTech products we have built at this critical stage of our evolution. Rob joined Inuvo 10 months ago, progressing from go-to-market consultant to a Board Member, and now Chief Operating Officer, where he can now have an even bigger impact on the company. Let me now turn the call over to Rob for a go-to-market and client activities discussion.

Thanks, Rich, and hello, everyone. I want to start by framing the immediate growth opportunities for IntentKey product, driven by my broad view of the ad industry at this critical moment in AdTech. I bring a unique perspective to Inuvo, having enjoyed a far-reaching career in what I call the creative sciences. That being the co-mingling of brand content, emerging media technologies, and real-time data and analytics. I've organized business units around this operating model at 2 national agencies within 2 of the world's largest holding companies: Publicis and IPG. As CEO at Campbell Mithun, I commissioned a programmatic trading arm in 2013, years before most agencies knew of its significance. Today, programmatic is a $200 billion marketplace, and I intend to marshal my business development skills and leverage existing C-suite relationships in this new role. The marketers I speak with aren't just confused; they suffer from AI fatigue. It's understandable. The market is saturated with antiquated AdTechs wrapping inferior offerings, cookie-dependent data around general AI with little to no positive effect. The AdTech landscape is experiencing seismic shifts and structural failure. The legacy programmatic spine is breaking, not just due to cookie dependency, but from the fatal design flaws of data latency and signal loss. Stalking people around the Internet is not the future. IntentKey is the antidote for this privacy-first post-cookie environment. Our go-to-market is shipping decisively upstream. We will pursue million-dollar plus service deals with CXOs inside brand organizations, leaders who control budgets, and are ensnared by diminishing returns in performance marketing. The IntentKey value story resonates most clearly with senior executives who have branding authority and are directly accountable for business results, the very decision-makers who have historically been a challenge to reach. Case in point, the pending government contract, which Rich referenced, was a direct result of Tim Flynn, a retired admiral of the U.S. Navy and former executive at Intel, who has joined our team in an advisory role. We have others like Tim, who have had brilliant careers in trusted executive roles, now partnering with Inuvo to actively unlock access to the C-suite and accelerate enterprise adoption. I see this as a strategic means to securing significant future enterprise deals. We are actively structuring brand-direct deal terms to accelerate this high-value growth and upskilling our account management organization to capitalize on growth within existing accounts. As of the end of the third quarter, we now have 44 self-service brands, including companies like Kia, Apple, Crate & Barrel, CB2s brand, and others. Critically, we'll continue to aggressively scale self-service deals, in part because it's the easiest way for clients to use our AI and because this component of our business generates margins of nearly 90%. Furthermore, our predictive mixed media modeling is an undervalued asset. It is a critical, high-margin solution for brand stewards and natural on-ramp for the broader IntentKey deployment. Integration of IntentKey through partnerships is another area of emphasis. We are actively pursuing holding companies, adjacent AdTechs and commerce media players. We expect success on this front to generate significant high-margin revenue in 2026. Our managed services business remains robust. We added several new brands in Q3, including a major healthcare provider who recognized IntentKey's targeting leverage for open enrollment this fall. And finally, we're elevating our marketing efforts around 2 key objectives. First, sharpening our value proposition by highlighting a predictive edge. Our Platform forecasts purchase intent 24 hours ahead of legacy programmatic tools. This delivers a clear, measurable advantage that sets us apart. Second, we're showcasing a more intuitive user experience by integrating it across all sales and marketing channels, thereby boosting awareness and easing adoption. Rich will dive deeper into this enhanced IntentKey during his products and technology session. My goal is to take what are the most innovative and performative products in AdTech and scale them to the next level. I was recently reviewing an independent analysis of performance within one of our largest clients. This study concluded that Inuvo had achieved 20% to 40% higher efficiency compared to legacy ID-based solutions, and a staggering incremental return of 400% to 600% across connected TV and display advertising. Thanks to a great product and a sharpened go-to-market strategy, our current pipeline already features a number of high-profile brands that represent substantial future potential. And with that, let me now turn it back over to Rich to discuss products and technology activities.

Thank you, Rob. As I mentioned in my opening remarks, our Platform business maintained stable performance in Q3. And while the focus shifted briefly to prioritizing advertising compliance and quality, the operations team actually took this opportunity to expand the network through a mix of new site additions and improved engagement across our existing network. This will help us safely fulfill the backlog of demand that is growing within the Platform's product line. In today's advertising environment, advertising integrity is finally becoming a strategic advantage. This Platform client has now implemented more stringent policies that reward trusted high-quality suppliers, exactly the standard Inuvo was built to exceed. Our consistent investment in quality has positioned us not just to benefit from this shift, but to help define it. And this was evident in our ability to implement complex technical changes that quickly met the needs of this client. And that brings me to a critical innovation we have introduced within Platforms, which we have now called Ranger. Ranger is a next-generation compliance and quality capability embedded within our Platform solution. It leverages advanced AI to ensure every ad creative we deliver is aligned with the post-click experience. In a market where generative AI has drastically accelerated the speed and volume of ad production, this alignment has become more difficult and more essential than ever. Whether it's a headline, an image or a video, Ranger analyzes the creative content and compares it to the landing page the media asset is promoting, validating that the message is accurate and aligned. This protects the user, the advertiser and our client. It prevents misleading content from slipping through and gives our clients full confidence that the ads Inuvo is serving exceed policy standards. And more importantly, the consumers' expectations. Let me be clear, Ranger was purpose-built to combat one of the fastest-growing threats in digital advertising, creative and media misalignment that can lead often inadvertently to fraud, and it's working. Today, we use Ranger internally to safeguard our own campaigns, but its broader application is substantial. Ad buying Platforms, networks and major brands are increasingly in need of real-time assurance that their creative assets won't be flagged, penalized or worse, cause harm to their brand reputation. The future of advertising demands trust, and it demands alignment between message and experience, and it demands that AI not just automate, but it accounts. With Ranger now deployed within Platforms, we have both product lines supported by sophisticated artificial intelligence that aligns around a simple premise that the reasons why people are interested in the ads should align with the reasons why audiences consume content within which the ads are shown. Ranger is already opening new Platform opportunities. Recently, we co-hosted a joint webinar with TikTok's product, policy and go-to-market teams that has already resulted in over 15 new media buying leads. In the third quarter, we also continued to advance the technologies that power the IntentKey in our Agencies and Brands product line. And in so doing, we have reinforced Inuvo's position as the market leader for proprietary large language generative AI purpose-built for advertising. We recently launched a completely redesigned audience discovery portal that further cements our leadership in this AI-powered ad technology. We now provide next-day predictive indicators for audience size and sentiment trends, offering clients early signals on likely audience intent shifts. We have a new trending geographical map, which visualizes emerging consumer intent across the top 10 U.S. states, supporting geographically informed creative and media decisions. And we also completely reimagined how a consumer's intent changes as they journey from passive interest through active consideration. Furthermore, we introduced a multi-segment audience modeling where the IntentKey now automatically generates up to 3 unique audience subgroups with individual summaries and performance percentages. Finally, we enriched our demographic insights by retraining our AI on the latest U.S. census data. Once again, in an industry first, we have aligned this data not with people, but rather with concepts, and in the process have made our proprietary IntentKey signals even more powerful. For Agencies and Brand clients, our campaign performance metric came in at 45% above average client KPIs within the quarter. While Agencies and Brands' margins declined slightly, this was a result of the scaling of our largest services clients, as I mentioned in my opening remarks. The strategic foundation we've laid is paying off. The self-serve business continues to gain momentum. These enhancements we've introduced make it easier and faster for clients to harness the power of our AI. 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 afternoon, everyone, and thank you for joining us today. I'm pleased to share our financial results for the third quarter of 2025. Revenue for the quarter was $22.6 million, representing a 1% increase year-over-year. The growth was driven by increased demand from our Agencies and Brands' clients. Platform revenue was $18.7 million, down from $18.8 million last year. As Rich previously mentioned, we slowed the scaling of our largest Platform client during the quarter to complete the development required by the client. However, partially offsetting this decline, our second largest Platform client continued to ramp the new campaign introduced in the fourth quarter of last year and yielded a fourfold increase in revenue. Revenue from Agencies and Brands totaled approximately $3.9 million for the quarter, a 7% increase over last year. We onboarded 23 new clients in the third quarter, and we now have 44 clients using our self-service product. These self-service clients represent future growth potential with the benefit of being our highest margin product offering. Cost of revenue increased to $6 million, up from $2.6 million in the third quarter of last year. This was driven by the new campaign with the Platform client that I just mentioned. Unlike other Platform clients where the cost is reported as a marketing cost, the campaign with this client is accounted for as a cost of revenue. Our cost of revenue is primarily payments to website publishers and app developers who host our ads as well as media costs for our Agencies and Brands' clients. Gross profit was $16.6 million compared to $19.8 million in the same quarter last year. Gross margin declined to 73.4% from 88.4%, which was anticipated due to the accounting required for the new campaign that I had previously mentioned. Operating expenses totaled $18.2 million, down 16% year-over-year. The largest driver of lower operating expense was $3.6 million due to lower marketing costs associated with reduced revenue from our largest Platform client. Compensation expense increased by $39,000 in this year's quarter compared to last year, primarily due to accruing a separation expense this year. Headcount remained stable at 80 employees at quarter end versus 82 at quarter end a year ago. General and administrative expenses increased by $110,000, largely due to the absence of a $100,000 allowance reversal recorded in the third quarter of last year. Other income was $48,000 compared to 0 in the same period last year. Net financing expense was $114,000 compared to $101,000 a year ago. Adjusted EBITDA was a loss of $670,000 compared to a loss of $357,000 in the third quarter of last year. Net loss narrowed to $1.7 million or $0.12 per share versus a loss of $2 million or $0.15 per share a year ago. We ended the quarter with $3.4 million in cash and cash equivalents. The same amount was drawn down from our $10 million line of credit. With the available borrowing capacity, we have ample flexibility for continued investment and support of our operational needs. With that, I'd like to turn the call back over to Rich.

Thanks, Wally. In Q3, we delivered $22.6 million in revenue, flat year-over-year. However, we remain up 25% through the first 9 months. We deliberately slowed growth from our largest Platform client to complete a major compliance upgrade, including the launch of Ranger, our new AI-driven ad quality system. This investment strengthens our foundation and positions us for sustained scalable growth. Operationally, we're shifting upstream, targeting larger brand-direct deals while continuing to scale our high-margin self-serve IntentKey product, now used by major brands. We're also seeing increased adoption of our predictive media mix modeling, which is becoming a key entry point for broader IntentKey engagement, and we completed a series of enhancements to the self-serve portal. Despite the pause in Platform growth, demand remains strong. Our top 5 Agency and Brand clients are projected to grow over 65% this year, and we have a major government contract delayed but pending. We expect the cash payout in Q1 2026 related to a settled class action lawsuit. We remain optimistic about achieving our 2025 goals, and we are building real separation in a transforming AdTech market. I will now turn the call over to the operator for questions.

Our first question comes from the line of Scott Buck from H.C. Wainwright.

Rich, I'm curious, when you onboard 23 new clients in the quarter, do they immediately start generating revenue? Or is there typically a 30-, 60-day lag before you start to see a real ramp?

They get on pretty quickly and they start spending, but it's typically small amounts, Scott. So they're sort of testing the waters and seeing how it works. And then you see it ramp. They start spending more, and they begin to increase their spending incrementally. This is self-serve I'm talking about now because the bulk of the clients that we signed in that '23 number were self-serve clients.

Yes. So there's a cumulative effect to how the revenue ramps. Okay.

Yes. I think they're trying to compare us to other tactics they're deploying and seeing how well it works. So they ease into it.

On self-service, you're up with 44 clients there. I'm curious, as that business is scaling, what feedback you're getting from those clients and whether or not it's changing the way that you go and market the product to new Brands or Agencies?

It is changing the way that we're building the product and marketing it. One of the statements I made in this call is we did a complete overhaul of the interface to the self-serve portal. That's in part a result of feedback, feedback like some things are a little harder to use than clients would want, seeking efficiencies and more data. So yes, we definitely use that feedback loop to both improve the product and to change our marketing approach.

Perfect. And then last one, Wally, I would assume that sales and marketing expense is kind of moving back to previous run rate here in the fourth quarter from the dip you had in the third quarter. Is that fair?

Yes. It should start moving up in direct relation to our Platform revenue ramping up.

Yes. Okay. Just wanted to make sure it was temporary and not a more permanent change.

No. It was temporary.

Our next question comes from the line of Brian Kinstlinger from Alliance Global Partners.

Inuvo was well ahead of the market in identifying the need for AI for targeted AdTech to drive improvement in campaign outcomes. And more than ever, enterprises are looking for ways they can utilize AI. My sense is brand awareness remains the biggest challenge for Inuvo. So I'm curious how Rob in his new role is thinking about new advertising and marketing ideas. What do you think held back greater adoption of IntentKey thus far?

It's tough to be a marketer right now because there's such an onslaught of new technologies. Our job is to be memorable in getting our message across in economic terms, because the greatest advantage that IntentKey offers is incremental return on ad spend. Our performance consistently outperforms others. The way our models are shaped, and the fact that we're able to identify audiences 24 hours and bid directly into the bid stream affects the supply-demand economics. For example, during the open enrollment period for healthcare, we're able to find the nuances, and activate our buys in real time, thereby creating momentum and additional adoption.

Can you talk about the advertising and marketing budgets, what they look like for '25 and how you're thinking about 2026?

That's a different question. Actually, Rob is on the phone. He might want to talk about our marketing plan.

The tried-and-true way is through thought leadership. This is a very concentrated group of marketers in the programmatic space. Attending these conferences, coming out with a point of view, making sure people understand the advantages vis-a-vis other AdTech companies is important. We will be promoting ourselves in the right places and leveraging our key players who are developing a significant social footprint. Additionally, we are repackaging our story around user experience, enhanced by our data visualization tools, which are very distinct.

You mentioned that your largest Platform provider is going to reward based on performance. Can you expand on that?

We're not sure yet because it hasn't been made clear to us exactly how this is going to play out. But as you well know, we designed for changes occurring in the marketplace. This client has accelerated their desire for high-quality ads, and we were able to adapt to that. We expect that we may see some benefits in our contract terms related to the quality standards that are monitored.

Can you quantify the class action payout in the first quarter?

I specifically didn't quantify it, but I will say it is significant and will be in the millions. The settlement has been reached, and we anticipate receiving the payment. We last spoke to the administrators and were advised that payouts are expected to start in late this year or early next year.

Is there anything in this fourth quarter that makes it more or less seasonally strong than typical?

I don't think we're seeing any systemic seasonality differences year-over-year.

Our next question is from Jack Vander Aarde from Maxim Group.

With this true differentiated AI technology like IntentKey, there are unique opportunities beyond just AdTech. Are there any opportunities you see that are emerging today to expand the use case of IntentKey?

There are many opportunities, and some of them we're already deploying. The government contract I referenced is where we're actually finding hard-to-find employees. We try to stick right now to our bread and butter in advertising as we are in a gigantic market. Change takes time with large industries with lots of suppliers. We're focused on current innovation within our existing market, keeping our energies focused.

Are digital assets, cryptocurrencies, and NFTs on your radar?

Only in a cursory way. We're interested in what's going on there but nothing on paper at this point.

Our next question comes from Jon Hickman from Ladenburg.

So this payout you referenced is money you're receiving, not money that you have to pay in penalties?

Correct. We are a plaintiff in this class action.

You mentioned you're on track with your revenue goals. Can you elaborate?

We have a 25% growth rate through the first 9 months. We would very much like to continue that, which should help us achieve our goal.

If you look at our trailing 12 months, we're at $98 million. We expect Q4 to be our best quarter.

There are no questions at this time. I would like to hand the call back to Mr. Howe. Please go ahead, sir.

Thank you, operator. As always, I'd like to thank everyone who joined us today on the call, and we appreciate your continued interest in our company.

This concludes today's conference call. Thank you for participating. You may now disconnect.