8-K
Inuvo, Inc. (INUV)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 11, 2021
| INUVO, INC. | ||
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| (Exact name of registrant as specified in its charter) | ||
| Nevada | 001-32442 | 87-0450450 |
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| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 500 President Clinton Ave., Ste. 300, Little Rock, AR | 72201 | |
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| (Address of principal executive offices) | (Zip Code) | |
| Registrant's telephone number, including area code | (501) 205-8508 | |
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| (Former name or former address, if changed since last report) | ||
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 11, 2021, Inuvo, Inc. issued a press release regarding financial performance for Q4 and full-year 2020 and held a management conference call to discuss the results and the outlook of the Company. A copy of the earnings release is being furnished herewith as Exhibit 99.1.
The information in this Current Report on Form8-K under this caption and accompanying exhibits are being furnished under Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
The Company made reference to non-GAAP financial information in the press release and a reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the press release.
ITEM 7.01 REGULATION FD DISCLOSURE.
On February 11, 2021, the Company held a management conference call to discuss the Company's financial results for Q4 and full-year 2020, the outlook of the Company and certain other matters.
A copy of the script for the conference call is attached as Exhibit 99.2 and is incorporated by reference into this Current Report on Form8-K.
The information in this Current Report on Form 8-K and accompanying exhibit is being furnished and shall not be deemed to be “filed” for the purposes of Section18 of the Exchange Act, or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits.
Exhibit No. Description
99.1 Press Release for Q4 and full-year 2020 financial results.
99.2 Conference Call Script.
| SIGNATURES |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INUVO, INC. | ||
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| Date: February 11, 2021 | By: | /s/ John B. Pisaris |
| John B. Pisaris, General Counsel |
EXHIBIT INDEX
99.1 Press Release for Q4 and full-year 2020 financial results
99.2 Conference Call Script.
Document
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 |
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Inuvo Announces Financial Results for the Fourth Quarter and Full Year Ending December 31, 2020
LITTLE ROCK, Ark., Feb 11, 2021 (GLOBE NEWSWIRE) -- Inuvo, Inc. (NYSE American: INUV), a leading provider of marketing technology, today announced its financial results for the fourth quarter and full year ending December 31, 2020.
Richard Howe, CEO of Inuvo, stated, “The IntentKey platform grew year-over-year 34% in the fourth quarter and 22% overall driven by the expansion of existing client relationships and an increase in the total number of campaigns on the platform. While year-over-year revenue was down due to the pandemic, the recovery within ValidClick, where revenue was lost year-over-year, has been strong with December revenue up over 100% from the low in May 2020. We would expect ValidClick to be back too normal in 2021 and the IntentKey to continue its growth trajectory, which combined is expected to result in positive Adjusted EBITDA for 2021.”
Inuvo launched the Software-as-a-Service (SaaS) version of the IntentKey in January of 2021 by packaging the proprietary Artificial Intelligence, Analytic Modeling, and Data Technologies in a manner that allows clients to leverage the core IntentKey engine while complimenting that with their own services. Client beta testing in the fourth quarter of 2020 proved successful in delivering comparable performance to the managed service version of the platform. The launch significantly enhances the market potential for the IntentKey product.
Mr. Howe continued, “Our balance sheet has never been stronger. The additional working capital will allow us to continue focusing on our organic growth while also evaluating acquisition opportunities that can accelerate that growth, with a focus on companies whose client relationships are suited to the software and services of the IntentKey.”
Financial Results for the Fourth Quarter and Full Year Ended December 31, 2020:
Net revenue for the full year ended December 31, 2020 totaled $44.6 million as compared to $61.5 million during the same period the year prior, a decrease of 27.4% year-over-year associated with the ValidClick platform where COVID-19 had a material impact on the business. IntentKey revenue grew 22% year-over-year to $10.4 million in 2020 as compared to $8.5 million in 2019.
Overall revenue in the fourth quarter was $12.9 million, up 40% sequentially. ValidClick revenue was up 48.5% sequentially to $9.3M in the fourth quarter, continuing its recovery following its COVID-19 related low point in the second quarter. IntentKey revenue for the fourth quarter of 2020 totaled $3.6 million, an increase of 34% year-over-year. IntentKey revenue for the fourth quarter of 2020 accounted for 28% of the total revenue.
Cost of revenue for the full year ended December 31, 2020 totaled $8.3 million as compared to $22.7 million during the same period the year prior, a decrease of 63.5%, primarily due to the COVID-19 related decline in ValidClick revenue.
Gross profit totaled $36.3 million for the full year ended December 31, 2020 as compared to $38.8 million for the same period the year prior, a decrease of 6.4%. Intentkey gross profit in 2020 increased 90% year-over-year as a result of growth and margin expansion. ValidClick gross profit in 2020 was down 35% year-over-year as a result of the COVID-19 impact on revenue. Gross profit margins improved to 81.4% for the full year ended December 31, 2020 as compared to 63.1% for the same period the year
www.inuvo.com
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 |
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prior. IntentKey gross profit margins for the fourth quarter of 2020 were 45% compared to 41% in the prior year
Operating expenses decreased 4.7% year-over-year to $44.4 million as compared to $46.6 million for the year ended December 31, 2019.
Net loss for the year ended December 31, 2020 totaled $7.3 million. Net Loss included $4.5 million of non-cash items.
Adjusted EBITDA was a positive $347 thousand in the fourth quarter and a loss of $2.4 million for the full year.
Liquidity and Capital Resources:
At December 31, 2020, Inuvo had $7.9 million in cash, $150,000 in debt and no outstanding balance on its working capital line of $5 million. Subsequent to December 31, 2020, the Company raised an additional $14.25 million from the sale of common stock to institutional investors.
Conference Call Details:
The Company is in the process of finalizing its financial statements and will host a conference call on Thursday, February 11, 2021 at 4:30 p.m. Eastern time to discuss its financial results for the fourth quarter and year ended December 31, 2020 and provide a business update.
Date: Thursday, February 11, 2021
Time: 4:30 p.m. Eastern time
Toll-free Dial-in Number: 1-800-289-0438
International Dial-in Number: 1-323-794-2423
Conference ID: 1881018
Participant Link: http://public.viavid.com/index.php?id=143468
A telephone replay will be available through February 25, 2021. To access the replay, please dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). At the system prompt, enter the code 1881018 followed by the # sign. You will then be prompted for your name, company and phone number. Playback will then automatically begin.
About the IntentKey™
Inuvo®’s IntentKey™ is a patented, machine-learning technology designed to mirror the manner in which the human brain instantly associates ideas, emotions, places, people, and objects. It creates an accurate, high-definition picture of consumer intent and sentiment related to a particular topic or item. Inuvo harnesses the power of the IntentKey to discover and reach high volumes of incremental in-market and relevant audiences that are hidden from typical marketing approaches. The IntentKey enables pinpoint media execution reaching consumers throughout the purchasing funnel all the way to conversion.
About Inuvo
Inuvo®, Inc. (NYSE American: INUV) is a market leader in artificial intelligence, aligning and delivering consumer-oriented product & brand messaging strategies online based on powerful, anonymous and proprietary consumer intent data for agencies, advertisers and partners. To learn more, visit www.inuvo.com.
www.inuvo.com
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 |
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Safe Harbor / Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, without limitation risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), and represent our views only as of the date they are made and should not be relied upon as representing our views as of any subsequent date. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading "Risk Factors" in Inuvo, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed on February 11, 2021, our Quarterly Reports on Form 10-Q, and our other filings with the SEC. Additionally, forward looking statements are subject to certain risks, trends, and uncertainties including the continued impact of Covid-19 on Inuvo’s business and operations. Inuvo cannot provide assurances that the assumptions upon which these forward-looking statements are based will prove to have been correct. Should one of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied in any forward-looking statements, and investors are cautioned not to place undue reliance on these forward-looking statements, which are current only as of this date. Inuvo does not intend to update or revise any forward-looking statements made herein or any other forward-looking statements as a result of new information, future events or otherwise. Inuvo further expressly disclaims any written or oral statements made by a third party regarding the subject matter of this press release. The information, which appears on our websites and our social media platforms is not part of this press release.
Inuvo Company Contact:
Wally Ruiz
Chief Financial Officer
Tel (501) 205-8397
Investor Relations:
KCSA Strategic Communications
Valter Pinto, Managing Director
Tel (212) 896-1254
www.inuvo.com
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 | ||
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| INUVO, INC. | ||
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| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| December 31 | December 31, | |
| 2020 | 2019 | |
| Assets | ||
| Cash | $7,890,665 | $372,989 |
| Accounts receivable, net | 6,227,610 | 7,529,785 |
| Prepaid expenses and other current assets | 413,435 | 243,888 |
| Total current assets | 14,531,710 | 8,146,662 |
| Property and equipment, net | 1,187,061 | 1,374,152 |
| Goodwill | 9,853,342 | 9,853,342 |
| Intangible assets, net | 8,586,089 | 10,451,593 |
| Other assets | 1,023,369 | 865,178 |
| Total other assets | 19,462,800 | 21,170,114 |
| Total assets | $35,181,571 | $30,690,928 |
| Liabilities and Stockholders’ Equity | ||
| Accrued expenses and other current liabilities | $4,680,912 | $4,057,340 |
| Accounts payable | 4,048,260 | 7,520,567 |
| Financed receivables | - | 3,381,364 |
| Convertible promissory notes (net) | - | 536,806 |
| Derivative liability | - | 182,250 |
| Total current liabilities | 8,729,172 | 15,678,327 |
| Deferred tax liability | 107,000 | 107,000 |
| Other long-term liabilities | 1,052,285 | 452,051 |
| Total long-term liabilities | 1,163,285 | 559,051 |
| Total stockholders' equity | 25,289,114 | 14,453,550 |
| Total liabilities and stockholders' equity | $35,181,571 | $30,690,928 |
| INUVO, INC. | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS |
www.inuvo.com
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 | ||||
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| Three Months Ended | Twelve Months Ended | |||
| --- | --- | --- | --- | --- |
| December 31 | December 31 | December 31 | December 31 | |
| 2020 | 2019 | 2020 | 2019 | |
| Net revenue | $12,902,487 | $18,222,984 | $44,640,007 | $61,525,214 |
| Cost of revenue | 2,141,562 | 5,390,377 | 8,296,483 | 22,700,873 |
| Gross profit | 10,760,925 | 12,832,607 | 36,343,524 | 38,824,341 |
| Operating expenses | ||||
| Marketing costs | 8,261,359 | 10,122,874 | 27,410,284 | 30,135,991 |
| Compensation | 2,425,592 | 2,023,231 | 9,350,831 | 7,753,528 |
| Selling, general and administrative | 1,920,769 | 2,000,900 | 7,630,990 | 8,673,015 |
| Total operating expenses | 12,607,720 | 14,147,005 | 44,392,105 | 46,562,534 |
| Operating loss | (1,846,795) | (1,314,398) | (8,048,581) | (7,738,193) |
| Interest expense (income), net | (2,170) | 29,348 | (253,505) | (482,210) |
| Other income , net | 1,134,000 | 92,035 | 997,517 | 3,397,902 |
| Net loss before taxes | (714,965) | (1,193,015) | (7,304,569) | (4,822,501) |
| Income tax benefit | - | 334,394 | - | 334,394 |
| Net loss | (714,965) | (858,621) | (7,304,569) | (4,488,107) |
| Earnings per share, basic and diluted | ||||
| Net loss income | ($0.01) | ($0.02) | ($0.09) | ($0.11) |
| Weighted average shares outstanding | ||||
| Basic | 97,629,735 | 50,450,199 | 77,473,479 | 40,454,779 |
| Diluted | 97,629,735 | 50,450,199 | 77,473,479 | 40,454,779 |
www.inuvo.com
| 500 President Clinton Ave. Suite 300, Little Rock, AR 72201 | ||||
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| RECONCILIATION OF LOSS FROM CONTINUING OPERATIONS BEFORE TAXES TO ADJUSTED EBITDA | ||||
| --- | --- | --- | --- | --- |
| (unaudited) | ||||
| Three Months Ended | Twelve Months Ended | |||
| December 31 | December 31 | December 31 | December 31 | |
| 2020 | 2019 | 2020 | 2019 | |
| Operating loss | ($1,846,795) | ($1,314,398) | ($8,048,581) | ($7,738,193) |
| Depreciation | 318,623 | 394,019 | 1,372,426 | 1,680,105 |
| Amortization | 542,827 | 598,299 | 2,233,485 | 1,742,280 |
| EBITDA | (985,345) | (322,080) | (4,442,670) | (4,315,808) |
| Stock-based compensation | 198,068 | 195,284 | 858,683 | 789,914 |
| Non-recurring items: | ||||
| PPP Loan Forgiven | 1,109,000 | - | 1,109,000 | - |
| Third party rights agreement | 24,999 | - | 78,762 | - |
| Merger costs incurred during the Terminated Merger | - | 991,158 | ||
| Net adjustment to derivative liability accounts | - | (447,678) | (286,473) | |
| Adjusted EBITDA | $346,722 | ($574,474) | ($2,396,225) | ($2,821,209) |
Reconciliation of Loss from Continuing Operations before Taxes to EBITDA and Adjusted EBITDA
We present EBITDA and Adjusted EBITDA as a supplemental measure of our performance. We defined EBITDA as net loss from continuing operations before taxes plus (i) interest expense, net, (ii) depreciation, and (iii) amortization. We further define Adjusted EBITDA as EBITDA plus (iv) stock-based compensation and (v) certain identified expenses that are not expected to recur or be representative of future ongoing operation of the business. These adjustments are itemized above. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same or similar to some of the adjustments in the presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items
www.inuvo.com
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| Inuvo, Inc.<br><br>Fourth Quarter & Full Year 2020<br><br>February 11, 2021 |
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Operator Comments:
Good afternoon, and welcome to the INUVO’s 2020 Fourth Quarter and Full Year Conference Call. Today’s conference is being recorded. Mr. Valter Pinto of KCSA Strategic Communications. Please go ahead, sir.
Valter Pinto (Investor Relations) Comments:
Thank you, operator and good afternoon.
I’d like to thank everyone for joining us today for the INUVO fourth quarter and full year 2020 shareholder update call. Today, INUVO’s Chief Executive Officer Richard Howe and Chief Financial Officer Wally Ruiz will be your presenters on the call.
I would like to start by letting listeners know that as of today, and as a consequence of the COVID-19 pandemic, our office in San Jose, California remains closed. In our Little Rock facility, we continue to rotate small groups in and out of the office, on a voluntary basis, in a manner that limits the potential risk of infection through interaction with colleagues.
We would also like to remind our shareholders that we anticipate filing our 10K 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.
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Investors are cautioned that all forward-looking statements involve risks and uncertainties
which may cause actual results to differ from those anticipated by INUVO at this time. In addition, other risks are more fully described in INUVO's public filings with the US Securities and Exchange Commission, which can be reviewed at www.sec.gov.
With that, I’ll now turn the call over to CEO Richard Howe.
Richard Howe (CEO) Comments:
Thank you, Valter, and thanks everyone for joining us today.
For the three months ended December 31, 2020, we delivered roughly $12.9 million in Revenue up 40% sequentially, another strong quarterly indicator, following Q3’s 21% sequential growth, that the business continues to recover from the impacts of COVID-19 following the low point in May.
Of that $12.9 million, ValidClick delivered $9.3 million, an increase of 48.5% sequentially and the IntentKey delivered $3.6 million, an increase of 22% sequentially. ValidClick was still down 40% year-over-year in the quarter, however the IntentKey was up significantly at 34% year-over-year in the fourth quarter.
For the full year, the company delivered $44.6 million, down roughly 27% year-over-year. As we have mentioned in the past, the ValidClick business, which contributed roughly $34.2 million of annual revenue in 2020 was hardest hit by COIVD-19 but as can be seen from the Q3 and Q4 2020 trajectory, has been recovering strongly and barring any unforeseen additional COVID issues in 2021, would be expected to be roughly back to its pre-COVID 2019 revenue run rate in 2021.
The IntentKey delivered $10.4 million of revenue in the year, growing 22% year-over-year despite COVID and we would expect this product line to continue its double-digit growth rates overall in 2021. For the IntentKey in 2020, we believe COVID effectively constrained the growth rate of the product.
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Both of our product lines serve the marketing and advertising industry. There are pockets
within this industry, like Insurance or home refinancing that have continued to do well in spite of COVID and others, like travel and entertainment that have lagged. We expect to return to a more predictable market sometime in the second half of 2021.
ValidClick gross profit, after traffic acquisition costs, was down roughly 35% in 2020, a consequence of the COVID impact on Revenue, however the Intentkey gross profit was up almost 90% in 2020, a reflection of the steady increase in gross margins that occurred throughout the year in this product line.
Adjusted EBITDA in the fourth quarter of 2020 was approximately $340 thousand and for the full year was a loss of roughly $2.4 million.
The ValidClick business has historically been a strong contributor to cash flow and it is in a rare category of marketing and advertising business models where the risk of collections is relatively low, and the majority of the payables go out after receivables are collected.
The business was up over 100% in December versus its low in May of 2020. Most importantly, the primary relationships in this business with Google and Yahoo are secure with one of them having been renewed in 2020 and the other in the final signatures renewal process.
For ValidClick, COVID offered the opportunity to rethink both the go-to-market and the revenue concentration for the business in 2020 so we could come into 2021 with a business better focused on the future rather than the past.
Consequently, we have increased our direct marketing capabilities, which in turn has provided greater control over traffic acquisition, allowed for a tighter integration with our publishing platform and positions the business well as it continues to recover, to do so at higher margins.
Revenue mix within the business has, by design, changed dramatically in 2020. As of December 2020, revenue generated from ValidClick was roughly a third from each of Google and Yahoo and a third from a collection of other demand sources. This compares to
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December 2019, where Yahoo was 70% of the revenue.
For 2021, and to ensure the ValidClick business recovery continues, our Chief Operating Officer has taken on a more direct role in the day-to-day activities of the business and its important partnerships.
The market for the services of this business measures in the tens of billions of dollars annually and we believe there are no issues with respect to this businesses ability to continue to scale and thus return and ultimately surpass its pre-COVID cash contributions to the enterprise.
The IntentKey has continued to deliver outstanding results for clients throughout 2020. We know in head-to-head tests against the competition, we are likely to win. Our job now is to continue building a world class sales and account management team around this unique and proprietary product.
The reason we win is because our AI creates audiences in near real-time that only we know exist and therefore we are able to message those audiences, on behalf of our clients, before our competitors.
We ran 251 campaigns for clients in 2020 and approximately 40% of those campaigns were new within the year. In the fourth quarter, we exceeded our client’s goals on campaigns by roughly 36%.
For the year, we exceeded client goals by 46% on average. Since the goals our clients give us are likely based on the performance of our competitors, these accomplishments are a proxy for how much better the IntentKey is versus that competition.
Throughout 2020, the sales team closed many new brands across a variety of industry verticals, which itself is a testament to the technologies ability to identify and reach audiences regardless of the product or service being offered by the client.
With the launch of our Software as a Service version of the platform in 2021, we significantly
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expand the market size for the IntentKey by allowing clients who do not require a fully managed service to adopt the core differentiating components of the platform, which are the AI, modeling and data.
Coming out of 2020, we now have new clients in retail, non-profit, automotive, casinos, pharmaceuticals and tourism. We sourced a record number of RFP’s in the third and fourth quarters of 2020 and the pipeline for 2021 looks healthy.
COVID’s impact remains unknown, but typically the first quarter of a new year is our slowest quarter as marketers reassess their budgets for the year.
Since we’ve not gone through a quarter where our business cycle was combined with the lagging impacts of a pandemic, we do not know how this will impact the distribution of client media spend throughout the year. You will recall that COVID’s impact last year really began for us in April & May of the second quarter and as a result, we have no past experience beyond that to guide us.
Technically, we made a number of major advancements in 2020 that position us well for 2021 and beyond.
The first of these advancements was the launch of our real-time solution. While our AI was able to identify audiences quickly, the infrastructure that supports delivery of Ads was not.
We significantly improved this part of our technology and I’m pleased to report that we can now process up to a staggering 100 billion transactions per day and have the capability to act on in-market audiences within 5 minutes of their identification, which is well ahead of our competitors.
Our technology was designed from the get-go to be anonymous and not dependent on third party cookies for targeting, albeit while they remain available, we will use them. In 2020, we successfully tested and have now deployed a version of the core AI engine that does not use those cookies without a material change in performance. We are positioned well for any
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coming changes in privacy as that situation evolves.
And finally, and well ahead of our projections, we launched a SaaS version of the platform in January of 2021. Up through the end of 2020, we sold the IntentKey as a managed service and while this had the benefits of greater control over campaigns, it limited the market for the sale of the product by excluding sales to prospects who wanted to run those campaigns themselves. This is now no longer the case.
The SaaS version is expected to expand our market potential while doing so at higher gross margins. The product was successfully client tested at scale in the fourth quarter of 2020.
Before I turn the call over to Wally, I want to address strategy. We now have roughly $18 million dollars of cash, no debt and an unused credit facility of $5 million dollars and we have a market capitalization around $200 million.
Strategically, our focus is to use our strong financial position to accelerate the growth of the IntentKey. As such, we have retained an Investment Banking firm to help us identify, qualify and purchase acquisition candidates, including advertising agencies and consulting firms, which have clients that could benefit from the insights and performance gains existing Intentkey clients have experienced. I should note that many of our IntentKey clients are digital marketing Agencies.
Not only would potential acquisitions get us client’s relationships that would be expected to grow because of improved performance, but it would also allow us to eliminate the costs within the acquired business that are related to technology the Intentkey would replace and as a result would likely lead to increase margins within the acquired business.
We have already proven this model out with a small business we acquired in 2019. We experienced both an improvement in client retention and margin.
I would now like to turn the call over to Wally for a more detailed assessment of our financial
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performance within the quarter.
Ruiz (CFO) Comments:
Thank you, Rich, good afternoon everyone. I will recap the financial results of our fourth quarter of 2020.
As Rich mentioned, Inuvo reported revenue of $12.9 million for the quarter ended December 31, 2020; this compares to $18.2 million reported in the fourth quarter of last year.
The decrease in this year’s revenue is due to lower ValidClick revenue which in the fourth quarter this year was $9.3 million compared to $15.5 million in the same quarter last year.
This lower ValidClick revenue was due to reduced advertising budgets associated with the COVID pandemic. In spite of reporting lower year over year revenue, ValidClick’ s recovery began in June following May’s low, and by December, was up 116% off that low.
IntentKey revenue was 34% higher in the fourth quarter this year compared with last year. The IntentKey represented 28% of overall fourth quarter revenue this year compared to 17% last year.
Inuvo Gross Margins increased in the fourth quarter to 83% compared to 70% in the same quarter last year due primarily to a decision to bring in-house historically outsourced campaign delivery services for ValidClick thus improving cost effectiveness and control.
In addition, the IntentKey gross margins increased to 45% in the fourth quarter compared to 41% in fourth the prior year contributing to the higher overall gross margin improvement. Going forward, we expect IntentKey gross margins to continue to improve as we have launched the SaaS version where margins are expected to be in the 90% neighborhood.
Operating expenses were $12.6 million in the fourth quarter of 2020 compared to $14.1 million the prior year, a decrease of $1.5 million.
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The largest component of operating expense is marketing costs. Marketing costs are predominantly traffic acquisition costs associated with ValidClick. It is the largest expense associated with the ValdClick platform.
Marketing costs were $8.3 million in the fourth quarter this year compared to $10.1 million in the same quarter last year. The $1.8 million lower expense this year compared to last year is primarily due to lower ValidClick revenue as well as to a decision to bring in-house traffic acquisition services.
Compensation expense was $2.4 million in the fourth quarter this year compared to $2.0 million in the prior year primarily due to higher employee salary cost. Our full-time employment was 71 at December 31 2020 compared to 61 at December 31, 2019.
The increase in the year-over-year head count is primarily due to hiring traffic acquisition professionals as a result of bringing that function in-house, as previously mentioned. This added cost is expected to be made up in ValidClick net margin. We are actively recruiting for various positions with a focus on sales and account management professionals for the IntentKey and we expect compensation expense to increase in 2021 as a result.
Selling, general and administrative expense decreased $80 thousand in the fourth quarter this year compared to the prior year due primarily to $259 thousand lower IT costs where we completed the first phase of our computing facilities consolidation program earlier this year. The IT savings for the full year were over $600 thousand.
We now have 3 data centers and are in the process of further consolidation with another data center closing soon. These savings are related to the real time project Rich referenced in his remarks. This savings was partially offset by higher public company and legal expenses due to holding two shareholders meetings, a special shareholder meeting in October and a regular meeting in December.
| Inuvo, Inc.<br><br>Fourth Quarter & Full Year 2020<br><br>February 11, 2021 |
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For our facilities, the pandemic has allowed us to reconsider our work policies and since our Little Rock facility lease was expiring, we recently decided to reduce the square footage in half so as to structure a go-forward model for employees that has an at-home and at-work component. We believe this is the future.
Net interest was $2 thousand income in the fourth quarter of 2020 compared to $29 thousand expense in the same quarter last year.
We had other income of $1.1 million in the fourth quarter of this year primarily due to the Small Business Administration forgiving the Payroll Protection Program (PPP) loan we acquired in April. Other income in the fourth quarter last year was $92 thousand and was associated with the change of the fair market value of the derivative liability associated with convertible promissory notes.
We reported net loss of $715 thousand or 1¢ per basic share compared to a $859 thousand net loss or 2¢ per basic share in the same quarter last year. For the year, we had a net loss of $7.3 million, which included $4.5 million of non-cash items.
The adjusted EBITDA for the quarter ended December 31, 2020 was a $347 thousand compared to a loss of $574 thousand last year. For the full year, we had a loss of $2.4 million.
At December 31, 2020, we had cash and cash equivalents of $7.9 million and a net working capital of $5.8 million. The only debt at December 31st was a $150 thousand SBA loan which we have since paid off. In addition, we have a $5 million working capital line of credit which currently has no outstanding balance. We maintain a simple cap structure with only common stock and employee restricted stock units through an equity incentive plan.
In January we completed two underwritten public offerings for 19 million shares of common stock, raising gross proceeds of $14,250,000. The additional funds will be used for working capital, building the IntentKey sales force and facilitating the acquisition strategy described by Rich.
| Inuvo, Inc.<br><br>Fourth Quarter & Full Year 2020<br><br>February 11, 2021 |
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Our recent capital raise activity has brought new institutional shareholders to the company, replaced all of our debt and at the same time, our shareholders have enjoyed a rising stock price.
Now, I’d like to turn the call back to Rich for closing remarks.
Richard Howe (CEO) Closing Comments:
Thanks, Wally, we’ve seen a steady upwards trend in our business since its Covid impacted low point in May of this year.
We’ve seen the ValidClick business recover strongly in Q3 and Q4 2020 and would expect that business to be back to its 2019 financial performance in 2021 baring any remaining unforeseen COVID issues.
We’ve seen the IntentKey continue to grow in 2020 despite COVID and would expect that business to continue growing into the future.
And finally, we see an opportunity to accelerate growth of the IntentKey while also taking advantage of our strong financial position by exploring acquisitions that bring with them clients who meet the Intentkey client profile and we have retained an Investment bank to help us execute on this strategy.
I will now turn the call over to the operator for questions.
Richard Howe Final Comments:
I would like to thank everyone who joined us on today’s call. We appreciate your continued interest in our company.
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