INUV - AMEX

Good day, ladies and gentlemen, and welcome to the Inuvo, Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference call over to Katie Cooper, Director of Marketing. Please go ahead.

Thank you, operator, and good afternoon. I would like to thank everyone for joining us today for the Inuvo Second Quarter 2025 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 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 second quarter of 2025, Inuvo has delivered robust year-over-year growth with revenue up 25%. While seasonality and some fluctuations in client spend did lead to an expected sequential decline of 15%, our 5-year compounded annual growth rate through the second quarter of 2025 now stands at approximately 24%, reflecting sustained momentum in our business as we approach our goal to break through the $100 million in sales this year. Gross profit, adjusted EBITDA, net income and free cash flow all improved year-over-year. And while operating expenses were up because of increased revenue, they were not up at the same rate as revenue, which highlights our ongoing focus on cost controls. Notably, financing and other income improved year-over-year, reflecting a favorable external factors, and operating cash flow was $144,000 in the quarter. Wally will discuss our financials in greater detail in a few minutes. Let me now turn to a discussion about our go-to-market and client activities. IntentKey self-serve adoption is accelerating with 18 new deals set up in the quarter and 300% quarter-over-quarter growth. Our managed services pipeline remains healthy, and we are seeing more direct clients interested in leveraging our IntentKey measurement, artificial intelligence or channel level performance insights. We signed 4 new managed service deals in the quarter. I'd like to remind shareholders that our self-serve IntentKey product was designed to be a scalable, easy to use and deploy media technology any company of any size can use. It's also the highest margin product we possess. It does not take many millions of dollars in self-serve revenues to materially improve the Inuvo bottom line. Within media, there is a market that's referred to as curation. This refers to a process of selecting, organizing and packaging advertising inventory curated to meet specific needs of these audiences. Inuvo's AI can curate instantly any audience an advertiser wants to place their ads against. There is literally no other technology on the planet that is as easy to use as flexible and performs as well. Last Friday, for example, we had 12 of our newer self-serve clients continue their campaigns in a single day. And while the media spend against these IntentKey AI curated audiences remains modest, the scaling and retention is an indication of a significant opportunity for future growth and margin. Connected Television is an area of rising interest with more clients, including our solutions in their RFPs. CTV remains our highest services margin channel. Feedback from clients continues to validate our privacy-compliant to concept-based targeting as a clear differentiator with several reporting substantial lifts in conversions and campaign performance. The platform product line was defined by substantial volume expansion and disciplined investments in quality throughout the quarter. Although revenue per click declined sequentially due to seasonal and geographical mix, the strategic direction of the market favors higher quality lead generation, a trend that plays well and directly to Inuvo's strengths and long-standing investments in compliance and quality advertising. As the market increasingly rewards trusted, transparent suppliers, we are exceptionally well positioned. Operationally, we made significant enhancements to our IntentKey reporting dashboards, which we've now rolled out to most clients receiving overwhelmingly positive feedback. We've also increased our sales support activity, which in turn has driven more local market engagement and in-person meetings as well as the hiring of our first sales development representative focused on direct client outreach. Our 2 largest IntentKey services clients both grew sequentially and year-over-year. Let me now discuss product and technology activities. The second quarter of 2025 was defined by strong operational growth and deliberate investments in both the quality and scalability of our platform product line. We experienced over 60% quarter-over-quarter growth in leads delivered to advertisers. An important indicator of both demand and the efficiency of the marketplace we've created with this product. However, it's important to note that this impressive growth was managed with a disciplined approach. We deliberately constrained the onboarding of new ad campaigns within the quarter to ensure compliance and safety and ultimately, the long-term scalability of our platform product. Our marketplace for this product is most easily categorized by proprietary advertising technology coupled with publishing capabilities. To support this expansion of the platform product, we launched more than a dozen new high-quality websites into the platform network in the quarter with a particular focus on vertically oriented content. This represents a 50% increase over the first quarter and directly strengthens our ability to attract higher value advertisers. Leveraging advanced AI tools, we've also significantly increased the pace, scale and quality of our content creation and deployment within the platform product line, allowing us to now create original unique images and explore niche verticals like we've never been able to before. These investments are deepening both the breadth and the depth of our content, further elevating the overall value of our offering to our clients. Despite the strong operational indicators, we did see a decline in revenue per ad click, which we attribute primarily to seasonality and a change in geographic mix as impressions from developing markets grew strongly within the platform product line portfolio. This is a common trend in this industry, and our focus remains on building a high-quality, resilient marketplace that can deliver for advertisers across varying market cycles and geographies. We are also seeing a notable shift across the broader market ecosystem towards higher-quality advertising standards in general. One of our major clients has implemented stricter and more targeted quality enforcement mechanisms, specifically designed to reward high integrity suppliers in an effort to improve advertising outcomes by filtering out lower quality leads. We have seen this kind of focus in the past and it has historically favored suppliers like Inuvo who are always committed to compliance, transparency and ultimately client results. As the market raises the bar, we are well ahead of the curve due to 2 years of investment in compliance-oriented infrastructure, lead quality monitoring and a scalable set of technologies. On the Agencies & Brands product line development front, our team continues to expand and refine the commercial application of our predictive media mix modeling, artificial intelligence. What previously took significant manual analysis can now be accomplished in a fraction of the time, allowing us to deliver actionable channel level performance insights to both agency and direct clients. This is especially valuable to direct clients who are increasingly leveraging this technology to optimize spend and evaluate true channel effectiveness against actual business goals as opposed to a collection of what might be called convoluted marketing metrics. As discussed earlier, the self-serve adoption continues to accelerate because we are providing customers with easy-to-deploy low- risk access to our audience modeling capabilities, which in turn is also driving strong engagement with our audience discovery and targeting platform. We are actively developing the next generation of our self-serve portable, which will provide clients with an improved set of insights and a more intuitive interface to understand those insights. For those listeners unfamiliar with the IntentKey product line, like other large language-based artificial intelligence technologies, the IntentKey audience discovery process begins with a simple prompt. For our self-serve customers, we've now also introduced automated optimizations that have already produced tangible performance improvements. These enhancements are designed to further streamline the client experience and drive higher margins for Inuvo. Finally, we are pursuing new integrations with additional demand-side campaign platform providers, a move that will increase our flexibility for managed clients and facilitate future international expansion and new product innovation. Across our product portfolio, the clear differentiator remains IntentKey's privacy-compliant large language concept-based targeting. Clients consistently cite this capability is a primary reason for choosing Inuvo with some reporting significant lifts in conversion rates and performance following their adoption. The introduction of enhanced client reporting capabilities has further strengthened our value proposition by delivering greater transparency and actionable insights. In terms of industry validation, it's worth highlighting a unique perspective that emerged this quarter. We recently tasked several leading AI systems, including Gemini, Grok and ChatGPT to independently research and evaluate Inuvo's IntentKey technology against what they considered to be 9 of the world's top programmatic advertising solutions on the market. Each AI was asked to assess effectiveness in a forward-looking world, taking into account critical privacy trends like the deprecation of cookies, VPN adoption by consumers, consumer tracking limitations with companies like Apple. Now across all 3 AI systems, the research results were the same. Inuvo's IntentKey was recognized as the best solution. This was an amazing outcome. This external unbiased endorsement by the latest generation of artificial intelligence chat technologies underscores the differentiated value our technology provides to clients, facing the evolving challenges within digital advertising. In short, Inuvo's product suite continues to evolve rapidly, supporting both operational scale, and the strategic shift towards higher quality, privacy-first solutions that we believe will define the future of advertising. 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 second quarter of 2025, which was marked by strong revenue growth, client expansion and operational efficiency. Revenue for the quarter was $22.7 million, representing a 25% increase year-over-year. The growth was primarily driven by sustained demand from our platform clients, which generated approximately $19.7 million in revenue. Our 2 largest platform partners expanded their engagement, one scaling a successful product launched in 2023 that focused on improved technology, high-quality content and compliance and the other ramping a new campaign introduced in the fourth quarter of last year. Revenue from Agencies & Brands totaled approximately $3 million for the second quarter. We onboarded 22 new clients in the second quarter, 18 of whom adopted our self-serve solution. This builds on the 20 new clients that we added in the first quarter of this year. While individually small, these clients represent a future growth potential as they scale their advertising budgets. Cost of revenue increased to $5.6 million, up from $2.9 million in the second quarter of last year. This was driven by the new campaign with one of our platform partners. As a reminder, cost of revenue primarily reflects payments to website publishers and app developers who host our ads as well as media costs for our agencies and brand clients. Gross profit was $17.1 million, an increase of 12% year-over-year. Gross margin declined to 75.4% from 84%, which was anticipated due to the scaling of the new platform campaign, which is accounted for in the cost of revenue. Operating expenses totaled $19.1 million, up 12% year-over-year. The largest driver was an increase in marketing costs aligned with our platform revenue growth. Compensation expenses increased by $170,000 primarily due to accruing incentive expense. Headcount remained stable at 82 employees at quarter end versus 83 a year ago. G&A expenses increased $260,000 largely due to the absence of a $255,000 allowance reversal that was recorded in the second quarter of last year. Other income was $560,000 compared to 0 in the same period last year. In June, we received an IRS refund of $606,000 related to the employee credit -- employee retention credit from the second quarter of 2021. Of that, $525,000 was recognized as other income and $81,000 was recorded as interest income. Net financing expense was $18,000, down from $42,000 a year ago and includes the $81,000 in interest income, I just mentioned. Adjusted EBITDA improved to a loss of $629,000 compared to a loss of $686,000 (sic) [ $667,000 ] in the second quarter of last year. Net loss narrowed to $1.5 million or $0.10 per share versus $1.7 million or $0.12 per share in the year ago period. We ended the quarter with $2.1 million in cash and no outstanding debt. In June, we completed a 1 for 10 reverse stock split. This strategic action was intended to improve the marketability of our shares and better position Inuvo to attract institutional investors. Following the reverse split, our outstanding shares totaled 14,473,843 shares as of June 30. With that, I'd like to return the call to Rich for closing remarks.

Thank you, Wally. In summary, the second quarter of 2025 showcased both the resilience and adaptability of our business. Despite the expected seasonality in the quarter, we continued to build on our multiyear trajectory of robust annual growth and operational improvements. Revenue for the first half of the year is roughly $49.5 million, which is up 40% year-over-year. We are successfully driving adoption of our highest margin products. We're expanding our footprint with both agencies and direct clients, and we're gaining some meaningful traction into emerging channels like connected television, where our IntentKey solution is increasingly being recognized as a market leader. Looking ahead, Inuvo remains exceptionally well positioned as industry dynamics continue to shift towards privacy-first, high- integrity digital advertising. Our investments in compliance, scalable technology, predictive analytics are all paying off. This is enabling us to anticipate and meet the evolving needs of our clients while setting the bar high for the marketplace generally. We continue to see strong momentum in our pipeline and a growing number of new deals, particularly in self-serve, an overwhelmingly positive feedback from clients, leveraging our enhanced reporting and AI-driven insights. Our team remains focused on executing our strategic road map and delivering best-in-class results for both advertisers and partners. And as always, I want to thank our shareholders, clients and employees for their ongoing support and commitment. With our technology team and strategy, we believe Inuvo is uniquely positioned to drive continued growth and to lead our industry through this next phase of its transformation. With that, I will turn the call over to the operator for questions. Jenny?

[Operator Instructions] Your first question is from Brian Kinstlinger from Alliance Global Partners.

Great. First question is, is there anything that has occurred in the last 3 or 4 months since we last were on one of these calls in the market or particularly as it relates to Inuvo that gives you more or less confidence in your ability to hit that $100 million annual target this year?

Yes, Brian, we feel pretty good about the $100 million. I mean it's not like we're not without some view of where the clients are and the growth rate on the clients are. So sitting here right now, I think the $100 million looks good this year. Generally speaking, within the market or the industry as a whole, every quarter that's going by, I guess, we're getting more confident that people are starting to realize that there's better technology out there for -- to improve the marketing activity and maybe better understanding the nature of the problem that exists. So those are all in our favor.

Yes. And then maybe talk about the evolution these days of a new customer, especially with this new technology that they're taking, you've signed a bunch of new customers. Is it very small day 1, a little bit bigger? Just take me through the evolution of when some of the campaigns by new customers become a little bit more meaningful and impact the results.

So far, generally, at least for the last few years, the process has been pretty much the same, Brian. We'll sign up a new customer. If it's a services customer and whether it's self-serve, it's kind of the same although we don't have as much history, obviously, with self- serve. So my statements there probably are less confident because they just don't have enough of them. But on the services side, we typically sign up a client, and it's usually they start off with some smaller amount of spend and then they see the performance gains and then they just keep adding money. And I think as I said in the past, if we lose a client there, it's almost always because the agency we're supporting if it's an agency client lost them. On the self-serve side, we've got a bunch of them now. And I think we said we got another 18 or so this quarter, I think in the first quarter, where there's maybe 15 or so, if I remember, right, self-serves. They're all really small, but we're seeing an increase. And I think I pointed to that like a 300% increase. And so we're seeing an increase in the actual, let's say, revenue generated from those self-serve even though the revenue we're generating from that is small. But we're seeing quite a nice increase, which is an indication of the fact that they basically are running our models, they're seeing they're working and so they're applying more media spend against them. And of course, that's -- in that model, the revenue we take is only the net, right? So we take the -- it's whatever we get out of that. That's why it's a very high-margin product for us. So we see less revenue than we would for services clients. That's a long answer, Brian, but the best I can do.

Is there a case -- two more questions. Is there a case where a self-serve customer, especially if they're larger, decides to see at that point, transition and see the benefit of you taking it over? Or you not generally see the opportunity to transition these self-serve customers?

It hasn't happened yet, but I think the question is a good one, and I would expect that, yes, we'll have some of those as those self-serve customers grow. And particularly, I would say if those self-serve customers are maybe on the bigger side, they may decide, hey, why don't we just let Inuvo run these things for us, maybe that's more efficient. I could see that happening, although it hasn't happened yet because we've only been effectively selling self-serve for, I don't know, maybe less than a year.

Yes. Okay. My last question is year-over-year revenue grew by more than $4 million, almost $4.5 million in the June quarter. Your operating loss is about $300,000 to $350,000 more. So I'm wondering why with that scale, I get the gross margin is lower, but that's supposed to be offset by what I thought was lower marketing costs. So I'm wondering why is it the cost -- the marketing costs are going up on price? I'm just curious why that higher revenue has brought a lower operating profit.

Yes. I think -- Brian, I think you hit it on the head. The gross margins are lower year-over-year. And there's a number of reasons for that. One is the product mix that we now have. It's different than it was last year. And the second reason for it is, yes, our marketing costs are running a little bit higher, so between the two. If you look at the other operating costs, they -- although they are higher, compensation is about $200,000 higher this year over last year, and that's primarily because last year, we did not accrue an incentive expense. And this year, we are. And the other one is the general and administrative is up about $200,000, also about $250,000. And that's because we had a reversal of an allowance last year, which we don't have this year. But yes, it's a combination of those increases and somewhat lower gross margin.

And I might add something, Brian, to what Wally said is like, I think you know this, Brian, because you've followed the company for quite a while. But look, there's always 1 quarter in the first half of any year that's like, let's just call it, a down quarter in this industry we're in. And down can be like top line is down, but down can also be like the demand-supply economics are such that the margins are down. And that's -- we saw that in Q2, like for -- particularly in the platform business, right, like growth was still robust, but margins were a little compressed there. So we would expect that to reverse.

[ Potentially ] demand supply economics in June were more favorable in buying marketing space, whereas in the June quarter, it was less favorable. And that's why the marketing is growing while the margins come in. Is that right?

Yes. And I think maybe, yes, to some degree, yes, and I think the answer is like we expect those margins to improve, right, as the seasonality of that quarter. It ended up being Q2 this year. right? Last -- in some years, it's Q1, some years it's Q2, I don't know. So we would expect margins to improve somewhat.

Your next question is from Scott Buck from H.C. Wainwright

Just one question for me. As demand appears to be accelerating, I'm curious whether or not you guys are seeing opportunities to improve your selling process and maybe even optimize pricing at more attractive levels.

Always. It's probably the thing we spend a lot -- I don't know, a big part of our time on, Scott, is how do we -- well, maybe I'll say this a different way. I mean I said it on the conference call, look, these AI systems that are out there, not ours but others, I mean, they're equivalent to really, really great consultants now. And so anybody who's on this call can just go ask it, and you'll get the same answer we do, if you ask it the right question. And the answer is we know our product is the best product on the planet for discovering audiences and targeting audiences in the open web. There's no doubt about it in my mind. No doubt about it. So we're always sitting around, like how do we unlock the value of that? We know our brand recognition is okay, but it's not a name brand yet. We know we never have enough salespeople out in the field, most notably because we know we have to constrain how many salespeople we can actually hire just because we've got the balance sheet and the liquidity reserves that we have. So we're always trying to figure out how do we do this better. We spend a lot of time on it.

[Operator Instructions] Your next question is from Jack Codera from Maxim Group.

This is Jack Codera calling in for Jack Vander Aarde. A quick clarification question on the numbers of new clients. You mentioned I think it was 18 new self-serve deals and then 4 new managed service deals. Are those -- is that the right segments? And then are those all new customers? Are there any repeat deals in there?

Those are all new.

Yes, they're all new, and they're all on the Agencies & Brands side, Jack.

Okay. Wonderful. And then you mentioned something at the very end there. I just wanted to clarify, so there's some sort of partnerships that maybe can get you to expand a little bit more and you kind of hinted at it. I don't know if you can give any more clarification on what that meant.

I'm going to guess at what you think what that question might be. But I did mention in my notes that we've been working on some new demand side platform integrations. For people in the audience listening to this, who don't know what that is, just think of it like the campaign systems. There's a number of companies that have developed great campaign systems. And we try to get our AI technology, which finds audiences and target audiences integrated into those. And we're working on a new integration with a new demand-side partner that we think could offer us some new opportunities. We already have some of those, right, but we're working on a more direct one right now.

Okay. Yes. That's why I just wanted to clarify. That's right.

I don't know if that was -- was that what you were asking, Jack? I wasn't sure I was kind of guessing a little bit of what you...

Yes, precisely. And then I had one more kind of general question. It might be a little bit strange. But given some of the antitrust suits that I think people are kind of assuming there may be some shake up with kind of Google standing with Safari. And I think some kind of newer users in search may think that some of the LLMs may become like the default search engine. Do you have any view as to how that may affect the ecosystem and how that may affect your business?

It's a good question, but it's very difficult to answer at this point because it's so evolving. I don't think there's any doubt that the -- the AI chats, the Gemini, Grok, GPT, they are growing in popularity, maybe is a good way to say it. Now if you look at the big player on the block there, it's always been Google and it continues to be Google. And Gemini is a great AI just like the other ones are. And they've now integrated that into their browser and they figured out a way to be able to sort of co-mix both the AI capability and the regular search capability in a way that still monetizes for them. So that's a long way of saying, I don't know at this point. It's not impacting us now. It will certainly impact, I guess, what conventionally has been thought of to be a browser, but I think we'll have to wait and see, Jack.

There are no further questions at this time. Please proceed.

Thank you, Jenny. And of course, I want to thank everyone who joined us on the call today. We appreciate your continued interest in our company.