Inuvo Inc (INUV) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the fourth quarter 2009 and year-end earnings call. All lines have been placed in listen-only mode and the floor will be opened for questions and comments following the presentation. (Operator Instructions) At this time it is my pleasure to turn the floor over to your host, Melissa Whitt. Ma'am, the floor is yours. Thank you Operator.

Yesterday, Inuvo released its financial results for the three month and year ending December 31, 2009. If you have not received a press release, it is available on the investor relations section of the Inuvo website at www.inuvo.com. This call is being webcast and a replay will be available on the company's website for 45 days. Before we begin, we would like to remind you that today's remarks contain forward-looking statements within the meaning of federal securities law. These statements do not guarantee future performance and therefore, undue reliance should not be placed on them.

We refer all of you to the risk factors contained in the Inuvo form 10-K filed earlier today for a more detailed discussion of the factors that could cause actual results to differ materially from any forward-looking projections or statements. Inuvo assumes no obligation to provide any forward-looking projections. This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, Wednesday March 31, 2010. Inuvo undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. Participating in today's call from the company are Chief Executive Officer, Richard Howe and Chief Financial Officer, Gail Babitt.

And with that, I'd like to turn the call over to our CEO. Rich?

Thank you Melissa, and thanks everyone for joining us today. On today's call, I would like to begin by providing a retrospective look at 2009. Following my opening remarks, I will turn the call over to Gail for a detailed review of the fiscal year financial statements, at which time Gail will turn the call back over me for a discussion of our plans going forward. 2009 was a year of change for Inuvo.

I'd like to take a few minutes to summarize the challenges we faced in 2009 and talk about the measures we implemented to overcome those challenges and to position ourselves for future growth. We entered the year in the middle of both a credit and economic crisis that introduced additional risks into our business as a result of our debt obligations with the bank.

The single biggest challenge we had in 2009 was ensuring that debt financing and capital needs were sufficient to fund operations and development during the investment stages of our transition. In Q1 of 2009, we managed to negotiate a short-term debt solution with our bank and on December 29 of 2009, we announced that we had restructured our credit facility with Wachovia.

Concurrently, we also announced that we had raised a total of $4.2 million in equity. It is important to note in this context that in 2009 insiders, either directly or indirectly, had purchased over 8.6 million shares of Inuvo stock. This debt restructuring and equity raise was an important milestone for Inuvo and a significant accomplishment, given the credit and economic environment we were facing.

At the beginning of the year, we also had business that's were either underperforming or not in line with our more technology-centric strategic direction. One of those businesses, the offline agency in North Carolina, was at the time not contributing sufficiently to overall operating performance, while other businesses like the online dating websites we owned had no synergy with the enterprise and were negatively impacting brand. Still other businesses, like the former PrimaryAds affiliate network acquired in 2005, had a struggling business model, slim margins and collections challenges. Systematically we took an aggressive approach to addressing each of these issues while also beginning to make technological investments within those parts of our business we plan to use as our foundation going forward.

These focus areas, the former ValidClick Search and the MyAP affiliate marketing business, were themselves also experiencing some pressure as a result of a weak economy. Throughout 2009, the team that manages our discontinued agency in North Carolina did a great job of implementing those operational changes necessary to ensure this business did not burden the enterprise. They achieved that goal and improved EBITDA in 2009 over 2008. In February of 2009, we announced the divestiture of the dating website in an asset sale for $750,000. When one considers that we sold this business in the middle of an economic crisis, the significance of the accomplishment is commendable.

In the second quarter of 2009, we had started to map out a more platform, data and analytics oriented vision for the company. At that time, we also started to review our PrimaryAds affiliate network business model in detail. In short, this was a business where we were acting as an intermediary between advertiser and affiliate. We would take an offer, drive traffic to that offer through existing relationships we had with a network of affiliates and take a commission when we generated leads or sales for advertisers. Margins in this business were very thin. Technological differentiation was minimal and the risks associated with bad traffic was high and being assumed by Inuvo.

This was exactly the kind of business our new platform was being designed to replace. As such, when the platform became available in August of 2009, we started to focus our attention on the growth of the platform, and no longer promoted offers within PrimaryAds. We expect to be completely out of the PrimaryAds business within the next two quarters. We also made important changes to the management team and board of Inuvo in 2009.

With our new focus towards leveraging data and analytics as a means to differentiate ourselves, we began to retool the team with those skill sets necessary to achieve our objectives. We brought a new CFO into the company, promoted an executive from within to lead the technology-based exchange segment and hired a former Acxiom and Fair Isaac executive to run the direct marketing segment.

We brought on a chief scientist, whose pedigree in analytics powered software development is highly regarded. And we've promoted from within to the IT leadership role that person most intimately familiar with our systems. We have also recently hired a business development leader who had previously established relationships with companies in the behavioral targeting, retargeting and display businesses. Many other changes in staffing have been accomplished across the Inuvo enterprise in 2009.

We also made changes at the board level. Our outside board membership now comprises four very experienced professionals whose backgrounds cover a broad spectrum of sectors including online and offline marketing, data, analytics, technology, microcap investing, finance and agency marketing. Between our board and management, we now have team members who have bought, sold, started and/or run companies from start-up through billions of dollars in annual revenue and bring to Inuvo a knowledge about how to successfully find and use data to predict what marketing offer to show what consumer at what time through which channel.

This data and analytics experience is key to our go-forward vision. With a new team in place, we also reorganized from a disparate collection of independently run businesses to one business, operating along two segments. As Gail will discuss in her remarks later, we've also been working on a complete overhaul of our financial systems to support this new organization.

Additionally in 2009, we also managed to secure a long-term agreement with our tier one advertising partner, rebrand the entire company and launch a new platform. While coming into the year, we had financial performance goals in excess of those delivered. We are pleased that we have been able to accomplish the things we have in 2009 despite many of the challenges we faced. Gail will review those figures in a few moments. We enter 2010 with two remaining issues related to the turnaround. The first of these issues relates to the marketing programs we acquired as part of the iLead acquisition in 2006.

On March 9, we announced that we would be exiting this part of our business for a number of reasons that included a lack of strategic fit and changes in the negative option marketing industry. Since the announcement on March 9th, we have had a number of acquisition inquiries. We will explore those options we believe are in the best interests of Inuvo shareholders. All other expenses associated with the business have been terminated.

Additionally, we have implemented a number of operational efficiencies necessary to offset lost margins. The second issue we have remaining in 2010 is related to the agency business in North Carolina. This business continues to be reported as a discontinued operation in our financials and as such the revenue it generates is not reflected in our figures.

We've attempted to sell this business over the last year, but the market has just not been ideal for such a transaction. While this business is not a perfect fit for the new Inuvo, it is a good business with very seasoned and exceptionally competent professionals leading it. We will continue to look for opportunities to divest of this business in 2010 and in the interim, capitalize on any synergies that present themselves. The evolution of the search syndication and affiliate marketing businesses into a consolidated platform strategy remains the foundation of our go forward aspirations.

While the exchange segment did experience a weak Q2 of 2009 that was brought on by the economy, it has been steadily increasing from its lows in March. I would like to now turn the call over to Gail for a review of fiscal 2009, following which I will provide some insight into our go forward plans.

Thank you, Rich. Good morning, everyone and thank you for joining us today to discuss the company's fourth quarter 2009 and year-end financial results.

I will discuss the following items during the call. First, the exiting of the negative option marketing business, including closure on the guidance provided by the SEC. Second, the operating results for the fourth quarter of 2009. Third, the restatement of 2007 and 2008 financial statements and the impact on 2009. Fourth, the status of our system implementation and changes being made in financial reporting. Fifth, the equity raise that was completed in the fourth quarter and sixth, an update of our banking relationship with Wachovia and the amendments to our credit facility.

As many of you may recall, in the third quarter, we requested that the SEC provide interpretive guidance related to lead acquisition costs within the direct segment of our business. This guidance was specifically related to the home business offers also known as iLead Media. After numerous discussions, the staff of the SEC didn't believe we should change our accounting treatment.

Since we did not have this item concluded prior to reporting our third quarter results, we presented gross profit and adjusted gross profit, as well as an adjusted EBITDA that amortized [the lead] costs over the estimated benefit period rather than expensing as incurred. Since this matter was concluded in the fourth quarter, the adjusted EBITDA presented for the fourth quarters and years ending 2008 and 2009 no longer reflects these adjustments.

While we are discussing iLead Media, as disclosed in our press release on March 9, we have exited our former iLead Media business. We have received many inquiries about this decision and the timing. As such, I would like to take this opportunity to provide detail on the timing of the announcement and the decision to postpone the earnings release which was originally scheduled for March 11.

Rich and I were notified on March 3 that the iLead merchant accounts were being turned off immediately and as a result we will be unable to process transactions. Our team had been working diligently to find a near term solution but in the interim, we have been revising our priorities to ensure that we, one, preserve cash, two, explore opportunities to divest the business and three, create a plan to resolve the going forward impact on operating results and bank covenants.

In addition, we determined the impact on our 2009 financial statements. As a result of the pending issues and a need to focus on them, we decided to utilize the time allotted to maintain a timely year-end financial statement filing, while focusing on solutions to these four critical issues.

You probably want to know if we have resolved any or all of the critical issues. There have been several companies and individuals that have expressed interest in acquiring the iLead Media business. We're currently in negotiations with several parties, but it is too soon to determine if the outcome of those discussions or the impact on our company.

As a result of the halting of the iLead Media business, we wrote off intangible assets at December 31, 2009, totaling $0.8 million. I will discuss how this impacts our credit facility in a few minutes. Our quarter-over-quarter revenue increased by $0.6 million or 9% in our exchange segment and decreased by $0.4 million or 7% in our direct segment. Total revenue was up by $0.2 million or 1% over the third quarter of 2009.

Our revenue from continuing operations was $13 million for the three months ended December 31, 2009 compared to $14.8 million for the comparable period in 2008. The reduction in revenue from continuing operations was driven primarily by our exchange segment, which experienced a decrease of 20%, going from $9.2 million in 2008 to $7.4 million in 2009. For the three months ended December 31, 2009, our direct segment experienced a slight increase in revenue, from $5.6 million in 2008 to $5.7 million in 2009.

The decrease in revenue from the comparable period in 2008 within the exchange segment was primarily the result of a decline in the search business. As a result of the economic climate, advertisers had reduced their marketing spend and growth halted during the second quarter of 2009. The decline started in March of '09 when we experienced a 30% decline month over month and a trough in June 2009.

The search business in 2009 has experienced quarter over quarter growth of 12% from Q2 to Q3 and 10% from Q3 to Q4, but has not yet returned to the revenue levels experienced in Q4 of 2008 or Q1 of 2009. The increase in revenue over the comparable period in 2008 within the direct segment is primarily the result of increases in the iLead Media business resulting from the investment made during the third quarter.

After making some significant modifications to the website, the company decided to reintroduce these operations in February 2009 and as a result began to invest in lead acquisition during the second quarter with a significant increase during the third quarter leading into the holiday season. As a result, the home business offers within the direct segment experienced a 44% increase in revenue from the second quarter of 2009 to the third quarter of 2009 and remained flat from the third quarter to the fourth quarter of 2009 with a 26% increase in the fourth quarter of 2009 over the comparable period in 2008. This is the business we exited this month.

Total gross profit from continuing operations was $4.6 million for the three months ended December 31, 2009 compared to $4.8 million for the comparable period in 2008, reflecting the reduction in net revenue which was partially offset by the improvement in gross margin rates from 32% to 35%. The exchange segment gross margin decreased from $2.8 million or 30% of net revenue in 2008 to $2.3 million or 31% of net revenue in 2009.

The direct segment gross profit increased from $2 million or 36% of net revenue in 2008 to $2.3 million or 41% of net revenue in 2009. During the fourth quarter of 2009, the improvement in direct segment margin rates was a result of an increase of investment in the acquisition of leads during the third quarter of 2009.

This third quarter investment resulted in revenue in the fourth quarter without the lead costs associated with that revenue. These acquisition costs are being expensed as incurred even though revenue from these costs impacts multiple periods.

Our company-wide operating expenses from continuing operations decreased by 29% to $5.1 million for the three months ended December 31, 2009 compared to $7.2 million for the comparable period in 2008. The drivers of the decrease are, one, a reduction of selling, general and administrative costs primarily from lower bad debt expenses and professional fees and, two, a reduction in compensation expense, resulting from the decision not to pay bonuses. This benefit was partially offset by an increase in spending to drive traffic to owned and operated sites.

The net loss for company was $1.8 million or $0.03 per share for the three months ended December 31, 2009 compared to a net loss of $42.2 million or $0.64 per share for the comparable period in 2008. Both periods contain an impairment of assets which for the three months ended December 31, 2009 was $0.8 million and for the comparable period in 2008 was $35.6 million.

The adjusted EBITDA for the company was $0.9 million for the three months ended December 31, 2009 compared to zero for the comparable period in 2008 and $2.4 million for the 12 months ended December 31, 2009 compared to $3.3 million for the comparable period in 2008. The reduction in adjusted EBITDA for the 12-month period 2009 compared to 2008 reflects the negative impact of the economic influences on revenue and gross profit, which was partially offset by operational improvements, discontinued operations, and cost containment measures in both continuing and discontinued operations. The adjusted EBITDA margin remained unchanged at 5% for the 12 months ended December 31, 2009 and 2008.

As we reported in an 8K during the course of our 2009 audit, we discovered that the allowance for doubtful accounts and bad debt expense at December 31, 2009 was underestimated by $1.2 million. As a result of the discovery of this error, we have restated our 2007 and 2008 financial statements. The impact of this restatement on 2008 and 2009 was to increase the beginning allowance for doubtful accounts and the accumulated deficit by $1.2 million in both periods. Neither management or the board took this restatement lightly. But, based upon the magnitude of the error, we believe the right thing to do was reflect the correction in the time period where it occurred.

One of our challenges in 2009 related to the time it takes to close our books. The source of this challenge has been our accounting system and processes that have been designed around the system. The systems, as they existed in 2009 and before, were designed very ad hoc without a consistent chart of accounts or a systematic way to consolidate the information. The result was a very manual process to consolidate and verify results across about a dozen different entities. We began a new install of these systems in the fourth quarter of 2009. We are currently running on the new system and expect completion of the standardized reporting templates in the second quarter of 2010. In conjunction with the new system, we are evaluating and modifying our process to improve the time required to close our books and our control environment.

Additionally, one of the new projects being built into the Inuvo platform is automation with our general ledger. Two other events occurred in Q4 of 2009 which we believe positively impact our company in 2010. In December 2009, we sold 16.7 million shares of our common stock at $0.25 per share resulting in gross proceeds of $4.2 million. This capital raise was done at market with no warrant coverage. The closing of the offering was subject to the restructure of our Wachovia obligation, which was completed shortly thereafter.

Members of our Board of Directors, their affiliates and Rich and I purchased $1.7 million in the offering, subject to the same terms and conditions as the other investors. In December 2009, we also worked with Wachovia to amend the terms of our loan agreement with the bank. The result of this amendment was we reallocated amounts owed to the bank between the term note and credit note, resulting in a $5.3 million credit note and $4.1 million term note. The credit note was modified from an EBITDA-based facility to a standard asset-based loan. We're permitted to have aggregate principal advances outstanding under the credit note of the greater of $5.3 million or 80% of eligible accounts receivables.

To bridge our account receivable, we have been provided an overadvance of $2.1 million through May 31, 2010, which over time is reduced to $1 million. The term note calls for payments of $152,000 per month, plus mandatory reductions of $150,000 at the closing, $375,000 at December 31, 2009, and two additional reductions of $250,000 each at March 31 and July 31, 2010. We extended the termination date from March 31, 2010 to March 31, 2011.

The credit note and term note bear interest at the rate of LIBOR plus 7% with a floor of 7% with interest payments on both due monthly. In addition, 25% of all net proceeds from equity sales made by us after the July 31, 2010 and 100% of the net proceeds from the sale of any collateral or subsidiary will be used to further reduce our obligations to Wachovia.

And finally, this week we completed an additional amendment to the Wachovia credit facility to accommodate the exit from the iLead business. This amendment enabled us to, one, add back the iLead Media asset impairment when calculating our bank covenants and, two, reduce the debt to EBITDA and fixed charge coverage ratio covenants. These covenant modifications were required as a result of the exit of the iLead Media business. In this amendment, we, one, accelerated the $250,000 payment that was scheduled for July to March and, two, agreed to reduce the credit note principal over time by an addition $300,000.

Although Wachovia worked with us to amend the covenants, we still needed to make operational changes to the business to offset the financial impact of the exit of the iLead Media business. We have refocused some of our talent from the iLead business to our growth opportunities. As a result of the business changes, we reduced budgeted compensation by 35%, which includes a stock for cash program for the management team and highly compensated employees, who are all voluntarily taking from 20% to 40% of their pay in the form of Inuvo common stock. The stock will be at fair market value on the date the compensation accrues.

Additionally, for 2009, based upon our performance the company did not pay any bonuses to management. I would now like to turn the call over to Rich.

Thank you, Gail. The Inuvo of the future is a data and analytics powered online and marketing platform. The business of the future will leverage the best of the assets and relationships of the former enterprise. To build this new business, we need several critical pieces.

First, we need a marketplace. The Inuvo platform is a place where advertisers and publishers can meet to manage performance-based marketing campaigns and in this regard, it is the means we have used to create this marketplace. Since its beta launch in August, the Inuvo platform has seen thousands of advertisers and publishers sign up and as a result our vision for a more efficient marketplace is starting to evolve.

In December, platform revenue was $300,000. As we continue adding new and unique features over the coming quarters, we believe the Inuvo platform will stand out as one of the best performance-based marketing solutions in market. Once you have the marketplace, the second thing you need is a lot of information that can be mined for behavioral patterns.

Many companies claim to have data and many speak to how their data is used, but few really have both the access and know-how to leverage that data in a manner that creates performance-based competitive barriers. Inuvo does. The third thing you need is smart computer scientists and Ph.D.'s who can build sophisticated algorithms that locate hidden patterns in the data.

In this regard, we have scientists on our team who have been previously involved in building and deploying a number of the most commercially successful analytics-based software solutions that have addressed industry challenges in risk management, fraud prevention and marketing. As we look at any of our business lines today, we are asking ourselves, do they produce large quantities of data within which we can find patterns? Do they provide a place where we can test the performance of our algorithms? Are they integrated into the Inuvo platform? And as a result, adding value for advertisers or publishers ? If a business doesn't serve one or more of these objectives, it's a distraction and we should manage out of it.

To be able to deliver on this vision for Inuvo, we must be able to take advantage of those assets we have that are very difficult for others to acquire. I'd like to discuss a few of those assets and how we plan to drive new growth opportunities for our shareholders with them. Between our search and affiliate marketing businesses, as a company, Inuvo currently facilities in excess of $0.5 billion of commerce annually.

Those same businesses touch anonymously approximately 80 million unique consumers each and every month. That represents approximately 45% of the unique monthly internet traffic in the United States. This information has value well beyond the clicks, leads or product sales for which we get paid today.

Every interaction with each and every consumer teaches us something that can be used to better predict an action for the next consumer we meet. How we differentiate ourselves is a function of our ability to find and apply these anonymous consumer patterns locked in the data. In January, our analytics team started to collect and begin modeling with this data. We now believe strongly that the information we have will allow us to build models that predict the best offer to present to a consumer, that can predict the best publishers for each advertiser, that score the effectiveness of each advertiser and publisher combination- and that predict the likelihood of a fraudulent marketing transaction.

Our approach to behavioral targeting, which is powered by anonymous data we collect each and every day across our exchange, is a unique combination of consumer trends related to both in market and historical behaviors that we have access to. When we deploy these algorithms within the platform, we believe they will produce the necessary return required to win market share from our competitors. What makes Inuvo exciting is that unlike many other companies in the online marketing technology space, who have tended to be either collectors of data or consumers of data, Inuvo owns both the means to collect the data and the marketplace to use it.

We believe this is unique and it is one of the reasons we are investing in this part of our business. Inuvo also has access to tens of thousands of advertisers, as a result of our relationships. While we have been successful at proving to thousands of publishers that we can monetize page views for them better than their alternatives, competing for clicks is a tricky business.

Despite these competitive market issues, we believe there are ways to increase clicks by extending the platform with tools that help publishers monetize the traffic their sites already attract. Further, we believe there is a technological underpinning to the approach and it fits our criteria to collect more data. Our strategy here is to first build technology that allows publishers to offer their consumers additional services.

And second, to provide those same publishers with the means to monetize those services through advertising provided by Inuvo. By expanding the offerings a publisher can present to its users, we are increasing the number of opportunities that publisher has to make money from the display of ads. We are currently completing development on two such distributed services, both of which will be proprietary to Inuvo.

The first offers publishers the ability to integrate a local search capability and the second, a product search capability. We already operate two sites that do this for ourselves today, Yelloweyes.com and Bargainmatch.com. By offering publishers a way to easily incorporate local and product search capabilities into their own sites, we create distribution for our click-based advertising inventory. Since the publisher service is also powered by Inuvo technology, the competitive barriers for control over advertising display on these pages becomes stronger.

The third area that fits our criteria and offers competitive advantages lies within our BabyToBee web property. Again here, data is what provides our differentiation within this business. We are currently collecting registrations from nearly 1/2 of all pre and post-natal mothers in the United States at exactly the time when they're making very valuable purchase and brand choices.

Not only do we believe there are untapped local business opportunities related to the leads we collect in this business, but given we are already one of the biggest suppliers of such leads, we believe we have an opportunity to extend our reach on both the lead collection and lead distribution sides of this vertical. And the website itself can also attract advertisers interested in this demographic to the platform. As we enter 2010, we have far fewer legacy issues to deal with than we did in 2009. As an organization, we have never been more focused on developing and selling those technologies that will differentiate Inuvo in the marketplace. I would like to now turn the call over to the operator for questions and answers.

Thank you. The floor is now open for questions. (Operator Instructions) And our first question comes from [Pat Terrell from [Terrell] Group Management. Please state your question.

Yeah, hi Rich and Gail. This is Pat Terrell. I have a question on -- Gail, this would be actually for you -- after the restructuring with the bank, how does your cash look? So I'm trying to understand, you moved up some payments it sounds like. And then, the second question along that line would be, assuming you make all the payments that you've committed to the bank, what does that do with your bank line through the timeframe of 2011? So I think you were roughly around $9 million at the end of the year or something like that and you talked about moving some things up and doing some things and I couldn't quite follow it all.

Okay, I'll take the second one first. So our bank line at the end of the year was $8.1 million. I'm sorry, $8.9 million. So it's just under $9 million. The restructure gave us a $5.3 million asset-based loan and a $4.1 million term note. So it was relatively the same, but structured differently. And it's really, it was provided as a mechanism to transition us to being a more standard asset-based loan. So it didn't reduce our borrowing, it changed the structure for the future. And it extended it from March of 2010 to March of 2011.

We then did advance payments, some of them in 2009, some which came this year, which brought down an additional I'll call it $0.5 million. So what was $9 million, brought it down to about $8.5 million. And, you know, the rest becomes payment off the term note over the course of this year and next year. So when all is said and done, in March of 2011 we will have a $5 million asset-based loan which, you know, we can sit down between now and then with Wachovia and determine is this the right partnership going forward? Or with a lot of other banks, because now it will just be a standard AVL.

Right and your cash was at what level?

Yeah, so our cash at year-end was at $4.8 million. So, you know, I think your question is, and it's a good question, it's a question we kind of all sat down together and said, okay, with the loss of the iLead Media business, even though we've restructured the Wachovia facility, are we going to have a need to raise additional capital during 2010? So, what we've been doing over the past few weeks is restructuring the business. We had to cut costs out of the business, to realign our, our projections and forecasts going forward into 2010 and then, also get Wachovia on board. So we modified the credit facility so that we're not in violation of any of the covenants. In doing all of that, if we are able to hit the forecast that we've revised now, we do not believe we'll need to raise additional capital in 2010. If we're not able to hit the forecast, then we'll have to revisit.

Okay, and do you take into consideration, Gail, any cash coming out of the potential sale of any of the assets or just are you just saying no, that would be just bonus on top of that?

Yes, I've left that as an assumption of zero, anything that we recruit from that is, I'll call it gravy, but it's something we weren't planning for.

Okay. And then one last question, financially, do I have it correct that the business that we are discontinuing was approximately $10 million in revenue annually?

You do. It was approximately 20% of our business.

And was that margin on that pretty decent or?

It was. It was. The direct segment has a higher margin rate than our exchange segment so it was running a little north of 30%.

Okay. Thank you.

You're welcome.

Thank you, sir. Our next question comes from [Chandler Jetwany], who is a private investor. Please state your question.

Yes, my question is for Rich. I sent an e-mail to Gail about Google's new product announcement. I know we are going after different marketplaces but could you elaborate on how it's going to affect Inuvo business?

Are you talking about Google's new display advertising platform?

Yes.

We don't see it as -- I mean, whenever Google's in the marketplace, they're a competitor for everybody, so you can't ignore the fact they're in the marketplace, but up until this point, Inuvo hasn't had a display feature in our platform. Now, that being said, we're currently working on a solution to extend our platform into the display. So I guess we'll be in market competing with anybody in the display space.

Do they have any other competitors who will be willing to work with us? Does Google have any competitors like Yahoo and Microsoft that will be working with us?

We're not working with anybody else on our display strategy right now.

Okay, and all these new technologies and innovations you mentioned, when will we see a breakeven for our company?

That's a financial question, the best answer for that is probably related to the platform. We get a lot of questions about when we think the Inuvo platform is going to start delivering results and, and I think, I'm glad you asked this question, because it's an opportunity for me to share our perspective on it. That platform we only began development on at the beginning of 2009, so within one year, we've actually developed a product, launched a product, acquired clients, and as I mentioned in my comments, you know, did $300,000 in revenue in, in the month of December. So from my perspective as an individual that has deployed a number of technological platforms in my career, I feel pretty good about where we are, given we're only one year into that project.

Thank you.

Thank you, sir. Our next question comes from Aram Fuchs with Fertile Mind Capital. Please state your question.

Yes, it's Aram Fuchs, Fertile Mind Capital. I was wondering, I think it's important because you have so many different little segments. What specifically is this product that you're talking around December? Is this the ValidClick prevention product? Is this local XML? Is this Zubican? What is the future side of the product? Who are your customers? If you can get down really into the specifics, that would help me a lot.

So, we could probably talk about it for a half an hour but the long and short of it is we've built a platform where advertisers and publishers can come together. An advertiser can offer their products, publisher can put those products on their websites and then the advertiser makes -- or we make money when the products get sold or when a lead is generated. That platform manages all of those interactions, when we talk about the platform, that's what we're talking about. Some of the other technologies that you just talked about, like the local XML, are just serviced that we offer within the platform that make our platform more attractive to publishers in the case of a local XML service.

Right. So basically you're talking about the MyAP, right, effectively? Isn't that what it sounded like?

MyAp was one of the acquisitions that the former enterprise had bought back in 2005, I believe. And it is also an affiliate marketing platform, but it's not that. So we have about 150 customers who currently use that affiliate marketing platform but that platform is different than, than the one we've just introduced into the market this year. That one is a platform that is used by individual advertisers who want to create their own network, exclusively for themselves. The platform we've just launched, the Inuvo platform, is a platform that is an open market where any advertiser or any publisher can join.

Right. Okay. So wouldn't your biggest competitor on this specific platform, in Inuvo, is someone like Azoogle. Is that fair to say? Where they're clearing different affiliate offers?

I'd say the biggest players in that marketplace, you know, Commission Junction, LinkShare and DirectTrack. I guess. And then there's a number of others, you know smaller competitors.

Right. Right. Okay, and things like the Zubican -- how does that fit into your strategy going forward?

So we have -- Zubican was an acquisition we made where we didn't have to pay anything up front for it. What we're doing is sharing the back end revenue for advertising on the site with the people we acquired the site from. We only just completed the transition of that web property to Inuvo. So I believe I just signed a document to that effect, maybe two or three weeks ago. So, we only just took ownership of the site so it's still relatively new.

But the answer is, we're going to own a number of these, what we call owned and operated web properties and, and Zubican's one of them. Yellowise.comis another one. And these websites are a good opportunity for us, if you will, to prime the pump on our platform. So, we can be publishers within our own platform and as a result attract more advertisers. One of the keys to the success of building a marketplace like we're trying to build with the Inuvo platform is getting scale. Every additional advertiser/publisher combination multiplies itself. So if we can introduce a web property ourselves that attracts five advertisers, each of those five advertisers can then conduct commerce with the other thousand publishers we have within the platform already. There's a multiplicative effect that occurs as a result of that.

Should we look for you to buy any more owned and operated properties? In different verticals? Beyond this B2B one?

We have no specific strategy to do that, so we're not going to go out and spend money buying properties. The other ones we have, like the Yellowise.comand the Zubican, as you can tell with Zubican, we didn't pay anything for it and in Yellowise we built that website ourselves for under $100,000. So, we're trying to be selective about the kinds of websites that we want to get into and that's the way we're going to approach it.

Okay, and then when you look at Commission Junction and the others, what do you specifically see as your competitor advantage? Because of course, they've been in the, all of those guys started in the mid-90's, Azoogle probably the late 90's. So they've got quite a tenure. So, why would an affiliate or a publisher go with you more than the other competition?

I don't like to talk too much about the competitive differentiators we have, and I certainly would never talk negatively about our competitors in market, but what I can say is we've had a unique opportunity to re-engineer the way affiliate marketing is done. And we've had the luxury to be able to do that, because we started from scratch. Our competitors have been in market for a long time so they haven't had that luxury. So we've added a lot of new capabilities, new features, as a result of our five or six years in this business and hearing from advertisers and publishers along the way. And we believe those features that we've introduced to our platform make it easier to use and more efficient for them to use. So we believe we can steal market share.

Great, thanks for your time.

Thank you, sir. We do have a follow-up question that comes from Pat Terrell from Terrell Group Management. Please state your question.

Yes, hi, Rich and Gail. I have a few more questions. So Rich, on the platform that did $300,000 of revenue, the new platform, the Inuvo platform, in December, obviously we're now at the end of the first quarter, is that tracking in reasonable growth?

We, we think, we feel good about where the platform is, Pat. So, maybe as a follow-up to the last question, we still have feature sets that we need to incorporate into the platform for it to take off the way we want it to. You know, let's recall that we only launched it in beta form in August. So between August and now, you know, we have been, you know, madly incorporating dozens of features that have come as a result of being in production it with our partners. And we feel good about, you know, where we're going to be this year. You know towards the latter half of the year. We still have some work to do in the first couple quarters. A lot of the work it includes, you know, incorporating some of these analytic features that I was talking about in my, in my script.

Okay. Good and then Gail, on our EBITDA number, since I haven't drilled down through that, is that, you know, hypothetically, if we did $2.8 million in EBITDA in 2010, did that create $2.8 million of cash or is it not as, you know, I'm just trying to get a sense for how much cash comes out of our EBITDA versus I guess interest expense would be the one thing that would hurt it, right?

Yes, with us, EBITDA is not a perfect mechanism for cash flow. So it doesn't equate 1-for-1.

But our EBITDA is creating positive cash, correct?

That is correct.

Okay. And then you had mentioned you've been working and I know you had mentioned this on earlier conference calls, on trying to get our financial reporting synchronized and under, you know, one method to get it done and closed up, are we actually there now to where we can close our quarters and report results quicker?

Yes, great question, Pat and thanks for calling me out on what I committed to deliver. So, we did complete our system implementation in Q4. So in Q1 we are actually up and running on the new system and you know, as we talked about, we were actually prepared to announce earnings earlier than today, which is the last day and there were business issues that led us to hold it off, but we have completed the system implementation now. Some of the things we're working on is how to build some more standardized reporting both for external financial reporting as well as management reporting that can help us have more timely information to manage the business. And, and now we're also going to work on changing the processes to speed up the time for reporting and, and strengthen controls wherever we can.

Okay.

After we've done it, we expect to be able to report more quickly.

Right. In the business that we're exiting or you know, exiting abruptly, is it -- my impression is that business didn't really get tarnished or turned off or reduced or whatever until March, is that correct?

That is correct.

And is it a complete shutoff or it there parts of it that continue and parts of it that don't continue?

Yes, so it's the iLead Media business, and literally the merchant processors stopped letting transactions be processed, which means that it was completely shut off.

Okay. All right, thank you, Gail.

Thanks, Pat.

And our next question comes from [Norman Cecile], who is a private investor. Please state your question.

Good afternoon, a few questions about your cap table. If you look up various sources, they give various fully diluted numbers. What is, Gail, the fully diluted number of shares outstanding?

Yes, so since we have a net loss, any options would be anti-dilutive. So we have 84.4 million shares outstanding. It doesn't include any options that, that would convert. Does that answer your question?

Yes. That pretty much answers it. And then have you pro formaed out -- and by the way, I really do appreciate your new program where you guys are taking stock, I think that's a great thing. Have you pro formaed out what you expect that dollar amount to be in, you know, 2010 and how one would look at that? Is that based on -- how, how does it roll out? So like the stock's at $0.30 now, if the stock goes to $0.40 in six months, how does this program work?

So the way it actually works is every time we would normally get paid in cash, we will be issuing certificates based on what the closing price was the day that we normally run payroll, so I haven't factored in or made any estimates of what, how that impacts our stock price or how that will translate into shares that'll be issued. We were managing this on a cash flow business, an operating cost basis.

How about a dollar basis? If 2010 looked, you know, if the ratio stayed pretty consistent like 2009, what do you think the dollar amount would be? We can back into the shares.

Yes, so I think this is the question you're asking, so it's somewhere between $150,000 and $200,000 a quarter. That is being pulled out from cash to go into stocks. So that's somewhere between $600,000 and $800,000 a year.

Yes, that's exactly what I'm asking. Thank you very much.

You're welcome.

Ladies and gentlemen, that does end the Q&A portion of the call today, I'd now like to turn the floor back over to Rich.

Thank you, operator. I would like to thank everyone who joined us on the call today. We appreciate your continued interest in Inuvo and look forward to reporting progress in the year to come.

Ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation. You may disconnect your phone lines at this time and have a great day.