Inuvo Inc (INUV) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and thank you for standing by. Welcome to the Vertro fourth quarter and full year 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference may be recorded. Now I will turn the call over to Denise Garcia. Please go ahead.

Thank you. Good afternoon everyone. Welcome to Vertro's fourth quarter and full year 2010 financial results conference call. Joining me on the call today are President and CEO, Peter Corrao, CFO, Jim Gallagher, and General Manager, Rob Roe.

I would like to remind everyone that today's comments include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially from those expressed in the forward-looking statements. These risks and uncertainties will be outlined at the end of this conference call, and are also detailed in our filings with the SEC. Before handing it over to Peter, let me review how we measure our financial performance, in addition to the standard GAAP measurements, we utilize certain profitability based measures to evaluate our period to period and year-over-year performance. They are EBITDA, earnings before interest, income taxes, depreciation and amortization, adjusted EBITDA, adjusted income or loss, and adjusted income or loss per share. A description of our reasons for utilizing these measures as well as our definition of them and the reconciliation to the corresponding GAAP measurements can be found in the earnings release we issued today.

Certain of the ALOT user metrics we will be discussing this afternoon are broken our by region one and rest of world. As a reminder, region one compromises English speaking users in the US, Canada, UK, Ireland, Australia, and New Zealand. To comply with the SEC's guidance on fair and open disclosure, we have made this conference call publicly available via audio webcast through the Investor Relations section of our website at www.Vertro.com, and a replay of this conference call will be available for 90 days.

I would now like to turn the call over to President and CEO, Peter Corrao. Peter?

Thanks, Denise. Good afternoon everyone, thanks for joining us today. Q4 rounded out what was an important year for us. We enjoyed significant year-over-year growth in all of our key financial and non-financial metrics. Before summarizing our full year results, I want to focus on our results in the fourth quarter.

On February 10th, we hosted a call with investors to discuss certain preliminary financial and non-financial metrics for Q4 of 2010. On the call we estimated Q4 revenue of $9.6 million and sequentially quarterly increases in both EBITDA and adjusted EBITDA. Upon completion of our audit, revenue for Q4 2010 was $9.6 million, an 20% over Q4 of 2009 revenue of $8 million, and a 2% sequential decrease from revenues of $9.8 million in Q3 of 2010. There were two primary reasons for this sequential decline in revenue which we detailed on our last call but I will summarize again here.

First and most significant was an issue of spend with region one, a bundled distribution partner that resulted in a decline in our region one users in Q4. Second was a softer than expected revenue per search from our monetization partners over the holiday season. We have now refocused our customer acquisition team on building our region one user base. Q4 of 2010 EBITDA was $600,000, a 50% increase over EBITDA of $400,000 in both Q4 of 2009 and Q3 of 2010. Q4 of 2010 adjusted EBITDA was $900,000, a 200% increase over Q4 adjusted EBITDA of $300,000, and 125% increase over Q3 of 2010 adjusted EBITDA of $400,000.

We continued to refine our product portfolio, making adjustments along the way as we did in Q4, we believe we are executing on the right strategy of focusing on the ALOT portfolio as we close the book for the new year. Some highlights for the full year of 2010 are we increased revenue 30% year-over-year from $27.6 million in 2009, to $35.9 million in 2010. We turned 2009 EBITDA and adjusted EBITDA from a loss of $7.2 million and $6.4 million respectively to a gain of $1.6 million and $2.2 million in 2010. We increased case and cash equivalents from $4.8 million on December 31 of 2009, to $6.5 million on December 31 of 2010.

We reduced operating expenses, excluding customer acquisition spending from $12.7 millionin 2009 to $9.8 million in 2010, a decrease of 23% year-over-year. We increased surge periods conducted by our users by over 53% year-over-year from 776 million in 2009 to 1.2 billion queries in 2010. We grew our toolbar user base by 103% during the year from 4.7 million on January 1 of 2010, to 9.5 million on December 31 of 2010. We grew our home page user baseby 83% over the year from 4.1 million unique users in January of 2010, to 7.5 million unique users in December of 2010.

We diversified our international user base with particular success in Braziland India. By the end of the year, almost half of our toolbar users came from outside of region one, compared to only 14% on January of 2010. We launched our new ALOT Appbar which I will talk more about in detail in the call, and we regained compliance with two NASDAQ non-compliance notices, so we are proud of all of these achievements. We are going to spend some time talking about the strategy about the year ahead at the end of this call, but first I will turn the call over to Jim, who will walk you through our key financial metrics.

Thanks, Peter. Good afternoon everyone. As Peter discussed, we delivered solid year-over-year financial metrics from both a top and bottom line perspective. Over the year we strengthened our balance sheet, built up some real momentum in global user growth, and made significant progress in liquidating our legacy European operations.

First thing I want to address is the change in cash and cash equivalents, which went from $7.1 million in Q3 to million$6.5 millionin Q4. This decrease is primarily a result of higher than usual payments made in Q4 of 2010. We believe a better metric for investors to focus on is our working capital, which actually increased from $3.8 million in Q3 to $4.2 million in Q4. We continue to believe that we have sufficient cash for ongoing operations. As we anticipate to adding cash to the balance sheet in 2011, we are exploring ways to put the cash to work which Peter will address in more detail later in the call.

In Q4 2010 our financial results included a net non-recurring income tax benefit of approximately $400,000, which resulted from the expiration of statutes relating to tax provisions that had been established in prior years, offset by current accruals. This net tax benefit floated through shareholder equity and resulted in us ending 2010 with shareholder equity of $4.7 million. You will remember that one of the NASDAQ non-compliance notices that we received related to us achieving and maintaining a minimum of $2.5 million in shareholder equity. The tax benefit in Q4 coupled with the increased income from operations has enabled us to quickly build a nice cushion above the $2.5 million shareholder equity requirement.

Peter discussed earlier the year-over-year reductions in operating expenses excluding customer acquisition spend, which we achieved in 2010. We are pleased with what we have achieved and an average of about $2.5 million per quarter, which was below our forecasted $3 million per quarter. As we progress through 2011 we expect to maintain operating expenses excluding customer acquisition spend at approximately the same level. Overall, we believe we are in good financial position for 2011. We have a significant global user base, monetization agreements in place with the world's leading search engines, an increase in non-search revenue, and we believe our fixed costs are at a substantially low level.

With that, I am going to hand the call back to Peter, to talk about our strategic outlook for the year ahead. Peter?

Thanks, Jim. So before taking questions, I want to spend a bit of time talking about our strategy for 2011. We have got four strategic key strategic goals for the year. The first is user growth in our region one and rest of the world markets. Today our products are available in eight languages, and marketed in 22 countries. Our goal in 2011 is to continue to explore new markets while sustaining and growing our existing region one and rest of the world markets.

Our second goal is to continue our transition to ALOT Appbar and our app strategy. Now due to the challenges we faced in Q4, we deliberately sold the roll-out of the Appbar, but we remain excited and committed to our app strategy as we move through 2011. Central to this strategy is the availability of high quality web apps like our proprietary radio app, which this quarter was a finalist in Media Post's APPY Awards. I discussed in detail in our Q3 call how higher quality apps consistently prove more attractive to our user base, helping us with intention, increasing our customer usage, and ultimately delivering what we expect to be increased monetization and lower customer acquisition costs.

Over the course of 2011, we will be looking to increase the number of these high quality apps that we make available to our users. We are also focused on revenue diversification. We talked last quarter about our success in generating non-search revenue through channels such as display advertising and affiliate marketing, further building on this success with the increased channel partnerships, app developers, and testing new forms of advertising are a key part of our 2011 strategy.

Lastly, but no less important is our fourth goal, which is technical development. Continue to update and enhance our product will be a key focus in 2011, as it is every year. With every new browser and software release, we will work diligently to make updates to our products and attempt to ensure optimum performance for our users. Finally, we expect to increase our cash position. As we do so, we may begin to explore acquisitions to help us deliver on our app strategy of accelerating and accomplishing our goals.

We also announced the share repurchase program on February 15th, and expect to use existing cash or cash earned from operations to purchase our stock as the right market conditions present themselves to us. So I am excited about our business. We have got growth potential across region one and the rest of the world still. We have got our new ALOT Appbar product rolling out to new users, we are having some real success in diversifying our revenue beyond search, and we believe we can keep our fixed costs at minimum levels by executing our 2011 strategy with our small but focused team here in New York. I want to thank our employees, our shareholders, and our millions of loyal ALOT users for a great year. With that said, let me turn the call back over to the operator for a Q&A session.

So operator, let me turn it over to you.

Thank you, sir. (Operator Instructions). Our first questioner in queue is Ryan Bergan with Craig-Hallum, please go ahead.

Thank you for taking my question. Can you please talk about the efforts you are taking or undergoing to backfill the region one distribution partners after the partner in Q4 left?

Sure. That is a good question, Ryan, thanks for asking. Importantly I want to point out that the partner we lost, and we put some dimensions around it on our last call was the only partner of that size we have that was a down one distribution partner, so from a concentration standpoint we don't have anybody else nearly that size available to lose, so we don't see any risk going into the future of another failed partnership like that.

Now having said that, we are strictly going back and refocusing our Pay-per-click efforts and our display efforts, mostly back on Q1, and the reason for simply focusing them there is that is where most of our loss came with Q4 having a slight decrease over Q3 in terms of revenue. So really it is just getting back to our knitting, focusing on Pay-Per-Click display. We have got some other smaller bundled distribution partners that we are introducing to the mix now over the last month or so, and we will continue to focus there, but we think we can get that growth momentum going again without another partner of that size, and further more importantly, we don't have anybody that size to lose in the mix today, so we don't see much risk going forward.

Do you have a view into the number of region one users you have, either at the end of February, or even at the end of January?

Yes, we don't comment on our current region one users until we get the numbers out, and especially with the whole month of March left still, Ryan. We had ground to make up from Q4. We are working hard throughout the quarter of one to make up that ground, and we will report it as soon as we get to the end of the quarter.

You talked again about one of your four goals for 2011 is the revenue diversification. Could you kind of delve a little deeper into that, and talk about the affiliated marketing and the strategies you are taking there to diversify the revenue?

Sure. We have used in the past a couple of different examples, and I will break it up into what most of that revenue is. We have got various and sundry different CPA partners, and a partner that we have used as an example in the past, and everybody sees on our toolbars and homepages regularly, as an example, we have several like this, is our relationship with EBay.

In that relationship, EBay delivers the deal of the day to us, we post that deal of the day to our consumers on outbound messaging, and then separately that app, which is a really good one, is available to all our 10 million toolbar users, and 8-plus million homepage users, that they can go accept that app in from the store, and drag it in. As you might know, that relationship and others like it are only less than a year old for us, and we are now driving substantial revenue through partnerships like that. So we are addressing a bigger market of more clients like the EBays of the world that are looking to find their way to our consumers, and then our consumers are taking their deals of the day and their various offers, responding to them, and to the extent that we can do a good job of delivering our consumer to the e-tailer or the retailer, then we end up getting great rev shares from a lot of these partners, and it has been a good situation for us.

The second piece that we have is continuation on our clicks. We have got many site, weather might be an example. Where we take a feed from others, that feed is available inside our apps, and we actually and purposely send our consumer off to their site. In those examples, when our consumers goes to their site, our partners in those arrangements are paying us for letting our consumer going in there where their model is, and usually their model is usually a CPM model around display advertising, and we are happy to send our consumers off to them, if they are good partners and take that revenue.

And then the third piece, which has only begun really in Q4 of last year, and is starting to take off this year, is our app ads. We have created a situation where several of our ads, two important ones are our map apps and our radio app, which are two of our top four most clicked apps, now carry by country, by language, a display ad with them at the bottom of the app that is pre-configured into it.

As you know, we have got thousands of apps available to our consumers, those two as a test are now running two of our biggest ones with app ads, and are delivering substantial revenue for us, so we are excited about that. We want to make sure that we don't hurt the user experience. So far, so good, and as soon as we have convinced ourselves that our users are satisfied to see those displays ads at the bottom of our apps, you can count on us converting more and more of our apps over to carrying an app ad, which we either get CPA or CPC revenue from, or CPM revenue from, I am sorry. CPA is one, just to summarize. CPA is one, Ryan, app ads is another, and CPC sell-throughs is the third.

Talked about your expectation to increase cash in 2011. Do you have an expectation of where you think you can finish at, at the end of Q1?

You know what, Ryan, you cut off. You said expectation for cash, then we didn't hear you?

Sorry. You said you expect cash to increase in 2011?

Yes.

Do you have an idea of where your cash balance may finish exit exiting Q1?

No, we will have it when we get there, but for now we are not predicting Q1.

Okay, and finally just a housekeeping. What was the cash flow and CapEx in Q4?

The cash flow from operations before looking at swings in the assets and liabilities was about 3.5. CapEx itself was a couple hundred thousand. It wasn't significant.

Thanks for taking my questions.

Sure. Thank you, Ryan.

Thank you. (Operator Instructions). Alright, we do have a question from John Gilliam with Point Clear. Please go ahead.

Good afternoon gentlemen, congratulations on a good quarter. I apologize, you may have addressed this earlier in the call, I missed the first part of the call. I wanted to see if you could give us an update on the share repurchase, the stock buyback? Where are we on that, and just wanted to see if there was any chance that we might extend that if we have purchased a significant amount of the amount that has been approved by the Board so far?

Back on the 15th of February we did announce that, and it is our intention to move forward on that at this point. There is nothing that has really gone into effect. There are a lot of blackout periods and things like that that we are coming upon. So there is nothing that has substantially happened at this point, but we are putting ourselves into a position to take advantage of that. Again, our thought process there is to really do it where it makes sense in terms of building value, that is building shareholder value.

Let me add to that, John. There is no reason yet to extend it with the Board, because we haven't yet spent the $1 million that we announced. But to the extent that we were to run that out, our Board is wide open to make a decision as cash from operations is coming in, to extend it if we need to, but a little cart before the horse since we just announced it. But it is hard to say there is a willingness do it again, when we have just now done it, but I am sure there would be.

Right, right, I have got you. Thank you.

Sure.

Thank you. (Operator Instructions). At this time, presenters, I am showing no additional questioners in the queue. I would like to turn the program back over to Denise Garcia for closing remarks.

Thank you. This conference call contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Words or expressions such as plan, will, intend, anticipate, believe or expect, are variations of such words, and similar expressions are intended to identify such forward-looking statements, including, one, our ability to successfully execute upon our corporate strategies. Two, our ability to distribute and monetize our international products at rates sufficient to meet our expectation. Three, our ability to develop and successfully market new products and services, and four, the potential acceptance of new products in the market.

These statements are based on management's current expectations, and are subject to uncertainties and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. Key risks are distributed in Vertro's report filed with the US Securities and Exchange Commission, including its Annual Report on Form 10-K for 2010. In addition, past performance cannot be relied upon as a guide to future performance. That concludes our call today. Thank you for listening.

Thank you. Ladies and gentlemen, this does conclude today's program. Thank you for your participation, and have a wonderful day. Attendees, you may now disconnect.