Good day, ladies and gentlemen, and welcome to the Inuvo, Inc. Fourth Quarter 2024 Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. [Operator Instructions] This call is being recorded on Thursday, February 27th, 2025. I would now like to turn the conference over to Natalya Rudman of Crescendo Communications. Please go ahead.

Thank you, Andrew, and good afternoon, everyone. I'd like to thank everyone for joining us today for the Inuvo fourth quarter and year-end 2024 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-K 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 are not descriptions of historical facts or 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 such forward-looking statements. 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 out of the way, I'll now turn the call over to CEO Richard Howe. Please go ahead, Rich.

Thank you, Natalya, and welcome, everyone. We're thrilled to announce a record-breaking fourth quarter ending December 31st, 2024. We achieved 26% year-over-year growth, generating $26.2 million in revenue, our largest quarter ever. Importantly, we also delivered positive net income and adjusted EBITDA within the quarter. This strong Q4 performance validates our continued investment in proprietary technologies, especially our large-language generative AI, the IntentKey. In 2024, Inuvo achieved 13.4% revenue increase for the year, reaching approximately $84 million. As Wally will elaborate, the net loss, adjusted EBITDA, gross profit, and operating cash flows all improved year-over-year. This solid performance, capped by a strong finish positions Inuvo for an even stronger 2025, which I'll discuss further in my later comments. Inuvo's success in achieving key objectives during 2024 has laid the foundation for continued growth into 2025. For platform clients, the focus in 2024 was on enhancing the support and technologies we provide in a manner that aligns to their evolving marketplace. By late 2023, this roughly $10 billion market that we serve was undergoing major shifts, changes we had anticipated and prepared for as early as 2022. Many of our competitors had built their businesses around advertising policies that were being phased out. As a smaller, more agile company, we had the advantage of innovating for the future as opposed to overhauling technology and infrastructure designed for the past. This forward-thinking approach fueled our growth throughout 2024. As we entered 2024, our platform clients began prioritizing richer, more engaging experiences for both users and advertisers. Our background in publishing gave us a unique edge in helping them achieve these goals. We integrated AI tools into our internal systems to streamline and enhance how these experiences were created and delivered. With a long history of shaping high-quality digital environments, we moved quickly…

Thank you, Rich. Good afternoon. We delivered an outstanding quarter, marked by significant revenue growth, new clients, and improved cash efficiency. Our continued focus on innovation, client partnerships, and financial management drove strong performance across all key metrics. Inuvo reported revenue of $26.2 million in the fourth quarter of 2024, a 26% increase over the $20.8 million in the fourth quarter last year. We saw growth in both client categories, agencies and brands, and platforms. We had strong demand for our services from platform clients. Platform revenue was approximately $21 million. New products that launched last year, emphasizing improved technology, quality content, and compliance fueled the revenue growth. Agencies and brands' revenue was approximately $5 million in the fourth quarter of 2024. The growth in revenue was driven primarily by the signing of 33 new clients during 2024, the reorganization of our go-to-market and support to the higher agencies and brands revenue in the fourth quarter. We expect the revenue mix from agencies and brands and platforms to continue relatively stable throughout 2025. The cost of revenue increased to $4.4 million, up from $2.6 million in Q4 of 2023, primarily due to higher agencies and brands revenue and a new campaign with one of our platform clients. Cost of revenue is primarily composed of media payments made on behalf of our agencies and brands clients, and to a lesser extent includes payments made to website publishers and app developers that hosts our advertisements. We reported a gross profit of $21.8 million, 20% higher compared to $18.2 million for the same quarter last year. However, gross margin declined a bit to 83.1% in Q4 of 2024 compared to 87.3% last year. The decrease in gross margin was due partially to a new campaign with a platform client. We anticipate a small…

Thank you, Wally. We achieved a 26% growth in the fourth quarter of 2024 and a 13%, almost 13.5% growth for the fiscal year 2024. Over the last 18 quarters, we've had a roughly 7% compounded quarterly growth rate. All financial metrics improved year-over-year, and we hit another all-time revenue high of $26.2 million in Q4 2024 with positive net income and we entered 2025 with trailing 12-month revenue of roughly $84 million. Our upgraded self-serve platform now puts the vast knowledge of our AI directly into the hands of marketers of any caliber. Trained on hundreds of billions of pages of content, this enhanced capability has the potential to significantly boost our bottom line as we scale its adoption. Building on strong momentum, unaudited January and February results point to continued strength. Consequently, we are projecting first quarter 2025 revenue growth to be roughly 40% year-over-year. Finally, I'd like to take a minute and thank Charles Morgan, who has decided to retire from our Board of Directors. Charles has been a Director since 2009 and remains a renewable shareholder. Charles has also been an instrumental voice in the strategy and vision of this company. His judgment and counsel will be missed. I am also delighted to announce that Rob Buchner will be joining our Board. Rob's successful entrepreneurial ventures, his vast relationships, and impressive leadership background at prominent agencies, including Campbell Mithun and Fallon worldwide, where he was CEO and CMO makes him a strong new addition to the Board. And with that, I will now turn the call back over to the operator, Andrew, for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question is from Brian Kinstlinger from AGP. Please go ahead.

What an outlook for the first quarter, too, on top of everything else. Can you discuss the progress for both the large retailer and car manufacturer you discussed on a few recent earnings calls? Has there already been in the fourth quarter a significant contribution from these customers? Is there going to be a ramp in the first quarter? And maybe talk about anything you can as it relates in 2025.

Yeah, Brian. I think they're two separate issues. I think we've said on prior calls that we do have a large automotive client and a large retail client. And, yes, in the fourth quarter, both were up year-over-year. Well, actually, I should say in the auto case, it was up year-over-year. In the retailer case, it was the first year of activity with them. We expect based on our discussions with these two clients that both will be up in 2025 over 2024.

And minus their large search engines, will these be your two biggest customers, do you think, in 2025?

No. Our biggest client will stay the same client, which we disclose in our Ks and Qs.

Well, I'm staying outside of those. Those are always going to be on the search side. There's so much. I'm wondering outside of that.

Yeah, Brian.

From a brand perspective.

Yes, completely. Yes, they will be our two largest clients in 2025 as well.

Great. And then can you talk about business development outside of that? Are you beginning to attract more brands? It sounds like 40% higher average deal sizes. I assume that's because of these two customers. But is business development of new logos continuing to be solid in the last few months? I'm just thinking about how your adoption of technology is going.

Yes. As we said on the call, we signed 33 new brands in the year and so those are all opportunities to expand. And as I said, we spent a lot of time in the year, the best I can define it as, professionalizing our go-to-market organization and we retooled some salespeople and other various roles and I think we're in a really good shape right now to be able to scale as a consequence of that professionalism and the investment in that professionalism in 2024. That's what we're counting on. And there's enough in the pipeline to give me that.

And that 33 new brands, what was that in 2023, if you could remind us?

I don't remember what it is. I think I'll get Wally to look that up. I don't remember what the number was.

Great. And my last question, before I get back in the queue, maybe with one other one. 40% growth in the first quarter puts you at $23 million, which you are a seasonally -- demand is very seasonal here, and that puts revenue at quite a nice point to start the year. Is there any reason to believe that this year is any different, where the first quarter is normally your seasonally weakest? That make sense? Was that too many words?

It's always hard...

Hi, Brian. I'll take it.

Go ahead, Wally.

No, I think the seasonality is going to continue to be there. But it may not be as steep as we saw this year or last year. But, yes, I think it will continue to have the second half of the year greater than the first half of the year.

Your next question is from Jack Vander Aarde from The Maxim Group. Please go ahead.

Congrats on a strong 4Q and full-year results. And I appreciate the comments on your 2025 outlook. It sounds like you're pretty confident in growth, ramping, momentum continuing to build. So, I guess, Rich, how do you feel entering 2025 just from a confidence and visibility perspective relative to when you're entering 2024? How would you compare and contrast? It seems like things are leveling up quite a bit here.

I feel real good, Jack, and optimistic, based on all of the signals that I have available to me. Not the least of the reasons why I'm feeling maybe more optimistic is, I've been saying for some two, three years now that the $100 million mark for us was really an important mark. And it's just the level at which the inertia of our technological costs and our resource costs and computing costs kind of get overcome and we've proved a few times now that when we get through that $25 million a quarter number that we start to generate cash and that provides a whole bunch of other, solves a whole bunch of other challenges for a business like ours. So, I feel good about that. I feel good about where we are. I feel good about our ability in 2025 to grow. Coming into the year with some confidence as we're, that we're obviously giving to you, I think does set us up pretty well for a year where we can start to get past those numbers that we've had as a ceiling. I'm optimistic.

Yeah. Excellent. And you've talked about, I think in the past, I think on the platform side, as you're kind of testing the waters with, ramping up these new platform customers, do you have a better sense of maybe what that sale cycle timeline is? I think it was, we were thinking around nine months kind of before, but I'm sure things change. Can you just touch on your sales cycle process, just in general, how that, I guess, relative to quarters prior and maybe in both segments? I'm just be interested to know how that's going with your headcount.

Yeah. So, you're actually, the question you're asking is mostly related to agencies and brands where we have a direct sales organization that's out, trying to recruit. Either brands directly or agencies and the brands that they manage, again, that's why we call it agencies and brands. On the platform side, we have three clients now. They're among the biggest companies in the world and there's no sales effectively there. We get access to advertisers through them. That's the whole purpose of that business model. And so the limits to scalability there are more related to the technological capabilities and the services that we have to serve those clients. And the reason why it's scaling rapidly right now is because of the investments that we made going back into 2023 and so that's all that that business needs. It's a scalability issue, not a demand issue. There we have plenty of demand for what we're providing to those clients. The agency and brands is your nine month sales cycle. That business model has always been, and it hasn't changed with us. We're selling a technological capability to agencies to empower them to serve their clients better or to the clients directly and we have clients in both categories and the idea is can that technology, which is the IntentKey outperform, their existing media providers, and as a result, get them more sales of whatever it is they're selling. And given that the market we go after there is mature. It does take some time and nine months has been, the number we've thrown out in the past, it can be six, sometimes it's three Jack, sometimes it's 12, right, but it's in the six to nine month period where when we hire a sales person, they start actually closing some deals for us and the reason for that is because it's a very relationship driven sale, a consultative and a relationship driven sale. So, it just takes some time.

Maybe just one more, maybe for Wally. Looking at the outlook and your comments to provide some new comments and more details than in years past. The cash generate, I think you said cash generating, you expect to be in the back half of 2025. Does that refer to adjusted EBITDA free cash flow both, just to clarify that comment?

Yeah, actually, both. I was specifically referring to free cash flow, but certainly adjusted EBITDA also or EBITDA itself. Yes.

And then you guys, you did mention, you expect the mix, the segment mix to be roughly similar in 2025 relative to 2024. If I kind of get ahead of myself here, looking further down the road, as your guys' strategies continue to execute and ramp in two years, three years out, how do you feel like the landscape of your mix is going to change? Is it still going to stay similar to this current mix or I'll just be curious to hear your thoughts.

Strategically, Jack, we want because the technology that serves the agencies and brand side, all the markets we serve is so revolutionary and because we have such a commanding advantage and head start. We want and we think it's possible that we could command a bigger market share than we have and the size of that market is bigger. These numbers are not perfect, Jack, but the agencies and brands market is roughly $150 billion market for us, right? So you can look at that and say, we should be growing that side of our business, given the performance that we achieved to some significant numbers. The platforms side of our business, while the clients are big, the problem we're helping them with is only a $10 billion market. Now, it sounds like that's small, but it's still gigantic and there's only a few players who do what we do in that area. So there's still plenty of upside there. And as you know, it's scaling right now. But we would prefer a mix closer to 50-50. That's what we're kind of trying to get. So we're trying to advance the agencies and brand stuff as fast as we can, recognizing that we can scale the other side too. And there's some real advantages to the scale on the platform side, not the least of which is the security of the receivables and the working capital that's generated from that side of that market.

Your next question is from Jon Hickman from Ladenburg. Please go ahead.

Hi. Rich, Wally, could you tell us what about the momentum or talk about the momentum on the self-serve side? I know it's only been a few months that it's really been up and running, but can you talk about that because isn't that aimed more at your brands and agencies?

Yeah. Thanks, John. We have, I think, last I checked, there was somewhere between a half dozen and a dozen clients that are signed up for that self-serve. It's really designed for anyone. So there's not one target audience for that. The agencies can use it. The ones that want to run their own campaigns, but yet have access to the AI's intelligence, have at it. And if the brand is doing the same, John, which some brands are starting to do where they want to run their own campaigns in-house now, they can do the same. So, yeah, we can sell to both categories and we're starting to see some traction in both cases. The sweet spot for us has been up until now, agencies. Most if not all of the revenue or a large part of the revenue generated from agencies and brands market for us has been managed service to agencies serving agency clients.

Okay. And then Wally, so you said you're going to hire seven more people. I imagine that's mostly on the marketing side, but so other than that, operating expenses are going to stay about the same for the year?

Well, no, operating expenses will go up, right? Compensation will increase, certainly, because we will be hiring seven new people. By the way, two of them are engineers, one of them is a data scientist, and some are campaign and support people. So there will be an increase in compensation in 2025 over 2024. General and administrative generally increases modestly, but nothing significant, and, of course, marketing costs will increase as revenue increases.

[Operator Instructions] Your next question is from Jack Vander Aarde from The Maxim Group. Please go ahead.

Hey, just sneaking one more in there. Maybe I missed this. I apologize if I did, but the IntentKey self-serve gross margin profile, is there any nuance to that? Did you guys talk about that a little bit? Is it higher margin than the managed service IntentKey, and does it depend also on the format of wherever those ads are being placed? Just touch on that to juxtapose. Thanks.

Yeah, I got that. So, the margin is the highest margin product we have in the company, north of 90%. It's effectively almost 100% to some degree, Jack, because if you think about it, it's really the AI brain and all of the costs associated with generating a targeting model is already sunk by us in the infrastructure and the software that's running on the computer systems that we have. So, when a client uses the self-serve, they're effectively accessing the AI, and it's telling them when they should buy a media placement and when they shouldn't and we really don't have a lot of cost of revenue associated with that, almost none, very small amount. So, that's why we're, we've been building that thing out and why we're excited about it, because in many respects, even $2 million or $3 million or $4 million worth of that product would obviously land most of that down to the bottom line of the company. So, we'd like to see some traction on that this year. The format is probably, I think what you're asking really is like, how flexible is it for people who maybe have different kind of campaign systems and whatnot and if that wasn't it, just let me know. But we built this thing effectively so it could be used with whatever campaign system, the client, whether that be an agency client or a brand client, wants to use. And the reality is there's really just a handful of them that are used by 90% of people. So, it doesn't matter. From our perspective, if you think about the 90%, we've got that covered. So, pretty much anybody who would want to use this thing on whatever platform they're using can get access to it.

Yes. That was what I was asking. And then another part to that maybe is just in terms of the end channel, I guess, ad channel, if it's connected TV or short form like TikTok videos or if it's, does that -- because I know that can really have drastic different margin profiles for the managed service solution. Is that also the case with this or is that not an impact for you guys

CTV, connected television, online video display, advertising, streaming audio, and a native advertising. All the formats are provided. AI provides recommendations across all that media channel and even provides offline recommendations, linear TV, for example, which is still a market and quite a lot of spend. It's a very sort of concentrated market, typically, older individuals, but that's a really good market and it's a cheap market to buy. And the AI, when people are using it will in effect spit out along with everything else it's doing, a list of the television programming that should be purchased in cable TV, should one of our clients want to do that. It's pretty impressive. It's amazing.

And maybe just one more. So, I guess, what's kind of baked into your, if you could, maybe, is there any expectations you could point to, if you could quantify at all for that self-serve solution, how that kind of connects back to your 2H '25 kind of guide for being cash generating? Is it assuming an incremental ramp or just curious?

I would put it this way because we haven't obviously disclosed, but we've been -- we have a modest goal for the sales of that in 2025. Mostly, Jack, because we haven't done it. We haven't been out trying to scale the sale of that product. The sales that we did have, and earlier on, you can mostly think of them as beta clients and we had a number of them. So, the answer is, it's a modest, in our overall strategic plan and our budget for the year, it's a modest number. That's the best I can tell you.

That's more than helpful. I appreciate the color and congrats again on the strong momentum. Thanks.

Thank you.

There are no further questions at this time. Please proceed with closing remarks.

Thank you, Andrew. And thank you, everybody, for joining us today on the call. We, as always, we appreciate your continued interest in our company.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.