Mobivity Q3 2024 Earnings Call Transcript

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November 14, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Mobivity's 3rd Quarter 2024 Earnings Results Call. Hosting the call today are Bryce Daniels, President and Kim Carlson, Chief Operating Officer. Before I turn the call over to management, I'd like to call everyone's attention to the company's Safe Harbor policy. Please note that certain statements made on this call will be forward looking statements, which are subject to considerable risks and uncertainties. We caution you that such statements reflect management's best judgment based on factors currently known and that actual results or events could differ materially.

Operator

Please refer to the documents filed by the company from time to time with the SEC and in particular, its most recent filed quarterly report on Form 10 Q and annual report on Form 10 ks. These documents contain and identify important risk factors and other information that may cause actual results to differ from those contained in the forward looking statements. Any forward looking statements made during this call are being made as of today. If the call is replayed or reviewed after today, the information presented during this call may not contain current or accurate information. Except as required by law, the company assumes no obligation to update these forward looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward looking statements, even if the new information becomes available in the future.

Operator

Today's call may include non GAAP financial measures, which require reconciliation to the most directly comparable financial measures, which are calculated and presented in accordance with GAAP and can be found in today's press release along with our recent corporate presentation, which is also available at moviti.com. With that said, I'd like to turn the call over to Bryce Daniels, Moviti's recently appointed President. Bryce, the floor is yours.

Speaker 1

Thanks, Brett, and good afternoon, everyone. We appreciate you all joining us today for Mobivity's Q3 2024 earnings conference call. For investors new to our story, Mobivity is a marketing technology company that operates a performance marketplace connecting brick and mortar brands to digital audiences, primarily within mobile casual games and vice versa. Our Connected Rewards platform redefines marketing value exchange by bridging in person and digital environments and thereby building authentic and valuable relationships between businesses and their consumers in all possible channels. I'm pleased to report that Q3 2024 marked another period of significant progress for Mobivity's Connected Rewards platform.

Speaker 1

Most notably, we completed the divestiture of our legacy SMS marketing business, marking a pivotal moment in Mobivity's history. We are now a pure play connected rewards company, allowing us to focus all our resources and attention on the massive addressable market for this high growth and high gross margin business. Some highlights from Q3 are: the successful completion of our business transformation resulting in Mobivity becoming a pure play connected rewards company our audience reach has continued its strong growth trajectory building on the momentum we established in previous quarters We're seeing unprecedented strength in our pipeline and backlog, which gives us increasing confidence in our growth trajectory and achieving profitability in the next few months. Our Connected Rewards programs continue to deliver exceptional value, establishing themselves with some of the most effective channels for our partners' customer acquisition and engagement strategies. The performance metrics from our programs consistently exceed expectations, delivering strong ROI for both our brand and game publishing partners.

Speaker 1

We launched 6 new brands on our platform and reached about 13,600,000 users with our programs. It's worth highlighting the scale of our business through the 2024 fiscal year. We've launched with marquee brands in the convenience store and quick serve restaurant space. Year to date, we've reached over 51,000,000 consumers with our programs and we've achieved major technical milestones that will allow us to drastically grow the audience we reach. The completion of our SMS business divestiture represents the final step in our strategic transformation.

Speaker 1

The transaction provided cash at closing and will provide continued cash flow through an earn out over the next 2 years. Our success continues to be driven by our proven formula. Mobivity's revenue is the product of our audience size, conversion rates and revenue per action. In Q3, we made substantial progress across all these key metrics, further validating our strategic direction. With our business now focused on Connected Rewards, we've been able to meaningfully streamline our cost structure.

Speaker 1

Revenues continue to grow and we expect the pace of growth to increase materially through the next couple of months as we bring in new customers and complete necessary technical work to scale rapidly. Mobivity's focused approach on Connected Rewards allows us to dedicate all of our resources, innovation capabilities and management attention to scaling our Connected Voice platform, and we're excited about the results and what we will achieve over the next few months. With that, I'll now hand the call over to Kim Carlson, our COO, for more details on our Q3 operational progress and outlook. Kim?

Speaker 2

Thank you, Bryce. Mobivity's Connected Rewards platform continues to target the massive market of mobile user acquisitions and retention, which annually spends over $40,000,000,000 With our transition to a pure play connected rewards company now complete, we are uniquely positioned to capture an expanding share of this market. Our growing pipeline and backlog are at historic highs, which we believe validates both our market approach and the value we deliver to our partners. The continued expansion of our audience reach is creating new opportunities for both our gaming and brand partners, fostering a network effect that we believe will drive sustained growth. What's particularly encouraging is the consistent performance of our programs.

Speaker 2

We're seeing strong validation that Connected Rewards is one of the most valuable channels for our partners' customer acquisition and engagement strategies, and provides value that our customers cannot get from other channels. Our focus remains on quick serve restaurants and convenience stores, so we are now processing opportunities in other verticals like consumer packaged goods, set top gaming and consumer discount app. These verticals deliver fundamentally similar consumer dynamics with huge audiences. These new verticals are not necessary for us to achieve substantial growth and profitability, but are exciting levers to amplify the growth in our core verticals. With our streamlined focus on Connected Rewards, we can now accelerate our product innovation and market expansion efforts.

Speaker 2

The operational efficiency gained from this focused approach is already evident in our execution and market responsiveness. As we look ahead, our focus remains on scaling our Connected Rewards platform and breaking through some remaining technical milestones to capture the substantial growth that is in front of us. Our completed strategic transformation positions us well to capture the expanding share of the mobile user acquisition and retention market. We're more confident than ever in our future and are excited to share our progress in the coming calls. With that, I'll hand the call back to Bryce for his closing remarks.

Speaker 1

In summary, Q3 was a transformative quarter for Mobivity. The completion of our SMS business divestiture, combined with the continued growth in our audience reach and record pipeline and backlog, positions us as a pure play connected rewards company with significant growth and profitability in sight. We're excited about our focused direction and believe we are positioned well to create significant value for our shareholders. As always, we direct investors to our public filings for detailed financials. We recently filed an extension to file our 3Q financials due to our auditors' need for extra time to complete the filing.

Speaker 1

Mobivity has worked diligently to complete the review on time and are frustrated by the delay. We expect the filing to be released early next week. I'll close the call with a couple of important points. Mobivity used to run the loyalty marketing business that was focused on small addressable market and showed low gross margins. Connected Rewards is focused on a massive and active addressable market with gross margins approaching 3 times our prior business.

Speaker 1

As we've said on this call, we're 100% focused on Connected Rewards today. The end of 2024 and the 1st few months of 2025 are an exciting time for our company. The next time we're scheduled to talk to you all is in the Q2 of 2025. And I'm excited about what we expect to achieve between now and then. In 2025, we see a clear path to Mobivity doing more revenue than it has ever done, and our team is firing on all cylinders and managing every detail to make that happen.

Speaker 1

Thank you all for your continued support. Operator, please open the call for questions.

Speaker 3

We have Jeff Porter from Porter Capital. Please go ahead.

Speaker 4

Hey, guys. You mentioned you've got a growing backlog and a significant pipeline. Can you take me through the timing of the sale process to a major account? Is that a 1 month process, a 3 month, a 6 month process? And what are the gating factors to getting deals closed?

Speaker 4

Because I'm assuming you've got great ROI metrics to show people, which is why they're so interested.

Speaker 1

Yes. Thanks very much for the question, Jeff. I'll answer at a high level and then I'll pass to Kim for a little more detail. You're right that we've got a lot of data and really good metrics from the past 18 months of operating this business that really help accelerate our sales cycle. I think one of the dynamics with brick and mortar brands is that it's a tough market to sell through if you don't have data.

Speaker 1

The fact that we have data now is showing and that we're accelerating our kind of time from first meeting to a closed deal. In a lot of cases, that's within a couple of weeks now. But it is still a couple of months sales cycle by and large. Your latter point about what are kind of the gating items from to getting these folks live once they sign up. We at Mobivity have a wide range of integrations with necessary technical partners on the brand side, folks that build the loyalty build and maintain the loyalty platforms, and also build and maintain brand apps.

Speaker 1

And it's the technical work once they've agreed to do the deal is just integrating with the different partners that our customers use. I'll pass the call to Kim or pass the question to Kim to answer with any more specifics.

Speaker 2

Yes. Thanks, Bryce. Thanks, Jeff. I wouldn't add too much. I think Bryce hit on the key points, more data on performance from the brands helps close the deals in the sales cycle because obviously having strong performance data case studies helps these brands kind of get over the hump.

Speaker 2

And then on the integration side, Bryce mentioned, we publicly announced an integration with 1 of the leading loyalty technology platforms, which simply put allows the rewards that we're providing their consumers to be loaded instantaneously into the brand app. And so that is a fantastic feature. But moreover for this question, it's these integration partners are providing referrals and helping open some doors and then that integration is already complete. So the integration time is largely reduced.

Speaker 4

Great. And just following that, could you give me an idea of what a typical business arrangement looks like between you, a brand partner and a video game company? How do we get paid in there? And what are our associated marginal costs? So I can understand sort of the economics of the model.

Speaker 1

Yes. So there's 3 parts to any transaction on our Connected Boards platform, right? It's the brand on one side, it's the consumer kind of at the bottom of the triangle and then it's a mobile game publisher on the other side. So we signed an agreement with a brick and mortar brand saying they give us a certain number of impressions every month. I would add there that one of the most exciting developments in our business is that we're able to sign these contracts in longer terms now because of the data that we have.

Speaker 1

So folks are saying we'll deliver you X number of impressions per month for a year, which is that term is exciting to us. We then place ads in all the brand relevant brand channels, that's SMS, email, in app placements, sometimes in store signage, sometimes website placements. Anywhere that a brand interacts with their customer, we place an ad. The ad will say something to the extent of download this mobile game, get a reward at your brick and mortar brand, whether it's a free burger, a discount on a drink, free discount on gas, something like that. The economic model is we get paid between $4.10 per install.

Speaker 1

So every time someone installs a game, Mobivity gets paid between $4.10 We reimburse the brand for the cost of the reward. So if it's a free burger, we pay the brand for the cost of that burger. So it's a zero cost advertisement to the brand. And WeClip, our take of that is the difference between what the game pays us and what the cost of reward is. Usually that's 60% to 70%.

Speaker 1

And then our marginal cost from there in terms of technical and those types of things is very low, 1% to 2%. So, Ken, if you have any details to fill in, I'll give the floor to you.

Speaker 2

Well, is No, I think I can walk you walked through it well.

Speaker 4

So that's a one time fee that we earn. And then is there some recurring portion to that? Is there things in app experience that we participate in?

Speaker 1

Yes. So we think of our business as reoccurring, not it's not SaaS recurring revenue, right? But the brands deliver us a certain number of impressions every month. It's our job to make sure that the consumers interact with those or the impressions, interact with our ads at a predictable rate, which we think we've gotten to a good place now. And they've agreed to do that over a long period of time.

Speaker 1

So although it's not true SaaS recurring revenue, we feel good that it is reoccurring kind of month over month revenue. Does that answer your question, Jeff?

Speaker 4

Right. But so that still means that per customer, we're earning a one time when they download certain game, but can that customer download several games?

Speaker 1

Yes. Yes. Yes. The customer can download as many games as they see in front of them.

Operator

Yes. It's also worth

Speaker 4

Do we get anything let's say we're dealing with a gas retail brand and the customer is getting a discount on gasoline. Do we participate at all in that every time they go to fill up and utilize that discount? Do we participate at all?

Speaker 1

We do not participate in that side of our business right now. I think one of the exciting ways that our business can evolve is participating on when the brands acquire users to their loyalty platform. So let's say, Jeff, for example, you interact with an ad for a fuel brand that you're not already a member of their loyalty program, you use our offer to go get gas and sign up for the loyalty program. There's a scenario in the future where brands would potentially pay us for driving that person to sign up for their loyalty program.

Speaker 3

There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. Oh, we have one more. Apologies. This is from Mark Patterson, Private Investor.

Speaker 3

Please go ahead.

Speaker 5

Hey, there. Thanks, Bryce and Kim. Since I didn't see any financials come out, I was just wondering if I could ask a couple of questions that you might be able to answer before your queue comes out. You mentioned the SMS divestiture and receiving some cash upfront. I think you said maybe even some earn out over a period of time.

Speaker 5

Is there any more detail you can give to that and maybe how much you're allocating maybe to debt on the balance sheet to kind of improve the balance sheet situation? And then the second question would be, I think, Bryce, you mentioned achieving profitability in the next few months, which is super exciting for this company. I know that the GAAP results have been fairly close to your adjusted EBITDA. And so I'm thinking on a cash flow basis, are you talking about sometime in the Q1 or certainly by the second quarter, well not certainly, but most likely by the second quarter being in a positive cash flow position as you see the runway for yourself right now?

Speaker 1

Yes. Thanks, Mark. I appreciate the question. So the first question on the proceeds from the SMS sale, we announced that about 6 weeks ago probably when that came out. So I'm comfortable commenting on the specifics there.

Speaker 1

We received about $300,000 in cash at closing for the business and then we get paid, on an earn out basis for the next 2 years based on how those how the business performs in the buyers' hands. I think, it's probably a little too early to say what the use of that cash would be given that we haven't we have a little while until that next load of cash comes in. But suffice it to say, we're given the opportunities in front of us and given the balance sheet of the business, we're all motivated to make the right decisions and balance growth and getting the capital structure in the right place. To your second question about when we'll achieve profitability, I think, look, we're all very excited about where we are at Mobivity. I think the pipeline and the backlog are real and give us some real kind of concrete feelings about where we'll be.

Speaker 1

The timeline on that, I'm hesitant to put any specifics around it, but I think the first half of twenty twenty five is probably the right timeframe to point to.

Speaker 5

Great. If I could just maybe follow-up one thing on my first part of my question related to the SMS divestiture. And I guess it's 2 parts. The new business, which is 100% of your business now, it sounds like the revenue story is a strong ramp up story, which is super positive. I guess part of the rates to achieve cash flow positive cash flow or profitability also has to do with having divested a lot of the expenses that were recurring with this SMS business?

Speaker 1

That's correct. Yes. We've shared a lot of kind of the expenses and then also a good portion of our legacy technology that really wasn't relevant to the Connected Rewards business going forward, which that does a couple of things for us. One is it cuts costs, just hosting and maintenance costs of technology. And second, it makes us a lot more lean in how we innovate going forward because we don't have this mountain of technology from a prior business that we have to continue to maintain.

Speaker 5

Great. Thanks a lot. Appreciate it.

Speaker 3

There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for

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Earnings Conference Call
Mobivity Q3 2024
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