Earnings Call: Q1 2021

May 12, 2021

Good afternoon, and welcome to Covian First Quarter 2021 Earnings Conference Call. Joining us for today's call are Covian's Founder, Chairman, Chief Strategy Officer and Interim Chief Executive Officer, Paul Roberts and Chief Financial Officer, Josh Weiss. Following their remarks, we will open the call for your questions. Before we get started, I need to alert you of our Safe Harbor statement under the Securities Litigation Reform Act of 1995. And during this call, we will be making forward looking statements, including statements related to future events or to our future financial performance can involve known and unknown risks and uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, level of activity, performance or achievements expressed or implied by these forward looking statements. Listeners should not place undue reliance on forward looking statements since they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond our control and which could and likely will materially affect actual results, levels of activity, performance or achievements. Any forward looking statement reflects our current views with respect to future events and is subject to these are the risks and uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. Furthermore, listeners are referred to the documents filed by Covian Inc. With the SEC, including our annual report on Form 10 ks filed with the SEC on March 30, 2021, is the understanding that our actual future results may be materially different from what we expect, which include these and certain are other important risk factors. We qualify all of our forward looking statements by these cautionary statements. Also note that the forward looking statements on this call are based on information available as of today's date. Except as required by law, we assume no obligation to publicly update or revise these forward looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future. Please refer to Covient's SEC filings, specifically its Form 10 ks and 10 Q and financial results press release for a more detailed description of risk factors that may affect the company's results. During the call today, management will discuss adjusted EBITDA, a non GAAP financial measure. In the company's press release and filings with the SEC, both of which are posted on the company's website, you will find additional disclosures regarding is non GAAP measure, including a reconciliation of this measure with this comparable GAAP measure. Non GAAP financial measures are not intended to be considered in isolation from, a substitute for or superior to GAAP results. The company encourages you to consider all measures when analyzing its performance. Now I'd like to turn the call over to Paul Roberts. Sir, please go ahead. Thank you, operator, and good afternoon, everyone. After the market closed, we issued a press release with our results for the Q1 ended March 31, 2021, a copy of which is in the Investor Relations section of our website. I'll kick things off by noting that we are pleased with the continued growth we're experiencing across our business. Even though it's only been a month and a half since our last call, we have made considerable operational and commercial progress that will prime Covian for further development and growth as we enter into our next chapter. The most important ingredient to ensure we optimally is by hiring the right people. Year to date, we have onboarded 4 key seasoned individuals across different segments within our business. Most recently, we appointed Kim Khan as the VP of People Operations. Kim has extensive senior level HR experience across a multitude of companies, including Double Verify, which is another is the organization. At her time with Double Verify, she recruited for all positions and levels, which totaled in over 300 employees during her tenure, created and constantly updated the employee handbook, acted as the point person for all employee relations needs, manage all HR services and renewals with vendors set a compelling company culture to help attract and retain talent and handle compensation logistics for employees. Her ability to kick start the HR function within early growth stage organizations and develop them into comprehensive segment is something she will be able to translate directly over to Qubian. As we continue to expand our business and grow the personnel that is to help run it, it is imperative that we're nurturing our already strong organizational culture for our employees. Jim will be playing a pivotal role in establishing new employee onboarding and training procedures, internal health and safety protocols, are recruitment and retention efforts, employee relations, benefits administration and most importantly, developing the already incredible culture that Qubian has today. In essence, she and her team will ensure that all the different divisions within our company remain intact and coherently operate under the Qubian umbrella. We felt now was that time to start cultivating this function within our business as we are constantly looking to hire and grow. We look forward to what Kim has in store as she spearheads this new team. Next, about a month ago, we announced that we hired Leon Damel as Qubiant's Chief Product Officer. Leon comes to Cubiant with a very prominent background as he has almost 2 decades of experience within the programmatic ecosystem and has several noteworthy accomplishments. He was most recently the SVP of Programmatic and Platform Product at Double Verify, are well known DSP and has held several senior level positions at MediaMath and X Plus One, are both also well known in the ad tech space. Notably, Leon had prior Seth leading the development of 1 of the 1st DSPs and data management platforms in the industry at X Plus One, where he was a key executive responsible for scaling its is Technical Operations. As the Chief Product Officer of Covian, Leon will be primarily focused on our product goal initiatives. Even though he's only been with us for roughly a month, we have already noticed the impact he is making. In particular, has helped us focus more on our efforts and mind share towards the products that have the greatest opportunity for scale and potential for profitability. His ability to identify the low hanging fruit opportunities is providing immense value as it saves us time and resources, and we believe that his abilities and experience present us with the best potential to capture the most amount of market share as possible. Additionally, we appointed Larry Imlowski as VP of Client Services. Larry joins us from ProHaska Consulting, one of the most well respected programmatic consulting firms in the industry, were Hugh was involved in multiple strategy and monetization projects, including M and A due diligence and transactions. He brings a very rich and diverse background from companies like Trusted Media Brands and LinkedIn, where he was responsible for maximizing revenue growth, are refining internal processes, developing enterprise level corporate initiatives and engaging in M and A activity. Are: At Cougiant, he'll be spearheading client success and operations, which means he'll be in charge of making sure we are maximizing all possible synergies with our partners. As we further augment the number of customer and partners, we want to be sure we're capitalizing on all opportunities and not leaving any missed ones on the table. And we are confident that Larry and his team will do just that. Finally, we onboarded former Sales Director of Forensic, Alex Breyers, Vice President of CHI Partnerships. Alexis brings to the table an impressive resume as he's garnered much success in business development are from a multitude of programmatic companies. Most notably, he helped grow Forensic, an MRC accredited fraud identity company, where he significantly grew their partnership count prior to the acquisition of that business by Impact Radius. He has a phenomenal rapport within the industry and we're optimistic you'll be able to strengthen our CAI business development effort. As you can see, in being deliberate with our onboarding process, were prudently appointed individuals who have proven they have helped evolve the previous companies they were at. We are extremely confident is each of their respective abilities to scale growth and we look forward to the impact they'll be making in Covian. Looking ahead, we plan to further increase our overall headcount, but more so specifically within the Sales, are Technology and Customer Success division and intend to have 40 to 50 employees by the end of the calendar year. Before I provide further updates on the progress and milestone achievements made this past quarter, I'd like to hand the call over to our CFO, Josh White to walk you through the financial results for the Q1 of 2021. Josh? Thanks, Paul, and good afternoon, everyone. Thank you for joining our call. Now to our financial results for the Q1 ended March 31, 2021. Net revenue for the Q1 decreased to approximately $708,000 from $1,400,000 in Q1 of last year. The year over year decrease in net revenues is primarily due to the one time recognition of $1,300,000 in revenue during the 3 months ended March 31, 2020, in connection with the data test of CHI. As a result of this successful CHI data test, we have been increasing the number of CHI audits being scheduled by prospective customers and expect to see this number increase going forward. Turning to our expenses. Technology expenses for the Q1 increased to approximately 520,000 from $479,000 in the same period last year. The year over year increase was primarily due to an increase in amortization of software expense and an increase in cloud hosting costs. General and administrative expenses for the Q1 increased to approximately 1,300,000 compared to $517,000 in the same period last year. The year over year increase in general and administrative expenses was primarily due to increases in salary expense due to an increase in headcount, professional fees, insurance expense, all partially offset by a reduction in rent and office expense. GAAP net loss was approximately $1,800,000 or $0.14 loss per share compared to a net loss of 58 are $8,000 or $0.02 loss per share in the same year ago period. The year over year increase in net loss was primarily due to reduced net revenues and an increase in operating expenses. Adjusted EBITDA, a non GAAP measure, decreased to $1,500,000 compared to an adjusted EBITDA of $548,000 in the same period last year. As of March 31, 2021, we had cash balance of $32,500,000 That concludes my financial summary. For a more detailed analysis, please reference our Form 10 Q, which we plan to file this week. I will now turn the call back over to Paul, will discuss some of our major operational updates and provide a general outlook of our business. Paul? Thanks, Josh. I'd like to touch upon the encouraging progress we're seeing within our sales division. As a result of much hard work, our SVP of Partnerships, Ryan Adams and his team have been successful thus far in getting more and more prospective customers to test and plug into our Audience Cloud. A recent example I wanted to share was our engagement with USA TODAY, who is officially plugged into the Audience Cloud as a demand side partner or DSP and will be buying our traffic. While it's easy to think of USA TODAY as a content publisher and seller, the publishing business today is more robust than just are placing ad on pages. Publishers and their sales team need access to inventory outside of their owned and operated web properties to maximize their ability to deliver audiences at scale. USA TODAY is partnered with Kuvien as a buyer or an audience extension partner You can sell them clean, fraud free inventory with direct publishers we work with. This ultimately gives them a competitive edge will capture more market share from their sales efforts. One piece of feedback we received from the USA TODAY team was that they chose to go through with Qubian in their digital advertising campaign because of Cai. After numerous successful tests, their team saw the incremental value our real time fraud preventing solutions provided and we're on board with executing a deal. Another recent example of compelling partnership is with Enthusiast Gaming, which has both Publishers Supply and Qubian product upside for our business. They are a Canadian digital media company are specializing in video game journalism and owned properties such as Xbox enthusiasts and PlayStation enthusiasts. Gaming is a high growth category with interest from many brands and agencies who have large budgets to target them. Rockstar Games, EA Sports, are Spotify and Vans to name a few. We are pleased to share that Covian is directly integrating with their 20 plus media properties to help them monetize their display and video inventory. Reaching the gamer audience is a challenge for marketers due to much of the inventory available being fraught with fraud. Qubiant makes it easy and safe for brands to connect to this community of tech and product consumers. The 3rd example of a recent partnership that I'd like to share is with End Screen Ads, an impressive Connected TV and OTT or over the top advertising platform that we're proud to integrate into our tech stack. Connected TV is in high demand by advertisers and the supply available to the market is both high in cost with CPMs often in the mid-twenty are: Dollar range and fraud impact. TAI has detected more than 40% of CTV inventory that we've audited to be fraudulent, And we're excited to bring clean inventory to advertisers. Though we are certainly encouraged by the partnerships with USA TODAY, Enthusiast Gaming and End Screen Ads, we are still in need of additional advertisers or buyers within our marketplace. As we mentioned on the last call, we still have a robust slate of publishers on the supply side within the chicken and the egg scenario, And we intend to balance the equation out by adding more advertisers. The variable in the equation though is time. I wanted to stress that successfully on boarding an advertiser does not happen overnight, but takes time. Nevertheless, our goal is to continue adding more and more partners that create more liquidity in our marketplace. With the ongoing early success from Ryan and team and the influx of prospective customers testing out our Audience Cloud, we are confident in our efforts to scale. Speaking of our robust slate of publishers, I'm proud to share that we have officially extended our partnership with our long standing partner, The Associated Press are the AP for another year. The AP continues to have a scaling media presence and we believe we are the right partner to continue helping them grow their Ad Tech segment. One example of this and a fun fact I wanted to share was the AP tells us they will have the 2nd most reported on location for the 2021 Summer Olympics in Tokyo. Their international footprint is broad and their content, distribution and need to monetize their digital assets makes them a terrific growth focused partner of ours. Both the AT and Qubian have mutually benefited from the partnership since the onset of our engagement, and we look forward to another 12 months of collaboration and synergies. With that said, I'm pleased to share that our direct publisher partnership count that lists Covient as an approved buyer has increased 5% to 3,568 as of May 11, 2021 from roughly are 3,400 in the previous quarter. Similar to the growth opportunities we're experiencing on the customer and partnership side, we're seeing that same pattern translate over to our real time fraud prevention solution, CAI. One proof point that demonstrates this is through the increase in CHI audits we are conducting or the number of customers that are testing out CHI within their own platform. We have learned that this method tends to result in the greatest ROI as we have seen from Tron TV and a number of other customers that are currently using CHI will purchase our solution after a number of conducted trials. As of right now, we currently have 14 CAI audits being scheduled by prospective are customers and we feel confident that this number will only continue to increase looking ahead. On par with signing up customers or partners, there is an extensive lead time for the KAI sales cycle to be completed. We understand we are still early on in our efforts to commercialize CHI, but with adding folks like Alexis and Larry onto our team to help ramp up business development initiatives and the continued increase in the number of CAI audit, I'm confident we'll be able to convert more leads into actual executed deals. Are moving on, I'll provide a brief update with respect to our self serve DSP or demand side platform. As I previously mentioned on our call, we had 2 partners that were testing out a beta version of the self serve DSP. I'm proud to share that both partners continue to be clients helping us beta test the technology and offering tremendous insight into our platform and how we can improve it. On brand with our broader initiative of commercializing our products and solutions, we're optimistic about scaling this for direct advertisers to use. As previously mentioned, our business, along with the broader digital advertising industry, were adversely affected by the ramifications of COVID-nineteen, are the same, which as a result affected digital out of home advertising. We are hopeful the effects from the headwinds are out of our way and that this segment will eventually rebound back are. Looking ahead, we intend to provide further updates as deemed appropriate. Before I conclude, I'll provide a quick update on our M and A activity. We continue to be in very active preliminary conversations with potential acquisition targets is guided by the Council of Lake Street Capital Markets. Although I have no material update to share at this time, I wanted to mention that we are very much still view M and A as a very accretive and high value added opportunity for growth and look forward to providing incremental updates with you all via the appropriate Reg FD channels. In conclusion, we've certainly hit the ground running, so to say, as we entered into our 1st year as a public company. With the recent headcount additions made, the encouraging early stage traction we're receiving from customers across our slate of solutions and our growing portfolio of partners, I can firmly say that we are in a great position for growth and success. That concludes my prepared remarks. Thank you all for your time this afternoon. We look forward to updating you on our progress going forward. We're now ready to open the call for your questions. Operator, please provide the appropriate instructions. Are confirmation to the our first question comes from the line of Jack Bannard with Maxim Group. Please proceed with your question. Great. Hi, Paul. Hi, Josh. Thanks for taking my questions and great results. So maybe I'll start with a question for Paul, maybe a couple of questions on the same topic. Just regarding CHI. And you mentioned in your prepared remarks there and also in the press release that You have these 14 prospective customers undergoing audits or trials or maybe being scheduled some of them. Are these actively generating do they actively generate revenue in this Q1 or are these non revenue arrangements currently. So the trial is a nonrevenue arrangement. But what we found, Jack, is especially during is COVID-nineteen. A lot of larger organizations weren't ready to make wholesale changes to their vendors. So we offered them the ability to allow Cai is to scan all of their traffic and let them know here's how much fraud we would have prevented if you were a partner of ours. So we've found a lot of very, very good conversations come out of that, because what we're doing is we're showing them here's how much money you would have saved If you were using cash. So the team right now is working on multiple audits at one time We're going to be scaling up our team so we could handle a lot more of these going forward. Got it. Okay. That makes a lot of sense. And that's actually positive in my mind because that revenue result that you guys produced was is well ahead of my expectations and it didn't even include these 14 trials. Good to know. Okay. And then maybe for context, I know you had 2 of those large trials going on last year in Q1. How many and you had 14 you just mentioned currently. How many prospective Cai trials were there maybe at the end of the Q4? Is there any way to provide an apples to apples context? Or did these all just kind of Start during the last couple of months. A lot of it came in the door in Q4. So as of right now, we don't have the data to Hey, here's how we're trending either quarter over quarter or even month over month. We realize we look at our pipeline every single day from are the team internally who are out there talking about Cai and that pipeline continues to grow every day. So I think fraud and a lot of the conversations that we're having are very relevant, especially as we come into the second excuse me, into the next quarter where you start to see an uptick in the overall programmatic spending. Got you. That makes a lot of sense. And then just kind of lastly with Cai, in these particular trials, do you have any idea of like a target conversion rate that you have in your mind for these 14 trials or just in general, what you think the hit ratio will be? Maybe some things are like Just more due to technical reasons that they don't play out, but or maybe it's just how many that I'm sure that the customers want it, so. Yes. It's a great question. But what we look at, number 1, is we prequalify a partner if they could even use Cai. Yes, some partners say, hey, this sounds like the greatest thing, but we don't have the technology to plug in. But what we're looking at is when we work with a partner that we know can use the product and they go through the audit. We're showing them sometimes tens of 1,000 of dollars every single day that they would have been losing If they had not had Cai scanning all of their media. So we're able to show them with real data that they can double check and back up and say, is all of the fraud that we would have prevented for you. So I think that I don't want to be too optimistic, but I think we're going to see a good are the only one who could do certain things for them and we're showing them Before they ever pay us a dollar. Got it. And of these customers, I think that was my last question on Cai, but I got another Of your customer trials of these 14, I mean, are any of them Is there any data points you can share maybe of like what they were currently using as their fraud prevention tool or maybe post fraud Identification tool, and just kind of what you're hearing from them anecdotally and how it compares? Yes. We ask a lot of those questions in the pre qualifying of going through the audit. And the beauty of our product is due to the fact that we use machine learning in real time and we're preventing the fraud. If a brand or a partner is actually using a third party vendor who does the post analysis, we benefit from another party basically saying how impactful Tye is, Because if we're stopping the fraud before it goes through, that 3rd party that they're already paying is going to start to report lower fraud numbers. So it's a very exciting opportunity for us that somebody that a brand is already paying is going to justify how impactful KAI is. Yes, that is very interesting. Okay, great. And then shift gears just kind of back to the Q1 revenue results. Like I mentioned before, it was ahead of my expectations. Can you maybe talk a bit more about the underlying drivers of the revenue? I know Josh spelled out pretty clearly why it was down year over year because those two trials from last year. But as far as what actually drove this, maybe existing traffic From existing partners increasing, new partners plugging in, anything you can share. Sure. So we obviously benefit from a robust roster of partners. We have seen an increase luckily from our partnership with DAP, which we just re upped for another 12 months. So where we are looking at now, Jack, is understanding are out of all the partnerships we have, which are the ones that are going to give us the biggest impact in the short term, while we continue to build up those longer term partnerships. So that's one of the key things that Larry Malowski is going to be doing and he's done already at companies like LinkedIn and other types of publishers where we can identify, okay, if we have these 45 buyers and all of these publishers, how can we go ahead and make the most revenue with what we have? Got it. That makes a lot of sense. And with all these new actually with all these new executive hires are at least leadership positions. You guys are stretched pretty thin before and you still are, But it's pretty amazing that you're seeing to drive revenue at this stage, even though everyone's kind of walked in the door recently. So how does what does this mean for your revenue ramp throughout the balance of 2021? I think what we're seeing is a lot of the part excuse me, a lot of the new executives who have come in, these are very seasoned executives. So where we might have struggled to get on the phone with maybe a very large DSP or a very large agency. Some of the conversations I had with these executives was, who do you know at these companies? We're trying to get into these 10 or 15 companies. And it's a very, very small industry and a very small community in programmatic and adtech. So we're very excited with the additions that we've recently put on the team is that we're going to be able to open up a lot more doors and hopefully convert relationships to revenue a lot faster. That's great. And then maybe just kind of to that point as well is you mentioned your total number of publisher partners increased to, was it 3,568? And so that was 5% sequentially. Is that 5% kind of growth in publisher partners a sustainable level? Do you expect that to accelerate, maintain? Is there any sense to that? And kind of what kind of target number are you looking for in terms of publisher partnerships by the end of this year, maybe just directionally. Sure. So one thing to understand, I think I've talked about this on a prior earnings call is operating a marketplace is very much like an airplane. You have is the supply on one wing, you have the demand on the other. And if we get too much supply without the demand, we start to go in circles. So we spent a lot of time going into Q3 and part of Q4 last year building up our supply, building up direct publisher relationships. Now that we have these publisher relationships, we kind of shift focus to the demand side and we start to bring in additional buyers or advertisers for all of those publishers. So a lot of it, what you're going to see is growing in lockstep, where the more demand we get, the more publishers we're going to be able to go out and onboard into the Audience Cloud. And then as we onboard more publishers, we're going to grow the demand side, the advertising sales team to go out and find more great advertisers to help buy that will be advertising sponsors. And I think you mentioned too as far as it goes With prospecting for new advertiser customers and you mentioned a couple of new big major wins Recently with Enthusiast Gaming and a few others that you mentioned, are I think you said Cai is really also contributing to this, is an attractive, I guess, selling point as well. How many Are you able to provide color around how many discussions you have going on right now with other prospects on the demand advertising side That wouldn't be reflected in the press release. I try to steer away from exact numbers of who's in the pipeline and things of that because I just want to answer a part of your question that you asked earlier. Is CHI the driver? And I'll come back to the actual the outlook of who we have in the pipeline. But when you start to talk to somebody about KAI and you explain we can remove fraud before it's bought and sold, is a very powerful starting point of a relationship and then they start to ask us, well, can I plug in directly? Can I plug into the Audience Cloud as a buyer? Yes. Can I plug into the Audience Cloud as a seller, because I want to clean up my traffic? I know I'm getting hurt by selling fraudulent traffic, which I'm a victim of. How do I clean that up? So interesting, a lot of the conversations and a lot of the prospects that come in as a CHI partnership, they then potentially turn into a demand side partner or a supply side partner, where originally they reached out and said, are how do I stop all of this ad fraud. But as we begin to talk and explain why an efficient market is so important and why you don't need all the middlemen, They then say, well, I would love to connect as a buyer or a seller of my inventory. So it's almost been a Trojan horse is to start a lot of great conversations. But looking at our CRM and our pipeline, right now we have are upwards of about 82 conversations with the advertising side. So these are going to be either agencies, brands or buyers of the media. Got it. Fantastic. No, I appreciate the color there. I understand you can't provide everything to all your cards, That's all good to hear. And then maybe just a maybe a question Just kind of regarding other metrics you've provided in the past, and I don't need the specifics maybe, but it would be interesting just in terms of how many Wi Fi unique devices you've fingerprinted. And then also you've mentioned publisher inventory growth. Any of these key metrics you can, I guess, provide more color on or an update on? Sure. Yes. One of the biggest things that we're looking at as we've talked about in the past is how many impressions or how many revenue opportunities come through our platform every single day. And that number has increased by 28% from last quarter. So we've actually seen a significant increase from the publisher side, because one thing that happens is once you actually start to clean the traffic and show results, publishers start to open up more and more of their inventory. So typically, you'll work with a large publisher and they'll say, okay, we'll let you bid on 25% of our inventory. Then you can basically show them all of the fraud you've removed, the revenue increase, the optimization, then they give you a full 100%. So a lot of that was driven by existing partners. And it was really a combination of existing partners, new partnerships And really an overall increase in web activity due to COVID-nineteen, which has affected almost all online or dotcom businesses. Got it. And then maybe we could just you did mention, I wasn't expecting you to, but you did mention something about The digital out of home opportunity. Can you just provide some more color around that? Because I know that was that's another piece of the story longer term, but whatever you could share on that front right now would be helpful. Sure. So when we obviously started the idea of Covian, we wanted to have omnichannel reach. That means being able to reach an audience of 1 are at scale wherever they are, whether they're on their laptop, digital out of home screen, if they're walking down Seventh Avenue in Manhattan, can we serve a relevant answer to them. So we forged a lot of supply side partnerships in the digital out of home space. These are all of the screen owners. And this at the time was a heavy lift for us because a lot of the digital out of home screen owners don't have a standard format of how they buy and sell their ads. So our team built up a lot of good relationships there. We continue to have those relationships. And as I mentioned on the call earlier, we're starting to see some of the ad dollars start to trickle back into digital out of home. I'm always aware of the New York City tourism numbers and the how many people are coming back in on mass transit. Those numbers are very important to us is we've already built up those digital out of home relationships and as the ad dollars start to come in, we would expect to be a benefactor of that. Great. Paul, that's really helpful. That's it for me. I may have some more questions, but I'll hop back in Thank you and again, solid results. Congrats. Thank you very much, Jack. At this time, this concludes the company's question and answer session. A question was not taken, you may contact Covian's Investor Relations team at cubiangatewayir.com. I would now like to turn the call back over to Mr. Roberts for his closing remarks. Thanks, operator, and thank you, everyone, for joining us today on our Q1 2021 earnings call. I would especially like to thank our employees, our partners, our investors and customers for their support. We appreciate your continued interest in Coviant and look forward to updating you on our next call. Operator? Thank you for joining us today for Covian's Q1 2021 earnings conference call. You may now disconnect your lines at this time and have a wonderful day.