Earnings Call: Q2 2021

Aug 16, 2021

Good afternoon, and welcome to Covian's Second 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 Weep. Following their remarks, we will open the call for your questions. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. Please press star 0. Before we get started, I need to alert you to our Safe Harbor statements under the Securities Litigation Reform Act of 1995. During this call, we will be making forward looking statements, including statements related to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements who is materially different from any future results, levels 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 or suspects of future events and is subject to these and other risks, 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 Cougant, Inc. With the SEC, including our Annual Report on Form 10 ks filed with the SEC on March 30, 2021, and our quarterly report on Form 10 Q for the Q1 of 2021 filed with the SEC on May 14, 2021 with the understanding that our actual CECL results may be materially different from what we expect, which include these and certain other important risk factors. We qualify all of our forward looking statements by these cautionary Mary's statements. Also note that the forward looking statements on this call are based on information available to us 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 for 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 Covian's SEC filings, specifically its registration statement on Form S-one initially filed on December 12, 2020, 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'll find additional disclosures regarding this non GAAP measure, including a reconciliation of this measure with its comparable GAAP measure. Non GAAP financial measures are not intended be considered in isolation from, a substitute for, or superior to GAAP results. The company encourages you to consider all measures when analyzing its Forman. Now, I would like to turn the call over to Paul Roberts. Sir, please proceed. As we celebrate our fast approaching 1 year anniversary as a publicly traded company. We have been encouraged by the progress we've been witnessing across all fronts of the business. Though there were certain challenges and headwinds that came our way, our team has consistently demonstrated resilience and the ability to adapt despite the obstacle that was thrown our way. To begin, we've experienced literal growth at Cougant with respect to our workforce. We have hired a total of 8 employees within the Q2 and are now at a total of 32, which is an approximate increase of 40% year over year and gets us closer to our year end goal of 40 to 50. However, one thing I would like to share and be transparent about is the difficulty we've experienced in onboarding high caliber individuals to the team. We believe we are very fortunate to have been able to onboard some incredible talent already this year. But as I'm sure most of you are already aware, who are currently in one of the most booming economies from a job market standpoint. A recent Wall Street Journal article stated that there was a record 9,200,000 job openings across the country this summer due to the businesses opening back up after lockdown mandates were lifted. As a result of supply far exceeding demand, we have reluctantly found ourselves having an arduous time finding top talent. Our team is still looking to ramp up the number of folks in sales division in addition to engineers on the back end. But due to the current situation with the U. S. Economy, it will take more time than expected to find the right people for the job. Despite being a macro headwind that is out of our control, we were still able to hire Mike Gavigan and Mark St. Amore and Vice President of Performance Media, in addition to other senior leaders on our team that we mentioned on the last earnings call. And furthermore, we are also fortunate enough to appoint industry veterans, John Bond and Larry Harris to our Board of Directors and our recent Annual Shareholders Meeting in late June. Both gentlemen bring a wealth of knowledge and experience as executives with deep Adtech Backgrounds, and I look forward to the impact they'll be making for Couviant. An exciting piece of news I'd also like to share Our company will officially be going back into the office starting September 15, barring any massive breakouts of the Delta variant. Although our employees have been able to maintain productivity levels working remote, we're certain that moving back into the office will only help. As we'll all have the opportunity to work next to each other at close proximity without our dogs furiously barking in the background during Zoom calls. And Before I dive any deeper into updates for the quarter, I'd like to pass the baton over to Josh for an update on the financial front. Josh? Thanks, Paul, and good afternoon, everyone. Thanks for joining our call. Now to our financial results for the Q2 ended June 30, 2021. Net revenues increased to approximately $498,000 compared to approximately $92,000 in the same period last year. And the year over year increase in net revenue is primarily due to the increase in revenue from 1 new customer during the 3 months ended June 30, 2021. Something I wanted to emphasize was the timing of our contract execution to revenue recognition to provide you all with a better understanding of our lead time. A common misconception within our industry is the fact that a signed contract directly correlates to revenues the following day, when in reality that is not the case. Just because a customer has signed up to use our Audience Cloud, it doesn't mean that revenue is immediately generated and recognized. After contract execution, our engineering team will typically integrate our technology into the customer's infrastructure, followed by a thorough testing process, all of which can take between 4 to 10 weeks depending on the complexity of our partners' technology. Nevertheless, we are committed to lowering this number going forward to increase efficiency and have a faster path towards revenue recognition. Turning to our expenses. Technology expenses increased to approximately $620,000 from approximately $497,000 in the same period last year. The year over year increase was a result of increases in salary expense of approximately $80,000 arising from an increase in technology personnel headcount, consulting expenses of approximately $22,000 and cloud hosting costs of approximately 37,000 General and administrative expenses increased to approximately $1,100,000 compared to approximately $602,000 in the same period last year. The year over year increase in general and administrative expenses was primarily due to increases in salary expense of approximately 154,000 arising from an increase in general and administrative headcount, approximately $259,000 in professional fees and approximately $118,000 of insurance expense. GAAP net loss was $1,700,000 or a $0.12 loss per share compared to a net loss of $1,500,000 or $0.42 loss per share in the same year ago period. The year over year increase in net loss was primarily due to increases in operating expenses as enumerated above. Adjusted EBITDA, a non GAAP measure, decreased to approximately $1,600,000 EBITDA loss compared to an adjusted EBITDA loss of $957,000 in the same period last year. As of June 30, 2021, the company had a cash balance of $30,500,000 That concludes my financial summary. For a more detailed analysis, please reference our Form 10 Q, which we plan to file today. I will now turn the call back over to Paul, who will discuss some of our major operational updates and provide a general outlook of our business. Paul? Thanks, Josh. To kick things back off, I'd like to provide some encouraging updates in regards to our M and A efforts. And As I previously alluded in our prior earnings calls, we have been quite busy with our M and A strategy and have entertained a copious amount of conversations year to date with several highly reputable EdTech Companies. As a reminder, we deployed a very disciplined approach to narrow down a large pool of potential targets, thanks to the help of Lake Street Capital Markets. Our goal was to find a target that could offer us direct publisher partnerships at scale, along with direct to advertising partners. This type of target would be incredibly accretive to our current model and would potentially help us increase across our current supply and demand partners, while also getting further adoption of KAI within the industry. And after a diligent vetting process, I'm proud to share that we've executed a non binding LOI or letter of intent with a company that we believe fits the stringent criteria we laid out at the start of this process. Although I am quite limited in the details I'm able to share at this point, I'd like to provide a brief overview of why this potential acquisition would be accretive to Couviant. This company has created an ad unit that provides their publisher partners with premium content to monetize their traffic, which equals billions of impressions per month. The benefit to Couviant is that we would 1, gain access to all of the publishers that use their technology 2, gain access to the brands, agencies and DSPs that use their technology to buy the media and 3, capture all of the data that flows in between those partners, which ultimately helps Cai get smarter and smarter. Additionally, they are equipped with a seasoned management team that has deep ad tech experience and will help us scale Couviant even faster. As always, when there are further updates to share, we will do so via the appropriate Reg FD channels. Next, our sales team has continued to gain encouraging traction from customers and partners to test and plug into our Audience Cloud. And One partnership that I'd like to share is the full integration we recently completed with BidSwitch. BidSwitch is an ad tech platform that's used by over 200 DSPs to Connect to Direct Publishers. I'm pleased to share this news of this integration because we will now benefit from the over 200 DSPs and their media buying power across our direct publisher partnerships. I'm also pleased to share that over the last quarter, who have brought on additional new partners, including Viant, Unruly and Citizens Disability. Furthermore, we've engaged with brands such as Allstate and Unilever through their ad agencies. These new partners are very important to Couviant, not only because of their brand equity, but because it continues to show us that the marketplace believes in an efficient, transparent and fraud free media buying process. Additionally, we were asked to be a sponsor for the Digiday Gaming Advertising Forum. What is special about this is that it's one of the first industry conferences Coubin has been asked to sponsor. Furthermore, it presents as a business development event as we have the opportunity to share information about our audience Cloud and KAI and all of the media buyers that will be attending, which range from large brands such as PepsiCo, Anheuser Busch, Activision Blizzard Media and more. And I'd like to shift gears and provide some updates regarding CHI. As you may recall, on the last quarterly earnings call, we publicly started to share the number of CHI audits or the number of customers that are testing CHI within their own platform. I'm pleased to share that during the quarter, we had an additional 13 companies that requested TAI audits perform. Although we're quite encouraged by the amount of interested companies, we're quite limited to the number of audits we can perform due to the limited employee bandwidth. And to my earlier remark about the current difficulty we're facing from a hiring perspective, the market for experienced data science and data engineering technicians has tightened significantly. Nonetheless, we're still looking to add additional resources to the team before the end of the year to support and the growing demand for KAI. To put things into perspective, 1 KAI audit does not happen overnight or even within a couple of days. But instead it takes a total of approximately 20 to 30 business days to successfully perform. It is an extensive process that requires us to accurately process 100 of millions of rows of our partners' data, analyze it and send it back in a clean, easily digestible report, which is much easier said than done. At this time, we have performed a total of 4 audits with 12 requests in the backlog, and that number continues to grow by the week. More importantly, we have seen 2 audits out of the 4 performed convert into executed CHI contracts with an additional 2 currently in the contract negotiation phase, which of course is our end goal with these audits. Additionally, I'd like to share some updates regarding our overall sales efforts. Our 2 new VP of Performance Media Executives have already begun to integrate all of their prior clients into the Couviant audience marketplace. Through these clients, we were able to create an indirect sales strategy where we were able to tap into Advisio's customer base and execute contracts with them, which are now starting to generate revenue. This indirect sales channel strategy will introduce Kai to brands and publishers that have trusted their media and traffic recommendations for the last decade. And CEO. As it relates to the Audience Cloud, we continue to see a greater concentration on the publisher side that we do on the advertising or the buy side within the chicken and egg scenario we've previously alluded to. Our intention is to certainly build up a robust base of advertisers, but we'll need to continue to attract and hire additional sales folks internally to give us a greater chance of balancing the equation out. We are also optimistic that the potential acquisition we referred to and Company. Earlier in my comments, we laid incremental depth on both the advertiser and publisher sides of the marketplace. And Company. Our forward looking strategies of onboarding the right people, partnering with high quality partners and customers, an active M and A initiative and a compelling slate of industry leading products will prime us for growth. I am excited about how far we've come the past year as a publicly traded company. But this is just the beginning in our transition of transforming Couviant from a start up to an industry leading ad tech marketplace. And CEO. That concludes my prepared remarks. Thank you all for the 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. And and A. Our first question comes from the line of Jack Vander Aarde with Maxim Group. Please proceed with your question. Great. Hey, guys. Appreciate the update. Thanks for taking my questions. So Paul, Last quarter, you had these 14 Cai customer audits and this quarter, you added another 13. And it sounds like the only bottleneck to the process is really your stretch kind of thin internally right now to keep up with the demand. Would you say it's fair? Are you getting can you just describe the level of demand you're getting from customers or potential CHI customers? And then relative to how you're determining which customers to serve? Sure. Thanks for the question, Jack. And I think you kind of hit the nail on the head. If last year you told us that we would be having such a challenge to find and the additional team we need to meet the demand that we're getting for KAI, I would have found that hard to believe. But right now, the biggest challenge we have is really the job market. It's getting harder and harder to find the top level talent that we've been accustomed to attracting and hiring. So we've actually put a lot more effort into identifying and bringing on the right people to meet the demand that we've gotten from Cai. And I can tell you that over the last two quarters, We're incredibly optimistic from the feedback that we've gotten. When we actually perform an audit and we show a brand, we show a partner, Here's the fraud. Here's where you're buying fraud and here's the fraud we're going to stop for you. The response is incredible. It's just and it's very, very encouraging for us. We just need to put a lot more effort into the hiring. We recently brought on Kim Khan, Noah is an integral part of building up Double Verify. So she's actually been able to source some great candidates and we've already added a few new candidates and new employees this quarter already. That's great. And then Paul, I appreciate the color there. And then just looking at your cash balance. You have quite a bit of cash, dry powder. You mentioned this potential acquisition, which you can't get into too much of the weeds with. But just in terms of like how you're thinking about hiring plans, this acquisition that's pending or that you signed an LOI for, Can you just talk about how much I don't know, how much of this capital how much capital do you have relative to your needs in terms of your immediate hires and also along and Sure. It's a great question. And obviously, we pointed out earlier, we still have about 30 plus $1,000,000 in the bank to deploy. We've had a very, very disciplined approach with Lake Street Capital Markets of the type of opportunity that's going to best benefit Couviant. And obviously building KAI in the audience marketplace, we're believers that everybody wants to prevent ad fraud. So the next natural step for us was how do we go out and scale both sides of the marketplace. How do we go out and get tens of thousands of publishers, hundreds of advertisers who can immediately connect and really start to light up this marketplace because we've spent a lot of time and resources getting direct publishers. We have a lot of direct publishers. How do we increase that? So out of all of the opportunities we looked at, this company really stood out to us, both from a technology standpoint, a relationship and partnership standpoint as well as their team. A very big thing is the culture of an organization and how to integrate it in a very seamless manner. And they bring an incredible potential team to the table from a technology and a industry leadership standpoint. So hopefully that gives you a little more color of why we're so excited. It's really going to help us build out both the buy and the sell side of our marketplace, while Cai can get greater adoption from all of those partnerships. And CEO. Got it. Okay. I appreciate the color there. And then maybe just one more follow-up for me, separate topic. The digital out of home space, that opportunity now that the world is kind of opening back up, knock on wood here with COVID. You had this plan for digital out of home and it seems like a good opportunity. I'm just wondering if you're seeing that come back to the forefront at all and what you're kind of doing and how you're prioritizing that? It's been a slow return. And we are starting to see some budgets from being talked about and digital out of home and some bigger brands start to dip their toes in the water again. And Company. Obviously, the Delta variant does have some brands concerned about whether or not we're going to be back to some sort of a lockdown in the near future. But what we're seeing, which actually plays to our benefits is as brands start to reevaluate their digital out of home strategy, They're using a holistic approach of audience. How do we reach them not only in digital out of home, but across their laptop, across their cell phone, which is really what Couviant was built to deliver with this audience cloud. We always felt that brand should be able to reach an audience of 1 at scale, regardless of where they are in their digital journey. So obviously having those connections with the digital out of home partners, also continuing to build up our partnerships on the traditional channels like mobile and desktop, I think is really going to suit where the market is headed in the near future. Okay, fantastic. Well, I appreciate the time. I'm going to hop back in the queue. Thank you. Awesome. Thanks, Jack. And CEO. At this time, this concludes the company's question and answer session. And Investors. If your question was not taken, you may contact Couviant's Investor Relations team at couviantgatewayir.com. I'd now like to turn the call back over to Mr. Robert Spruill for his closing remarks. Thanks, operator. I just want to thank everyone for joining us today on our Q1 2021 earnings call. I especially want to thank our employees, partners, investors and customers for their support. We obviously appreciate your continued interest in Couviant and look forward to updating you on our next call. Operator? Thank you for joining us today for Couviant's Q1 2021 earnings conference call. You may now disconnect.