Kubient, Inc.
Q1 2020 Earnings Call Transcript

Published: 12 May 2021

[Operator:]

Good afternoon and welcome to Kubient’s First Quarter 2021 Earnings Conference Call. Joining us for today’s call are Kubient’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 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 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.

[Paul Roberts:]

Thank you, operator, and good afternoon everyone. After the market closed, we issued a press release with our results for the first quarter ended March 31, 2021. A copy of which is in the Investor Relations section of our website.

[Josh Weiss:]

Thanks, Paul, and good afternoon, everyone. Thank you for joining our call. Now, to our financial results for the first quarter ended March 31, 2021. Net revenue for the first quarter decreased to approximately $708,000 from $1.4 million in Q1 of last year. The year-over-year decrease in net revenues is primarily due to the one-time recognition of $1.3 million in revenue during the three months ended March 31, 2020, in connection with the beta test of KAI. As a result of this successful KAI best test, we have been increasing the number of KAI audits being scheduled by prospective customers and expect to see this number increase going forward. Turning to our expenses, technology expenses for the first quarter 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 first quarter increased to approximately $1.3 million, compared to $517,000 in the same period last year. The year-over-year increase in general and administrative expenses was primarily due to increase 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 $1.8 million, or $0.14 loss per share, compared to a net loss of $58,000, 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 $1.5 million, compared to an adjusted EBITDA of $548,000 in the same period last year. As of March 31, 2021, we had a cash balance of $32.5 million. That concludes my financial summary. For 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, who will discuss some of our major operational updates, and provide a general outlook of our business. Paul?

[Paul Roberts:]

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 with our engagement with USA Today, who is officially plugged into the audience cloud as a demand side partner or DSP, and we'll 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 placing ads on pages. Publishers and their sales team need access to inventory outside of there owned and operated web properties to maximize their ability to deliver audiences at scale. USA Today has partnered with Kubient as a buyer or an audience extension partner, who can sell them clean, fraud free inventory with direct publishers we work with. This ultimately gives them a competitive edge to 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 Kubient in their digital advertising campaign because of KAI. After numerous successful tests, their team saw the incremental value, a real time fraud preventing solution provided, and were on board with executing a deal. Another recent example of compelling partnership is with enthusiast gaming, which has both publishers supply and Kubient product upside for our business. They are Canadian digital media company specializing in video game journalism, and on properties such as Xbox enthusiast and PlayStation enthusiast. Gaming is a high growth category with interest from many brands and agencies, who have large budgets to target them, Rockstar Games, EA Sports, Spotify Advance to name a few. We are pleased to share that Kubient 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 too much of the inventory available being fraught with fraud. Kubient makes it easy and safe for brands to connect to this community of tech and product consumers. The third example of a recent partnership that I'd like to share is with end screen ads, an impressive connected TV and OTT are 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 cost with CPM is often in the mid $20 range and fraud impact. KAI 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. So 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 now by adding more advertisers.

[Operator:]

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Jack Vander with Maxim Group. Please proceed with your question.

[Jack Vander:]

Great. Hi, Paul. Hi, Josh.

[Paul Roberts:]

Hi, Jack.

[Jack Vander:]

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 KAI 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 -- did they actively generate revenue in this first quarter? Or are these non-revenue arrangements currently?

[Paul Roberts:]

So the trial is a non-revenue arrangement. But what we found Jack is, especially during COVID-19, a lot of larger organizations weren't ready to make wholesale changes to their vendors. So we offered them the ability to allow KAI 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 is 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. And we're going to be scaling up our team, so we could handle a lot more of these going forward.

[Jack Vander:]

Got it. Okay. That makes a lot of sense. That's actually positive in my mind, because that revenue result that you guys produce was well ahead of my expectations and didn't even include these 14 trials. Good to know. Okay. And then maybe for context, I know you had two of those large trials going on last year in Q1. How many in your 14 you just mentioned currently, how many prospective KAI trials were there may be at the end of the fourth quarter? Is there any way to provide an apples-to-apples context or did these all just kind of start during the last couple months?

[Paul Roberts:]

A lot of it came in the door in Q4. So, as of right now, we don't have the data to say, hey, here's how we're trending either quarter-over-quarter or even month-over-month. We realized we look at our pipeline every single day from the team internally who are out there talking about KAI 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.

[Jack Vander:]

Got you, that makes a lot of sense. And then just kind of lastly with KAI in these particular trials, do you any idea about -- 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 just more due to technical reasons that they don't play out. But or maybe it's just -- maybe that -- I'm sure that the customers wanted.

[Paul Roberts:]

It's a great question. But what we look at number one is we prequalify a partner, if they could even use KAI. Some partners say, hey, this sounds like the greatest thing, but we don't have this technology to plug in. But what we're looking at is, when we work with a partner that we know that they can use the product and they go through the audit, we're showing them sometimes tens of thousands of dollars every single day that they would have been losing, if they had not had KAI scanning all of their media. So, we're able to show them with real data that they can double check and backup and say, here's 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 success rate of people who go through an audit, who will continue on to be paying customers, because we're the only one who could do certain things for them. And we're showing them before they ever pay us a dollar 1.

[Jack Vander:]

Got it. And of these customers -- I said, that was my last question on KAI, but I got another one. Of your customer trials of these 14 that -- I mean, are any of them -- is there any data points you can share, maybe 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?

[Paul Roberts:]

Yes, we asked 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 tie is. Because if we're stopping the fraud before it goes through that third-party that they're already paying, it's 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.

[Jack Vander:]

Yes, that is very interesting. Okay, great. And then shift gears, just kind of back to the first quarter revenue results, like I mentioned before, is ahead of my expectations, can you 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?

[Josh Weiss:]

Sure. So we obviously benefit from a robust roster of partners. We have seen an increase, luckily from our partnership with DAT, which we just, you know, re-upped for another 12 months. So where we're looking at now, Jack is understanding 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 Mlawski 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?

[Jack Vander:]

Got it. That makes a lot of sense. And with all these new actually -- with all these new executive hires and these leadership positions, this -- you guys are stretched pretty thin before and you still are. But it's pretty amazing that you tend to drive revenue at this stage, even though everyone just kind of walked in the door recently. So how does -- what does this mean for your revenue ramp throughout the balance of 2021?

[Josh Weiss:]

I think what we're seeing is a lot of the part -- a lot of the new executives are 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 what these companies do? 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 ad tech. So we're very excited with the additions that we've recently put on the team that we're going to be able to open up a lot more doors and hopefully convert relationships to revenue a lot faster.

[Jack Vander:]

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 it 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?

[Josh Weiss:]

Sure. So one thing to understand, I think I've talked about this on the prior earnings call is operating a marketplace very much like an aeroplane, you have, the supply on one when 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 like building up our supply, building up direct publisher relationships. Now that we have the publisher relationships, we kind of shift focus to the demand side. And we started to bring in additional buyers or advertisers for all of those publishers. So a lot of it, what you're going to see is, 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 those advertising spots.

[Jack Vander:]

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 -- and I think you said KAI is really also contributing to this is an attractive, I guess, selling point as well? How many -- are you going to provide color around how many discussions you have going on right now with other prospects on the demand advertising side? You know, that wouldn't be reflected in the press release.

[Josh Weiss:]

I -- you know, I try to stay away from exact numbers of who's in the pipeline and things that because I just want to answer -- a part of your question that you asked earlier. Is KAI the driver? And I'll come back to the actual, the outlook that 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. It's a very powerful starting point of a relationship. And then they start to ask as 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 “KAI partnership” they then potentially turn into a demand side partner or a supply side partner where originally they reached out and said, you know, how do I stop all the 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. It starts a lot of great conversations. But looking at -- our CRM and our pipeline, right now we have upwards of about 82 conversations with the advertising side. So these are going to be either agencies, brands or buyers of the media.

[Jack Vander:]

Got it. Fantastic. No, I appreciate the color there. I understand you can't provide everything and show all your cards. But that's all good to hear. And then maybe just say 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?

[Josh Weiss:]

Sure. 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 happened 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, in my -- it was really a combination of existing partners, new partnerships, and really an overall increase in web activity due to COVID-19, which has affected almost all online or dot.com businesses.

[Jack Vander:]

Got it. And then maybe if you can 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? 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?

[Paul Roberts:]

Sure. So when we obviously started the idea of proving it, we wanted to have omni-channel reach, that means being able to reach an audience of one at scale, wherever they are, whether they're on their laptop, digital-out-of-home screen, if they're walking down 7th Avenue in Manhattan, and we serve a relevance 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. And 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. You know, I'm always aware of the New York City tourism numbers and the -- how many people are coming back in our mass transit. Those numbers are very important to us, because we've already built up those digital-out-of-home relationships. And as the ad dollars start to come in, you know, we would expect to be a benefactor of that.

[Jack Vander:]

Great. Paul, that’s really helpful. That's it for me. I may have some more questions, but I'll hop back in the queue and again, solid results. Congrats.

[Paul Roberts:]

Thank you very much, Jack.

[Operator:]

At this time, this concludes the company's question-and-answer session. If the question was not taken, you may contact Kubient’s Investor Relations team at [e-mail]. I would now like to turn the call back over to Mr. Roberts first his closing remarks.

[Paul Roberts:]

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 Kubient and look forward to updating you on our next call. Operator?

[Operator:]

Thank you for joining us today, for Kubient's first quarter 2021 earnings conference call. You may now disconnect your lines at this time and have a wonderful day.