Mobivity Holdings Corp.
Q4 2020 Earnings Call Transcript

Published: 30 Mar 2021

[Operator:]

Greetings, and welcome to Mobivity’s Fiscal Year 2020 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Brett Maas, of Hayden IR. Please, go ahead.

[Brett Maas:]

Thank you, Operator. I’d like to welcome everyone to Mobivity’s fiscal year 2020 earnings call. Hosting the call today are Dennis Becker, Founder, Chairman and Chief Executive Officer; and Lisa Brennan, Chief Financial 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 the management’s best judgment based on factors currently known and that the actual results or events could differ materially.

[Dennis Becker:]

Thanks, Brett, and thanks everyone for joining us on our call today. I hope everyone is keeping healthy out there and spirits are lifting now that we're seeing some light at the end of the proverbial time. At Mobivity, we're just getting to the one year anniversary of the tough call to shut down our offices and confront historic uncertainty over the impact of COVID on our core market focus, the restaurant industry. Despite the tsunami of disruption, including what seemed like a standstill across many industries, our team doubled down on the conviction that digital consumer engagement was the future. And I'm pleased to report that we produced a record year of growth. Just prior to the pandemic, the operating leverage of our business and subscription-based licensing agreements was shining, as customers adopted higher value product features with better gross margins. This success was demonstrated in the first quarter spike in gross margin and top-line revenue and led to large cash flow improvements throughout the year. These gains were essential in sustaining and growing operations while the restaurant industry nearly came to a complete stop during the spring and early summer. New customer acquisition was exceedingly difficult during the second, third quarters as much of the restaurant industry dealt with financial hardship. Mobivity still managed growth and achieved the profitable third quarter, thanks to increased utilization from some of our largest customers, who saw the value of our product in response to changing consumer behavior.

[Lisa Brennan:]

Thanks, Dennis. As Dennis mentioned, we're very excited to report a record growth year, while our revenues grew 32%, it greatly reduced our net loss by 67% from $8.8 million, down to $2.2 million. After achieving positive operating income in the third quarter, we did swing to a loss for $163,000 in the fourth quarter, as we began to increase our sales and marketing investments. Yet this was still a huge improvement over our fourth quarter loss in 2019 of $2.5 million. These improvements are a direct result of new recurring revenues, higher margin, non-recurring revenues, along with lower operating expenses. We ended the year with approximately $3.3 million in cash, and our accounts receivable was approximately $305,000. Importantly, cash used in operations during the year is up 75% to $1.4 million from $5.7 million in 2019. The improvement here was driven primarily through growth in our top-line and growth in our gross margins, coupled with the financing we completed at the end of 2020 through warrant conversions. Our revenue for 2020 was $13.3 million, compared to $10.1 million in 2019, reflecting an improvement of 32%. Our gross profit increased 107% to $8.5 million and our gross margins increased to 64% for 2020, compared to 41% in 2019. The improvement in the gross margin were the result of increased revenues and carrier surcharges that we were previously unable to charge for due to contractual obligations, coupled with an increase in higher margin, non-recurring revenues earned during the third quarter.

[Dennis Becker:]

Thanks, Lisa. We believe that the pandemic has created lasting change the way commerce and marketing are used in growing businesses. Practically overnight, products and technology such as ours were thrust into the forefront of power and remote ordering, low to no contact commerce and direct ways to engage consumers. Our ability to achieve growth, despite the near total shutdown of our primary market, the restaurant industry exemplifies the strength of our business model, the quality of our technology and the demand for our solutions. The ascent of digital transformation often proclaims accelerating by a full decade, showing an inflection point for a business and we've never been more excited for the prospects of our company. Don't forget that all of our progress came while our team was working entirely from home and without any in-person or marketplace activities. We closed the world's second largest convenience store chain, deployed their programs across thousands of locations and quickly grew the relationship exponentially, all without any travel or single in-person meeting. The recovery from the COVID crisis will continue to change the landscape for our customers. Our mission has never been more important, our products, technology and business are strongly positioned to play a leading role in driving the digital revolution. Thank you for tuning in and for your continued interest in Mobivity. We will now open up the call for Q&A.

[Operator:]

Thank you. We’ll now begin the question-and-answer session. . The first question comes from Jeff Porter with Porter Capital Management. Please go ahead.

[Jeff Porter:]

Hi. Congratulations on a good year. I'm really happy to see you guys are investing in your sales and marketing infrastructure. Going forward, what can we expect in terms of growth in sales from existing customers, upselling them versus acquiring new customers? How do you think about that? And what should we look forward to?

[Dennis Becker:]

Hey, Jeff. So the way we're looking at it right now is that if you think about where the budgets come from to pay for our products and services, it's from the marketing budgets of these brands, which has always been a proportion of sales. So with the restaurant industry, in particular, having a reduction in sales, through the pandemic, those budgets were tighter. But now, of course things are accelerating and rebounding pretty strongly. So, we both see an expansion of revenue coming from both our existing customers, but predominantly through new customers. Because what basically transpired through the pandemic is, everything it costs the restaurant industry by surprise. Quite frankly, there had been a lot of inertia with traditional marketing and with consumers transitioning to remote order, web order, app ordering. So I think is the biggest experiment in marketing of all time, which was that sports advertising was turned off for three or four months last year, which I think created a great awakening as to how inefficient a lot of traditional media marketing spend was for brick and mortar brands, and particularly in the restaurant space. So, in summary, to answer your question, we saw a couple of quarters where there is a great awakening, as I call it, occurred, the consumer behavior shifted, everyone had to react, while also having smaller budgets. So now that the recovery is in full swing, now they know where to spend that money. And so we see strong growth both from our existing customers in expanding what we do for them. But, now we look at this as the inflection point, hopefully that is going to bring a lot of new customers our way, because as they look ahead and also not just looking ahead, but looking at what transpired, because we have customers who are saying things to us like, if it weren't for digital, we would have gone bankrupt. And as I've said in the past, it was an evolutionary process, which always was painfully slow for us. We saw this future and it just wasn't happening fast enough. But more recently, now I call it an extinction level event. And you see this across the space. I know that Yum Brands, for example announced a couple of technology acquisitions over the last week. And so we really look at the future now of the nuance to it will be that the budgets are coming back, that with increased sales, with the acceleration of consumers going back to restaurants, that's going to bring back top-line for that industry and then that's going to expand their marketing budgets, and allow for them to afford our products and services, which they now know are a priority.

[Jeff Porter:]

Right. I have one follow on. It’s nice to see that we’re affording a healthy gross margin. I know that as we were building a foundation of reference accounts we necessarily had to be aggressive on pricing. Now it seems like we’re getting beyond that but obviously there is a land grab going on and there’s a lot of competition in the industry. Just what’s your general sense and your feel on pricing? And we’re proving out our value proposition to these customers and helping them earn a very high return on their spend. How can we leverage that so that we gain an appropriate share of that value creation?

[Dennis Becker:]

Well, I think that all along we’ve held our conviction that the answer is in the data. And our product is uniquely positioned to leverage data, meaning, a big problem in marketing is what's called attribution. Do you really know that that TV commercial cause incremental sales traction, or were you just reminding customers that we're going to come in anyway? That's a real big problem with discounting and promotions as well. And unlike Amazon, which measures everything, they have one storefront, they're data driven from kind of start-up to where they've grown to today, that's old news for them. It's the 80% of the economy I've talked about for a while now, the brick and mortar that is not digitized. And that's what digital transformation means. This whole pandemic has become again, to abuse the term, a great awakening, because it put a financial pressure now on marketers where every dollar has to count. And it's opened up a path to newer competitors, like in the food services industry, that started later and already maybe have some software already oriented to digital. So what I mean by all of that is that once you can show a brand definitively that I sent Jeff a text message, and he spent $7 more for a year, at some way or another brand, because I can take everything that Jeff does and map it to actual purchase transaction. Again, that's the great awakening. The brand see the material and improvements of measurement and attribution. But then that attribution shows them the exponential greater returns on marketing spend. So, I think all that means that pricing still has blue sky, and it's going to come down to what technology partners and products like Mobivity have special sauce, have the ability to deliver real results that are highly measurable and visible to their customers. That's something we've been doing all along. There's been so much what I call slack and these marketing budget, it kind of ain’t broke, so why fix it that there's been a lot of complacency and inertia, again, particularly in the restaurant space, where they haven't had the microscope, their return on marketing spend. Now that they need to, this opportunity born out of necessity, from our perspective with our product, it's immediately measurable, fully attributable. And, we've already been slowly but surely over the last couple of years publishing amazing case study results with Papa Gino's Pizza out of the Northeast, Sonic Drive-In, which is now owned by Inspire Brands this last spring of these incredible results that we believe are uniquely delivered because of our proprietary technology. So, whereas we've kind of had to be partners trying to get the market and our customers trying before they're buying, I think that leverage swings dramatically going forward. Again, born out of necessity from the new urgency and delivering real meaningful returns on their investments.

[Jeff Porter:]

Thank you. That's good explanation.

[Dennis Becker:]

Thanks, Jeff.

[Operator:]

The next question comes from Brian Swift with Security Research Associates. Please go ahead.

[Brian Swift:]

Hi, congratulations, Dennis on getting that the new convenience store chain. My question is, or first question would be relating to that. How should we position that new account relative to Subway? I mean, what's the potential? And did you have any significant revenues in Q4 from that customer?

[Dennis Becker:]

Hey, Brian. Thank you. So with the convenience store space, we're really excited about this breakthrough on a couple of different levels. First and foremost, obviously, it shows that we can get into other verticals and that our product and our value can expand horizontally. Number two, the way that we've done this. We've kind of similar to the restaurant space started with a very large brands being the second largest convenience store operator in that that industry. I'd like to add to that, with the value that our products can provide once you get into convenience and even grocery, this is where the value that our customers have from our products is more expansive. And by that I mean if we’re selling to restaurant brand, we’re helping them to sell more of their own products. And the way that they make money is their own products. You get into a convenience store chain and they are selling other people’s products for the most part. One of the things that makes convenience store relevant to our success in the restaurant space particularly in quick service, and a lot of people don’t realize this is that the convenience store industry is one of the fastest growing quick-serve food categories in the market. And that’s because they are selling hot dogs and et cetera, and that’s their own product. And they tend to make more margins off of that product, but still the bulk of their revenue comes from selling the CPG, the Pepsi, the Coke, the Frito Lays, the Hostess et cetera. And where our product is even more valuable we believe in those sectors is, not only do we help sell more of their own higher margin products, but they can now monetize on our platform by reselling access to the consumers that they engage through our technology, to the CPGs. So, for example Coca-Cola wanted to run promotions across our convenience store network, this is where the monetization profile for that convenience store operators not just that we help them sell more of their own, but they can resell access to those consumers to help promote the products of the CPG. And it's already a common practice. The CPGs are providing rebate programs. They're buying signage in the physical locations to have a more prominent promotion of their products to sway consumers their direction within in the footprint of the convenience store property. You also bring into focus the fuel brands. Convenience is oftentimes a split baby between the fuel brand owning the pumps and the convenience store brand owning the storefront, so this gets Mobivity exposure into the fuel brands as well. So, we think there's expansive value with the convenience store industry. And again, it's a large global high location footprint with a lot of access to consumers, which helps to compound the intrinsic value we think we're building here, which is we're amassing this incredible data store of consumer behavior, knowing where people shop, when they shop, what they eat, what they buy, what they like. And finally, the convenience store markets also just another extension of relevance to our growing Pepsi partnership, which I've talked about a lot in the past and has been a little bit slow going because of COVID and whatnot. But we think that that's accelerating and that's an important sector to Pepsi as well, where, again, it's just another large global brand that we can bring value to and helping drive consumers towards their products.

[Brian Swift:]

Okay. Speaking of Pepsi, as you mentioned, with COVID everything kind of stopped as far as your pipeline was concerned. How would you characterize how that is progressing between Pepsi and your other, like, Oracle and the other partners that you have, to where we might start seeing some more new customers being added to the full?

[Dennis Becker:]

Yes, definitely. So, we worked a lot with Pepsi over this summer in the form of relief programs. And like I described, kind of the marketplace in the restaurant sector particularly was again the awakening that digital is the way. And at the same time, budgets have never been tighter. So there was a lot of reaction going on through 2020. And this is one of the things that has very excited, because we view that as a kind of a leading indicator to huge potential going forward, because now that they see the value, hopefully the spend will follow. The other thing with Pepsi and with the CPGs is, ironically, at the same time, it's almost a double whammy for them, because as remote order and off-premise dining, so pickup and delivery takeout orders really have become a much larger proportion of overall sales in the restaurant space. Those happen to be the type of orders that have the lowest what we call attachment rate, meaning consumers don't order a drink or snacks as size to their order, as much for delivery and takeout orders as they would in store. So, that compounded the impact of COVID to the CPG space. But what we think that means to us is that they need us more than ever to help influence consumer behavior, to bring back attachment, snack attachment, beverage attachment to orders. And I think that what we're seeing in the data that we're looking at is also that off-premise dining has a larger proportion of overall sales, particularly in the quick serve in the fast casual sectors of the restaurant space, is a trend that is probably going to last for a while. So to sum up and answer to that is, we didn't see the spend influence in the business development acceleration as quickly as we would have liked. And again, that goes back to because budgets were tightened and almost frozen through I’ll call it the second through the first quarter of this year. But at the same time the urgency of the value has been compounding and so as the restaurant rebound transpires, we expect to see our sales pipeline and again our overall business benefit from that. With regard to the point of sale vendors, again here’s another inflection point going on there, because now more than ever brick and mortar operators need their point of sale platforms to do more, because again that trend of remote and off site ordering has accelerated, pay and pick-up, things like that where you order through the app and you show up and you pick it up, or you order through the web the same thing. The consumers really see the value of that and the added convenience. So that's not going away either and that means that the point of sale systems which have been almost -- I mean we've been talking about it for the last five years of how the point of sale industry is antiquated. They're really glorified cash registers. There really hasn't been an impetus for brick and mortar to evolve and upgrade and to digitize that piece of their infrastructure. But now that they've got to connect those cash registers to app based ordering and web based ordering, it's more important than ever. And the competitive playing field now we think is now really becoming important. In other words, it used to be that you focused on putting your retail or your restaurant location at a good physical geographical point where there was a lot of automobile traffic or pedestrian traffic. But now that consumers are so much more prone to just order with their phones or online, that whole experience of doing that is now your competitive battleground. In other words, if it's easier to order a sandwich at brand A than it is brand B over text messaging or the web, that's where these brands are going to win and lose customers. So, the point of sale industry has become really important because at the end of the day regardless of where the consumer orders, the order has to be fulfilled at a physical location. And that last mile is really heated up. And we're now kind of in the middle of that arms race. And our strategy is to partner with everybody. How can we add text messaging, digital offers and loyalty to every point of sale vendor out there from the MICROS to the Par Technologies to help them win that digital battleground for consumers now that things have changed? So, again, we think that Pepsi and other CPG partnerships again we look at that as an opportunity to efficiently access market and get win more customers. And now we're seeing that the point of sale industry is another channel for that to help us grow our business through more efficient access to market, as those partners will refer us or bundle us into their customer relationships.

[Brian Swift:]

Okay. And lastly, with all that when should we expect for top-line growth this year? I didn't hear you make a forecast, but maybe you can kind of give us some kind of guidelines just as the economy is opening up and all the things that you just been discussing are starting to gain momentum? What's your expectation for this year?

[Dennis Becker:]

Well, we're not giving guidance. But the industries that we serve in particular the restaurant space, I mean I like to point people to the fact that the market the restaurant industry today as things are starting to open up, it's still about 15% to 20% lower than it was pre-COVID. And a lot of analysts are expecting it to recover and exceed pre-COVID levels, just because of all the pent up demand. So we're not giving guidance at the same time, we really like the markets that we're pursuing and we're really looking forward to those markets expanding rapidly. And again, the proportion of budget that we pull from when we sell to our customers is the marketing budgets which is always a proportion of sales. So, we're hopeful that that rising tide is going to lift our boats big time.

[Brian Swift:]

Okay. Thanks.

[Dennis Becker:]

Thanks, Brian.

[Operator:]

The next question comes from Maj Soueidan with GeoInvesting.com. Please go ahead.

[Maj Soueidan:]

Hi, Dennis. I have questions for you. Firstly I'd like your focus on your data and how you like using that as a potential tool to continue to gain a competitive advantage. I was wondering in terms of the breadth of your data, are you also pulling like customer satisfaction stuff, customer feedback kind of the data that you can bring back to your customers?

[Dennis Becker:]

So, we collect a lot of different areas of data. From the point of sale side, of course, we’re collecting all of the transaction information. And interestingly, I think that's one of the most fascinating things about data science is you can actually get information where it doesn’t seem obvious. So I would argue that there is customer satisfaction information in the point of sale data. And to that, I think I mentioned on the call when there are billions of transactions, unlike credit card companies and what not, we’re collecting both cash and credit transactions. So, there’s a lot of signals that we get in the data just from the transactional information that can help a brand understand satisfaction. On the other side there is no better engagement channel, we believe with the customer than text messaging. And we get signals from the text messaging programs that we're running. So if they reply to a text, if they click on a text, if they do all those things, that's signaling for us satisfaction. And a roadmap, we have -- in fact, we have a feature that we release that allows a customer through a text messaging offer to like or dislike the offer, much like you would like or just like a song or like or just like a Facebook post. So, all this consumer sentiment that we're very well-positioned to help to take to the next level. And then with our offers and promotions feature, which as I mentioned now powering millions of consumer wallets, what that means is brands are using us to send out offers and promotions that the consumer can use through print, they can use through their apps, they can use their text or email. And again, we know who's getting what offers, what they're redeeming, what they're redeeming it with. And again, that's more signal information on consumer and guest satisfaction. So, we're getting a lot of information now, a lot of signal signals that new data science approaches can give a lot of insights to brands and then just the text messaging conversations that the loyalty conversations through the mobile phone are also a channel that has a lot of upside there as well in providing opportunity for that.

[Maj Soueidan:]

Excellent. Thank you. And regarding your Par relationship, can you give us an update on how that's progressing in a year you are in that relationship in terms of starting to see some meaningful contribution from that relationship? And maybe you can give us a timeline on when you might start seeing some meaningful impact?

[Dennis Becker:]

Well, in terms of the status, we just started that partnership in the fourth quarter. We already share customers and that was the stimulus to the partnership, because we do things that help bring value to the Par platform. So, we're working more intimately with our product allows for us to do more. And there's no better place to start than already sharing customers. So that's kind of again the stimulus to the partnership. We expect impact this year. We just kind of on already having some newer customers to Mobivity that are on the Par platform, particularly their fringe point of sell product, but also knowing that there are a number of legacy relationships as well. Subway has been a Par customer for a long time with their hardware products. So, we are just past the product integration stage of what I call the partnership. That means our technology teams have done all the plumbing work to that and to develop whatever gaps there are to make our products work well together. And we're now transitioning into the marketing phase of the relationship, where we're looking at customer overlap, up-sell, cross-sell and promotional opportunities. And, I'm hopeful that this year we're going to see some fruits to see that partnership showing up in our overall performance.

[Maj Soueidan:]

And in terms of how that works reaching a Par customer, for example? Is that a situation where you're somehow touching them through your marketing or is Par going out there and doing that with sales organization? And if so, how would they be incentivized to do that?

[Dennis Becker:]

Well, it's both. And I think that you bring up a very good point, because right now the race is on for brands to figure out how to help customers order remotely. And text messaging is a huge untapped channel and allowing to that. In fact, I would point to the Yum Brands, who owns Taco Bell, Pizza Hut, KFC, and Habit Burger, one of the largest, if not the largest restaurant entity in the space. They just announced an acquisition of a company that will help them bring text ordering. And this is all over The Wall Street Journal and other publications over the last week. So, I think that really for us showed the validation of digital ordering. And so, for point of sale platforms like Par and MICROS and others, they can much more quickly bring Mobivity in to help brands turn on digital ordering, then restructuring their products and waiting for new deployments of their physical point of sale platforms that facilitate that. So, we're hoping that we can really help the point of sale industry by being an accelerant in getting them to market with digital ordering and marketing solutions that don’t necessarily mean a total upheaval of the customer’s point of sale infrastructure immediately. So, we think it’s an accelerant and a bridge. In other words, now the point of sales vendor can go in and say, look you are not going to get your 3,000 franchise locations, so without those typical cash registers tomorrow to switch to our platform. However, if you switch to our platform we can bring in the Mobivity solutions to at least get you into digital ordering game and the digital marketing game now and over time as you work with your franchisees to upgrade their point of sale terminals to our products to at least keeping up with the pace of digital transformation and getting your customers engage their digital channels. And over time, then further benefiting from the more intimate integration as you swap out those terminals to their terminals, which are integrated with Mobivity. So, we're hoping that we're bringing an accelerant to help in these point of sale companies, both acquire new customers or also defend against their existing customers from switching to other platforms, right now as this whole kind of digital transformation craze is taking place.

[Maj Soueidan:]

Great. And is there a revenue share type of deal on these things or that you see the value that you're bringing? Is the competitive advantage good enough?

[Dennis Becker:]

We're not commenting yet with the point of sale channel. I've mentioned that with partners like Pepsi, they will actually pay for our licensing and subscription fees on behalf of their customers. We don't have any reason right now to believe that that's not also an opportunity in a point of sale marketplace. And if you follow traditional hardware models of other products, whether it's PCs, or other types of technology platforms where there's hardware component tree involved, it's not uncommon to see that solutions like ours bundled in that phrase wholesale, an OEM channels for revenue for us, which I think is a really exciting opportunity for our business, because then that takes a lot of the sales and marketing costs out of our model.

[Maj Soueidan:]

All right. Thanks, Dennis.

[Dennis Becker:]

Thank you, Maj

[Operator:]

This concludes today's question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.