Q4 2023 Mobivity Holdings Corp Earnings Call

Participants

Thomas Akin; Chairman of the Board; Mobivity Holdings Corp

Kim Carlson; Chief Operating Officer; Mobivity Holdings Corp

Mark Peterson

Bruce Evans

Bob Berlacher; Analyst; 45th Parallel Capital

Presentation

Operator

Good afternoon, everyone, and welcome to the Mobivity fourth quarter 2023 earnings results call. Hosting the call today are Tom Akin, Chairman of the Board; and Kim Carlson, Chief Operating Officer.
Before I turn the call over to management, I'd like to call everyone's attention to the company's Safe Harbor policy. Please note that certain statements made on this call will be forward-looking statements, which are subject to considerable risks and uncertainties. We caution you that such statements reflect the management's best judgment based on factors currently known and that the actual results or events could differ materially.
Please refer to the documents filed by the company from time to time with the SEC, and in particular its most recent filed annual report and Form 10-K. These documents contain and identify important risk factors and other information that may cause actual results to differ from those contained in the forward-looking statements.
Any forward-looking statements made during this call are being made as of today. If the call is replayed or reviewed after today, the information presented during this call may not contain current or accurate information. Except as required by law, the company assumes no obligation to update those forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements even if the new information becomes available in the future.
Today's call may include non-GAAP financial measures, which require a reconciliation to the most directly comparable financial measures, which are calculated and presented in accordance with GAAP and can be found in today's press release along with the recent corporate presentation, which is also available at mobivity.com.
With that said, I'd like to turn the call over to Tom Akin. Tom, the floor is yours.

Thomas Akin

Thank you, operator, and hello, everyone. Thank you for joining us today for Mobivity's Q4 2023 earnings call and full year 2023 call as well, 2023 was a year of transition for mobility, where we proved the viability of our connected rewards business and demonstrated that our programs not only work but provide measurable value for both game publishers and brand partners.
Far above comparable programs. We made significant steps towards completing the pivot of our business to focus on connected reports, we significantly cut costs. We focused our product offerings and reshaped our team and directed our capital and efforts towards building the technology that is resonating in the market and generating revenue. Today, we close the year running full speed into what we believe will be a momentous year for mobility. In the first part of 2024, we launched groundbreaking new programs with gas and convenience brands like Marathon, Chevron and TXB. These programs have far exceeded expectations at both the GAIN partner and brand level, validating the strength of our connected rewards platform. Our pipeline of additional brand and game partners is healthy, valuable and growing, which gives us confidence in continuing our growth in 2024. We fully expect the connected rewards business to overtake the legacy tags business from a revenue perspective midway through 2024 and anticipate that growth to ramp up materially through the year. The response to our platform continues to be overwhelmingly positive from both brands and mobile game publishers. Our team has made impressive progress in expanding our brand partnerships, and we've also innovated and launched new products that expand our already robust addressable market and drastically reduce our sales cycle. We remain highly optimistic about the prospects for our business and are confident in the path forward to grow and scale with connected rewards. The steps we took in 2023 to transform our business and focus on this highly scalable and profitable platform are already yielding positive results, and we look forward to building on this momentum throughout 2024.
I'll now hand the call over to Kim Carlson, our COO, who will discuss further details of our continued business transformation. Kim?

Kim Carlson

Thank you, Tom. Mobility is targeting a market that annually spends over $40 billion on user acquisition and retention. Our connected rewards platform offers a new performance-based channel that is resonating in the market. We've seen tremendous success at scale and have continued to innovate new product offerings as we feel pull from the market. It's important to emphasize the simplicity and power of what we do at mobility. Our connected rewards platform seamlessly drives consumers between brick-and-mortar brands and the digital environment of mobile casual games. We facilitate these interactions and get paid between $3 and $7 per transaction, all while maintaining an attractive gross margin as this model is proving to be highly effective for our partners and rewarding for mobility, continuing the momentum we built in 2023. In the first quarter of 2024, we launched new product with some of the largest brands in the country. These include placements inside the Chevron deal app, the Marathon fuel app, Kura Sushi up and program with Circle K's over the media. Our results from these programs have far outpaced return on ad spend goals for our mobile game partners, demonstrating the effectiveness of our platform and driving profitable user acquisition and retention. At the same time, our programs are performing well beyond thresholds of value and driving loyalty audiences to brands. These results showcase the value we provide on both sides of the equation and our pipeline of potential opportunities is robust and we are excited about the growth that can come from optimizing our current platform and expanding within the immediately available addressable market.
As we move through 2024, we remain focused on expanding our technology partnerships to build our potential offerings, launching innovative products and quickly capitalizing on our platform, vast potential in the level of user acquisition and retention market. Our team is dedicated to delivering exceptional results for our partners and driving growth of our connected rewards business.
With that, I'll now hand the call back to Tom for closing remarks.

Thomas Akin

Thank you, Kim. We are all really excited about the progress that the company has made in 2023 and the first part of 2024 and look forward to executing throughout the rest of the year. We've opted not to discuss financials instead directing investors to the company's public filings. I'll now open it up for Q&A.

Question and Answer Session

Operator

Mark Peterson, private investor.

Mark Peterson

It's Mark Patterson on given similar commentary, Tommy, can you both made today about the current state of the business? And I'm guessing the Q4 results are very meaningful for investors and I just want to let you know, I hadn't seen the fourth quarter release posted yet, so I haven't been able to look at it, but I did have a couple of questions, I guess for Kim, maybe a two-parter. I'm wondering if you can I know you mentioned a Chevron Marathon. I think you said curious, sushi and Circle K with some of your new products. I was wondering if you could just talk a little bit more about the new products you've launched in the first quarter this year and down. So I guess, secondarily, how you see those partnerships contributing to the overall growth strategy of the Company?

Kim Carlson

Yes. Thank you for the question. And you're right, we did launch a new product within the share, Chevron and Marathon at Kura Sushi apps. Specifically, they are placements with Insight inside the branded own apps. These places incentivize users to take an action like downloading a game in exchange for a reward at the brand, for example, a discount of gas or a free item within the store. These places Kim game publishers have valuable placement, really not found anywhere else within these large brands audiences and allows the brands to incentivize their audience and grow their audience while driving traffic and volume. So ultimately, we're creating a very sticky environment within the branded out and the programs are amplified by communication from the brand. So the brands are pushing notifications to their app users, for example, push notification and inbox certifications, signage at the store, et cetera. These partnerships are going to be core to our continued growth strategy as they are longer-term partnerships, allowing us to grow with the brands and games in our pipeline and innovate around ways we operate with the programs to increase performance.
As far as it's kind of part two of the question, as I mentioned, they are longer term contracts, they are showing tremendous up engagement. We hear from our brands that one of their pain points is growing up activity from maybe 2% to 3% to moving that to the double digit percentage and in multiple multiple multiple double digits. They want more people transacting in the US. So this product offering is our is our newest in our in our real pillar for growth going forward through this year.

Mark Peterson

That's great, Kim. Thanks for the color. I know you joined less than two years ago, and that has really been great to see the meaningful progress that connected Rewards has had some you know, it's been under your stead and the transition is I think Tom said it seems to be guidance pretty well on picking up some speed. So it's really great to see and appreciate it.

Thomas Akin

Thank you.

Operator

Bruce Evans, private investor.

Bruce Evans

So could you expand a little bit more on the recurring revenue model as you're a little bit? Go ahead.

Thomas Akin

I'm going to say I'm sure Kim will answer that, but I do apologize. We it appears our press release is a little late getting out, but Mark was quite right. The financials are really for 23 and don't reflect what we're doing and connected rewards going forward. A lot of these programs that we're talking about here were really just launched in March, April. And so they're probably going to be a little bit in the future when you're actually going to see the revenue results from that stuff. But Tim, why don't you ask or answer the Bruce's question please, sir.

Kim Carlson

Fixed breadth. So our game publishers and our game marketers pay us on a fixed cost per install basis and the growth in recurrency of that model is the more we hit or beat their return on ad spend more. They will scale the revenue. And I'm happy to say that we've had a 100% fill rate on our supply. And we have game developers request requesting and asking to extend more. So we're already experiencing a recurring revenue model by having a high retention rate of our game publishers that are paying us a steady or growing transaction fee on the CPI., and it's a matter of continuing to build the supplier to that recurring revenue continues to grow.

Operator

Bob Berlacher, 45th Parallel Capital.

Bob Berlacher

I've actually got several questions if you'll bear with me. First, if the connect to reward you said is going to take over the majority of the revenues or at least eclipse the the traditional legacy business by midyear historically, and I haven't seen the Q4 numbers. So I but historically, you've done 300 to 400 plus a month, basically million to revenues. I would assume then the connected rewards at some point here soon is going to hit that hopefully magic number of 400,000 a month or more, but can you provide any details on the growth of that business going forward here? And I realize the first quarter is now behind you. So you said it started in March hope it's continuing in April. And if you would just give us some idea of the growth trajectory for that business, at least.

Thomas Akin

Sure. I think, Kim -- I think Bryce is probably best suited to answer that question.
Yes, thanks for the question. I think a couple of things. I think as Kim mentioned, first, we've built really strong relationships with these brands on that and that in former that provide a couple of things that inform our growth outlook first for largely sustainable and longer-term relationships. So we're not having to fight for the ability to run our campaigns every month on these relationships allow us to build meaningful case studies that we can then use to bring on new brands. And we've seen early success in that through the first part of 2024 already. And second, although we're seeing really great results for brands and game publishers, we're still really in the very early innings of optimizing these results. And we know there's a lot more kind of juice that we can squeeze from the SAM from these campaigns by pulling a couple of kind of easy levers to increase the performance of our current programs. So when we look at the future, we feel like mobility is in really good position to grow, both by bringing on new customers through the case studies that we're now building with programs run at scale and optimize with our current customers such that connected rewards business, some can overtake the legacy business will have a lot more tangible to discuss there on our Q1 call. But everybody that mobility is feeling the excitement, and we're excited about what we can build in the long term?

Bob Berlacher

Well, you've come I think it was Ken mentioned that these programs just got really started in March and April timeframe, perhaps maybe February. I don't know, but March and April. And if you've signed Chevron Marathon, you said core sushi circle.
Okay. Are they all and you've got more in the pipeline and how soon you said midyear. Do you think second quarter you're talking third quarter from and that legacy business has a much lower gross margin, I assume then the connected rewards business, can you give us any indication when you might also be and Gene have a shot at at least cash flow positive or anything like that?

Thomas Akin

Yes.

Kim Carlson

I mean, I'll take the first part on price can talk about the cash flow positive. But to quantify, and I think we're thinking about the second half of this year being the time where the connector boards business Eclipse, the legacy business on a monthly or monthly basis. So I think that that's as best as we can quantify when we say midway through 2024.
And Bryce, you want to talk about the being cash flow positive?

Thomas Akin

Yes.
I mean, I think without getting too specific, it's around the same time. You mentioned a couple of things that drove gross margins are a lot better than the numbers you mentioned from kind of a monthly basis or are correct. And I think if we if we can overtake the legacy business with the gross margins that we're seeing, it will be kind of in parallel with overtaking the legacy business that we can see the Company becoming cash flow positive.
Okay. And I think it was Kim that mentioned the return on spend goals for your partners. Can you comment at all on Just can you provide any metrics at all that demonstrate any kind of effectiveness of the platform and driving the user acquisition and retaining those customers.
At the same time.
I'm sorry, is there is there I mean, you have to have some measurement that I would assume you're looking at and that the clients are looking at as well.
Everybody is going to have a different I would assume return on spend that are are gaining clients that are paying us on a per-transaction basis, measure their results on not only the installed, but how are people behaving in the game and they look at return on ad spend typically benchmark after seven days. So if we deliver an install, we're looking at how many people are watching ads or purchasing in-app purchases within within the game, the game, the game, those targets can vary a little bit, but essentially, because we've been retaining our gaming clients pretty much, 99% to 100%. That means we're exceeding their metric of that day. Seven return on outspend, whether that is eight, 10, 12, 15% of it varies by game developer. We are meeting or exceeding that. Therefore, the game developers are asking to spend more and are wanting to scale with us. So it is a very finite measurement in the game market or world of what a measure of success looks like.
So they set that return on spend contractually with you in order for you, if you exceed use user example, 8% or 10% or 12%, then incentives kick in. Is that how often you get your three to $7 per transaction and then there is an incentive based comp beyond that, if you exceed the ROEs, it not contractually what they're measuring us against is other network.
So if they're buying installs from a mobile ad network or even Facebook or TikTok, how does mobility compare on a rollout perspective perspective? And we are beating that they're going to move budget from one of their other channels over to us. So it's not a sort of secondary commercial event. It's a it's really a it's a path for us to really increase our transaction cost because we're performing better than our competitors.
So you're not aware of what that is until they can reach out to you and say look, you're beaten this competitor or that competitor.
So we're going to throw more business at you, as we said in pretty much real-time because we have access to the game developers platform performance platform. And we've also built our own internal tools to see and events within the app that are getting it's essentially posted back to our system. So we'll know in really short order, whether day one day to day three is on a trajectory to beat the game developers goal.

Bob Berlacher

And the nice thing about our platform is it's very transparent since then to move on with your competitors. Can you discuss that landscape within the connected rewards piece anyway? And just who are some of the other players and what are Mobility's advantages if there are some that the gaming companies are seeing?

Thomas Akin

Sure, the mobile ad network is a massive industry. If you lump everybody together, we're talking tens of billions of dollars a year that mobile marketers are spending on acquisition are key differentiators are really twofold. First, we are we operate outside of the device identifier and data tracking ecosystem, which is what Apple has kind of turned upside down over the last three years by turning off the ability to really see a device ID in order to target that device for a particular ad it because we're living in a world of SMS marketing, e-mail marketing or in app in a brand that that is not our world or our concern. I think the other pieces the core technological differentiators are a bridge between the digital and the real world. So there are other ad networks out there that put brands in games. There are no performance metric to that. And then for us to incentivize these types of incentive-based programs where we deliver real-world products and incentives to users that are immediately redeemable in the app and are not possible with our technology that we've built over the last 10 years operating the legacy business, which is the foundation of what we've done from a competitive standpoint, others are offering incentivized channels, but nobody is offering the uniquely attributable trackable and performance-based programs that we are. It's important to note that the competitors do not offer a win for the game publisher and a win for the brands. It's either one or the other typically and our programs address some of the largest problems on both groups and as a key differentiator, our brands are seeing, as I mentioned earlier, this stickiness by putting a mobile game and the Chevron app, we're seeing it perform better than really any other tile places they've ever had in their in their app. And conversely, as I've already touched on, we're delivering really great return on Aspen results for the game through.

Bob Berlacher

Are you seeing any of them? You've talked about gross margins or kind of alluded to the gross margin piece of the equation. Are you seeing any challenges that come that risk to profitability going forward, say two or three quarters out if it's the third quarter that you hope to exceed the legacy business and hopefully the gross margins and potentially cash flow positive. What are your hurdles are there? What are the challenges, I guess, in that space.

Kim Carlson

And maybe I can address in that question. I guess margins talk a little bit about pricing and the direction and how you see pricing going for the remainder of this year?
Sure.
So I think Brett, Rice touched on this that the majority of the brands that we have on board right now, we're in our infancy stages with those brands when it comes to optimization. So we have a lot of levers that our data team. We've hired three, I think, three new data scientists to look at optimization of the audience. So things like, you know, we're watching people that are clicking but not installing or maybe bursting. Certain set of people are enjoying Solitaire games more than a match-3 games. So we're we're building the infrastructure just like a mobile ad network would with this, as you know, predictive technology or predictive algorithms to segment the audience by brand. So to me, we're just starting and with some simple, simple levers to pull on the optimization, couple of things are going to happen. We're going to see better customer experiences for those users and the branded apps are also going to see better even better return on ad spend for the gaming partner, which should lead to even higher DPI.s for the commercial model for gaming is pretty simple, which is we don't put a dime into get a quarter out. And right now we're more positive in that equation. But we expect with our optimization and ability to build these algorithms that and should increase our CPI. costs that the game game publishers are paying us. So build the optimization, add more brands add more gaming, create new algorithms and the whole flywheel starts to improve both on a consumer perspective and and a performance which should drive our commercial terms higher than what is really driving.

Bob Berlacher

You have good more.

Thomas Akin

Sorry, Bob, can we have the holidays?

Bob Berlacher

Yes, you can go on and I'm sorry, I didn't.

Thomas Akin

So do you have anything you'd like to add to that. All in all, I think I think can hit the majority on it, but there's always risks to growth, but we feel really good about the health of the pipeline that we've built to date and the results from from what we've achieved already in 2024. But and then as Kim mentioned, gross margins really are dependent on the performance that we're delivering a game publishers. And for all the reasons Kim Kim mentioned, we feel like there's a lot of upside in our in what we're doing to improve that.
Yes, I think the key to realize, Bob, is this is a new channel from a differentiated channel, but it's really a different channel than a lot of any of our games or more of our brands have done before. And if pricing is going to be something we're going to have to discover, it seems like people like our pricing. Now we're seeing a lot of activity and the return on ad spend is very favorable. So we're happy to see that we're headed the right direction, but there's going to be a lot of adjustments to the process over oil, daily, weekly, monthly and every quarter. So we have a lot we have a lot to learn. We've learned an awful lot in 2023 on what to do, right, what to do wrong. And we're excited that we've developed a product and he's got some major major brands participating and they want to continue to participate. So that's really I apologize that we didn't get the financials that we had. We had them to lined up, but that really doesn't tell the story for what's going to happen in 24 in any case. Does that answer your question, Bob?
Yes, yes, it does.

Bob Berlacher

Thanks. I was just going to you my last question. I promise you had talked about the brand are there and you have four that you've launched with, it sounds like as well as potentially other smaller ones. Can you talk at all about the gaming companies, publishers, gaming publishers that you've done partnerships with and specifically the game developed the publisher names. Just for just curious, just if there are any that I would that people might be familiar with I don't know, sir.

Thomas Akin

Yes, we and I'm happy and proud to say we're working with, I'd say many of the top 10 publishers out there around the world. I-many are interestingly located in Western Europe and and in Israel actually, but in some in the US, but Scope three is one of our key partners there. The makers of monopoly go, which is actually the Mobile Game of the Year last year as well as many other titles, Playtika app 11 triple that Double Down interactive and to name a few. So that's five or so of the top 10. And as I mentioned before, we're at 100% fill rate of our supplies. So we're basically onboarding new game publishers as the place supply becomes available, but we've retained those that I've mentioned and the key is growing there and growing their spend with us as well.

Bob Berlacher

Credit.
Well, I promised that was my last. So it is.
Thanks very much.

Thomas Akin

Thanks, Bob, and thanks, everyone. Operator, are there any more questions at this point?

Operator

There are no further questions at this time. I can hand over the call to Tom for closing comments for a while.

Thomas Akin

We want to thank everyone for joining the call and what in particular is they can embrace and their teams report, respectively, for really putting us in this position where we truly have an opportunity to change the landscape for connected rewards. And we really look forward to updating you on the first quarter results in the remainder of this year. Thanks for participating.

Bob Berlacher

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.