Mobivity Holdings Corp. (PNK:MFON) Q4 2022 Earnings Call Transcript

Mobivity Holdings Corp. (PNK:MFON) Q4 2022 Earnings Call Transcript March 30, 2023

Operator: Greetings. And welcome to Mobivity’s Fiscal year 2022 Earnings Call. As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host Brett Maas of Hayden IR. Please go ahead sir.

Brett Maas: Thank you, operator. I’d like to welcome everyone to Mobivity’s fourth quarter and fiscal yearend 2022 earnings call. Hosting the call today are Dennis Becker, Founder, Chairman and Chief Executive Officer and Lisa Brennan, Chief Financial Officer, and Kim Carlson, Chief Revenue 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 events or results could differ materially.

Please refer to the document saw by the company from time to time with the SEC, and in particular, the most recently filed annual report on 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 March 30, 2023. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Except as required by law, the company assumes no obligation to update these 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 our recent corporate presentation, which is also available at mobivity.com. With all that said, I’d like to turn the call over to Dennis Becker. Dennis, the floor is yours.

Dennis Becker: Thank you, Brett, and I appreciate everyone joining us today for our 2022 fiscal year earnings call. We are excited to share our achievements and progress over the past year as well as our vision for the future. Last year, we began to transform our business to focus on Connected Rewards, a platform that brings brands and digital businesses together to cross promote services with everyday incentives that deliver instant gratification to consumers and drive higher retention and spend. In particular, we focused on the mobile gaming industry, where Connected Rewards has proven to create a unique win-win-win between game publishers, popular restaurant and convenience store brands, and consumers seeking relief from rising food and fuel costs.

According to industry reports, mobile ad spend is projected to be $362 billion in 2023 and consumer spending on mobile games is projected to reach $270 billion. Based on those numbers, the results from trials last year and the growing momentum we’re seeing in early 2023, our goal is to grow Connected Rewards beyond our legacy SMS marketing business by the end of this year and we see a massive opportunity in front of us. The Connected Rewards platform is a new channel for mobile user acquisition, both for mobile gaming publishers and for brands to build their digital audiences. Coupled with the delight that our programs bring to consumers, we create a win-win-win scenario for all parties involved, and we see tremendous upside to this business.

Game publishers are able to offer a higher value user acquisition and advertising experience for their players versus intrusive pop up ads, advertising competitors games, restaurant and convenience store brands can leverage Connected Rewards to drive sales through valuable incentives, reaching a highly engaged and attentive audience spanning millions of players. Importantly, consumers have responded incredibly positively to the model, enjoying a less disruptive ad experience while saving money on everyday items like food and fuel. We’ve seen results to date that give us confidence that the Connected Rewards platform is a material competitive advantage and will be the driver of significant growth in the future. As a result of our trials throughout last year, the number of game publishers we work with has quadrupled and the number of games we’ve executed Connected Rewards promotions has more than doubled in recent months.

In terms of brand partnerships such as restaurants and convenience stores, we have grown from 4 to 14 brands, with the number of Connected Rewards cross promotion impressions soaring to just under 2 million to more than 5 million. We qualify an impression as a transaction where a brand offers an incentive to promote another digital business’ service, such as a mobile game, to incentivize their consumer to install an app or a game in exchange for a brand reward, say $0.20 off fuel or a free burger. Monetization of those impressions is a key component of our revenue model going forward. Recall that our former SMS marketing business resulted in transaction fees in the sub penny range. Our early results from Connected Rewards have shown transaction fees ranging from $2.50 to as high as $15.

While it’s still somewhat early in our business model, we’re very encouraged by the increasing demand from game publishers who see tremendous value in rewarding their players with high frequency, instant gratification rewards. As we’ve shifted to focus on Connected Rewards in the multibillion dollar gaming industry, we’ve added to our team to ensure we are positioned for success. Late last year, we welcomed Kim Carlson as our Chief Revenue Officer, who brings a wealth of experience in growing game publisher and brand customer bases. We are excited to share that in addition to Kim, we’ve also successfully attracted other seasoned professionals from the gaming industry, including product analytics and growth professionals that will continue to expand our business and deliver outstanding results for our game publishers.

This new talent will be instrumental in helping us drive growth and capitalize on the vast opportunities that come with Connected Rewards. Finally, I’d like to draw attention to the continued strong performance of our legacy business, which has provided a solid platform for revenue and customer reach. We saw year-over-year quarterly revenues that were much higher than our fourth quarter of 2021, reflecting a more typical run rate for our SMS marketing business. While we remain committed to our legacy business, our focus is on building and growing Connected Rewards. As I mentioned earlier, our goal is to expand Connected Rewards beyond our SMS marketing business by the end of 2023, making it the primary driver of our business growth in the future.

We believe that Connected Rewards represents a significant opportunity for us to capitalize on the vast potential of the mobile gaming industry and create value for our shareholders over the long term. I will now turn the call over to Lisa for a more detailed view of our financial results, and then I will come back for a few summary comments. Lisa?

Lisa Brennan: Thanks, Dennis. I’ll start with our cash position. We ended 2022 with approximately $427,000 in cash, and we recently completed a warrant conversion offering in March of this year that added an additional $3.5 million to the balance sheet. As we assess the performance of our business for the fourth quarter of 2022, we are pleased to report total revenue of $1.75 million, which represents a year-over-year increase of 185% over fourth quarter 2021. It is important to note that a significant portion of this increase can be attributed to the termination of the contract for our legacy SmartReceipt product, which resulted in a write down last year. However, we are encouraged by the revenue generated from our new Connected Reward solution in the latter half of 2022, and we anticipate overall growth in our top line in the coming quarters as the momentum of this new revenue stream continues to accelerate.

Gross margin for the fourth quarter grew to 34% of revenue from negative gross margins during the same period of 2021. Again, the improvement is primarily due to the SmartReceipt write down we took in the fourth quarter of 2021. Excluding this cost, gross margin was relatively comparable. As Connected Rewards grows into a higher proportion of overall revenue, we expect significant improvements in our gross margin as early trials have shown, Connected Rewards programs yielding gross margins as high as 80%. Total operating expenses for 2022 decreased by 13% to $11 million, compared to $12 million in 2021. Reduction in operating expenses is a result of leveraging our legacy product and technology investments to power our new Connected Rewards solutions.

This strategic move has enabled us to transform our business around our new Connected Reward solution while simultaneously reducing our operating expenses. By leveraging our existing assets and resources, we have created a leaner, more efficient organization focused on delivering the best possible value to our customers. I will now turn the call back over to Dennis for his closing remarks. Dennis?

Dennis Becker: Thanks, Lisa. In conclusion, I would like to express my gratitude to our shareholders, customers and employees for their continued support and dedication to our company. This year, we made significant progress in our transformation to focus on Connected Rewards, a platform that has shown great potential for growth, particularly in the multibillion dollar gaming industry. This platform brings brands and digital businesses together uniquely to cross promote services with everyday incentives, creating a win-win-win scenario for game publishers, popular restaurant and convenience store brands and consumers. We have quadrupled our partnerships with game publishers and have grown from 4 to 14 brands with a soaring number of Connected Rewards cross promotion impressions.

Our new team members, including our Chief Revenue Officer, Kim Carlson, bring a wealth of experience from the gaming industry and we are confident that Connected Rewards will drive our business growth in the future. While we remain committed to our legacy business, we believe that Connected Rewards represents a significant opportunity to capitalize on the vast potential of the mobile gaming industry and create long term value for our shareholders. Thank you all for joining us today and we look forward to your continued support in the years to come. We will now open up the call for Q&A.

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Q&A Session

Operator: Our first question comes from Jeff Porter, private investor.

Unidentified Analyst: Hey, Dennis, I got a couple of questions. Can you depict for me what a Connected Rewards contract and transactions look like? What’s the revenue stream and why are the margins going to be so much higher from that revenue?

Dennis Becker: Hey Jeff. Yes, so typically a Connected Rewards contract looks like, so it’s an agreement where a game publisher basically allocates a committed budget to Mobivity for Connected Rewards promotion that can be anywhere from call it $50 to a couple of hundred thousand dollars where the game publisher says what we call an insertion order they say we would want to pay a certain amount up to a maximum budget for Connected Rewards to promote a certain mobile game for a certain timeline, say the month of April or for a couple of months. And then we work with our brand customers to use their media typically that’s their SMS database or their loyalty database to then promote that mobile game where the game publisher pays a transaction fee every time a consumer successfully installs the game through that brand promotion.

So a promotion might be a convenience store brand saying download this game, install and play this game and you’ll get a voucher for $0.30 off each gallon of gas after you’ve installed the game. And every time that the brand when we run the campaign successfully transact and install, then the game publisher pays us a success fee. So in the past in our legacy business model we would promote brand SMS discounts that would say give you a $1 off a drink or a sandwich or something like that and we were really just able to charge the brand a sub penny transmission fee for that text message. We weren’t able to really participate in the upside that came about from those promotions. So with Connected Rewards we’re able to bring both retail restaurant convenience brands together with game publishers and obviously drive a much higher transaction fee because we’re part of that vested interest in success of the program, matching good games with good brands, then leveraging our technology which makes all that happen.

In other words, we can transmit the brand owned promotion through their SMS channel or their loyalty program. We have built the plumbing into the game publishers to then track the download coming from a certain brand to the game publisher which then gives the credit towards the successful transactions which sets up for a performance network. So in summary, the budget, the marketing budgets are much larger when game publishers allocate marketing to acquire more players than what we’ve seen in the past for brands just leveraging the channel as a part of one of their many marketing channels and then the margins are much higher because the transaction fees being in the dollars versus cents is obviously a much higher transaction fee. But our cost of transacting those campaigns is the same as it were with standard text messaging promotion.

Unidentified Analyst: Do we only get one bite at that revenue at the time of the customer acquisition or is there any ongoing revenue stream as that customer plays the games and cashes in rewards?

Dennis Becker: Yes, that’s the roadmap for Connected Rewards is that not only can we drive value in finding players for games, but obviously we would know that if a player chose to play a game because of a certain incentive say it’s a burger or discounts on fuel at certain brands, that’s creating a data pipeline for us too. Where then, in fact, one of the unique and interesting aspects of the gaming industry is that the retention rates are pretty low for mobile casual games. They can be as low as 5%, 95% of players try a game and discontinue playing it after the first 30 days of installing a game. But we’re starting to set ourselves up into a position where by playing matchmaker and bringing consumers from brands to these mobile games, of course we’re kind of the origination point where these consumers discovered and tried these games and that allows for a kind of follow on relationship.

For example, where maybe we gave a consumer $0.20 off for trying a game, they then stopped playing the game and we can go back and give that consumer another $0.20. Or maybe we have to up the ante to entice them to play the game a little bit further and maybe builds a longer term relationship with that game publisher so we can absolutely build a recurring situation. And in traditional digital advertising, they call this retargeting, where formerly with mobile phone publishers like Apple and Google’s Android, there was a lot of infrastructure there that allowed the persistent identity of these game players. You knew who was playing what games, and you could retarget them with promotions and advertisements. And a lot of that’s gone away because a lot of that wasn’t very permissions based.

And now with Connected Rewards, these are consumers that have consented to give their permission. They’re going in eyes wide open, and they’re saying, yes, I’m open to playing a game and trying something out in exchange for value from a brand that I already have a relationship with. And so we believe that going to set up for a future where we can keep coming back and helping building a longer term relationship between the games and the consumers.