Vertro's CEO Discusses Acquisition of Vertro By Inuvo - Conference Call Transcript

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 |  About: Vertro, Inc (VTRO)
by: SA Transcripts

Operator

Good afternoon and thank you for joining today’s conference call. Joining me today are Inuvo’s President and CEO, Rich Howe and Chief Financial Officer, Wally Ruiz. From Vertro we have CEO and President, Peter Corrao and General Counsel John Pisaris.

The slides that will be used on today’s call are embedded in the webcast, which is accessible from the Investors section of the Inuvo website at www.inuvo.com and from the Stockholders Information/Events section of the Vertro website at www.vertro.com. A PDF of those slides was also filed as an exhibit to the 8-Ks each company filed today with SEC.

I would like to remind everyone that today’s comments include forward-looking statements. These statements are subject and risk and uncertainties that could cause actual results and events to differ materially from those expressed in the forward-looking statements. These risk and uncertainties will be outlined at the end of this conference call and are also detailed in each company’s filing with the SEC.

With that I will now turn the call over to Richard Howe, Rich?

Richard Howe

Thank you, Melissa and thanks everyone for joining us today. I would like to start the call off today by sharing with you some of the strategic considerations that drilled our decision to combine these companies as announced in the press release dated October 17, 2011. Once I have done so, I would like to turn the call over to Peter Corrao, the Chief Executive Officer of Vertro who will provide his view of the transaction and share additional operating synergies we believe could be realized from the union.

Let me first express how excited both companies’ management teams and boards are about the immediate and future prospects of the new company. Both companies conducted market testing, extensive due diligence, and a fairness analysis culminating in our announcement of the transaction on Monday.

This afternoon, we would like to discuss with you the key terms of the transaction and to that end we have prepared a presentation to help guide us. Each of you have the ability to access that deck by visiting the Investor Relations section of either inuvo.com or vertro.com, where you will find links to register for the webcast. So, boards of the respected companies unanimously approved the transaction on Sunday evening, October 16, 2011. Under the terms of the deal, whose consideration will be 100% in stock, Vertro stockholders will be entitled to receive 1.546 shares of Inuvo stock for every one share of Vertro stock. We are excited to announce that Peter Corrao will serve as the President and Chief Executive Officer of the combined company.

The board of the combined company will be made up of existing members of each company’s current board with myself as Executive Chairman. That board composition will be seven total members, three from each side including Peter and myself with one additional member to be selected by the six chosen members of the newly formed board.

Subject to customary closing conditions, which include registration of the shares to be issued to Vertro stockholders on Form S-4, approval of listing of the shares on the New York Stock Exchange Amex, execution of a new credit agreement for the combined company and approval by our respective stockholders, we expect to be in a position to close the transaction either late in the fourth quarter or early in the first quarter of 2012.

Peter, myself and our respective management team and boards believe the combined company will be a much stronger digital media competitor than either company is today individually. Strategically, there were a number of exciting reasons to consider this transaction. And over the last 90 days of our due diligence and market testing, we have only become more confident that our original assumptions might be realized. We share a strong core competency within the very competitive and growing sector of the economy referred to as Internet marketing.

Together, our combined scale should position the newly combined company well in its effort to attract and retain the three primary constituents within that sector. They are respectively advertisers, publishers, and consumers. Independently, we operate today two relatively small public companies, whose size makes it difficult to support the added cost burdens associated with being public. Together, through the elimination of one set of these costs along with other overlapping operational costs, we believe we can more adequately support our continued public market listing. Peter will comment more on these cost reductions later in the discussion. And for stockholders we expect there will be an enterprise value increase to the cost savings alone.

We’ve heard through our conversations with many of you a desire to expand our advertising supplier agreements, and as a result reduce the concentration we both have on any one such supplier. This transaction accomplishes this objective. And as a result, it should help mitigate this potential risk going forward.

Distribution or perhaps better defined as access to consumers is one of the most important success factors associated with Internet marketing. In this regard, the existing Vertro ALOT direct-to-consumer marketing experience, and existing user base, provide an excellent platform for the distribution of Inuvo’s BargainMatch and Kowabunga powered consumer applications. As many of you know, we have already been working on this together as partners on BargainMatch and we believe this application, as well as other Inuvo applications, will benefit the combined company both in the short and the long-term. This transaction should allow the combined company, which we expect to be financially stronger together than apart, to have easier access to additional capital, should it be required. Interestingly, both companies share an existing banking relationship today with Bridge Bank and we believe we will be able to expand that relationship as a result of this transaction.

And finally, we share management teams who are exceptionally experienced across multiple online and offline digital media markets and channels. We expect to retain this talent going forward, thus ensuring our innovation and market responsiveness continue for both companies.

For Inuvo, this combination has altered our strategic direction with respect to investments, principally in the Kidzadu website. If you will recall, this was presented as an opportunity to leverage certain pre and postnatal leads the company collects today. We have decided to table this investment in lieu of a concentrated focus on business lines more aligned with the potential of the combined entities.

So to summarize, we believe we share a core competency. We can immediately reduce operating expenses. We will have increased operating scale. We will have a reduced supplier concentration. We will have ready access to additional distribution for new products and improved availability of capital. These were among the many strategic considerations that drove our respective boards to unanimously approve the deal.

Of these, the market facing and operational considerations were critical to the analysis. I would like to now turn the call over to Peter to help guide us through this rationale. Peter?

Peter Corrao

Thanks, Rich. Good afternoon everyone and thanks for joining us today. My comments will be in regards to our business going forward and our plans for capturing market share, the Internet marketing and digital media sector as well as the operational benefits to the combined company will provide us.

But before I begin, I’d like to mention that we strongly encourage a lot of questions from you on today’s call. This will provide Rich and I an opportunity to best explain the strategic details of the transaction, as well as the company’s strategy going forward and importantly, our enthusiasm for our growth prospects.

So, as Rich mentioned, the combination of Inuvo’s user base and strong distribution with the ALOT products will enable us to more aggressively compete in the multi platform distribution and Internet publishing sector. The combination should allow us to monetize an enormous amount of traffic over diverse revenue streams such as search, e-commerce, display, and affiliate programs. The ALOT apps are geared to making the consumer experience easy and in doing so, attract and retain users who will engage in search.

We are confident that, combined with the users and distribution that Inuvo has, we’ll be able to attract an even more diverse set of consumers on a worldwide basis, as Vertro’s products are available in eight languages and 20 various countries. Inuvo’s standalone products are a perfect complement to the ALOT app and brand strategy to attract users by offering simple, easy-to-use apps suited to diverse consumer interests. Inuvo and Vertro’s e-commerce brands are where we share the greatest affinity at this point.

As you may recall over the summer, we released the ALOT Rewards app using Inuvo’s BargainMatch as the backbone of the app itself. It’s exactly these types of apps that we expect to build in order to retain our users. User retention is extremely important to our revenue model and obviously, the longer we retain the user the greater our lifetime value.

Now our strategy will continue to be to attract and keep consumers, and we anticipate the combination of both companies will further enhance our ability to do so synergistically. In addition, on top of our search revenue model, we are very excited about the newfound ability to attract users who we believe will give us a significantly higher value through the revenue generating capabilities at the Inuvo products such as BargainMatch and Kowabunga and more bring.

To put numbers to the scale, the combined company is expected to access over 132 million unique Internet users per month, a search marketplace that experiences 240 million search queries per month and we anticipate approximately 2.5 billion page views annually. As to distribution, we anticipate a network that will produce in excess of 20 million revenue generating clicks per month along with an expanding App platform in marketplace that offers hundreds of relevant consumer apps, generating usage in the millions of clicks per month. The ALOT Appbar and homepage combination are installed on desktops in over 8.5 million users. We also displayed hundreds of thousands of ads on over 25,000 websites per month. So, as you could see the scope and size of our newly combined company will be truly impressive and expect to grow quickly from there.

Now, aside from the synergies and the two company’s products and the potential they have, the combination should improve our bottom line. Our operational cost savings expectations are substantial. The expected savings are approximately $2.4 million annually, obtained primarily through the elimination of redundant public company cost and operational efficiencies. Furthermore, the location of our headquarters in New York gives us great access to talent from which to choose the best and brightest people to help build our company, in addition, the city is optimal location for developing potential new business leads giving us the opportunity to execute upon the right ones of our apps, products and the company.

This is not to say that we are going to be operating solely out of New York. We have a dedicated team in Clearwater offices that is responsible for making Inuvo the company it is today. Our Florida team will continue to be an integral component in our strategy of building and maintaining the Inuvo branded products as well as the simulation of the Inuvo and ALOT products and brands.

In summary, this merger capitalized on increasing growth in the Internet user experience. The expected synergies in cost savings as a combined company incorporation makes sense for all parties involved and should achieve the goal of increasing shareholder value immediately and over the long haul.

I’m extremely excited at our company’s potential ability to attract consumers in order to provide them with the multiple options to engage in the Internet. We already have a sound foundation to build on. We believe the further opportunities in worldwide markets will be significant going forward. We are very proud of the ALOT brand and with Inuvo’s products we believe we have the stronger foundation upon which to grow.

I’m looking forward to working with Rich and we have already built a great rapport. I’m equally thrilled to work with the rest of the Inuvo team to build cross-platform products that focus on consumers – worldwide consumers in our case, I might add, as a combined company. The combination of the two companies has all of us excited about our future growth potentials. The synergies we expect to realize are two-fold affecting both earnings and revenues. The anticipated cost saving should have an immediate effect on our earnings while the combination of the various products will enable us offer increasingly rewarding benefits that will attract and retain the consumer, which should increase revenues.

We believe we have formed an impressive company, where the sum is truly greater than the parts and that we’ll be a formidable player in the digital media market space. Our plan is to simulate the company’s operations and products as quickly as possible after the closing and importantly we expect to produce adjusted EBITDA profit, excluding deal costs, in the first combined quarter of operations.

Now to reiterate what Rich mentioned earlier, with the guidance of our bankers, both companies conducted market testing, extensive due diligence, and a fairness analysis. In Vertro’s case, our board determine that recommending this particular transaction would be in the best interest of our stockholders.

Now with all that said, I’ll turn the call back over to the operator and Melissa so that we can answer questions.

Question-and-Answer Session

Operator

Certainly. The floor is now open for questions. (Operator Instructions) And we do have a phone question from Eric Martinuzzi. Please state your question.

Eric Martinuzzi

Thanks for taking my question and congratulations on the transaction. I do have several questions, but I wanted to start first with the product service combination here. I’m curious to know if you have in your mind an ideal consumer that benefits from – could you describe who that consumer is and how they benefit from this merger both the BargainMatch, the ALOT toolbars, who is that ideal consumer? And based on the fact that you guys have been working together, do you have any evidence that that is a stickier consumer than what you had before?

Peter Corrao

So yeah, thanks Eric for your questions and thanks for giving us the congrats too. Hey, so let’s talk about the basic premise and then I’ll talk about the consumer. Well, this is Peter talking to those of you that may not know me. So the gist of the story starts with Vertro has a lot of distribution. And the distribution that we have mainly monetizes search and secondarily – but way secondarily monetizes with consumers other of our products, affiliate marketing deals, sponsorship deals, and display ads and the like.

The basic notion is that we will take ALOT’s distribution along with Inuvo’s more richer product offerings, more like websites, less like apps and begin distributing those initially to U.S. and Canadian consumers and later to our worldwide distribution match.

The benefit from that is while we might have as an example in the state the lifetime value model that perhaps delivers a $1.50 or $2 back for a consumer, the Inuvo products although we have not tested these enough to discern a lifetime value model, Eric, but you could be talking about lifetime value models from a product like the cash back opportunity being in the $10 or $20. So, here you’ve got an opportunity to go ahead and distribute, where we make our margins the old fashioned way through search. And on top of that we integrate products that the Inuvo people have developed where we can get enumerable more revenue. And consequence from that was once you offset the cost for building the product, it would all be margin in the bottom line for us since the distribution is already paid for.

The second part of your question, I think, who was the consumer for these products. And I think we don’t have evidence of this yet, so this is conjuncture. I think that we’ve a got a pretty good match, the ALOT consumer in the states anyways and we’ve got them all over the world as you know, but in the states, the ALOT consumer tends to be a little more suburban and rural than it does urban tends to be a little bit more in middle of the country and a little less on the coasts, tends to be either a little bit younger or a little bit older, tends not to be a leading edge type of consumer or certainly a leading edge from a technology standpoint type of consumer. And I think that’s a perfect match with the two existing products that Inuvo has already launched in the states, which is their cash back product for consumers and also their deal-of-the-day product called Kowabunga.

The only experience we’ve got so far is with cash back and it’s a brand new experience. We’ve downloaded to give you a sense in the toolbar realm just in the states something like 10 million toolbars – 10 million, I wish – 10,000 toolbars, excuse me. Of those 10,000 toolbars that were cash back oriented, we’ve gotten a little over 1,000 cash back specific registrations in the last month. And I mean literally in the month of October we’ve gotten our first counts back from revenues ensuing from those consumers and it’s too low yet. It’s frankly too low yet for us to deliver a lifetime value.

We don’t have it yet to live it, but certainly as we work closely with the Inuvo guys, we will start to understand what they see as lifetime values, we’ll probably discount that and then set our expectations that way. So it’s a pretty exciting proposition I think, and I don’t know, of all things maybe that was the key driver and us wanting to get together. We think of that on into the apps store is just kind of apps at Vertro. We care about those apps mostly so that they attract consumers for us and retain consumers. The Inuvo guys think about apps like cash back as a whole company. They’ve sort of set expectations that they would be driving revenue and its own profitability off of that and I think the two together are a fabulous opportunity. I won’t take so long at all the answers but just that one, Eric, because it’s kind of key and core to why we are doing this.

Eric Martinuzzi

Okay. And I was expecting something like kind of in a ALOT homepage user that’s got Kowabunga and BargainMatch wired into their browser and I was hoping you had evidence of maybe a lower churn rate for that type of subscriber, but it doesn’t sound like we’ve got that?

Peter Corrao

Yeah, we’ve got evidence of the uptake, Eric, and we know that we can get them to accept it, but we’ve got so little time with it. We don’t have the evidence on how long the consumer – if the consumer stays longer with us and what the LTV is from the product on our end.

Eric Martinuzzi

Okay. Let me jump on to my next question, which is cash. I’m curious to know – obviously you guys haven’t printed your Q3 yet, but what is the net cash balance here for Vertro and for Inuvo, the combination? And then there is going to be some cash cost to the merger, whether it’s legal fees, banker fees, severance. Is there Bridge Bank – will you be using Bridge Bank money to do that? Is there enough working capital to handle this, how do we affect the transaction itself from a cash perspective?

Peter Corrao

That’s a great question. So, the deal assumes by the way that we get a working line with the bank. Both companies just coincidentally utilize Bridge Bank today. Bridge Bank has extended our existing deals through to both companies, but in the meantime is working with us as we speak to consolidate into one better deal for both companies that would be constructed, I think, here in the next couple of weeks, Eric, certainly long before the close. But importantly for the deal to close, many things have to happen.

One of which is we’ve got a secure financing with the bank, and the lead bank for us right now is Bridge Bank. There is no anticipation at all that we would need money beyond what we’re already talking with Bridge Bank about into 2012. And in fact the company is anticipated to generate substantial cash flow throughout 2012. So all we need – and I’ll let Wally give you more specifics, but really all we need is enough security to get started really on close day and then we’ll begin generating cash quickly.

Most of the cash if not all of the cash that the company would use is one-time cash for the things that you just talked about, Eric, specifically bankers and attorney’s fees, listing fees, and those sorts of things. And we don’t anticipate needing anymore than what we’re talking to Bridge Bank about. Now, we don’t want to do this but because Bridge Bank has extended both companies, their existing credit facilities into the new merged company, if that’s the way it was, we’d be fine with that. Again kind of like the Vertro story has been when you combine the two, once we get over the hump of the kind of day one considerations, we’re off to the races from a cash flow standpoint or generating cash throughout (inaudible) and don’t think we have any cash troubles with the company. Wally, you want to add anything?

Wallace Ruiz

Well, just had – obviously, Eric, we had to spend a lot of time analyzing not only the cost at closing but the available cash that would be on both companies side at the closing. And as Peter has said, we feel that there is enough cash. We’ve forecasted that there is enough cash to cover those closing costs and then with the proposed arrangement that we’ll have with Bridge Bank will have more than enough availability to have effective cash to implement the plans that we had going forward.

Eric Martinuzzi

My last question and then I’ll turn over the microphone. The expense side, you talked about $2.4 million of annual operating expense savings, maybe I missed it but I wasn’t sure, was that just from the public company issues? Was that reduction of duplicate issues?

Peter Corrao

Yeah, the majority of that cost is public company cost. The minority of that cost is other duplicated cost and redundancies between the two companies. And importantly something to note is that there may have even been some more synergies more recently so that they could keep themselves cash flow positive. Inuvo, here in the last three weeks or four weeks, has gone through a pretty severe reduction in force.

I want to take – I don’t want to speak for them but something like 20 people, I’d think something in that range, so their head count is down quite a bit already, Eric, which of course would be realized into the new Co. but because they’ve already let the employees go, they won’t show up as redundancies and type of – in terms of synergy. So we’ve anticipated that already, drop our synergistic number and are now looking at some head count synergies but not full head count synergies. And the consequence of that is the majority of the $2.4 million that we have analyzed already is coming from public company cost.

Eric Martinuzzi

Thank you.

Peter Corrao

Thank you.

Operator

And our next question comes from Michael Balkin. Michael, please state your question.

Michael Balkin

Yeah, hi Rich and Peter, and congratulations on the merger. And as a large shareholder of both companies we strongly endorse this deal because we see the synergies that do occur between the two companies and we think that it addresses the weaknesses that each company has with their customer concentrations, it helps dilute that a little bit but also we see some of the operating synergies.

But with that said, Peter, maybe you could address question in terms of the process that you went through to evaluate all the different strategic alternatives that might have been available to you, maybe discuss that a little bit. And then my second question was maybe tell us a little bit more about how you and Rich are going to divide up the different responsibilities here, and how you see that relationship going forward.

Peter Corrao

Okay. Hi, Mike. I’ll answer the first question, Rich, maybe you answer the second question. So remember what it was or I’ll forget by then. So I can only speak for my side, Mike, I mean in the Vertro team, in terms of what myself and my management team and my board went through. But going back to early summer, we engaged with our bankers, America’s Growth Capital, which is a bank that my board – even though we reviewed our banker alternatives again at that time, we had successfully used America’s Growth Capital in the past, already had a good relationship with them.

We reviewed, in person, four or five different bankers and once again my board selected Ben Howe and his team, they’re at America’s Growth. After that, they of course put a deck together for us, they certainly understand our business, the America’s Growth Capital people, they thoroughly canvassed, in our case, the worldwide market because, as you know, most of our distribution is not in the U.S., which would likely avail us to a M&A type of activity with somebody that perhaps wasn’t even in the country. From that thorough canvassing of the market, we had detailed discussions with both financial partners and strategic partners, with well over a dozen and maybe as many as 20 where we had detailed discussions. And my board decided, at the end of that process, that the best near-term and long-term value for our shareholders was the combination with Inuvo. So that’s our process. And our process culminated, as Rich said, mine about Sunday at 2 or 2:30, when my board voted unanimously to go ahead with this merger. So, Rich, do you want to talk a little bit about responsibilities and...?

Richard Howe

Yeah, you bet. Thank you, Peter. And Mike, on our side, I will echo the process that Peter just described for his company. We had retained a banking relationship with Craig-Hallum early this year, in fact around the same time that we raised some additional capital in the first quarter and we too, as a board, had concluded that looking for a transaction was probably a good idea, in the context of all of the rational reasons that we provided earlier in this conference call. And we did go through a very, very similar process to that of Vertro, concluding, like they did, with the belief at the board level unanimously, that this was a good transaction for shareholders.

As it relates to Peter and myself, I will say that you go through a process when you are evaluating these deals, you get to know each other, and I personally have gotten to know Peter pretty well in the last 90 or so days and feel very comfortable that we will have a really strong working relationship. I plan to focus my attention on the board, on the strategic areas of the business, which for me would include the innovation side of the business and additional merger and acquisition candidates that we might want to evaluate collectively. And then, of course, Peter will have the daily responsibility for running the business and managing the teams, making sure that we execute on all of the synergies that we’ve contemplated.

Michael Balkin

Okay, terrific. That’s all I had. Thank you.

Richard Howe

Thanks, Mike.

Operator

And our next question comes from John Gilliam, please state your question.

John Gilliam

Good afternoon gentlemen, congratulations. As a shareholder and user of the products of both Inuvo and Vertro, I’m extremely pleased with the transaction here and look forward to seeing how this pans out. I wanted to get an idea – part of Inuvo’s strategic plan that was announced in Q2 involved daily deals offering through Kowabunga that would target small and rural markets, college towns, et cetera. Want to give us an idea of where we are with that and also, what if any changes we should expect as a result of this merger?

Richard Howe

So, I will take that one, Peter. So, yes, John, we have indicated and we continue to indicate that daily deals strategy is predicated on a couple of things as it relates to availability of deals. One was, you need to have coverage. So, our original strategy was to get as much deal inventory as possible across as many markets as we could possibly get. And I’m happy to say we’ve accomplished that goal. I think our deal count as of last week was well into the many thousands at this point.

Our secondary strategy, and second doesn’t mean least important here, it just means in order of priority, was to go and get deals in the more rural markets. By the way that, if you were listening to Peter’s dialogue about the demographic of this customer base, aligns very well with the demographics of the Vertro ALOT customer base. That process is now gearing up quite extensively. And we have identified, as I’ve said in the past, a number of partners that we want to target who have access to advertisers today in those rural markets, and we believe that’s an important strategy for us to gain market share in this very competitive right now daily deals market.

John Gilliam

Okay, thank you. The Inuvo search product, the old ValidClick, do you perceive being able to offer a Google Adwords ad served version of that at some point down the road?

Peter Corrao

Yeah, so let me – this is Peter, John, and I’ll answer that one for you. We’ve got, at Vertro, a contract with Google and a separate contract with Yahoo! and for sure we’re going to honor both of those contracts with those players. Rich’s company at Inuvo too has a contract specifically with Yahoo!, and then secondarily through Bing because of Yahoo!, to monetize their publishers. And for now, everybody is going to for sure live up to the contracts that they’ve got with their partners. We kind of like the fact that we lose concentration. So somebody brought that up in an earlier question, perhaps it was Mike, but we’re looking at a concentration thing. Now that if you just put the two together and nothing happened, your largest concentration would be about 42.5% from Google, which is a good thing, down from 85%, which it is for us as a stand – or 80%, let’s say, as it is for us as a standalone today, so that’s a good thing.

John Gilliam

Yeah.

Peter Corrao

So there’s always opportunities if you are dealing with more partners. We have great relationships with both, both companies have good relationships with Yahoo!. My company has got a great relationship with Google and Yahoo!, and we’ll pursue whatever we can to do the best for our shareholders, but we have not counted into the synergies on the revenue side, any sort of switching between Google and Yahoo!, because our contracts don’t allow for it. Now we’ll have to wait until we get to the interim to see what happens.

John Gilliam

Okay, very good. Thank you gentlemen.

Peter Corrao

Thank you.

Operator

And our next comes from Chris Laheegi. Please state your question.

Chris Laheegi

Gentlemen, congratulations on the merger. I think it’s going to work very nicely. My question is – and I know you guys went over this on the call, but I just want to get it again for my notes. What is the estimated cost savings, again, of the merger?

Peter Corrao

Yeah, so kind of two pieces to it. The cost savings as we stand right now, Chris, would be $2.4 million between the two companies. And that number is down from what we originally anticipated, but of course never shared with anybody but ourselves, because here in the last couple of weeks, Inuvo’s had to let go about 20 people so that they could keep themselves cash flow positive. So the 20 people that they just let go, of course, will be reflected in the combined company’s lesser total cost plus the $2.4 million, so that’s the cost savings that we look at pulling out initially. Now, that doesn’t mean we’re done. So as soon as we get that done, we will of course be on the hunt for more and more efficiency.

I’ll give you an example of things that haven’t been put into our cost savings yet, Chris, as an example, because we haven’t had the two companies together enough to explore it. But we currently share four – between the Tampa – four co-location facilities that are expensive. I don’t think after – this is my second day in Tampa – my first actually in Tampa. My second time in this building, but not since these guys have been managing it. And I think there is co-location savings, right. Well our co-locations are very expensive, if you just pull one out, that’s another big number that of course we’re not talking about, but our notion is to only give you what we know today and then forecast what we think can happen in the future.

Chris Laheegi

Understood. Another question, do we have any idea how this will change overall margins, or it’s too early to dictate?

Peter Corrao

Well, I think the gross margins in the two companies, I say gross margins, when you put the two together, would probably stay about the same, except that remember, as we get new revenues into the ALOT product portfolio, that the Inuvo product portfolio we have right now, I’m anticipating, once you get the sunk cost of development behind us, that would be free distribution. So the ALOT revenues, which of course will be consolidated, should be dramatically better.

So, Chris, just so I can overly explain this for a second. If I’m buying in the States for $1 to get a download to the ALOT toolbar, and I’m hoping to get back, let’s say, a $1.50 in the cohort. And in that same cohort I can deliver, at no cost to us, as an example, the cash back component. And the consumer uptakes the cash back component, it looks like about 1 in 10 are taking it now on redistribution. Once we learn whatever that margin is for cash back, it would be 100% incremental margin on top of the ALOT product. Make sense?

Chris Laheegi

Absolutely. Okay. Well, those were all my questions. Thank you so much for answering them and good luck.

Peter Corrao

Thank you, Chris for your questions.

Operator

And our next question comes from Aram Fuchs. Please state your question.

Aram Fuchs

Yes, looking back on Vertro’s adjusted EBITDA numbers and then extracting out excess cash and then looking at the current market price of Inuvo, it looks like it’s just Inuvo is getting Vertro for mid-single digit multiple, which is half of what the market is trading at. So I’m disappointed in the price. Further, I think the synergies are applicable to any Internet media company. And so I just wanted to go over why you think the company is only worth mid-single-digit earnings multiple. And what specifically is in Inuvo that makes it more attractive that you took their equity, which has many of the same problems of illiquidity and volatility that yours had? Thank you.

Peter Corrao

So, let me start; I’ll let Rich answer too. So why we took their deal is an odd way to ask a question. My guess, when my Board reviewed it and when I reviewed it as well, we simply thought, for all the reasons that we stated heretofore on the call, that the two companies together were stronger than they were apart. There is no doubt about that. So back to Chris’ question that he just asked earlier, we think, if we can keep our margins, meaning the ALOT margins continuing, you could layer on top of the ALOT margins, the product margins through apps that would come through the Inuvo product, we think there is a chance to make a bigger and better company out of it. That’s in the near term.

In the long-term, they’ve got talented people, we’ve got talented people and we think there is a pretty good match here made. And then secondly, of course, our bankers and my board had to think through the near-term results of what would happen with a merger like this, and what this share swap net as it relates to our shareholders and they did. Along with that, though, they also thought of what the long-term would be. And their sense and mine was, the combination in the near-term and the long-term would make a better company out of both. That’s one.

Second piece is, both companies, let me speak for myself, I’ll let Rich speak for his, and I don’t know his, to run it myself. Both companies were pretty small, it’s hard to get any attention. So the fact that we suffered these relatively low multiples is partially just a piece of scale that the companies were small. As an example, if you just took the two companies and added up the existing 2011 or 2010 numbers, you might come to something like $70 million. That’s a big difference in where either company is today independently in the $30 million and $35 million range. So we think we’ve become a little bit more meaningful and a little bit more noticed simply by having a little bit more scale behind us. And there’s a basis of that. So let me let Rich answer this.

Richard Howe

You bet. So, Aram, I’ve never met you, so nice to meet you. Just a couple of things I might add on top of the questions you’ve asked. The first is I’ve done, I think, I guess, more M&A now in my career than I can remember. And actually I know for a fact that combining two companies in fact many times does not yield the synergies and/or the expense savings. So, I think it might be categorizing things a little bit liberally to say that you can bring two companies together and still get the benefits, I don’t think that’s the case. That really becomes the case only when there is clear synergies and the management teams are willing and able to execute on the synergies. And I think in this case we have both of those going for us.

One, there are some very clear synergies on the expense side and the growth side for these two companies that can and will be executed on. So that’s point one. And then two, I believe that the multiple and the premium place for Vertro and for Vertro shareholders was not insignificant. If you look back at the trading of companies and then take a look at what the implied premium was on Vertro stock at the closing, I think it was an attractive deal. I mean, you combine with everything that we’ve discussed today on the phone and the management seems desired to want to execute and our ability to compete more effectively in the marketplace. I personally, as a result of my experience, believe that this is a very good combination and should yield stakeholders a nice premium in the future.

Aram Fuchs

Great. Thanks for your time.

Peter Corrao

Thank you.

Operator

(Operator Instructions). Please hold while we taka a question from the web.

Stefan Candia – LCM

Yes. We have a question from Stefan Candia from LCM. Stefan asks, can you please talk about any situation occurring that would potentially delay the close of the merger?

Richard Howe

Thank you for the question. It’s Rich Howe, I’ll take this. There is currently nothing that is anticipated to get in the way of the close of the situations or maybe I will address this answering what could happen. As we mentioned earlier, there is at least four things that we’re pursuing right now that are important for the close. The SEC review, the S-4 filing, proxy to shareholders and then stock exchange listing. Now with that being said, there are a couple of things that haven’t happened, but could happen that includes any litigation that might occur between now and the close and of course a change in either businesses – material change in either businesses – business essentially.

Operator

Does that conclude the answer to the question?

Richard Howe

Yes.

Operator

All right. And we do have another phone question from Paul Gertzen. Please state your question.

Paul Gertzen

Hi Rich and Peter, happy to hear about two companies getting together. I just have one or two questions. When I was looking over the 8-K just quickly, there was a line in there that said Vertro will be the surviving corporation. So I was curious about that. And I was wondering like when this is all done and completed, will we be trading under the Vertro symbol or will we be trading under the Inuvo symbol.

Wallace Ruiz

Hi, Paul this is Wally. I think you are referring to the first paragraph of the press release, where it talks about Vertro being merged into a subsidiary of Inuvo.

Paul Gertzen

Correct.

Wallace Ruiz

And so that’s – Vertro will survive that merger but it will be a subsidiary of Inuvo. So at this point what we are anticipating is that we will be on the American Stock Exchange as Inuvo is now and will continue trading under Amex.

Paul Gertzen

Okay. My second question is Inuvo has always had a very, very good insider-institutional backing. I’m curious about Vertro. And Peter, maybe you could answer this question. How would you answer that question as far as your company is concerned?

Peter Corrao

Yeah, we feel pretty comfortable as well Paul about our institutional backing. Interestingly, I think both of our largest shareholders William Blair and we share common partners with William Blair there. We shake hands with probably 60% of the owners of the company on a weekly and monthly basis. Relatively little of our shares are out there traded in the retail market. Management holds about 10%. So, we haven’t done – in fact we talked about doing this today. We haven’t done a company by company match of shareholders yet. Well we would actually talk through, but I think we share a lot of common shareholders. And I wouldn’t be surprised if institutional ownership between the two is very similar.

Paul Gertzen

Well, then basically just roughly what would you say the float would be between the two companies?

Peter Corrao

There’s a public (inaudible)

Paul Gertzen

The public number of shares available?

Richard Howe

Well, when this – when the transaction is over though that we are expecting that there will be over 22 million shares outstanding. And the public float has been about 50%. And I think that’s about the same for Vertro, right, maybe a little less for Vertro. So, it should be in that neighborhood.

Paul Gertzen

Okay, that’s all I’ve got and good luck to you.

Peter Corrao

Thank you.

Richard Howe

Thank you, Paul.

Operator

And we do have another question from John Gilliam. Please state your question.

John Gilliam

Hi. Yes, a quick follow-up guys. And you may have addressed this already, I apologize on this part of the answer session. Could you give me an idea assuming that the deal closes, let’s say, 12/31 of this year, what will the balance sheet look like and what will the head count be on day one?

Peter Corrao

Yeah, we – actually we did go through that. I’ll give you the headlines again, John. So, what we said is that the two companies together are going to require financing. Bridge Bank just by chance is the banker for both companies today independently. And Bridge Bank has extended our existing deals through to both companies. So we’re in good shape there. Separately we are working with Bridge Bank on a new combined deal. So either company independently or the new better combined Bridge Bank deal is fine for the company to close with. And taking your assumed date of 12/31, we think we are in pretty good shape on that.

So what we further said was after our one-time cost whatever quarter that is, but likely either Q4 or Q1 the one-time costs for bankers and attorneys and all of that would be covered as part of the deal. After the one-time costs including in that quarter we thought we would be EBITDA profitable immediately and after that first quarter we thought we would be substantially cash generating throughout every quarter in the year as well. So we feel like we’re in a really great shape from a cash standpoint as we move forward.

Now the deal does require that we get financing put together between some bank and our preferred bank of course is continue to work with Bridge Bank that we already worked. Head count for the two companies will be somewhere near – you may have missed this too, we were recently talking about in the last couple of weeks Inuvo has laid off around 20 people. So it’s their head count. If ours today is around 40 and theirs is around 25 or 20 it would be somewhere in the – 55 to 60 range would be the head count on day one split between New York and Tampa but majority of people around 40 being in New York.

John Gilliam

Okay. So what would be on day one, what would – approximately how much debt would we have?

Richard Howe

Likely the debt would just carry over that Inuvo has carried on its balance sheet and that fluctuates but it runs about $3 million.

John Gilliam

Okay, okay. Thank you. Thank you very much, gentlemen.

Peter Corrao

Thanks John.

Unidentified Analyst

We have one more question from the webcast. And the question is from Ben Kolada from The 451 Group. The question is will slides be made available after the call?

Richard Howe

And, yes, Ben, the slides are actually being filed as a PDF as an exhibit to the 8-K that each company filed today with the SEC.

Peter Corrao

Thanks. She answered the question, so yes, they will be filed. Melissa, do we have any more questions that you know of?

Operator

I think that concludes Q&A. So, Rich, if you want to wrap up.

Richard Howe

Thank you, Melissa and thank you everyone for attending the call today. We appreciate your continued interest in Inuvo and Vertro and we look forward to reporting our progress towards the close of this transaction. And with that I’ll turn the call back over to Melissa. Melissa?

Operator

This conference call contains forward-looking statements regarding future expectations about Inuvo’s and Vertro’s business, management plans for future operations, integration plans or similar matters. The company’s actual results could differ materially from those expressed or implied by these statements due to several important risk factors including those described in Inuvo and Vertro’s filings with the SEC and in yesterday’s press release. All forward-looking statements involve significant risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside of the control of Inuvo and Vertro and are difficult to predict. Examples of such risks and uncertainties include, but are limited to, the possibility that the proposed transaction is delayed or does not close due to the failure to receive required stockholder approvals, the taking of governmental action including the passage of legislation to block the transaction or the failure to satisfy other closing conditions and the possibility of adverse publicity or litigation, including an adverse outcome thereof and the costs and expenses associated therewith.

Additional information concerning other risk factors is contained in Inuvo and Vertro’s most recently filed annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, recent current reports on Form 8-K and other SEC filings, all subsequent written and oral forward-looking statements concerning Inuvo, Vertro, the proposed transaction or other matters that are attributable to Inuvo or Vertro or any person acting on their behalf are expressly held qualified in their entirety by the cautionary statements above. Neither Inuvo nor Vertro undertakes any obligation to publicly update any of these forward-looking statements to reflect events and circumstances that may arise after the date hereof.

In connection with the proposed merger Inuvo and Vertro intend to file with the SEC a registration statement on Form S-4 that will include a joint proxy statement of Inuvo and Vertro. The joint proxy statement/prospectus will describe the planned meeting of each of Inuvo and Vertro stockholders and the registration of the securities of Inuvo to be issued in the merger. The joint proxy statement/prospectus will contain important information about Inuvo, Vertro, the proposed merger, and related matters.

Inuvo and Vertro will mail the joint proxy statements/prospectus to the respective stockholders. Investors and security holders of Inuvo and Vertro are urged to read the joint proxy statements/prospectus and other relevant documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information about the proposed transaction. Investors and stockholders will be able to obtain free copies of all documents filed with the SEC, including those by Inuvo and Vertro, when they become available at the website maintained by the SEC at www.sec.gov. Inuvo and Vertro make available free of charge at www.inuvo.com and www.vertro.com in the Investors section and the Financial Information section respectively, copies of materials they file with, or furnish to the SEC. Investors and stockholders may also contact Inuvo at 727-324-0211 or Vertro at 646-253-0646 to receive copies of documents that each company files with or furnishes to the SEC.

Inuvo, Vertro, their respective directors, executive officers, certain members of the management, and their employees may be considered participants in the solicitation of proxies from the stockholders in connection with the proposed transaction. This will be described further in the joint proxy perspectives when it is filed. This concludes today’s conference call. Thank you.

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