Mobivity Holding Corp (OTC:MFON) Q3 2016 Earnings Conference Call November 15, 2016 4:30 PM ET
Chris Meinerz - Chief Financial Officer
Dennis Becker - Founder and CEO
Greetings and welcome to the Mobivity Holdings Corp Third Quarter Fiscal 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Chris Meinerz, Chief Financial Officer. Thanks Chris, please go ahead.
Thank you and welcome to Mobivity's Q3 2016 financial results conference call. We appreciate your interest in our company. In order to be more efficient with your time, we will be reading Mobivity Safe Harbor statement following the Q&A session at the end of the call.
On the call today is Mobivity's Founder and CEO, Dennis Becker and myself Chris Meinerz, CFO.
It is now my pleasure to introduce Dennis Becker, our Founder and CEO.
Thanks, Chris, and thanks everyone for joining us on our call today. This has been a very busy quarter including continued customer growth, new deployments with a number of exciting brands, a new product release and a newly published patent.
With that I'm pleased to report that we achieved another record quarter where revenues increased nearly 70% year-over-year. For the third quarter of 2016 Mobivity generated $2.2 million in revenue and gross profit of approximately $1.6 million. We are also pleased to report at year-to-date net cash used in operating activities decreased 40% and our non-GAAP adjusted net loss decreased more than 20% from the same period a year ago.
Before we go over the details of our financial results, I would like to update everyone on some of achievement and milestones over the last quarter of record growth. To reiterate our company's purpose we're obsessed with cracking the code on achieving the same shopping card visibility to offline brick and mortar marketers, traditionally only afforded to e-commerce brands such as Amazon to bring personalized targeted marketing to the other 93% at commerce carried out in the U.S that isn’t conducted online.
In order to achieve our vision, we're focused on unlocking valuable purchase data from merchants point of sale systems and using that information to create targeted marketing programs through digital, mobile and print advertising. For example, online merchants like Amazon can track a consumer from the minute they visit their website all the way through purchase. As well as store that information to personalize the consumers' experience when they come back.
Online merchants have learned that this personalization process leads to higher sales. Conversely, offline merchants spanning several industries such as restaurants and retailers can't easily track consumer's purchases in order to personalize their consumer's experience. This is where Mobivity comes in. And since pivoting to focus on this opportunity in mid 2014, we believe we are capitalizing on an inflection point on how brick and mortar businesses market and sell their products and services.
We launched our first product SmartSMS that combines our unique combination of point of sale data and SMS text messaging in mid 2015. A successful market test with Subway during 2015 led to their launch of our SmartSMS product across the United States to more than 27,000 locations where in just the past 11 months a growing base of millions of consumers of being marketed through our technology on a regular basis. We have also expanded our SmartReceipt program with Subway beyond the United States and Canada to our first international trial in Australia. Keep in mind, that in addition to 27,000 U.S. stores, Subway operates more than 16,000 additional locations abroad. So we are very excited to begin international deployments.
In our last call, I also mentioned that Baskin-Robins was launching our SmartSMS product in addition to their licensing of our SmartReceipt solution since back in 2015. I'm pleased to report that we are now fully deployed in all U.S. based Baskin-Robins locations including all Baskin-Robins and Dunkin' Donuts co-branded locations. This represents approximately 1,500 additional locations to our previous deployment of SmartReceipt which was around 1,000 Baskin-Robins standalone locations.
It's important to note that, in addition to the approximately 2,500 U.S. locations where our SmartSMS and SmartReceipt solutions are now deployed. Baskin-Robins operates upwards to 5,000 additional locations outside of the U.S. To build upon the great success of our SmartSMS product, we are excited to add Facebook's Messenger channel to this product, to launch the next version of our SmartSMS solution called Smart Messenger.
Smart Messenger gets Mobivity clients the ability to communicate directly with customers via SMS or the Facebook Messenger App. Facebook is the leading global social platform with over 1.4 billion active users worldwide. People are logging in daily to see what's new with their friends and engage with their favorite brands. This creates unique opportunities for brand to easily reach domestic and international audiences and learn valuable data about their optimum followers. In the U.S. alone, there are over 185 million active Facebook users and more than 87 million of those users, use the Facebook Messenger app on their mobile phone. Leading brands or leveraging this channel and the trove of data it provides to create more personal and relevant one-to-one messages to their followers.
Several key performance indicators continue to reflect the growing usage of our products. We see growth in all areas including a number of messages delivered to consumers on printed receipts, a number of mobile messages processed between consumers and our national brand customers, as well as total consumers subscribed to our customers mobile marketing programs.
We are proud to report continued growth in all these categories. Over 83 million SmartReceipt powered receipts were printed in September of 2016, which is an increase of more than 105% over September of 2015. And over 44 million SMS text messages were processed by our platform in September 2016, which is an increase of more than 223% over September of 2015.
Finally 6.8 million total mobile subscribers were on our platform as of September 2016, which is an increase of more than 157% over September of 2015. We are also pleased to report that we were recently awarded a key patent relating to our SmartReceipt offering. SmartReceipt works by delivering targeted offers based on real time customer transactions. Our unique technology leverages the printed receipt to gather data, provide tailor messages, drive higher average ticket and increase visit frequency.
This patent, our seventh, invents a system to generate value added messages on receipts printed by point-of-sale systems based on various rules determined by information conveyed on the purchase receipt such as location, time of day or other purchase data. The patent application claims priority to a patent application filed back in 2006. We believe there is infringement taking price in the market place and we are currently examining opportunities to monetize this key piece of IT.
Referring back to our last earnings call I pointed out that every printed receipt produced by our product along with every mobile message, carries the Mobivity brand. We believe that has a tonne of marketing value in building awareness of our products and services. In September alone we produced more than 127 million impressions through mobile messages and printed receipts via SmartReceipt and SmartSMS, all with Mobivity branding. Combine this visibility with the expansion of our sales team and our pipeline of new customer opportunities is growing nicely.
I'm pleased to report that during the past few months we have achieved trial projects with several new brands including, a national casual dining brand ranking the top five consumer picks by Nation's Restaurant News. This brand has hundreds of locations producing more than $2 billion in annual sales. It's important to note that casual dining brands output more revenue per unit than quick serve restaurants, which have historically been the bulk of our customers. And thus can command higher licensing fees given the greater complexity and breadth of our products, versus a quick serve restaurant operation.
We also launched a trial with the personal care brand with more than 1000 locations nationwide. In addition to that we recently launched a trial with a national fast casual brand with more than 300 locations operating in 37 states and eight countries. We have also begun work with a privately held American retail company that sells kitchenware products in over 100 stores in 30 states across the country. And finally we are also beginning to launch a trial with one of the top three pizza chains in the U.S. I'd like to highlight the fact that all of our new trial partnerships reflect an expansion beyond the traction we achieved in the quick serve restaurant vertical throughout 2016. We believe this is a supporting indicator that our products have good prospects to expand horizontally across several industries and create an opportunity for larger scale.
Finally, I'd like to review our recent non-diluted financing achieved by way of converting 3.3 million warrants exercised to purchase approximately 3.3 million shares of our common stock, resulting in raising additional capital of over $2.3 million. We undertook this limited time more exercise price reduction in order to raise additional capital without entering further potential dilution to our stockholders. In addition to reward all their acceptance to this software we have significantly reduced a number of outstanding warrants and thereby simplified our capital structure. It's important to note that these warrants were previously convertible on a cashless basis, at $1.20 per share and were instead converted for cash at $0.70 per share which was near our average trading price at the time of conversion.
Also keep in mind that we're serving very large brands that could scrutinize our balance sheet in contemplating licensing agreements with us and this financing transaction was very useful in strengthening our balance sheet for the purpose of giving confidence to prospective customers of our financial viability.
I will now turn the call over to Chris for a more detailed review of our financial results and then I will come back for a few summary comments. Chris?
Thanks, Dennis. For the company's third financial quarter ended September 30, 2016, Mobivity recorded record revenues of $2.2 million, and nearly 70% increase over the prior year quarter and more than 5% sequential growth over Q2 2016. This improvement is attributed to significant continuing growth in our SMS and SmartReceipt revenues contracted with large enterprise customers.
Revenues for the nine months ended September 30, 2016 were $6.1 million, an increase of $2.8 million or 83%, compared to the same period in 2015. Gross margin was 72% in Q3 2016, as compared to 78% for Q3 2015. Gross margin for the nine months ended September 30, 2016 was 73%, compared to 75% for the same period in 2015. The decrease in gross margin for the third quarter is principally due to higher cloud-based software licensing fees, short code maintenance expenses, personnel-related costs and other expenses as they relate to the increase in revenues.
General and administrative expenses increased slightly by $71,000 or 7% during Q3 2016, compared to the same period in 2015. General and administrative expenses decreased $150,000 or 5% during the nine months ended September 30, 2016, compared to the same period in 2015. The year-over-year decrease in general and administrative expenses was primarily due to decreased personnel and facilities expenses.
Sales and marketing expenses increased $330,000 or 33% during Q3 2016, compared to the same period in 2015. During the nine months ended September 30, 2016, sales and marketing expenses increased $771,000 or 27%, compared to the same period in 2015. The increase was primarily due to higher personnel costs as a result of hiring and staffing to support growth, as well as the LiveLenz acquisition.
Q3 2016 engineering, research and development expenses increased $177,000, compared to Q3 2015. Year-to-date engineering research and development costs increased $489,000 or 84% through September 30, 2016, compared to the same period in 2015. The increase was primarily a result of hiring and staffing to support growth to serve our large enterprise customers.
Non-GAAP adjusted net loss, a non-GAAP metric, which generally excludes non-cash expenses such as stock-based compensation and depreciation and amortization, was $901,000 for Q3 2016, compared to $867,000 in Q3 2015. The year-to-date non-GAAP adjusted net loss was $2.1 million, compared to $2.6 million for the same period in 2015, representing an improvement of 20%.
Net cash used in operating activities decreased to $1.8 million through September 30, 2016, a 40% decrease as compared to $3.1 million during the same period in 2015. Cash and cash equivalents totaled $1.3 million as of September 30, 2016.
As Dennis mentioned earlier we completed our recent non-dilutive financing by way of converting more than 3.3 million warrants exercised, purchased the same number of shares of our common stock resulting in raising additional capital of more than $2.3 million. Prior to the non-dilutive financing we had approximately 8.4 million warrants outstanding. Post transaction we have approximately 5.1 million warrants remaining and approximately 36.4 million shares outstanding post issuance of shares as of today. The remaining warrants have prices ranging from $1 to a $1.20 per unit and expire at various dates beginning in 2018 through 2020.
I would now like to turn the call back over to Dennis for his closing remarks.
Thanks Chris. In review, this most recent quarter marks several key growth milestones that are predominantly a result of what we believe market inflection point to our business beginning just a short year ago. The tailwinds created by our higher visible national rollout with Subway in December 2015, and our recent expansion with Baskin-Robbins have greatly enhanced the awareness of our technology, not only to the restaurants base but to other large verticals such as personal care and retail.
Furthermore, we are now starting to see global opportunities develop as we began launching services for Subway in Australia. We've also expanded our product offering with the introduction of Facebook Messenger capabilities that will attract opportunities from new customers as well as create up sell opportunities go grow existing ones. All of this progress means that we are now selling a broader product across several vertical markets and with global reach. And keep in mind, that we have accomplished all of this in 2016 with 40% less cash used in operating activities in the same nine month period in 2015.
Looking ahead, our goal is to move faster. Accelerating growth will require sharp focus on successfully executing on our current trials with new customers. And many of these customer prospects represent seven figures of annually recurring revenue opportunity to our top line. That said, we still continue to see good growth from existing customers as well and we are confident that we will continue to drive a healthy mix of improving cash flows as well as top line expansion into 2017. We appreciate your continued interest and look forward to sharing our ongoing progress with you.
Operator, you can now open up for questions.
Thank you. I’d like to thank you all for your time on today’s call and your interest in Mobivity. Before we close, I’d like to read our Safe Harbor statement.
On this call management personnel’s prepared remarks contained forward-looking statements which are subject to risks and uncertainties and management made additional forward-looking statements during the Q&A session. Therefore, the company claims protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those contemplated by our forward-looking statements as a result of certain factors and not limited to general economic and business conditions, competitive factors, changes in business strategy or development of our plans, the ability to attract and retain qualified personnel and changes in the legal and regulatory requirements.
In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 15, 2016. Mobivity assumes no obligation to update these projections in the future as market conditions change. The company has filed its 10-Q with the SEC on November 14, 2016, and also issued a press release on the same day announcing financial results for Q3 2016. Participants on the call, who may not have already done so, may wish to look at these documents as they provide a summary of the results discussed on this call.
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 this week's press release which is also available at mobivity.com.
This concludes Mobivity’s Q3 2016 financial results conference call. Thank you.
Thank you, again ladies and gentlemen. You may disconnect your lines at this time. Enjoy the rest of your day.
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