Mobivity Holdings Corp. (OTC:MFON) Q4 2018 Results Conference Call April 15, 2019 4:30 PM ET
Brett Maas - Hayden IR
Dennis Becker - Founder, Chairman and Chief Executive Officer
Charles Mathews - Chief Financial Officer
Greetings, and welcome to the Mobivity Holdings Corp Fourth Quarter and Year End 2018 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.
It is now my pleasure to introduce your host, Brett Maas of Hayden IR. Thank you, Sir. You may begin.
Thank you, Operator. I would like welcome everybody to Mobivity's fiscal year 2018 earnings call. Hosting the call today are Dennis Becker, Founder, Chairman and Chief Executive Officer, Charles Mathews, Chief Financial Officer.
Before I turn the call over to management, I'd like 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 management's best judgments based on factors currently known and that 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 recently filed annual report on the Form 10-K. These documents contain and identify important risk factors and other information that may cause our 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 this 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 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, which is also available at mobivity.com. I'd also like to remind everyone that the company adopted the new revenue recognition accounting standard otherwise referred to as ASC 606, as of January 2018 on a modified retrospective basis. This means that the results for the reporting period beginning on or after January 1, 2018, are presented under the new revenue recognition standards or prior period amounts before January 1, 2018 are not adjusted.
With all that said, I would like to turn the call over to Dennis Becker. Dennis the call is yours.
Thanks Brett. And thanks everyone for joining us on our call today. 2018 was an exciting and productive year of transformation for Mobivity. We expanded our customer base, launched key partnerships to accelerate growth and expanded our recurring revenue profile on new and existing customers. These metrics helped drive our 35% growth in revenue and exit 2018 with annualized recurring revenues more than 40% higher than full year 2017 revenues. Even more importantly, we established key new relationships, which we believe will help us accelerate growth in 2019.
We signed several new contracts with national restaurant chains and completed an extremely additive acquisition that has been a catalyst to our growth. We launched the partnership with Pepsi, which led directly to deals with new customers, including Famous Dave's and Blimpie as a part of a formal partnership plan with Mobivity that was kicked off at Pepsi's 2019 planning event last September. As a result of the Pepsi partnership, our sales cycle is accelerating as evidenced by new relationships with Pizza Unos, Frisch's, Papa Gino's and others that have been on-boarded in recent months.
Our goal is to jointly pursue marketing initiatives alongside Pepsi throughout 2019 to increase their visibility with their hundreds of thousands of restaurant partners. I would like to clarify that our Pepsi partnership includes all Mobivity products, including the Belly loyalty platform we acquired just last November. Last November when we closed the acquisition of Belly, which is a leading digital loyalty solution, featured in Forbes, Time Magazine and TechCrunch. Belly has proven to be a catalyst to our business, both with Pepsi and with a new partnership with Purina, which has been deployed to thousands of merchants and 7 million consumers.
At the end of 2018, Purina selected Belly's loyalty solution for their network of over 5,000 pet supply distributors nationwide. Purina was seeking a digital loyalty platform to help their network of distributors engage customers in a personalized and rewarding way. I'm very pleased to report that Belly is now being promoted to all Purina dealers. Additionally, Purina has agreed to subsidize the cost of Belly license on behalf of its [peer] members. These two strategic relationships with Pepsi and Purina serve as powerful hunting licenses for Mobivity across our entire product line. With the backing of trusted name brand partners like Pepsi and Purina, we walk into a new potential engagement with significantly higher credibility. In the case of Purina, customers are incentivized further as Purina is offering to subsidize the Belly license to facilitate an engagement. These two relationships have significantly expanded our near-term addressable market.
A last note on Belly. We're also in the proposal phase of up-selling Belly to one of our largest customers, and we see additional meaningful organic up-selling opportunities in our pipeline. As a result, we exited 2018 in a stronger competitive position and saw significant improvements in the key metrics we follow year-over-year, reinforcing our confidence in our ability to sustain rapid growth. Total locations served at the end of 2018 increased by 17% to over 36,000. Total value of contracts booked increased 49% to $29 million from $19.5 million and annualized recurring revenue climbed to $12.2 million. Our goal to achieve 100,000 locations under license at an annual rate of $1,500 per location per year means we can scale to a $150 million in revenue. Therefore, we're tracking key metrics to measure our progress against this goal. And I'm pleased to say that our core key performance metric that we follow closely average annual revenue per location showed significant improvement this year.
We saw a dramatic improvement in our pricing power in 2018 as evidenced by the increase in our average annual revenue per location on contracts acquired throughout the year, which grew 41% year-over-year to more than $900 per location per year. This metric continues to accelerate with recent contracts now averaging more than $1,400 per location per year, clearly illustrating the acceleration in our pricing power. In 2018, we made a strategic decision to increase contract length to build what we believe is a very important competitive advantage of having customers committed for longer term. We exited 2018 with average contract terms of 2.5 years with some contracts reaching five-year terms, which we believe is an exceptional long-term commitment not commonly achieved in recurring revenue based business model.
I'll note that we did offer some pricing concessions in exchange for longer term commitment, which curbed some top line revenue output for the year, but we felt the strategic value was well worth it. With customers committing to longer terms, we can now land and expand by up-selling new features to recover the discounted licensing fees and grow the revenue profile of our customers throughout the long term commitment. I'm pleased to share today that as a result of additional new features released in 2018, the Belly loyalty acquisition and the accelerating pricing power we are experiencing that the value of these contracts is increasing as reflected in the growing average annual revenue per location highlighted earlier in the call.
I'd now like to highlight some impressive results that our customers have publicized. As a result of a 10 times ROI at the U.S. locations, Subway expanded their licensing platform to thousands of international locations. Carissa Ganelli, Subway's Chief Digital Officer, stated that this is an exciting opportunity for us to expand on the data that we use to inform our marketing campaign. Over the last few years, our U.S. guests have loved receiving personalized offers based on what they purchase, with each redemption enabling us to give our guests more of what they want.
Kahala Brand, one of the fastest growing franchising companies in the world with a portfolio of nearly 30 fast casual and quick-serve restaurant brand with approximately 3,300 locations in 30 countries, reported an 11% increase in average consumer spend for their Blimpie brand with Mobivity's platform. Papa Gino's and D'Angelo Grilled Sandwiches, the official pizza of the New England Patriots, reported increased guest frequency and 14 times higher performance rate for Mobivity powered marketing campaign over legacy channel.
Looking ahead to 2019, Mobivity is well positioned to ride the growing wave of marketing spend shifting to a data-driven, personalized, one-to-one engagement between brands and consumers. According to Gartner's 2018-CEO and senior business executive survey, Chief Marketing Officers plan on increasing their spends for technology rich AI capable digital marketing at the expense of their legacy marketing platforms, such as print and television. The shift in marketing spends priority supports the key objectives we plan to work towards in 2019, continuing the international expansion of locations with our largest customer, rolling out the platform to new customers coming in through our new channel partnerships and leveraging the Belly acquisition into our customer base.
Mobivity's services are currently deployed in almost 40,000 restaurants, a small percentage of the total base of U.S. restaurants. And we feel in that segment alone, we have a lot of Greenfield. We expect to land additional large partnerships like Pepsi and Purina by leveraging our reputation for serving world class brand and delivering measurable ROI for the marketing spend. We are in the proposal phase of up-selling Belly to one of our largest customers and have additional organic opportunities with other brands in our pipeline.
The Gartner's survey I referenced earlier also revealed that personalization has emerged as a strategically important marketing capability as evidenced by the McDonald's recent acquisition of the startup Dynamic Yield for approximately $300 million. The Gartner's study goes on to explain the personalization requires a deep well of customer data with thousands of locations, including international deployment, bringing millions of consumers into our database and billions our point of sale transactions collected, we are well positioned to play an integral part of marketing data driven future. I look forward to an exciting year as we work to expand our presence in the market, continue to evolve our platform and leverage the brand power we've built.
I will now turn the call over to Charles for a more detailed view of our financial results. And then I will come back for a few summary comments. Charles?
Thanks Dennis. Since our financial results were overviewed in the press release that we issued earlier today and further detailed in our annual report on Form 10-K also released today, I'm going to focus on a few key financial points from our 2018 results during this call.
I would like to start with addressing our cash situation. While we ended 2018 with $554,000 in cash, we have recently brought in $1.5 million over the past few months through non-convertible loan. The loan is structured as a two year note bearing 15% with no amortized payment requirements, and this is due until February 2021. We're actively seeking a new credit facility with more favorable terms and believe that our growing recurring revenue base and list of name brand clients will support our ability to obtain such a facility that will fund our operations going forward. I'd also like to point out that our acquisition of Belly in mid-November added just over $1 million in cash flows as well.
Recurring revenue growth also accelerated throughout the year. Our revenue for the second half of 2018, excluding ASC 606 adjustments, was $5.2 million compared to $3.6 million in the first half of 2018, reflecting an improvement of $1.6 million or 45%. As our revenue run rate increase toward the end of 2018, I'd like to highlight the fact that our operating expenses on a cash basis actually declined. Total operating expenses for the fourth quarter, excluding the non-cash impairment charges, were $2.5 million compared to $3 million in the prior year quarter, an improvement of $500,000. We believe the reduction in operating expenses of more than 15% while revenue run rate grew over 40%, reflects strong operating leverage in our business model.
Finally, I'd like to point out that while our net loss for the full year of 2018 was $7.1 million or $0.17 per share, our adjusted net loss excluding non-cash one-time adjustments was just $4.5 million or $0.11 per share. The bulk of non-cash expenses for 2018 related to $2.3 million impairment charge primarily related to the carrying value of goodwill from previous acquisition.
I will now turn the call back over Dennis for his closing remarks. Dennis?
Thanks, Charles. We have just witnessed McDonald's whose last sizable deal was its acquisition of chicken restaurant chain Boston Market for $173.5 million in 1999 acquired technology start-up. Yum! Brands invested $200 million into Grubhub and Pizza Hut made one of its largest acquisitions ever of an online ordering technology company. It appears that technology arms raised in brick-and-mortar is brewing.
While 2018 was a record year for Mobivity, I will reiterate our view that we're still at the beginning stage of this massive shift in how brands market to consumers. We believe our leadership position highlighted by serving world class brands such as Google, Pepsi, Subway and others, uniquely positions Mobivity to capture a meaningful portion of the billions of dollars that will move away from legacy marketing tactics and intrusive third-party online channels to new solutions that focus on building personalized one-to-one relationships with consumers. I want to commend the entire Mobivity team for their hard work, and I am extremely excited about what 2019 holds for Mobivity, its customers and its shareholders. Thank you.
Thank you [Operator Instructions]. It appears we have no additional questions at this time. And this does conclude today's teleconference. Ladies and gentlemen, we thank you for your participation and you may disconnect your lines at this time.