Mobivity Holdings Corp. (OTC:MFON) Q1 2019 Earnings Conference Call May 15, 2019 4:30 PM ET
Brett Maas - Managing Partner, Hayden IR
Dennis Becker - Chief Executive Officer
Charles Mathews - Chief Financial Officer
Conference Call Participants
Jeff Porter - Porter Capital Management
Ladies and gentlemen, greetings, and welcome to the Mobivity Holdings Corp First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this program is being recorded.
It is now my pleasure to introduce your host, Brett Maas of Hayden IR. Thank you. You may begin.
Thank you, Operator. I would like welcome everybody to Mobivity's first quarter 2019 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 events or results 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 quarterly report on Form 10-Q. 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 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. In our prior earnings call, we discussed in detail how these $140 billion marketing industry is continuing to evolve with advancement of digital consumer engagement. Digital is revolutionizing how consumers learn about and engage with brands and how companies learn about and engage with consumers. Consumer facing entities are seeking solutions to embrace a new model that dramatically improves the digital customer experience. Yesterday's marketing methods and mass channels are losing ground and brands are tasked with going digital or going extinct to competitors like Amazon.
While our target markets still have a way to go especially in adopting truly data-driven marketing and sales practices, we're seeing progress starting to accelerate. These trends are driving Mobivity's business significantly. Companies that successfully execute customer centric strategies have satisfied customers who spend more exhibit deeper loyalty to these companies and create the conditions that allow companies to grow revenue, stabilized marketing costs and improve brand value. Our customers are very excited by the impact our software is having on their business outcome.
As a result, market demand is rapidly increasing for the full suite of Mobivity solutions as evidenced by the acceleration of our recurring revenue from both new and existing customers, and the growth in our sales pipeline. Our goal is to achieve 100,000 locations under license at an annual rate of $1,500 per location per year, which means we can scale to $150 million in revenue. Therefore we track key metrics measure to our progress against this goal. And I'm pleased to say that our core key performance metric that we follow closely averaged annual revenue per location continues to increase.
We're seeing a dramatic improvement in our pricing power as evidenced by the increase in our average annual revenue per location on contracts acquired throughout the last year, which grew 41% year-over-year to $908 per location per year. This metric continues to accelerate with recent contracts now averaging $1,455 per location per year clearly illustrating the acceleration in our pricing power. In the first quarter, we added more than $10 million in annual recurring revenues to our sales pipeline, an important indicator of our future revenue growth potential. This exceptional acceleration in our sales pipeline is the direct result of our partnerships with two key CPG brands particularly Pepsi. While we had been in the planning phases for some time, including a handful of ad-hoc joint sales efforts, I'm pleased to report that we recently consummated a formal contract to allow the promotion and resale of our full suites of solutions to Pepsi customers.
As a result, Mobivity is now supported by Pepsi Foodservice marketing operations with contractual language pricing and internal logistics for the thousands of sales people calling on over 500,000 restaurant locations under the broad Pepsi Foodservice umbrella. The marketing visibility of Mobivity has increased significantly. As a result and I anticipate this to be an important catalyst in the acceleration of Mobivity sales in 2019 and beyond. Speeder execution this year is our ability to continue to grow our sales pipeline and then convert our pipeline to revenue. Given the backdrop of growing consumer demand, you're seeing rapidly increasing efforts to advance and refine digital solutions in brick-and-mortar businesses.
We continue to demonstrate increased marketing ROI as we help companies to dramatically increase the digital customer experience. This ability is a key to our sales conversion and we have lots of data and testimonials to back up our claim. Another demonstration of the value in the Mobivity platform is our ability to sign five-year licensing agreements. In the first quarter, our team did an amazing job winning our second five-year contract in the past year with one of our largest customers our digital offer management. I'll add that Mobivity competed against a multi-billion technology incumbent for this contract as well. Again showing the unique ability for small but growing companies to compete for large brand deal and win.
This now puts us on track to achieve our third straight year of double-digit growth in these customers recurring licensing fees for our services. The recurring revenue stream provides visibility to our revenue base, but also provides a significant long-term advantage as well. Software as a service or SaaS business models like our typically have high customers revenue retention for many years. And best companies have good track record of increasing the lifetime value of their customers. The longer-term power of this model is significant and we're increasingly exceeding growth and our customers' term commitment across the board.
2019 is shaping us to be an inflection point for Mobivity. Our focus for the remainder of the year is to convert a significant percentage of our sales pipeline, new recurring revenue, continue building our sales pipeline and leverage our growing list of logos through our global CPG partnership. Simply put, our model is to add more locations and increase the revenues from these locations over time. With $10 million in annual recurring revenue already accumulated in our sales pipeline in the first quarter, 2019 is off to a great start in just the first 90 days. We are focused on expanding our presence in the market, continuing to evolve our platform and leveraging the brand power we have built.
The two strategic relationships with Pepsi and Purina and the credibility that they bring to our brand provide a lot of greenfield for Mobivity. This is especially true with Purina where retailers are incentivized by their offer to subsidize the belly license. These two relationships are the most readily, convertible retailers of our near-term addressable market. We're also attracting international attention and embark on an exciting partnership with a major technology investment bank in Japan to begin market trials that the large retail brand later this summer. The achievements in this quarter show that we are on track to our ultimate goal of 100,000 locations under license at an annual rate of $1,500 per location per year or more.
I will now turn the call over to Charles for a more detailed view of our financial result. And then I will come back for little summary comment. Charles?
Thanks Dennis. While we ended the first quarter of 2019 with $283,000 in cash, we did bring in $1.5 million in Q1 through a non-convertible loan. The loan is structured is a two-year note bearing 15% interest but no amortized payment requirements. And isn't due until February 2021. We're in due diligence with lenders to expand this loan or establish a new credit facility with more favorable terms and believe that our growing recurring revenue based and lists the brand-name clients will support our ability to obtain a facility to help fund operations going forward.
Our revenue for the first quarter of 2019 was $2.4 million compared to $3.7 million in the first quarter of 2018, down 35% on a GAAP basis. On a non-GAAP basis which excludes the adjustments for ASC 606 revenues were $2.5 million for the first quarter of 2019, compared to $2 million in 2018, an increase of $500,000 or 24%. This increase is attributable to the increase in closed contracts since the first quarter of 2018. Since last year, we have seen an increase in the amount of revenue per location on contracts that we're signing. As Dennis mentioned earlier, we have seen dramatic improvements in our pricing power the past 12 months as evidenced by the increase in our average pricing per location which grew 41% year-over-year to $908 per location per year.
In addition, we are adding additional services to existing locations currently under contract which increases the average revenue per location. For example, in the first quarter, we added to an existing contract $600,00 in annual revenue without increasing the number of locations under the contract by selling additional services. Total operating expenses for the first quarter were $3 million compared to $4.3 million in the prior year quarter, an improvement of $1.3 million. On a non-GAAP basis which excludes the net adjustments for ASC 606 of $850,000 and an increase in depreciation and amortization operating expenses were down $290,000.
General administrative costs were up in Q1, 2019 compared to Q1, 2018 by $75,000 comprised of ASC 606 increases in Q1, 2018 of $93,000 and decrease of Q1, 2019 of $17,000. Sales and marketing costs were down to $623,000 year-over-year primarily due to lower personnel and related cost. Engineering, research and development costs decreased $954,000 from Q1, 2018 to Q1, 2019. On a non-GAAP basis which excludes the adjustments for ASC 606, these costs were down only $44,000 due to lower personnel and related cost.
We believe that the overall reduction in operating expenses reflect strong operating leverage that we build upon our business model. Our net loss for the first quarter of 2019 was $1.9 million or $0.04 per share, compared to a net loss in 2018 of $1.5 million or $0.04 per share.
I'll now turn the call back over to Dennis for his closing remarks. Dennis?
Thanks Charles. With our formal partnership agreement now in place with Pepsi, we believe our business is poised to accelerate significantly. As Pepsi begins to publicize their partnership, our marketplace visibility will be amplified dramatically and we expect our sales pipeline to materially expand with revenue output quickly following. Furthermore, maturing partnerships with Google, Samsung, Fiorina and others are adding additional tailwind that is sure to compound our market opportunity and create a network effect that's attracting additional partner and channel opportunity.
Our direct sales efforts are also picking up place with much of the $10 million in new sales pipeline during Q1, coming from our direct sales team even our Pepsi agreement has just recently been signed. I'm extremely excited for Mobivity future given a strong start in 2019. Spanning from expanding term commitment and spend from existing customer, we are achieving a formal agreement to partner with another world-class brands such as Pepsi. Our focus on growing to hundreds of thousands of locations and growing into a $100 million -plus business has never been sharper and I applaud the Mobivity team for the relentless pursuit of growth.
Our first question comes from the line of Jeff Porter with Porter Capital Management. You are now live.
Hi, Dennis. You mentioned Pepsi, could you expand on that a little? I'm trying to understand exactly how that relationship will work? What resources of Pepsi is going to commit and exactly what of our products are they marketing to their installed base?
Sure. So up until now we had really been collaborating with Pepsi on an ad-hoc basis. So there wasn't any formal logistics or anything in place such as pricing table, marketing content et cetera. And that's what we've been working with Pepsi on over the last six or so months to build towards and so with an agreement in place now that that we just recently consummated Pepsi is now what I'd call systemising the Mobivity suite of products across all of its operations, which spanned from independent restaurant operators all the way up to large brands.
And what that means is that now there will be a number of internal tools and other facilities set up so that Pepsi sales reps can consume marketing content, product information. They now have specific financial parameters for within in terms of pricing our product suite. And it is for the full set of products that we drive off of our research platform from belly loyalty to SMS and receive et cetera. This has been a part of a broader Pepsi digital initiative and we're hopeful that that soon there will be a publicity campaign that will reveal more of Pepsi's plan as they start to look towards partners like Mobivity to help their brand use digital tools for marketing.
But in summary again, this recent agreement is really the formality we needed to conclude so that Pepsi has all of the logistics in their operational facilities set for scale across there - there's this salesforce of thousands of sales reps that now serving these restaurant brands across the country.
And is Pepsi incentivizing their salespeople to sell our products? Are they giving them some marketing dollar to spend or is there some financial incentive like a commission bonus?
Well I can't comment on some of the arrangements and compensation structure that Pepsi might be applying with its salesforce, but I can comment on generally speaking as the beverage supplier, it's all about driving volume and that happened in two ways. Either convincing consumers to add a beverage to their order or just increasing orders in general at a restaurant brand or that's what really brought us together is that we can help Pepsi achieve their goals, while also helping the restaurant to see their goals. And it's not a leap of the imagination also assume that Pepsi sales reps incentive compensation plan, it's probably based largely on the beverage volume and the success of the restaurant clients. And that's where we're tightly aligned.
Ladies and gentlemen, we have no further questions in queue. I'd like to turn the floor back over to management for closing.
Thank you, operator. And thank you everyone for attending our call today.
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation. And have a wonderful day.