Kubient, Inc. (NASDAQ:KBNT) Q2 2021 Earnings Conference Call August 16, 2021 4:30 PM ET
Paul Roberts - Founder, Chairman & Chief Strategy Officer, Interim Chief Executive Officer
Josh Weiss - Chief Financial Officer
Conference Call Participants
Jack Vander - Maxim Group
Good afternoon and welcome to Kubient’s Second Quarter 2021 Earnings Conference Call. Joining us for today’s call are Kubient’s Founder, Chairman, Chief Strategy Officer, and Interim Chief Executive Officer, Paul Roberts; and Chief Financial Officer, Josh Weiss. Following their remarks, we will open the call for your questions. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. [Operator Instructions].
Before we get started, I need to alert you of our Safe Harbor statements under the Securities Litigation Reform Act of 1995. During this call, we will be making forward-looking statements, including statements related to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, level of activities, performance, or achievements expressed or implied by these forward-looking statements.
Listeners should not be placed undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance, or achievements. Any forward-looking statement reflect our current views with respect to future events and is subject to these other risks, uncertainties and assumptions relating to our operation, results of operations, growth strategy, and liquidity.
These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. Furthermore, listeners are referred to the documents filed by Kubient, Inc. with the SEC, including our annual report on Form 10-K filed with the SEC on March 30, 2021 and our quarterly report on Form 10-Q for the first quarter of 2021 filed with the SEC on May 14, 2021 with the understanding that our actual future results may be materially different from what we expect, which include these and certain other important risk factors.
We qualify all of our forward-looking statements by these cautionary statements. Also note that the forward-looking statements on this call are based on information available as of today’s date, except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Please refer to Kubient’s SEC filing, specifically its registration statement on Form S-1 initially filed on December 12, 2020, for more detail description of risks factor that may affect the company's results.
During the call today, management will discuss adjusted EBITDA and non-GAAP financial measures. In the company's press release and filings with the SEC, both of which are posted on the company's website, you will find additional disclosures regarding this non GAAP measure, including a reconciliation of this measure with this comparable GAAP measure. Non GAAP financial measures are not intended to be considered in isolation from or a substitute for or superior to GAAP results. The company encourage you to consider all measures when analyzing its performance.
Now, I would like to turn the call over to Paul Roberts. Sir, please go ahead.
As we celebrate our fast approaching one-year anniversary as a publicly traded company, we have been encouraged by the progress we've been witnessing across all fronts of the business.
Though there were certain challenges and headwinds that came our way, our team has consistently demonstrated resilience and the ability to adapt despite the obstacle that was thrown our way.
To begin, we've experienced literal growth at Kubient with respect to our workforce. We have hired a total of eight employees within the second quarter and are now at a total of 32, which is an approximate increase of 40% year-over-year and gets us closer to our year-end goal of 40% to 50%.
However, one thing I would like to share and be transparent about, is the difficulty we've experienced in onboarding high-caliber individuals to the team. We believe we are very fortunate to have been able to onboard some incredible talent already this year, but as I'm sure most of you are already aware we're currently in one of the most booming economies from a job market standpoint.
A recent Wall Street Journal Article stated that there was a record 9.2 million job openings across the country this summer due to the businesses opening back up after lockdown mandates were lifted. As a result of supply far exceeding demand, we've reluctantly found ourselves having an arduous time finding top talent.
Our team is still looking to ramp up the number of folks in sales division in addition to engineers on the back end. But due to the current situation with the job with the U.S. economy, it will take more time than expected to find the right people for the job.
Despite being a macro headwind that is out of our control, we were still able to hire Mike Gavigan and Mark St. Amour as vice presidents of Performance Media, in addition to other senior leaders on our team that we mentioned on the last earnings call.
Furthermore, we're also fortunate enough to appoint industry veterans, Jon Bond and Larry Harris to our Board of Directors at our recent Annual Shareholders Meeting in late June. Both gentlemen bring a wealth of knowledge and experience as executives with deep ad-tech backgrounds and I look forward to the impact they'll be making for Kubient.
An exciting piece of news I'd also like to share is that our company will officially be going back into the office starting September 15th barring any massive breakouts of the delta variant.
Although our employees have been able to maintain productivity levels working remote, we're certain that moving back into the office will only help. As we'll all have the opportunity to work next to each other at close proximity without our dogs furiously barking in the background during zoom calls.
Before I dive any deeper into updates for the quarter, I'd like to pass the baton over to Josh for an update on the financial front. Josh?
Thanks, Paul, and good afternoon everyone. Thanks for joining our call. Now, to our Financial results for the second quarter ended June 30, 2021. Net revenues increased to approximately $498,000 compared to approximately $92,000 in the same period last year.
The year-over-year increase in net revenue is primarily due to the increase in revenue from one new customer during the three months ended June 30, 2021. Something I wanted to emphasize was the timing of our contract execution to revenue recognition to provide you all with a better understanding of our lead time.
A common misconception within our industry is the fact that a signed contract directly correlates to revenue the following day, when in reality that is not the case. Just because the customer has signed up to use our Audience Cloud, it doesn't mean that revenue is immediately generated and recognized.
After contract execution, our engineering team will typically integrate our technology into the customer's infrastructure followed by a thorough testing process all of which can take between four to ten weeks depending on the complexity of our partner's technology.
Nevertheless, we are committed to lowering this number going forward to increase efficiency and have a faster path towards revenue recognition. Turning to our expenses. Technology expenses increased to approximately $620,000 from approximately $497,000 in the same period last year.
The year-over-year increase was a result of increases in salary expense of approximately $80,000 arising from an increase in technology, personnel, head count, consulting expenses of approximately $22,000 and cloud hosting costs of approximately $37,000.
Generally and administrative expenses increased to approximately $1.1 million compared to approximately $602,000 in the same period last year. The year-over-year increase in general and administrative expenses was primarily due to increases in salary expense of approximately $154,000 arising from an increase in general and administrative head count approximately $259,000 in professional fees and approximately $118,000 of insurance expenses.
GAAP net loss was $1.7 million or a $0.12 loss per share compared to a net loss of $1.5 million or $0.42 loss per share in the same year ago period. The year-over-year increase in net loss was primarily due to increases in operating expenses as enumerated above.
Adjusted EBITDA, a non-GAAP measure decreased to approximately $1.6 million EBITDA loss compared to an adjusted EBITDA loss of $957,000 in the same period last year. As of June 30, 2021, the company had a cash balance of $30.5 million. That concludes my financial summary. For a more detailed analysis please reference our Form 10-Q which we plan to file today.
I will now turn the call back over to Paul, who will discuss some of our major operational updates and provide a general outlook of our business. Paul?
Thanks, Josh. To kick things back off, I'd like to provide some encouraging updates in regards to our M&A efforts. As I've previously alluded in our prior earnings calls, we have been quite busy with our M&A strategy and have entertained a copious amount of conversations year to-date with several highly reputable ad-tech companies.
As a reminder, we deployed a very disciplined approach to narrow down a large pool of potential targets. Thanks to the help of League Street Capital Markets. Our goal was to find a target that could offer us direct publisher partnerships at scale along with direct advertising partners.
This type of target would be incredibly accretive to our current model and would potentially help us increase across our current supply and demand partners while also getting further adoption of KAI within the industry.
After a diligent vetting process, I'm proud to share that we've executed a non-binding LOI or Letter of Intent with a company that we believe fits, the stringent criteria we laid out at the start of this process.
Although, I am quite limited in the details I'm able to share at this point. I'd like to provide a brief overview of why this potential acquisition would be accretive to Kubient. This company has created an ad unit that provides their publisher partners with premium content to monetize their traffic which equals billions of impressions per month.
The benefit to Kubient is that we would one, gain access to all of the publishers that use their technology. Two, gain access to the brands, agencies and DSPs that use their technology to buy the media. And three, capture all of the data that flows in between those partners, which ultimately helps KAI get smarter and smarter.
Additionally, they are equipped with a seasoned management team that has deep ad-tech experience and will help us scale Kubient even faster. As always, when there are further updates to share we will do so via the appropriate Reg FD channels.
Next, our sales team has continued to gain encouraging traction from customers and partners to test and plug into our Audience Cloud. One partnership that I'd like to share is the full integration we recently completed with Bidswitch,
Bidswitch is an ad-tech platform that's used by over 200 DSPs to connect to direct publishers. I'm pleased to share this news of this integration, because we will now benefit from the over 200 DSPs in their media buying power across our direct publisher partnerships.
I'm also pleased to share that over the last quarter we've brought on additional new partners including Viant, Unruly and Citizens Disability. Furthermore, we've engaged with brands such as Allstate and Unilever through their ad agencies.
These new partners are very important to Kubient, not only because of their brand equity, but because it continues to show us that the marketplace believes in an efficient transparent and fraud free media buying process.
Additionally, we were asked to be a sponsor for the Digiday Gaming Advertising Forum. What is special about this? Is that it's one of the first industry conferences Kubient has been asked to sponsor.
Furthermore, it presents as a business development event as we have the opportunity to share information about our Audience Cloud and KAI to all of the media buyers that will be attending, which range from large brands such as PepsiCo, Anheuser-Busch, Activision Blizzard Media and more.
I'd like to shift gears and provide some updates regarding KAI. As you may recall on the last quarterly earnings call we publicly started to share the number of KAI audits for the number of customers that are testing KAI within their own platform.
I'm pleased to share that during the quarter we had an additional 13 companies that requested KAI audits performed. Although we're quite encouraged by the amount of interested companies, we're quite limited to the number of audits we can perform due to the limited employee bandwidth.
In my earlier remark about the current difficulty we're facing from a hire perspective, the market for experienced data science and data engineering technicians has tightened significantly. Nonetheless, we're still looking to add additional resources to the team before the end of the year to support the growing demand for KAI.
To put things into perspective one KAI audit does not happen overnight or even within a couple of days. But instead, it takes a total of approximately 20 to 30 business days to successfully perform.
It is an extensive process that requires us to accurately process hundreds of millions of roads of our partner's data, analyze it and send it back in a clean easily digestible report, which is much easier said than done. At this time, we have performed a total of four audits with 12 requests in the backlog, and that number continues to grow by the week.
More importantly, we have seen two audits out of the four performed convert into executed KAI contracts with an additional two currently in the contract negotiation phase, which of course, is our end goal with these audits.
Additionally, I'd like to share some updates regarding our overall sales efforts. Our two new VP of Performance Media executives have already begun to integrate all of their prior clients into the Kubient audience marketplace.
Through these clients, we were able to create an indirect sales strategy where we were able to tap into Advisio's customer base and execute contracts with them, which are now starting to generate revenue.
This indirect sales channel strategy will introduce KAI, to brands and publishers that have trusted their media and traffic recommendations for the last decade. As it relates to the Audience Cloud, we continue to see a greater concentration on the publisher side than we do on the advertising or the buy side within the chicken and egg scenario we've previously alluded to.
Our intention is to certainly build up a robust base of advertisers, but we'll need to continue to attract and hire additional sales folks internally to give us a greater chance of balancing the equation out.
We are also optimistic that the potential acquisition we refer to earlier my comments will add an incremental depth on both the advertiser and publisher sides of the marketplace. In closing, despite certain macro issues such as hiring being a minor hindrance.
We're confident that our forward-looking strategies of onboarding the right people, partnering with high quality partners and customers, an active M&A initiative and a compelling slate of industry-leading products will prime us for growth.
I am excited about how far we've come the past year as a publicly traded company. But this is just the beginning in our transition of transforming Kubient from a startup to an industry-leading ad-tech marketplace.
That concludes my prepared remarks. Thank you all for the time this afternoon. We look forward to updating you on our progress going forward. We're now ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you. [Operator Instructions] our first question comes from the line of Jack Vander with Maxim Group. Please proceed with your questions.
Great. Hey, guys. Appreciate the update. Thanks for taking my questions. So Paul, last quarter you had these 14 KAI customer audits and this quarter you added another 13. It sounds like the only bottleneck to the process is really your stretch kind of thin internally right now to keep up with the demand. Would you say that's fair? Are you getting -- can you just describe the level of demand you're getting from customers or potential KAI customers? And then relative to how you're determining, which customers to serve?
Sure. Thanks for the question, Jack. I think you kind of hit the nail on the head. If last year you told us that we would be having such a challenge to find the additional team we need to meet the demand that we're getting for KAI, I would have found that hard to believe. So right now the biggest challenge we have is really the job market. It's getting harder and harder to find the top level talent that we've been accustomed to attracting and hiring. So we've actually put a lot more effort into identifying and bringing on the right people to meet the demand that we've gotten from KAI. And I can tell you that over the last two quarters we're incredibly optimistic from the feedback that we've gotten. When we actually perform an audit and we show a brand, we show a partner, here's the fraud. Here's where you're buying fraud and here's the fraud we're going to stop for you. The response is incredible. It just -- it's very, very encouraging for us. We just need to put a lot more effort into the hiring. We recently brought on Kim Kahn who is a integral part of building up DoubleVerify. So she's actually been able to source some great candidates and we've already added a few new candidates and new employees this quarter already.
That's great. And Paul, appreciate the color there. And then, just looking at your cash balance, you have quite a bit of cash, dry powder. You mentioned this potential acquisition which you can't get into too much of the weeds with. But just in terms of like how you're thinking about hiring plans, this acquisition that's pending or that you send an LOI for. Can you just talk about how much -- I don't know, how much of this capital -- how much capital do you have relative to your needs in terms of immediate hires and also along with this acquisition?
Sure. It's a great question. And obviously, we pointed out earlier we still have about $30 plus million in the bank to deploy. We've had a very, very disciplined approach with Lake Street Capital Markets of the type of opportunity that's going to best benefit Kubient. And obviously building KAI in the audience marketplace, we're believers that everybody wants to prevent that fraud. So the next natural step for us was how do we go out and scale both sides of the marketplace? How do we go out and get tens of thousands of publishers? Hundreds of advertisers who can immediately connect and really start to light up this marketplace. Because we've spent a lot of time and resources getting direct publishers. We have a lot of direct publishers. How do we increase that? So out of all of the opportunities we looked at, this company really stood out to us, both from a technology standpoint, a relationship and partnership standpoint, as well as their team.
A very big thing is the culture of an organization and how to integrate it in a very seamless manner. And they bring an incredible potential team to the table from a technology and a industry leadership standpoint. So hopefully that gives you a little more color of why we're so excited. It's really going to help us build up both the buy and the sell side of our marketplace, while KAI can get greater adoption from all of those partnerships.
Got it. Okay. I appreciate the color there. And then maybe just one more follow-up from me. Separate topic. The digital out-of-home space that opportunity, now the world's kind of opening back up and knock on wood here with COVID. You had this plan for digital out-of-home and it seems like a good opportunity. I'm just wondering if you're seeing that come back to the forefront at all on what you're kind of doing and how you're prioritizing that?
It's been a slow return. We are starting to see some budgets from being talked about and digital out-of-home and some bigger brands start to dip their toes in the water again. Obviously, the delta variant does have some brands concerned about whether or not we're going to be back to some sort of a lockdown in the near future. But what we're seeing which actually plays to our benefits is, as brands start to reevaluate their digital out-of-home strategy, they're using a holistic approach of audience. How do we reach them, not only in digital out-of-home, but across their laptop, across their cell phone which is really what Kubient was built to deliver with this audience cloud. We always felt that brands should be able to reach an audience of one at scale regardless of where they are in their digital journey. So, obviously, having those connections with the digital out-of-home partners, also continuing to build up our partnerships on the traditional channels like mobile and desktop. I think is really going to suit where the market is headed in the near future.
Okay. Fantastic. Well, I appreciate the time. I'm going to hop back in the queue. Thank you.
Awesome. Thanks Jack.
[Operator Instructions] At this time, this concludes the company's question and answer session. If your question was not taken, you may contact Kubient's investor relations team at email@example.com. I'd now like to turn the call back over to Mr. Roberts for his closing remarks.
Thanks operator. I just want to thank everyone for joining us today on our Q1, 2021 earnings call. I especially want to thank our employees, partners, investors and customers for their support. We obviously appreciate your continued interest in Kubient and look forward to updating you on our next call. Operator?
Thank you for joining us today for Kubient's second quarter 2021 earnings conference call. You may now disconnect.