Kubient, Inc. (KBNT) CEO Paul Roberts on Q3 2021 Results - Earnings Call Transcript

Nov. 10, 2021 7:10 PM ETKubient, Inc. (KBNT)
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Kubient, Inc. (NASDAQ:KBNT) Q3 2021 Earnings Conference Call November 10, 2021 4:30 PM ET

Company Participants

Paul Roberts - Founder, Chairman & Chief Strategy Officer, Chief Executive Officer

Josh Weiss - Chief Financial Officer


Good afternoon and welcome to Kubient’s Third Quarter 2021 Conference Call. Joining us for today’s call are Kubient’s Founder, Chairman, Chief Strategy Officer, and Chief Executive Officer, Paul Roberts; and Chief Financial Officer, Josh Weiss. Following their remarks, we will open this for questions.

Before we get started, I need to alert you to our Safe Harbor statements under the Securities Litigation Reform Act of 1995. During this conference, 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, level of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Listeners should not be place 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 related 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 and 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, our quarterly report on Form 10-Q for the first quarter of 2021 filed with the SEC on May 14, 2021 and our quarterly report on Form 10-Q for the second quarter of 2021 filed with the SEC on August 16, 2021 with the understanding that our actual future results may materially differ 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.

Please note that the forward-looking statements on this call are based on information available us 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 filings, specifically its Registration Statement on Form S-1 initially filed on December 12, 2020 for a more detail description of risk factors that may affect the company's results.

During the call today, management will discuss adjusted EBITDA, a non-GAAP financial measure. 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 its 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 encourages you to consider all measures when analyzing its performance.

Now, I will turn the call over to Paul Roberts. Sir, please proceed.

Paul Roberts

Thanks, operator. And thanks to everyone who has joined us today. The third quarter marked a period of steady growth for Kubient, as we continue to move forward, full steam ahead. Our net revenues for Q3 were $677,000, which represents a 141% increase year-over-year from the same period, and a 36% increase from the prior quarter. We continue to believe we have just started to scratch the surface. Although at times, we were limited by the speed at which our partners, customers and stakeholders were able to operate.

Nevertheless, a common underlying theme we have unveiled both internally and to our shareholders is that our customers and partners continue to be very interested in our technology and our team on digging deeper into how our solutions can play a key role in their ad tech ecosystem.

In early 2020, due to the impact of COVID-19, nearly every brand hit the pause button to really evaluate their advertising strategy. Some companies completely paused all advertising spend, while some put the opportunity to take a deeper dive into the ROI of each ad dollar they spent. It is with companies that took the latter approach, but decided to explore potential opportunities with Kubient. As they recognized that we can help boost up that ROI figure for them. We've also recently benefited from some news reports outlining that Google takes a cut of 22% to 42% of U.S. ad spending that goes through its system. This figure does not include the additional fees charged by agencies, additional DSPs, SSPs, and added changes. This is

is probably more brands, both large and small to reconsider the walled garden of Google enforcing them to take a look at more agile and nimble partners that can help solve the efficiency and fraud issues plaguing the industry.

With that said, the conversations and feedback we have been receiving in and of itself is quite encouraging, as it proves that respective uses of technology through the value that we provide as it solves real problems and boost efficiency. The one variable that we don't have control over though is time. We have noticed that lead times can be lengthier than we would like them to be. But the fact of the matter is that it requires time to get large corporations to fully buy into a new process and transition away from their legacy ones, regardless of how powerful the data we show them they’d be. Despite this, our growing team remains laser-focused in controlling all variables [Technical difficulty]

What’s also been encouraging is that from a macro view of the advertising industry, we are seeing a lot of traditional areas, especially CTV and mobile advertising combined with the large COVID induced model. As a result, we're beginning to witness early signs of the pent-up demand come to fruition here in the midst of the fourth quarter.

Digital advertising is more important than ever to deliver success for businesses, and every brand in the world is looking to their advertising leaders to find value and efficiency to add to their bottom-line. We are cautiously optimistic that we will be able to ride the tailwinds of this trend and are hopeful this will prove to benefit us on our constant quest to win deals with strategic and accretive partners.

Shifting gears to our grown team. We continue to onboard new hires and expand our workforce. This past quarter, we hired a total of 6 employees and year-to-date we have onboarded a total of 20 new employees. Although we've been expanding similar to what I mentioned in the previous call, we are still seeing the effects of the macroeconomic job market trend of supply far exceeding demand. In conjunction with the limited demand and analogous to our M&A strategy, which I'll touch on later in the call, we are being very selective with the employee that we hire. They truly are the lifeblood of Kubient.

An exciting update since the last earning call is that our employees have begun returning back to the office, which has turned out to be a huge benefit as it increases the quality of collaboration between the different segments and obviously allow for face-to-face interactions. Although our employees were able to maintain consistent levels of productivity prior to re-entering to the office, the overall morale of our workplace and the cohesiveness certainly was positively affected by the return.

With that said, before I discuss further updates on our core business for the quarter, I'll be passing the mic over to Josh for an update on the financial front. Josh?

Josh Weiss

Thanks, Paul. And good afternoon, everyone. Thanks for joining our call. Now to our financial results for the third quarter ended September 30, 2021. As Paul mentioned at the start of the call, net revenues increased to approximately $677,000, compared to approximately $280,000 in the same period last year. This represents 141% increase year-over-year from the same period and a 36% increase from the prior quarter. As previously mentioned in our Q2 earnings call, revenue is not generated nor realized immediately after a customer signs up to use the Audience Cloud. After contract execution, our engineering team will typically integrate our technology into the customer’s infrastructure, followed by a testing period, which altogether ranges from a four to 10 week turnaround, depending strictly on the complexity of our partners’ technology. I am proud to share that in the third quarter, we were able to successfully integrate 15 supply side and five demand side partners into our Audience Cloud, which compares to two supply side and three demand side partners in the previous quarter.

As you can tell, we have seen these integration times reduce quarter over quarter and remain committed to maximizing the number of integrations going forward to increase efficiency and have a faster path towards revenue recognition.

Turning to our expenses. Technology expenses increased to approximately $777,000 from approximately $546,000 in the same period last year. The year-over-year increase was the result of increases in salary expense are arising from surge in technology personnel headcount, as well as increased consulting fees, cloud hosting costs and non-cash expenses of stock based compensation and amortization of software.

General and administrative expenses increased to approximately $1.5 million compared to approximately $1 million in the same period last year. The year-over-year increase was primarily due to increases in salary expense primarily arising from an increase in general and administrative headcount, as well as increased stock based compensation, insurance expense, office-related expenses and taxes.

GAAP net loss was approximately $2.3 million or $0.16 loss per share compared to a net loss of approximately $4.2 million or $1.03 loss per share in the same period last year. The year-over-year decrease in net loss was due to increased revenues and a decrease in other expenses. Adjusted EBITDA, a non-GAAP measure, decreased approximately to $1.9 million EBITDA loss compared to an adjusted EBITDA loss of $1.5 million in the same period last year.

As of September 30, 2021, the company had a cash balance of $28.7 million.

That concludes my financial summary. For a more detailed analysis, please reference our Form 10-Q, which we plan to file this week.

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?

Paul Roberts

Thanks, Josh. I'd like to start with some updates regarding our M&A activity. As previously discussed in the second quarter’s earnings call, our team is continuing to work alongside League Street Capital, diligently vetting a number of quality companies that would add accretive value proposition. At this moment, we're deeply engaged within the due diligence phase with three separate companies and have two non-binding NOIs or letter of intent of which we are confident will not only result in acquisition but will add lasting value to our growth strategy. These companies will both vertically and horizontally grow our existing ecosystem of services by adding additional direct publisher, direct advertising partnerships, as well as additional engineering, operational and business development resources. Well, I’d not go into further detail at this time, I am very confident the shareholders of Kubient will be satisfied with the set of updates we plan to provide in the near future.

Next, our sales team continues to fire on all cylinders, as we search for customers and partners that are willing to test and plug into our Audience Cloud are also trialing the capabilities of KAI . The team members were tasked with socializing the capabilities of our marketplace in KAI, continuously report facts that their prospects are handful, someone is tackling the huge issues of inefficiency and fraud that are impacting their advertising budgets.

One of the last mutually beneficial partnerships we announced was with The Verve Group, a privacy-first omni-channel ad platform, which connects advertisers and publishers to people in real time. In essence, the partnership opens up Kubient’s premium publisher inventory for advertisers working with Verve Group and enables Kubient’s advertisers the ability to access additional premium publisher inventory from Verve Group, ultimately creating more transparency and efficiency for our respective partners. This deal provides a seamless process for our advertisers to access quality inventory that's specific and relevant to the audiences they're trying to reach. And also tremendously impacts our supply side partners by expanding the number of advertisers that can bid on their inventory. The reason why The Verve Group chose Kubient for this partnership is because we both share a mission of delivering a fraud free and efficient media buying experience for our partners.

Moving on, I'd like to focus on providing an update regarding KAI. I'm pleased to share that as of September 30, 2021, we have performed a total of 14 KAI audits with prospective customers, 8 of which were conducted during the third quarter. Similar to what I mentioned at the outset of this call, the feedback we received at our KAI has been nothing but positive from customers. So we are confident in our ability to ramp up the number of audits performed going forward.

Another thing to note is that the total number of publishers plug into our Audience Cloud decreased quarter-over-quarter by 298 to a total of 3,270. This decrease in publishers is actually positive. As it was KAI’s reporting that let us remove fraudulent websites within our Audience Cloud, and again, showed the power of using prebid machine learning to identify where others struggle.

With KAI, the Kubient marketplace quality team can see in real time which websites are being used by criminals to generate fraudulent traffic, and completely remove it from the marketplace, resulting in a decrease of overall usage of the marketplace. But that was offset with the inclusion of new marketplace partners.

As you can see, KAI is truly a game changer and makes a significant impact in solving a real problem. With respect to our Audience Cloud, thanks to the capabilities of KAI, we're able to provide our partners and customers an efficient and fraud free ecosystem. As it relates to the chicken and egg scenario that we've consistently alluded to we’ve continued to see a large uptick in the fraud free and efficient audience that we're able to provide for our demand side partners. We're also optimistic that the potential acquisitions we referenced earlier in my comments provide incremental depth on both the advertiser and publisher sides of the marketplace by increasing direct publisher integrations, along with direct brand partnerships.

In addition to our sales teams conducting their efforts, we've also augmented our go-to-market strategy by attending industry specific conferences. Recently, members of our team have attended and at times presented very well-known industry events in our space, like Adweek, Programmatic I/O and Affiliate Summit. These events are an incredible opportunity to meet with industry leaders on both the brands and publisher side of the world and giving us a real opportunity and platform to further evangelize Kubient’s value proposition. We again, remain very optimistic and encouraged from the feedback we've received regarding our solutions.

In closing, the macro issues facing the world, economy has stretched their arms to the space of digital advertising. Yes, we are in the early stages of proving that the solutions we have built are sturdy, secure, and efficient. I'm confident that our go forward plan of partnering with high quality partners and customers, having aggressive M&A initiative and perpetually improving our already robust slate of solutions will propel us in a growth oriented trajectory.

Thank you, everyone, for your time today. And operator, if you'll please transition the call to the Q&A session, would be very appreciated. Thanks.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from Jack Vander Aarde from Maxim Group. Please say your question.

Unidentified Analyst

Hi, this is Albert speaking for Jack. And thanks for taking my question, and congrats on the great quarter. I want to start off with the question on The Verve partnerships? And I know you've been too long with the announcement, but I was just wondering if you guys could provide a little color on -- I guess more detail on the how is it going, whether you guys are seeing immediate contribution on revenues yet? And if not, when you might expect it to trickle in?

Paul Roberts

Sure. And obviously thanks for joining us Albert. The Verve partnership was a big win for us because this is a company that had a large footprint on both the supply and demand side of the industry. And we basically brought the concept of KAI to them early on, and they were in a position to basically connect our Audience Cloud as both a buyer and a seller. So once we signed the paperwork, it took us approximately 5 weeks to get the integration done. So the integration is completed. We are transacting with The Verve Group. And typically what happens is you start at a smaller scale. So you're only going to basically give 10% or 15% of your inventory or supply for them to bid on. As we match up the numbers and everything looks good on both sides, we're going to continue to increase that. And I would expect by mid-December, we'll be at a 100% capacity with that relationship.

Unidentified Analyst

Okay. Thank you for that information. Was very helpful. And kind of as a follow up related to that. You touched a bit on this call, but just in the process of looking at publishers, partners, and advertisers to the marketplace. Could you guys provide more detail on kind of the plan or color on the -- what you guys are doing to improve the rates?

Paul Roberts

Sure. Typically when companies are building programmatic or advertising technology, they build it with a certain way that you can integrate into their tech. We understood from being veterans in the industry, that every brand, every advertiser, every publisher, they have a preferred way of integrating with another partner. So we've created a platform that gives a tremendous amount of flexibility of how people can connect to the Audience Cloud.

So typically when a partner comes to us, we work with them to understand their preferred methodology. Our team then ensures that we can connect and do it in the most efficient way possible. And then we hand it off to our client success team who works with our technical team to complete that integration. So what we've really been focused on over the last two quarters is how do we speed up that integration? How do we get from an agreement, a signed contract to actual revenue recognition and we're not quoting any numbers, but we've been successful in adding some automation and some other process that's going to help us going forward to see that revenue come in a lot quicker than it has in the past.

Unidentified Analyst

Okay, great. Thanks. And just one last question from me. Could you talk a bit about the digital out-of-home section of the business, any updates on it? And also kind of related to the recent buzz on the metaverse, just any place or opportunities for Kubient to advertise and enter in that space?

Paul Roberts

Sure. So to answer the first part, digital out-of-home, I've actually started to travel again, some of the team that started to travel again to industry events. So we are seeing some demand enter back into the digital out-of-home side of the industry. We've always from day one, kind of looked at digital out-of-home as a feature within our platform to reach an audience regardless of where they are. So it's been beneficial for us to obviously see advertiser demand come back into that side of the space. I think it's going to continue to build up and we hope it gets to a normalized level towards Q2 or Q3 of next year, but we continue to have those discussions with our partners and try to service them and their needs in the best way possible.

Regarding the metaverse, it's obviously a very hot topic right now. We've looked into what this means for advertisers, how they engage with their audience? And from what we're seeing is advertisers want and need to be involved in the creation of these environments. The question is going to be how do we standardize and deploy advertising that's both relevant engaging, and real time for the audience?

So we've had some very good conversation with partners of ours around how are we going to basically plug in? How are we going to make sure that when users are enjoying their experience, they're seeing the right ads? And I personally am excited about it, because it's one of the newer mediums that we've heard of in the last 10 or 15 years. So again, we're involved in those conversations. Kubient will be a part of it. And I think it's going to be a matter of time before we have a more standardized integration and technology implementation into the metaverse for advertisers.


[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 kubient@gatewayir.com. I’d now like for the call over back to Mr. Roberts for his closing remarks.

Paul Roberts

Thanks. I just want to take a minute. Thank everyone for joining us again today on our Q3 2021 earnings call. I especially want to take a minute and thank our employees, our partners, our investors, and customers for their continued support. We really appreciate your interest in Kubient and look forward to updating you on our next call. Operator?


Thank you for joining us today for Kubient’s third quarter 2021 earnings conference call. You may now disconnect.

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