Chris Meinerz - CFO Dennis Becker - Founder and CEO

Brian Kinstlinger - Maxim Group

Thank you and welcome to Mobivity's second quarter fiscal 2017 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's Safe Harbor statement following the Q&A session at the end of the call. On the call today is Mobivity's Founder, Chairman and CEO, Dennis Becker and myself Chris Meinerz, CFO.

It is now my pleasure to introduce Dennis Becker. Dennis?

Thanks, Chris, and thanks everyone for joining us on our call today. Our growth trajectory continues as revenue through the first half of this year has grown 11% to -- we are also seeing increased term commitments in prepayments by large customers, which is bolstering our cash position.

Before we go over the details of our financial results, I would like to update everyone on some of our achievements and milestones this past quarter. First off, we are very excited to have attracted high caliber sales and marketing leadership to the Company.

This past quarter, Corey O'Donnell, the Head of Marketing; and Mark Armstrong to lead Sales, both of them led sales and marketing for Yodle's brand networks where they grew annual revenues beyond $70 million prior to Yodle's, acquisition by Web.com for more than $340 million. Mr.

O’Donnell sphere-headed the conception and creation and marketing strategy of Yodle's Centermark platform and help to nurture it from idea to market leading solution. Mr.

Armstrong oversaw sales and account management functions and was a driving force behind the exceptional growth Centermark achieved in the franchise marketplace. Given our success with franchise networks and progress towards a data driven platform for optimize marketing, O'Donnell and Armstrong were a great match for our growth strategy.

The hire of these two key players illustrates both Mobivity's continued growth as well as our commitment to serving national brands. O'Donnell and Armstrong have already been crafting new strategies for product positioning, branding, technology innovation, market awareness, sales and customer support.

Mr. Armstrong, as SVP of Sales for Mobivity, is also in charge of bolstering the Company's client support teams.

Aside from his success at Yodle, Corey O'Donnell enters the role of Senior Vice President of Marketing for Mobivity with over 20 years experience in marketing, sales and product innovation for enterprise-focused software and technology solutions. Corey is responsible for all aspects of the strategy and positioning and communications of the Mobivity platform.

Mr. Armstrong has extensive knowledge of building and leading successful sales organizations for innovative, software to service companies.

As Senior Vice President of Sales at Mobivity, Mark will be focused on building and nurturing a pipeline of corporate and franchise brands that benefit from providing their customers with intelligent and personalized marketing, and with managing the ongoing support and strategic growth of those customers. Using both responsibilities inch that we live up to our performance promises on behalf of all of our customers.

Our new sales and marketing team is off to a quick start and already making a big impact in our business. I'm related to report that our customers are deepening their commitment to our services, new brand opportunities are quickly forming and indirect sales partnerships are developing which can reduce our sales cycles and extend our market reach.

For example, during the second quarter one of our customers signed a new contract for a five-year term including a six figure monthly minimum commitment that it is paid upfront at an annual basis. This is more than a $1 million in cash paid up front at the beginning of each annual anniversary.

Between the five year term, six figure monthly commitment and prepayment terms we believe this contract is a great example about the market values to our technology and has invested for years to come. Three renew brands comprising more than 2,500 locations are in the planning phases of rolling out technology.

Each of these new relationships were introduced in the second quarter which we believe indicates progress towards greatly shortening ourselves sales cycle. These new deals were also marketed at more than a $100 a month per location which we also believe is showing strong evidence of supporting far higher average revenue per unit then some of our legacy customers who are really adopters.

Growing awareness of our technology and services has begun to attract key partners that are creating indirect opportunities with brands who have the potential to expand our opportunity pipeline while reducing sales cycles. For example as I touched on during our last earnings call, we began exploring joint sales opportunities with the major beverage brand.

I'm pleased to report that we are now actively joint selling along [Indiscernible] brand and deal flow is already shaping up. We are also in early dialogue with a $300 million a year receipt paper supplier, which serves the number of our key brands.

We've also identified upwards of 20 million in annual recurring revenue through up-sell and cross-selling opportunities within our current client base. We will be increasing our resources and focus on this opportunity and strive for accelerated growth.

As I've described in the past, we also closely trap both our client and their consumers' usage of our product suite to help gage growth. We're now touching more than 8.4 million unique consumers per month, an increase of 53% from the same period last year, and sending more than 323 million messages through the first half of 2017, an increase of more than 71% versus the same period last year.

We have also ingested nearly 2 billion point of sale transactions into our database to help our customers drive smarter, more personalized marketing messages to consumers. I would now like to review how Mobivity is actively participating in the rapidly emerging field of cognitive computing, where computers are becoming intelligent; often refer to as artificial intelligence.

Google CEO, Sundar Pichai, has described how Google is shifting from a mobile first world to an AI first world, and actions speak louder than words. Google has acquired more artificial intelligence start ups than Facebook and Microsoft combined.

A recent forecast by Tractica, a market intelligence firm that focuses on human interaction with the technology suggests that annual worldwide AI revenue will grow at a combined annual growth rate of more than 49% to $36.8 billion by 2025. One of the key drivers to progress in this field is called machine learning which aims to give computers the ability to learn without being explicitly programmed.

This could open up new possibilities where marketing becomes not just automated but autonomous and entirely free of human intervention. Machine learning is powered by collecting massive amounts of data that can train machines to think on their own.

An article in Fortune last year witness far as calling data, the new oil. This is an important point.

Mobivity has a mast billions of real world purchase transactions and we are marrying many of those transactions to consumer identification points such as mobile phone numbers. Jim Hare, Research Vice President at Gartner proclaimed, as AI accelerates up the hype cycle, many software providers are looking to stake their plane in the biggest gold rush in recent years.

We acknowledge that the real gold rush is in the data, and we are quickly developing an entirely new product beyond our current smart suite solution that will apply machine learning technologies to our rapidly growing arsenal of data. We imagine fascinating possibilities where we could accurately predict sandwich sales and solve this problem to optimize marketing and inventory processes that could generate millions of dollars of value for our customers.

We call that more than 90% of our economy still functions offline. Our mission to connect what people buy with why they buy to drive action we will play an integral part in brick-and-mortar businesses into the digital future.

Thanks to Gartner's 2015 and 2017 Chief Marketing Officer Spencer's survey. We know that 98% of CMOs are no longer making a clear distinction between marketing online and offline and say the disciplines emerging.

We are consistently proving us thesis by leveraging purchase data combined with targeting marketing programs to consumers where one of our recent studies concluded that a brand achieved in ROI of more than 3500% since launching our service. We also recently studied another clients program, one that operates in the personal care space and saw more than a 20 times ROI.

It's our strong belief that increased term and financial commitments by our customers and expanding opportunity pipeline and high caliber leadership to our sales and marketing teams are all key milestones in demonstrating our increased momentum and the upside of our mission. I'll now turn the call over to Chris for a more detailed review of our financial results.

And then I'll come back for a few summary comments. Chris?

Thanks Dennis. For the Company's fiscal quarter ended June 31, 2017, Mobivity recorded revenues of $2.2 million, representing an 8% increase over the prior year quarter.

This improvement is attributed to continuing growth and our revenues contracted with large enterprise customers. As Dennis mentioned at the beginning of the call revenues for the six months ended June 30, 2017 were $4.4 million, an increase of 432,000 or 11% compared to the same period in 2016.

Gross margin was 73% for the second quarter of 2017, as well as for the first half of the year. This compares to 76% in second quarter of 2016 and the same period in the prior year.

The decrease in gross margin is principally due to higher SMS and application cost as they relate to the increase in revenues. General and administrative expenses decreased 143,000 or 14% during the second quarter of 2017 compared to the same period in 2016.

The decrease in general and administrative expenses was primarily due to decreases in personal cost and legal expenses. For the six months ended June 30, 2017 general and administrative expenses decreased 211,000 or 10% compared to the same period in 2016.

Sales and marketing expenses decreased a 132,000 or 13% during Q2 '17, compared to the same period in 2016. The decrease was primarily due to lower personal costs and share based compensation expense.

Sales and marketing expenses decreased a 178,000 or 9% during the six months ended June 30, 2017 compared to the same period in 2016. Engineering, research and development expenses increased 689,000 or 180% during the three months ended June 30, 2017 compared to the same period in 2016.

The increase was primarily due to an increase in personal related cost as compared to the prior year to support the Company's growth as well as fewer software and development cost being capitalized. For the six months ended June 30, 2017 engineering, research and development expenses increased 956,000 or 101% compared to the same period in the prior year.

Operating loss for the second quarter of 2017 was 1.2 million compared to 964,000 million in the corresponding period in the prior year. For the six months ended June 30, 2017 operating loss was 2.6 million compared to 2.3 million for the same period in 2016.

Comprehensive loss for Q2 of '17 was 1.3 million or $0.04 per diluted share compared to 979,000 or $0.03 per diluted share in second quarter of 2016. Comprehensive loss for the first six months of 2017 was 2.6 million or $0.07 per diluted share compared to 2.4 million or $0.07 per diluted share for the same period in 2016.

Non-GAAP adjusted net loss, a non-GAAP metric was 772,000 for Q2 2017 compared to 427,000 in Q2 2016. Year-to-date non-GAAP adjusted net loss through June 30, 2017 was 1.7 million compared to 1.2 million for the same period in 2016.

Net cash used in operating activities decreased to 368,000 through the first six months of 2017. This is a 68% decreased as compared to a $1.2 million use of cash during the first six months of 2016.

The decreased in cash used in operating activities was primarily due to collections of prepayments on customer contracts and timely collections of accounts receivable. Cash and cash equivalents total 1.6 million, as of June 30, 2017.

I'd now like to turn the call back over to Dennis for his closing remarks. Dennis?

Thanks Chris. Our progress in the second quarter 2017 has demonstrated good momentum across to all aspects of the business.

In a very short-period of time, our new sales and marketing team has expanded our opportunity pipeline, increased our selling price across all products and services and shorten sales cycles. Additionally increasing term commitments and favorable payment terms from key customers continues to strengthen our cash flow outlook.

We believe that these were all ingredients to a business model that has the potential to scale beyond a $100 million annual run rate and we are laser focused on continuing to execute towards that goal. We appreciate your continued interest in our company and look forward to sharing our ongoing progress with you.

Operator, you can now open up for questions.

Can you talk about what the sale cycle from initial communication to decision to revenue generation looks like? And then with your two additions how large is your sales team now?

Great, question. So typically the sales cycle start with discovery and then from their one of the biggest influences is where was discovery relative to their budget cycle, a lot of our brands giving that they're larger brands and we are looking at seven figure deals.

We are looking to time our engagement relative to whether there on a calendar budget sale. For example, if discovery were in June and they were on the calendar budget, a full system deployment would take six months typically through some form of potential trial, value proposition, contract negotiation and into becoming a key component to their subsequent years fiscal marketing budget.

That’s the big influence there. What we are seeing however is that their indirect ways to actually sell direct to a brand, but be a part of a brand's partner budget.

So in the example that we talked about with a collaboration we have at the major beverage brand, is this where that beverage brand has allocated marketing budget in more of an ad-hoc flow to apply to various marketing programs on behalf of the brand. So, the beverage brand might be the factor brand, say it's Pepsi or Coke.

For example, if you go to any Subway, it's always Coke that’s in the Subway locations. So, they may actually subsidize the cost of our platform and that then allow us to circumvent the typical budgeting cycle of the brand.

So, in those cases as I described earlier, we can see sale cycles and going from six to 12 months down to 30 to 60 days.

In terms of this size of your sales team now, I'm sure it's…

Yes right, it's still a handful. We have got about eight folks that are focused both on new customer acquisition and as I described in the earlier in the earnings call.

We have a tremendous amount of upside and expanding, discovery services and features that our existing customers are paying for they expand their program, so the sales folks that are focused specifically on just that. In fact we have got about $20 million that we paid in upside that we can grow into just from the existing customer base where we are generating our revenue from today.

And then last quarter you mentioned a handful of decent brands like Lobster, Regis, you named a few others. To those customers, again this is to the sales cycle begun to generate revenue in 2Q and if not how long before they start to generate revenue?

Well, they are already generating revenue, in all of our trials, we are monetizing on the trial. So we are already monetizing with those brands.

I got it so those are trials. And then, if we thought about opportunity right now of your customer base.

Have you ever taken a look at how many stores the aggregate of your customers have?

Absolutely.

And, Chris, can you share that number?

Yes, it's over 40,000.

40,000, and then…

To get a little specific, if I may, subway just enough itself is 44,000 globally. So when I say over 40,000, that’s really North America.

We you look at this more from a global perspective, which we have just started international appointments of Subway. We've got 27,000 locations deployed today domestically and other 14000 are up for grab internationally and that’s just Subway.

Regis Corporation operates 12,000 retail hair salons globally. You get into other brands like Red Lobster and others and including the global footprint the number is probably close to the 60,000.

And then if we thought about subway. Could its probably one customer that has a good amount of data?

What percentage of customers use coupon? How may get redeemed or percentage?

Well, it varies on the offer. So sometime and that’s part of the method of how we are trying to personalize these offers, it ultimately to cause the consumer to visit the brand more frequently or to spend more when they do.

And so we see redemption rates from 1.5% to 2% which still crushes traditional funds to marketing like FSI which average a 0.5% all the way up to 45% redemption rates. Again it just depends on the offer for example with subway when you subscribe to the program you are going to have a much higher redemption rate because the offer is a free sandwich versus periodic offer that might be a free bacon add-on or something to your sandwich might be a [Indiscernible].

Right.

But in the end, we're personalizing these offers to a certain consumers might have a deeper discount than others and then we are looking at the full basket to see how that affects their spent.

Great, and lastly you mentioned that new data product which is interesting how long will it take before it gets developed and ready for a sale and then how much investment needs to be made for development and testing?

So, if you'll notice that we have increased our engineering expenditures quite a bit. The two reasons there are first and foremost the look the workflow that were being demanded from our existing customers which is expanding their spend with us has required additional engineering resources so there is a direct line of sight to ROI on those expenditures is just for existing customer base.

But then to add to that is bringing to market the machine learning and cognate of computing features to our smart suite platform which we plan to rebrand as an entirely new product that we expect to release in the fourth quarter.

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 or 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, August 1, 2017. Mobivity assumes no obligation to update these projections in the future as market conditions change.

The Company has filed its 10-K with the SEC on March 31, 2017, and second quarter 10-Q on July 31, 2017 and also issued a press release announcing financial results for the second fiscal quarter of 2017. 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 fiscal second quarter 2017 financial results conference call.

Thank you.