Brett Maas - Hayden Investor Relations Dennis Becker - Founder, Chairman and CEO Charles Mathews - CFO

Greg Berlacher - Emerging Growth Equities

Thank you, Operator. I would like welcome to Mobivity's third quarter 2018 earnings call.

Hosting the call today is Dennis Becker, Founder, Chairman and Chief Executive Officer and Charles Mathews, Chief Financial Officer. Before I turn the call over to management I'd like to call 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 the actual events or results could differ materially.

Please refer to the documents filed by company from time to time with the SEC and in particular the most recently filed quarterly report on Form 10-Q and 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 also remind everyone that the company adopted a new revenue recognition accounting standard otherwise referred to as ASC 606, as of January 2018 on a modified retrospective basis. This means the results for 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 now turn the call over to Dennis Becker. Dennis the call is yours.

Thanks, Brett and thanks everyone for joining us at our call today. This was an exciting quarter on all fronts, throughout the period we saw momentum growing in several areas.

Our partnership with Pepsi continued to accelerate, sequential quarter over quarter revenue more than tripled, our balance sheet strengthened significantly, sales cycles shortened and Mobivity continued to attract a growing list of world class partners. We're also very excited to announce our recent acquisition of Belly, an industry leading digital loyalty solution.

Mobivity is now connecting more than 1 in 30 Americans to major brands as well as ingesting over 50 million full basket purchased transactions per week, a feat not even the credit card companies can lay claim to. All of this progress has combined for a record setting quarter in both top line revenue and net income, not to mention a net gain in operating cash over last quarter.

To kick off I'd like to update everyone on the exciting progress we're making with Pepsi. During this second quarter we initiated our relationship with Pepsi and for the last few months we've been training Pepsi sales force and marketing team to enable them to promote and sell Mobivity suite of solutions.

We're extremely excited for the potential of this partnership as Pepsi serves hundreds of thousands of restaurant locations throughout the world which equates to a massive addressable market. Our collaboration with Pepsi originated from our work with from Round Table Pizza where we demonstrated the strong impact on consumer frequency and spend but notably for helping drive beverage incidents.

We've now expanded to other Pepsi brands in the past few months including Famous Dave's and Kahala brands, Blimpie, chain of Sandwich stores. For those of you who haven't experienced Famous Dave's they own, operate and franchise barbecue restaurants with approximately 16 company owned locations and 134 franchises in 33 states, the Commonwealth of Puerto Rico, Canada and United Emirates.

Kahala brands owners of Blimpie is a wholly owned subsidiary of Canada based MTY Food Group Incorporated of Montreal, Quebec. Based in Scottsdale, Arizona Kahala is one of North America's largest holding companies a franchise fast food restaurant companies.

Kahala operates 18 brands in 27 countries totaling approximately 2800 locations, Famous Dave's and Blimpie will use Mobivity to manage personalized mobile engagement campaigns, targeted promotions at the point of sale through dynamic print receipts and leverage analytics and data to improve their business. Our collaboration with partners such as Pepsi and their efforts with Google that I've discussed previously coupled with the proven ROI delivered to key customers like Subway, Smashburger and Round Table Pizza is helping us to significantly shorten our sales cycle.

For example it took Famous Dave's just three weeks to evaluate our solution and enter into a licensing agreement. Up until now we were typically relegated to lengthy sales cycles of 9 to 12 months that were then followed by another 3 to 6 month trial period before we could begin realizing revenues.

We are now closing deals well within 90 days of engagement with most deals free from requiring trial periods prior to revenue recognition. The term length in our contracts which have historically been one year or less are also more commonly spanning 3 to 5 years which is dramatically increasing our contract values and quality of revenues.

I would now like to discuss a recent acquisition of Belly which we believe will be a huge catalyst to our partnership with Pepsi. The acquisition also brings a accretive creative top and bottom line financial impact as well.

Our interest in Belly stemmed from clear demand from the hundreds of thousands of Pepsi customers seeking a traditional loyalty solution. Featured in Time Magazine, Forbes and Tech Crunch Belly is a platform first technology company enabling businesses of all sizes to create digital connections that result in personal relationships with their customers.

Belly was originally funded by Andreessen Horowitz, Lightbank, Cisco and 711 Ventures and has been deployed to more than 5000 merchant locations and 7 million consumers. With Belly we're now able to offer a world class app experience as reflected by a 4.6 out of 5 star rating in Apple's App Store alongside a proven and scaled loyalty platform.

The Belly solution is immediately available to our customers and prospects and we expect revenue growth immediately. As we noted in our last conference call on the last day of the second quarter we executed our largest contract to-date with our largest customer to expand globally.

We have now deployed to Canada, Ireland and the United Kingdom with targeted receipt promotions that leverage our data and analytics technology. The contract also provides for additional revenue upside should other markets such as Australia, Latin America, the Middle East or Asia decide to apply the services in the future.

Despite this contract helping to propel us to record revenues for the quarter new revenue recognition rules initially forecast a higher proportion of the licensing fees to be recognized upfront but final analysis yielded lower immediate topline contribution than we expected. Keep in mind however that the remaining value of this contract contributes to top line revenue each period throughout the remainder of the five year term.

We believe this contract also represents a growing trend towards relatively large long term contracts that greatly increase our revenue quality and cash flow performance. A perfect example is the net income positive result we achieved during this past quarter.

With each new brand and each expansion we expand our data repository which is becoming a key strategic asset as evidenced by M&A activity in our space. Grubhub recently acquired LevelUp a point of sale loyalty solution provider for $390 million, the acquisition was reportedly aimed at LevelUp's point of sale integrations and was a big premium on what was estimated to be only an $8 million revenue run rate.

We are now ingesting over $50 million point of sale transactions per week which include full basket detail of a consumer's purchase such as what specific burger they purchased or if they added fries. It's important to note that while credit card companies only see how much a consumer spent at a specific merchant location we're collecting the full purchase details including cash transactions, our database of engaged consumers through mobile channels has also grown to more than 11 million consumers which is 1 in 30 Americans.

This growing collection of mobile consumers and point of sale data is becoming increasingly useful for next generation artificial intelligence and machine learning applications and is attracting a slew of new partnerships. Beyond our recent work with Google on next generation mobile engagement to Android phones we've also begun working alongside Samsung and Mavenir and assisting in their efforts to enhance the consumer mobile experience.

Samsung is the world's largest manufacturer of Android based smartphones while Mavenir accelerates network transformation for more than 250 plus telecom companies in over 130 countries serving over 50% of the world's mobile subscribers both Samsung and Mavenir see great value in our world class brand client base and the unique ability to bring next generation mobile engagement concepts to a large global audience. As our work with Google has taken center stage at industry events around the world we expect additional partnerships with large technology companies to grow and provide further validation of our solutions and market leadership.

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. In the nine months ended September 30, 2018 we have achieved significant improvements to our balance sheet.

Our cash has improved to over 10x, current AR is tripled, long term AR $2.1 million and total assets are up almost four times from December 31, 2017. As of the September 30, 2018 we had $5.1 million in cash, an increase of $4.7 million compared of 460,000 December 31, 2017.

This increase was primarily attributable to the successful financing of $6.8 million that closed in third quarter 2018. Deferred revenue increased by $2 million from $1.4 million as of December 31, 2017 to $3.4 million as of September 30, 2018.

Deferred revenue consists of payments received in advance of revenue recognition from customers and is recognized as revenue recognition criteria are met. The increase in deferred revenue is due to receipts of prepayments from certain enterprise customers.

Deferred revenue balances on our consolidated balance sheets does not represent the total contract value of annual or multi-year non-cancellable customer agreements. For the third quarter of 2018 revenues were $4.6 million representing a significant increase of 119% compared to $2.1 million for the third quarter of 2017.

This increase was due primarily to a $2.2 million positive impact related to the global agreement we signed in the period, adoption of a ASC606 organic growth of our business. Sequentially $4.6 million of revenue for the third quarter of 2018 compared to 1.4 million in the second quarter of 2018 an increase of 234%.

This increase primarily due to an increase in enterprise license agreement revenue recognized during the period. For the first nine months of 2018 we recorded $9.6 million in revenue representing a 49% increase over the first nine months of 2017 and exceeding full year 2017 revenues by a $1 million.

This increase is primarily due to the impact of ASC606 which represented a recognition of 3.6 million during the nine month ended September 30, 2018. This increase result in an increase in accounts receivable on the balance sheet for $1.2 million is in current receivables and $2.4 million is in long term receivables.

Net income from the third quarter of 2018 was $91000 which rounds to zero per diluted share compared to a net loss of $1.5 million or $0.04 per diluted share in the third quarter of 2017 and compared to a net loss of $1.6 million or $0.04 per diluted share in the second quarter of 2018. Net loss for the for the first nine months of 2018 was $3 million or $0.07 per diluted share compared to a net loss of $4.2 million or $0.11 per diluted share in the first nine months of 2017.

I will now turn the call back over to Dennis for his closing remarks. Dennis?

Thanks, Charles. 2018 is already a record year in just nine months in, beyond the most recent quarters record top-line revenues and net income our cash position has increased tenfold and our assets have grown almost 300% since December 31, 2017.

We've scaled to tens of thousands of locations including international deployments, engage millions of consumers accumulated billions of full basket brick and mortar POS transactions and have attracted large technology partners such as Google and Samsung. I want to commend the entire Mobivity team for their hard work.

We are increasingly confident that we have something unique and highly valuable and the progress we're making with very well-known brands and partners is evidence of this. We're poised for a strong finish to the year and I'm excited about what 2019 holds for Mobivity, its customers and its shareholders.

I got on late unfortunately it took a long time to get on but just as I was getting on you mentioned something about Belly, I apologize but could you kind of repeat that and can you give us any of the details and maybe a little bit on how you're going to integrate the Belly acquisition into the company and just what your thoughts are in terms of what it could do for the company?

Yes. So we are really excited about the opportunity with Belly, including a number of benefits what we are trying to accomplish at Mobivity.

First and foremost it's going to bring us some financial performance, it's going to be accretive to [indiscernible]. Secondly, the number of merchants that it's going to bring the companies that we're going to expand our reach to a few 1000 merchant it's going to greatly compound our consumer reach with 7 million consumers participating in loyalty programs with these merchant, probably most importantly so however is the upside for our product, number one it's going to bring a very highly rated smartphone app to our portfolio the Belly app it's got a 4.6 out of 5 star rating in the Apple App Store, it's got a similar rating in the Google Play store.

So that's going to provide an immediate upsale opportunity to a number of our customers, it also provides a traditional loyalty platform and by that what I mean is traditional loyalty solution motivates consumers through either point themes or transaction themes by [indiscernible] and so it's going to bring that functionality to our platform as well and allow for us to expand with existing customers who are also looking to the deploy traditional loyalty. And them last but probably most importantly is its immediate value to our Pepsi partnership.

So across the spectrum of restaurant brands that our Pepsi partners aside from the large national brands like the Papa John's and the Taco Bells of the world there are literally hundreds of thousands of you know what they call up and down the street restaurant you know 1 to 50 locations and this will allow us to engage that market in a very turnkey way as you know are - our platform really built for enterprise but Belly is a unique solution that boths built for enterprise but also capable of providing a loyalty kind of a fully packaged loyalty solution to the up and down the street market. So it's going to bring a lot of value to our Pepsi partnership as well.

And I assume you're going to kind of cross-fertilize existing locations with the Belly and you're going to cross-fertilize the Belly or with the Mobivity with their locations is that the concept?

Yes, absolutely the 2000 plus merchants that Belly already served and is been place to actively, they were at one point at around 5000 locations deployed, one of those thing at enterprise customer that brought their loyalty solution in-house but yes we'll be able to bring our messaging solutions to those merchant. I will send a receipt functionality and then our re-up product which you know drive employee behavior with merchants, all that's going to be cross saleable over the Belly merchants that we're picking up as well.

Hey, guys congrats on a good quarter and very exciting Belly acquisition that seems really additive. Charles, maybe you can connect the dots for me last quarter you guys had guided to 5 million to 7 million of revenue this quarter and then your prepared remarks you alluded to this GAAP revenue recognition policy and a re-analysis.

So my take away from that is that some of the revenues you expected to fall into this quarter are now going to be recognized ratably over the life of the contract whether it's 3 or 5 years. Can you just sort of connect the dots for me there in terms of like what the magnitude of that was and then as we get larger going forward will this revenue recognition tend to smooth out some of the revenues of the company?

Yes. Sure when we first looked at the accounting treatment for the revenue on this global deal we had a certain number and through further analysis you know cutting the chase there was about $1.5 million that we realized needed to be recognized in future periods because the old contract that was replaced by the global deal had to run its course, so that was the take away from now but will be recognized in the future.

Okay. So you had previously anticipated that to fall in the third quarter which brought more to the midpoint of that 5 million to 7 million range, okay.

And Dennis you mentioned the shortened length of time in the sales cycle and is that something that you expect to be the new norm going forward and is it that the company's is just saying to potential clients like this is the way we do business now we're not going through a protracted free trial because we've already demonstrated you know what we can do and that should be sufficient. That's sort of how we're looking at things now?

Yes there's a couple competitive strategic levers that we're pulling now that you know accelerate, you know accelerate I mean number one we've got the market coming to us it's taken a few years for the market to understand. These evolving approaches to marketing and being data first and so we're right in kind of the whole position to pick up that growing market demand so that's helping.

Number two, to your point we don't do trials policy we more than proven with published case studies from Smashburger, Round Table you know we had the Chief Digital Officer at Subway running around the industry conference circuit this summer presenting a 150% listing conversions that we drove for Subways. So we've proven the solution and as a policy we don't do trials.

Thirdly, the Pepsi partnership is helping tremendously as you know selling to enterprises lot of times you're at the mercy of just their budget cycle. You know you could have strong interest if you are willing to launch the product now but you know that budgets already allocated you have to wait till the next budget cycle.

Well Pepsi comes in and helps with funding or jointly funding our solution and so that allows us to skip the line on budget cycle and then lastly we given the fact that we are in the point of sale environment and we can prove definitively transaction by transaction sales that we have caused for the brand. We're able to put certain features in our contracts that allow guarantees for the brand that will perform and now that we have a few billion transactions under our belt you know and that coupled with very confident data science we know we can guarantee certain levels of ROIs of the brand that will easily clear as an example we just went through this with a customer signing a five year deal that we put performance guarantees into the contract that lock them in for five years and we cleared those minimum by 3x.

So it gives us the strategic advantage when we're going to brand and we can actually definitively prove sales of brick and mortar brand that we are causing which takes all of the certainty off of ROI, that's another thing but that's really helped in terms of getting brands to take the risk of jumping into these very large contracts and long term commitment contracts with us.

Dennis, is it conceivable that at some point we may be able to negotiating contracts some participation in the list that we are directly responsible for get compensated that way on a variable way.

Yes absolutely. In fact we have another opportunity with an existing client that we've actually put that type proposal for that would actually increase their fees by about four times but it's a performance based contract versus just a straight software based licensing fees but yes those are definitely possible configurations that we could exploit as we are growing here.