Kubient, Inc. (NASDAQ:KBNT) Q2 2022 Results Conference Call August 15, 2022 4:30 PM ET
Company Participants
Paul Roberts – CEO
Josh Weiss – CFO
Operator
Good afternoon, and welcome to Kubient’s Second Quarter 2022 Earnings Conference Call. Joining us for today’s call are Kubient’s Founder, Chairman, Chief Executive Officer, Chief Strategy Officer and President, Paul Roberts; and Chief Financial Officer, Josh Weiss. Following their remarks, we will open the call for your 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 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, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Listeners should not place undue reliance or on forward-looking statements since they involve known or 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 statements reflect our current views — with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, 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 section including our annual report on Form 10-K filed with the SEC on June 30, 2022, with the understanding that our actual future results may be materially different from what we expect, which includes these 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 to 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 detailed description of risk factors that may affect the Company’s results.
During the call today, management will discuss adjusted EBITDA and 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 within comparable GAAP measure. Non-GAAP financial measures are not intended to be considered in isolation from, a substitute for or superior to GAAP results. The Company encourages you to consider all measures when analyzing its performance.
Now I would like to turn the call over to Paul Roberts. Sir, please proceed.
Paul Roberts
Thanks, operator, and thanks to everyone who has joined us today. In our last call, midway through the second quarter, we discussed the dramatic shift in our short-term operations by transitioning to a sustainable, low cash burn model in order to better position Kubient with the existing global headwinds and to better position ourselves for strategic alternatives.
To briefly reiterate, we began the process of pulling back on certain nonessential positions and evaluating whether our divisions within our business might be streamlined further in order to conserve the Company’s resources. This translated to direct savings in our operating expenses, something we’ve been recognizing in early August and subsequently allows Kubient to present the market with predictable and conservative burn looking ahead to the coming quarters and years.
During the implementation of these measures, closed care was kept to maintaining even necessary components of our organization on the development and operations side of our core technologies. Over the previous quarter, we spent time further cleaning up our balance sheet and securing our cash position, a point Josh will touch on a bit later in the call.
The goal of these measures was to extend Kubient’s runway, allowing greater time to further grow top line revenues via organic measures, minimize our operating expenses and take advantage of strategic alternatives via inorganic measures. On that note, a key emphasis has been on the optimization of KAI, the artificial intelligence-powered fraud-protection technology operating within the Audience Cloud. At this point, we have received great feedback on KAI, especially from the enterprise level.
However, the largest hurdle in unveiling the true potential of this technology faces is scalability as the return of implementing this comprehensive tool into a company’s digital advertising strategy truly shines when there’s larger amounts of data processed for a single entity. This results in greater opportunity for KAI to catch and funnel out fraudulent activity and debt ends at a significant and undeniable scale.
It’s because of this success and utility of KAI, that this technology has been the centerpiece for Kubient’s M&A-related strategic alternative initiatives. This further validates the angle that we have positioned ourselves as an extremely attractive target for reputable advertising-centric companies looking to find a proper solution to the storied, fraud-ridden digital advertising ecosystem.
Our comprehensive supply side platform with direct publisher integrations, coupled with KAI is primed to be a prominent divider for companies looking to lead the current and next generation of ad tech. One thing we’ve learned over the last few months is M&A discussions differ depending on the size and scope of the conversations. Larger enterprise level discussions require much deeper, thorough layer of due diligence while we explore opportunities.
Additionally, we continue to field commercial opportunities synergistic to our core business that have the potential to bolster both our supply and demand side of our Audience Cloud offering. With these efforts, we look to deliver lasting value for our shareholders. We look forward to providing further updates on our acquisition and strategic alternative efforts when appropriate.
The focus on inorganic opportunities has not stopped Kubient from operating and delivering at a high level and servicing our existing client base. This quarter was highlighted by multiple wins emphasized by some renewals where the scope of work with existing customers expanded.
The first example I want to share is with an entertainment company that increased their budget by over 50% from the start of 2022 and due to the positive results they have seen via the direct media spend with Kubient. Next, another client in the entertainment vertical has started putting on live events again at a larger capacity post COVID and has decided to increase their direct media spend through 2022 with Kubient.
The increase in media spend is a direct confirmation of the results Kubient can provide advertisers. Additionally, the client in the large mattress retail space that tested direct media spend with Kubient in Q1 decided to renew for Q2 and beyond, increasing their overall budget for 2022 as well based on the results of the initial media spend.
And finally, we also have a deal with a well-known printer manufacturer and distribution company, where the client decided to expand the scope of work. These, among others not mentioned, point to the quality of results we’ve delivered via engineering and Kubient managed services teams despite the smaller staff.
We look to continue this trend of cash conservation while growing our top line through quantity and quality of client relationships through the close of 2022 and far into 2023. Our value partnerships with Yahoo! and Google have continued on the DSP front. And we’ve extended those partnerships over the quarter to include a new integration with Viant to help deliver targeted, fraud-free CTV inventory for their Tier 1 advertising clients.
While we celebrate winning partnerships with industry leaders such as Yahoo! and Google, the connection with these partners is one part of the revenue generation equation. As an example, once Google was able to vet Kubient and our technology, we completed an integration between the Kubient’s SSP, which includes KAI and Google’s DSP.
Once that is done, our team then needs to contact the brands and agencies using the Google DSP and direct them to spend media dollars on the Kubient marketplace. We are confident based on these current conversations that KAI, combined with the direct marketplace of publishers, is a big advantage compared to other offerings within the ad tech ecosystem.
Now I’ll hand this call over to Josh, who will provide additional color on the quarter from a financial perspective. Josh?
Josh Weiss
Thanks, Paul, and good afternoon, everyone. Thanks for joining our call. I wanted to start off by piggybacking off of Paul’s previous point in that we’ve made strategic efforts on the financial front to clean up our balance sheet and ensure we’re in the best possible position for any strategic alternatives that may come along.
That said, due to severance and cancellation costs incurred from certain third-party vendors and services during the second quarter, the normalization of our burn rate did not take effect until the beginning of August. Kubient expects that our third quarter results and beyond will reflect the lower cash burn rate. We have a very strong cash position with over two years of runway and are pleased with our financial status for the time being.
Now to our financial results for the second quarter ended June 30, 2022. Net revenues for the second quarter of 2022 were approximately $400,000 compared to approximately $498,000 in the same period last year. The decrease was primarily due to a decrease of net revenues associated with a major customer whose contract renewed in the first quarter of 2022 at a reduced scope as compared to the 2021 period, partially offset by revenues generated in the 2022 period related to the customer contracts acquired in connection with the acquisition of MediaCrossing in November 2021.
Net revenues for the six-month period ending June 30, 2022, were approximately $1.6 million compared to approximately $1.2 million in the same period last year. The increase in net revenue was primarily attributable to customer contracts acquired in connection with the acquisition of MediaCrossing in November 2021.
Now turning to our expense line items. Technology expenses increased to approximately $959,000 from approximately $620,000 in the same period last year. The increase was primarily due to an increase in headcount costs, posting fees, noncash stock-based compensation, amortization and software expenses partially offset by a decrease in consulting expenses.
General and administrative expenses increased to approximately $1.5 million compared to approximately $1.1 million in the same period last year. The increase was primarily due to an increase in headcount costs, state taxes, noncash stock-based compensation, insurance expense, office expense, director fees, news and software subscriptions, all partially offset by a decrease in professional services and consulting expenses.
During the three months ended June 30, 2022, we recognized a onetime GAAP accounting noncash impairment loss on intangible assets of approximately $3 million. GAAP net loss attributable to common shareholders was approximately $5.8 million or $0.41 loss per basic and diluted share compared to a net loss of approximately $1.7 million or $0.12 loss per basic and diluted share in the same period last year.
Adjusted EBITDA loss, a non-GAAP measure, increased to approximately $2.2 million or $0.16 per basic and diluted share for the three months ended June 30 compared to an adjusted EBITDA loss of approximately $1.6 million or $0.12 per basic and diluted share in the same period last year.
On a six-month basis, our adjusted EBITDA loss increased to approximately $5.9 million or $0.41 per basic and diluted share compared to an adjusted EBITDA loss of approximately $3.1 million or $0.24 per basic and diluted share in the same six-month period last year. As of June 30, 2022, we had a cash balance of approximately $17.7 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. Paul?
Paul Roberts
Thanks, Josh. Our recent efforts have successfully put us in a position to maintain operations at a productive and high level, all the while expanding our client base and partnerships to lead to partnership growth. Kubient will continue conversations while looking at strategic inorganic growth opportunities that align with our overall market capture plan to enhance our product portfolio or customer base within our targeted market. We appreciate you all for your support.
Now, I’ll turn it over to the operator for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] We’ll take our question from Jack Vander Aarde from Maxim Group.
Unidentified Analyst
This is [Jack C] calling in for Jack Vander Aarde. It sounds like you’re really well positioned for capital preservation moving forward. But I was wondering if you could share any expectations for other workforce changes over the next 12 months? And then just if you could clarify the updated headcount number.
Paul Roberts
Jack, we don’t plan in the near term on additional cuts. I think we’ve really done a great job of getting us to a place, as you mentioned on cash conservation, while being able to grow the platform, the technology and also manage our current roster of clients. As of today, we sit right around 21 full-time employees and like Josh had mentioned, with that headcount and the burn rate, we expect that to last well into around 24 to 36 months of runway.
Unidentified Analyst
Yes. So next if you could give any more color into the relationship with PubMatic and Yahoo!, I know you kind of mentioned a little bit, but how those are developing and if there’s any other traction on the demand side with new brands or agencies related to that relationship?
Paul Roberts
Sure. So like I mentioned in my prepared remarks, when we integrate with these much larger platforms, they typically will do some due diligence on us, on the technology. And once we actually integrate, the real work then begins. We have to reach out to all of the advertisers, all of the agencies that are using these platforms and really start to almost sell them on the concept of why a fraud-free direct marketplace makes so much sense. And then we start to see small buys come through, which is great.
But again, it’s a relationship business where we have to continue to reach out and stay on top of them so they know, okay, we have these direct publishers. We have this KAI product that can actually remove the fraud before you buy it. And we get more and more budget as the year goes on. And we mentioned in our prepared remarks, a few partners have used and understood why this is so powerful. And we have seen increases, which is a direct indication that this is working.
It’s just a very challenging decision because as you know, Jack, the entire world changed in 2020. Obviously with COVID, and the market’s acting the way they have, we made a very, very hard decision to cut our workforce, maintain the relationships we have and attempt to grow them while we explore some of these inorganic opportunities around M&A, et cetera. The market performing the way it has, in some ways, was actually beneficial for Kubient because a lot of much larger enterprise-level companies that we’re exploring to public markets found that the markets were not open to public offerings. So having Kubient well prepared with a very, very clean balance sheet and experienced team with cash on our balance sheet. We’ve gotten into some very, very good conversations around what would it look like for a much larger company to use KAI, potentially own KAI and potentially merge with Kubient.
So blessings and curses at the same time, if you will, but it’s been a very interesting two years to say the least.
Unidentified Analyst
Yes. Sure. Yes, and just to kind of go off that point on the other side, so less about like kind of M&A activity but more a big picture macro question. You kind of mentioned how COVID has really shaked everything up. What are you noticing on the demand side for overall ad traffic?
And if you can give any color on how that’s impacting your strategy or any general expectations moving forward, that would be awesome.
Paul Roberts
Sure. So I think what you saw was a lot of large Tier 1 brands pull back on spending for a while. They get a lot more strategic on where they’re spending their dollars. We’re starting to see some of those pipelines on kink, if you will, to flow. And what they found, while they were retracting a bit on their spend, they were able to find pockets of inventory, pockets of partnerships like Kubient, where we’re able to demonstrate at a very high level, “Here’s the amount of fraud we prevented, Here’s the results we generated.” So we’re expecting the hard work that we did during those leaner times during COVID will reward the Company for the future because we were — results while they were spending less.
And now as the budgets start to open up, we hope to see larger revenue streams come through those partnerships.
Operator
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 to turn the call back over to Mr. Roberts for his closing remarks.
Paul Roberts
Thanks, operator, and thank you, everyone, for joining us today on our Q2 2022 earnings call. I especially want to take a moment and thank our employees, our partners, investors and customers for their continued support. We 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 2022 Earnings Conference Call. You may now disconnect.
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