Inuvo, Inc. Q1 FY2026 earnings call

Strategic Pillar Progress

• Go-to-market focus: Upskilled and aligned sales teams, sharpened lead generation, and added experienced enterprise sales talent to pursue larger, direct brand clients with stickier revenue streams. Completed DSP and SSP integrations that expand the addressable market to privacy-sensitive verticals (government, pharmaceuticals, healthcare). Launched pilot programs with two major clients in these verticals, with more pilots scheduled for Q2. Added five new IntentKey logos in Q1, including three Fortune 500 companies. A large previously announced government contract is progressing slower than expected due to internal procurement timelines, but has generated secondary interest from other government-adjacent organizations.
• Brand profile raising: Launched a dedicated IntentKey website (intentkey.com) with tutorials, live test drives, and clear value positioning to improve accessibility for enterprise clients, as the first step in a broader brand awareness effort for the platform.
• Product innovation: Completed Q1 SSP/DSP integrations that unlocked access to large marquee brands that could not work with the company's older platforms. Announced an integration with Freewheel's Buyer Cloud that lets advertisers use IntentKey's AI models directly in ad bidding logic for improved performance. Launched an updated IntentKey platform with enhanced AI modeling, contextual/sentiment analysis, flexible workflows, and improved iterative model building for more precise audience discovery. Is currently integrating IntentKey into a premium connected TV inventory supplier to capture growing advertiser demand for connected TV ad spend, which grows 15% annually.
• High margin growth: Rationalized the underperforming Legacy Search business by eliminating non-performing services and cutting Legacy Search headcount by nearly two-thirds to align costs with performance. The Audience Modeling business has a healthy, growing sales pipeline and is the company's core investment focus.

Operational & Governance Updates

• Added ad tech industry leader Sonia Partalo to the company's board of directors to guide the business through industry structural transformation.
• Reported $6.2 million in proceeds from a class action settlement in Q1, which offset operating losses to produce $1.9 million in net income for the quarter, compared to a $1.3 million net loss in Q1 2025. Entered a $3.3 million subordinated convertible note to improve liquidity, ending Q1 with $2.9 million in cash and no draws on the $10 million working capital facility. Operating expenses totaled $7.5 million, $15.3 million lower year-over-year driven by lower Legacy Search traffic acquisition costs.

Total Q1 2026 revenue was $7.9 million, representing a $18.8 million year-over-year decline driven entirely by the Legacy Search segment. 1. Audience Modeling (powered by IntentKey): Revenue grew 13% year-over-year, and is the company's current primary growth vehicle. This segment has higher net margins than Legacy Search. 2. Legacy Search (encompassing the Bonfire platform and legacy search ad placement business): Revenue fell 81% year-over-year following the Q4 2025 Bonfire system reset. The segment currently generates negative net margins and net cash burn, and has pulled overall gross margins down to 43% in Q1 2026 from 79% year-over-year. Legacy Search historically had higher gross margins than Audience Modeling due to expense recognition patterns, but lower net margins.

• Management expects Legacy Search revenue to gradually recover through 2026, but will continue monitoring margins and expenses and make additional adjustments as needed.
• Audience Modeling (IntentKey) is forecast to deliver strong double-digit year-over-year revenue growth for each quarter of 2026, supported by a robust sales pipeline.
• Meaningful revenue contribution from large new IntentKey clients (currently in pilot stages) is expected to begin in the second half of 2026, with strong growth momentum carrying into 2027.
• The company expects the IntentKey business to be data-centric rather than labor-intensive, enabling scalable growth without proportional increases in overhead.

• Legacy Search continues to face systemic industry-wide disruption, negative margins, and cash burn, even after cost-cutting measures. Post-reset revenue recovery remains constrained.
• Sales cycles for large enterprise and government IntentKey clients are 6-9 months long, which delays revenue realization from new pilot programs. Government procurement timelines can be significantly slower than initially anticipated.
• The broader ad tech industry is experiencing rapid structural transformation, creating ongoing uncertainty for market positioning and performance.

Q: How has Innuvo's go-to-market strategy changed under current leadership, and when will larger new client deals contribute meaningful revenue? What is the strategic purpose of recent executive hires? / A: Previously, the company focused on smaller regional clients; the revised strategy targets larger blue chip brands with bigger budgets, supported by an upskilled sales team with enterprise experience. Revenue from the current Q1/Q2 new client pipeline will begin contributing in the back half of 2026, given the 6-9 month sales cycle from pilot to full budget allocation. Elevating existing employee Katie Cooper to lead marketing will improve brand profile, while two new business development/sales hires bring established enterprise and programmatic industry networks to pursue larger scale deals.

Q: How do contract terms and average selling prices (ASPs) of new large IntentKey clients compare to older, smaller clients, and what stage of growth is the audience modeling business currently in? / A: New Fortune 500 and large clients run larger initial pilots than the company's historic client base; successful pilots can lead to seven-figure annual renewable contracts, a material increase over prior ASPs, with compounding revenue retention effects. Management views the IntentKey growth run as still in the early innings (second inning), with substantial long-term growth potential as success attracts more top-tier clients and talent.

Q: What portion of Q1 operating expense reductions are one-time severance costs, and what is the normalized run rate for the rest of 2026? / A: Q1 compensation expense included over $900,000 in one-time severance costs, all tied to Legacy Search headcount reductions that cut overall company headcount by nearly one third. Legacy Search marketing costs are already substantially lower than 2025 levels, and will remain lower for all remaining quarters of 2026.

Q: Do self-serve IntentKey clients understand the product value, and does the platform deliver on promised outcomes that drive expansion with existing clients? / A: IntentKey's core value proposition—helping brands identify net new upper-funnel customers—is an evergreen, high-demand offering that the platform performs better at than competing solutions. Once clients use the platform and see performance results, they increase spend and expand engagement; larger strategic integrations with enterprise brands are more sticky than transactional ad tech relationships, so clients recognize the unique value the platform delivers.