Kubient, Inc. (NASDAQ: KBNT) Q2 2020 earnings call dated Sep. 23, 2020
Corporate Participants:
Paul Roberts — Chief Strategy Officer, President and Chairman
Joshua Weiss — Chief Financial Officer
Peter Bordes — Chief Executive Officer
Presentation:
Operator
Good afternoon and welcome to Kubient’s Second Quarter 2020 Earnings Conference Call. Joining us today for today’s call are Kubient’s Chief Executive Officer, Peter Bordes; Founder, Chairman and Chief Strategic Officer, 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 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 and other risks, uncertainties and assumptions relating 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 these projected or implied during the call. Furthermore, listeners are referred to the documents filed by Kubient, Inc. with the SEC, including our registration statements on Form S/1/A [Phonetic] filed with the SEC on August 11, 2020 with the understanding that our actual future results may be materially different 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.
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.
Now I would like to turn the call over to Mr. Paul Roberts. Sir, please proceed.
Paul Roberts — Chief Strategy Officer, President and Chairman
Thank you, operator and good afternoon, everyone. We appreciate you taking the time to join Kubient’s first earnings call. After the market closed, we issued a press release with our results for the second quarter and six-month ended June 30, 2020. A copy of which is in the Investor Relations section of our website. This is an incredibly exciting time in our company’s history. As I’m sure most of you already know, Kubient became a publicly traded company, listed on the NASDAQ on August 11. We have received an immense amount of investor support and we are truly thrilled for this next chapter of our growth story. We’re looking forward to the new opportunities being NASDAQ listed provides us, [Phonetic] by having access to greater depth of resources and a much larger and more diversified shareholder base.
To begin, I’d like to share a bit more about Kubient, particularly for those of you that may not be too familiar with who we are, why we exist and what our vision is for the future? The continuous digital transformation and evolution that has been happening within our industry has created a tremendous amount of fragmentation, resulting in a hyper inefficient and in effective advertisement purchasing process. This is where Kubient comes into the equation.
Our mission at Kubient is to transform digital advertising that audience based marketing. To put it simply, we create efficiencies and greater liquidity in the digital advertising ecosystem. To give you a brief overview of the fields we play in, digital advertising is a marketplace that is akin to the stock market. On one side, there are the sellers of digital advertising, which are called publisher. These are website, mobile app or any platform with an audience and advertiser is interested in reaching.
And on the other side of the transaction, there are buyers of digital advertising, which are called advertising. These are brand advertising agencies or companies that have a message they want certain audience to see or hear. To give you an example using the current inefficient process, if an advertiser wanted to buy an advertisement, it would typically have to go through five to nine vendors that act as middlemen in order to get their ad place.
However, with Kubient, we have created a marketplace or a single point of entry called the audience cloud that allows both advertisers and publishers to connect and transact in the most efficient way possible, giving advertisers a greater ROI and publishers more net revenue. In addition to our core audience business, we have a number of new growth areas such as our AI fraud prevention solution KAI, as well as our entrance into the digital out-of-home market, which our CEO Peter Bordes will discuss shortly.
He will also explain why Kubient is at an inflection point in the digital advertising universe and some of the strategic initiatives and objectives we are looking to execute again. Our goal by the end of today’s call is that you will have a much better understanding of what our business looks like today and the amazing opportunity on the horizon. However, before I do, I’d like to hand it over to our CFO, Josh Weiss, who will be walking us through our financial results for the first quarter as well as specific tied to our initial public offering. Josh?
Joshua Weiss — Chief Financial Officer
Thanks, Paul and thank you to all who are joining us for today’s call. Now to our financial results for the second quarter and six months ended June 30, 2020. Net revenues for the second quarter increased 88% to $92,000 compared to $49,000 in the equivalent quarter in 2019. The increase in net revenue for the quarter was primarily from one customer, partially offset by a decrease from another customer during the period. Net revenue for the six months ended June 30, 2020 increased to $1.5 million from $106,000 in the same period last year. The increase in net revenue was primarily due to $1.3 million in revenue received from two customer beta testing KAI in the first quarter of 2020.
Turning to our expenses. Total operating expenses increased 20% in Q2 2020 to $1.2 million from $1 million in the same quarterly period last year. The increase in operating expense was primarily due to higher technology expenses, offset by a decrease in general and administrative expenses. Total operating expenses for the six months ended June 30, 2020 increased 52% to $2.4 million from $1.5 million in the same period last year. The increase in total operating expenses was primarily due to higher technology expenses and general and administrative expenses.
We recorded a GAAP net loss in Q2 of $1.5 million or $0.42 net loss per share compared to a net loss of $1.1 million or $0.32 net loss per share in the equivalent quarter in 2019. GAAP net loss for the six months ended June 30, 2020, totaled $1.6 million or $0.43 net loss per share compared to a net loss of $1.6 million or $0.44 net loss per share in the same period a year ago.
Now let’s discuss the balance sheet. As of June 30, 2020, we had cash and cash equivalents of $45,000. As of August 14, 2020 after giving effect to the sale of units in our IPO and the gross proceeds of approximately $12.5 million and net proceeds of approximately $10.7 million received therefrom, we had $11 million in cash and cash equivalents, $435,000 of debt and 7.6 million common shares outstanding.
That concludes my financial summary. For more detailed analysis, please reference our 10-Q, which we plan to file this week.
I will now turn the call over to Peter, who will discuss some of our major operational updates and provide a general outlook for our business. Peter?
Peter Bordes — Chief Executive Officer
Thanks, Josh. Hopefully, [Phonetic] I appreciate the size of the market that we’re in, I want to share an intriguing stat. In 2019, a $333 billion was spent on digital advertising, which accounted for 50.1% of total media ad spend and marked the first time with the critical stat that the digital ad spend surpassed traditional ad spend. The market are [Phonetic] project that the digital ad spend market is now going to reach for $518 billion by 2023.
Additionally, to better understand the magnitude of the problems that are on hand, in 2019, advertisers lost $42 billion to add fraud. Now, if you think that’s a lot, that number is currently projected to grow to $100 billion by 2023. For even more contact, the Department of Homeland Security now predicts that ad fraud grows to $100 billion, it will be one of the top five largest crimes globally, up there with drug trafficking, human trafficking and firearms smuggling.
Furthermore, there are several additional problems in our industry such as fragmentation, which Paul mentioned earlier, latency or the delayed or loading wait times and waste, which happens from advertisements are efficiently process and end up not being seen by an audience participant. As you can clearly see our industry is facing some serious challenging problems. This is where Kubient comes in. We’ve developed proprietary and patent pending technology that has been developed to combat each and every major problem that plays the digital advertising ecosystem.
Kubient audience cloud provides both advertisers and publishers an efficient platform that optimizes the supply chain. Enables advertisers to spend much more effectively and empowers publishers to make more money for the value of their audiences, and prevents ad fraud all in real-time. In speaking of ad fraud, I’d like to talk a bit about KAI, our Kubient artificial intelligence. KAI is our AI powered ad fraud tool that prevents real-time fraud and your standard 300 millisecond window before an advertiser spends their budget. Our machine learning, fraud detection and prevention tool has the ability to get smarter and smarter and smarter, and is our solution to address the $42 billion ad fraud problem we currently face today.
Now that you’ve had a better understanding of our business, I’d like to share a brief overview of this calendar year. To begin, our team was able to achieve promising operational and financial results in the first quarter of 2020. As Josh mentioned, we generated $1.3 million of net revenue from successful beta tests with two large enterprise clients, for our high margin KAI fraud detection platform. The results from the two beta clients indicated that KAI was identifying and preventing approximately 30% more digital ad fraud in the client current partners.
The testing validated our platforms ability to ingest large amounts of data, which was then analyzed by our proprietary machine learning technology and we learn that our platform is capable of processing hundreds of millions of rows of data in real time. And as a result, we gathered a tremendous amount of data that will lead to additional improvements of our technology going forward. So we had a strong Q1, we like many other companies are impacted by the COVID-19 issues, we face globally. More specifically in the second quarter, we witnessed several of our customers and prospects significantly decreasing our advertising budgets during the peak of the pandemic.
In response, we took a number of steps to maintain their business relationships by reducing the closing price for certain advertisers and customers, and keeping our publisher customers price levels at a rate allowing them to meet their revenue goals, and providing extended payment terms to certain customers.
Fortunately, we’ve begun to see a slow but steady return of advertising budgets to the based amounts in the third quarter. Those companies are beginning to adapt their businesses that the current operating environment. Nevertheless, despite the headwinds, we were able to obtain several prominent achievements. We increased our ad impression opportunities by over 213% compared to the prior quarter. The total number of this forecast did double again and by year-end — by the end of this year, demonstrating our progress, monetizing and scaling our business.
Additionally, at the end of the second quarter, we verified and fingerprinted of our 994 million unique devices at the end of the second quarter, which is a 74% sequential increase compared to the prior quarter. The number speaks to the — numbers speak for themselves and truly are a testament to the breadth and robustness of our technology.
We recently joined the DPAA, Digital Place-Based Advertising Association, which is a prestigious community of advertising thought leaders that are revolutionizing the digital out-of-home industry. We look forward to collaborating with the DPAA team and enhancing our programmatic digital out-of-home initiative and have already started to see net results from our team members of that community.
And finally, the most recent win, I’d like to talk about is our strategic partnership with Zoox Smart Data, which we announced earlier this week. The partnership will allow advertisers to buy the [Indecipherable] first-party, consumer provided audience data resulting in more efficient spend and maximum value with premium audiences. This is a first ad tech infrastructure marketplace partnership that enables real-time bidding, programmatic access; two, and from demand platforms, brands and agencies.
It also positions Kubient as the direct marketplace for Zoox supply partners to conclude choice hotels, The New York MTA transit system and major international airports. Our synergistic partnerships will grow in existing audience of over 100 million Wi-Fi users annually to nearly 1 billion users in the next 18 months. And as you can see, we’ve accomplished impressive achievement so far, and remain focused on finding novel and innovative ways to grow Kubient’s brand technology and footprint.
Going forward, as the industry rebounds from the effect of COVID-19, we’ve been strategic in positioning ourselves for long-term success and an effort to further diversify our revenue streams and expand our product offering. We will be implementing a SaaS model around KAI, both KAI light and we’ve received a number of requests from our partners we are looking at leveraging our fraud prevention tools within their own ecosystem.
With KAI light, our partners will be able to take an application of our fraud prevention tool and run it locally within their platinum. Next is one of the fastest growing segments of the online advertising industry space. We plan to further enhance our programmatic digital out-of-home tool. In light of our recent collaboration with the DPAA, we’re exploring multitude options to disrupt and capitalize on the growing digital out-of-home space.
In order to better capitalizing the opportunities in front of us as digital out-of-home — such as digital out-of-home and others. We need to build a sales function that can meet the increased demand from our high-caliber base of publishers, more specifically, we intend to have our sales teams focused on the other side of the equation. By growing the interest and demand from advertisers in order to maximize the publisher inventory spots.
Along that line, we are on the search for our seasons [Phonetic] Chief Revenue Officer that can lead our sales team and drive better integration and alignment between all revenue related functions within the business. In conjunction with the growing of our sales infrastructure, we are also looking at opportunities to expand our business internationally. We understand that advertising ubiquitous from worldwide and we intend to capture as much of that global market share and opportunity as possible.
And lastly, we’re constantly on the outlook for certain M&A opportunities that will best help Kubient grow. As we wrap up the third quarter and head towards the end of the year, we remain focused on transforming the multi-billion dollar global advertising industry by enabling highly efficient and liquid marketplace from both advertisers and publishers alike.
That concludes my prepared remarks. Thank you all for your time this afternoon. We look forward to updating you on our progress going forward. We’re now ready to open the call to your questions. Operator, please prepare the appropriate instructions.
Questions and Answers:
Operator
At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] At this time, we will be conducting a question-and-answer session. [Operator Instructions] This concludes the company’s question-and-answer session. If you would like to report any other question, you may email them at Kubient@gatewayir.com.
I’d now like to turn the call back over to Mr. Bordes for his closing remarks.
Peter Bordes — Chief Executive Officer
All right. Thank you very much. I just wanted to take this time to thank everyone, we’re extremely grateful for all of our shareholders, employees, business partners and everyone in our extended community, who have been so incredibly supportive on our journey, getting here to the public markets and beyond. So we’re looking forward to being able to update you on our next call and we have a lot in-store going forward, as we continue our journey on as a public entity and we’re looking forward to all of our continuing dialogs with everyone. So thank you very, very much for participating today. Operator?
Operator
[Operator Closing Remarks]