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ConversionPoint AI-Driven Buy, IPO Moving Ahead

This week promises to be a busy one for ConversionPoint Holdings Inc., in its bid to be Orange County’s first company to go public this year.

The Newport Beach-based e-commerce advertising services provider is looking to buy Inuvo Inc., a Little Rock, Ark.-based artificial intelligence company whose software is used by clients for their business-to-business and business-to-consumer marketing efforts.

Inuvo (NYSE: INUV) is a publicly traded firm with a market value of about $48 million as of last week.

ConversionPoint announced plans last November to acquire the public company and combine the two firms’ technology platforms under a new corporate umbrella, in a $75.5 million stock-and-debt deal that would be financed in large part through an initial public offering, whose plans have been in the works for nearly six months.

Updated IPO plans were filed with the Securities and Exchange Commission last week. ConversionPoint aims to raise around $45 million, with 6.1 million shares offered between $6 and $7 each.

Such a deal would value the company at nearly $190 million.

About $23 million in proceeds from the offering would pay the cash portion of the Inuvo deal, with the remainder largely going to pay down debt.

Inuvo’s stock would stop trading if the deal with ConversionPoint is completed, and the combined company would be based in Newport Center, where ConversionPoint employs about 85 people.

The company would remain led by Chief Executive Robert Tallack.

The company’s based in the Pacific Financial Plaza office complex that also holds the headquarters of virtual reality broadcasting firm NextVR Inc., local offices of law firm Irell & Manella LLP and others.

Inuvo shareholders are scheduled to vote on the impending sale to ConversionPoint on May 8—they’d own a little under 30% of the combined company’s stock—and the IPO is expected to be finalized shortly after that.

ConversionPoint plans to list its shares on the Nasdaq Capital Market under the symbol CPTI.

The offering is being underwritten by Oppenheimer & Co., GMP Securities and D.A. Davidson & Co., while the Irvine offices of Troutman Sanders LLP are handling much of the legal work for the IPO.

AI, SaaS

The marriage between ConversionPoint and Inuvo hinges on the promise of computers simulating intelligent behavior.

Specifically, leveraging artificial intelligence to boost online retail sales, and glean the shopping habits and characteristics of hundreds of millions of consumers.

ConversionPoint plans to leverage Inuvo’s technology to expand into higher margin offerings, such as software and managed services, while moving away from its legacy e-commerce business.

Its mission is to provide a “data driven” AI-powered e-commerce platform for small- and mid-sized businesses, the company stated in regulatory filings.

Both companies are coming off of down years, marked by falling sales and rising losses.

Inuvo, which was established in 1999, saw revenue decline 7.8% to $73.3 million in 2018.

The company attributed the decline to cutting “non-strategic technologies including a proprietary marketing platform.”

The revenue decrease, according to the company, led to a $5.9 million net loss in 2018, compared to a loss of about $3 million the prior year.

Inuvo revenue is highly concentrated and reliant upon Yahoo, Google and Microsoft Online. The three giant service providers last year accounted for nearly 87% of sales, with Yahoo alone driving more than 71% of revenue, according to the filing.

ConversionPoint, launched in 2015 in Irvine, reported revenue of nearly $40 million last year, down 20%.

It works with firms including Walmart, Lowe’s, Costco and Office Depot and other major online retailers, which integrate the company’s JavaScript tags on their online retail store web pages, allowing ConversionPoint’s brand customers to “directly publish interactive experiences and product information to such retail websites.”

The company in the second quarter last year shifted its focus from e-commerce product sales—a segment dominated by Amazon.com—to further develop and expand managed services and its software as a service, or SaaS, business.

The moves slashed revenue from its e-commerce business 51% to $20.3 million, while cutting product offerings from nine to four.

Its e-commerce products primarily are sold through trial offers, in which consumers must opt out of monthly billed subscriptions.

The pivot, combined with increased operating expenses, drove a loss of $33.2 million last year, compared to net income of $400,000 in 2017.

On a positive note, revenue from managed services doubled to $16 million, while SaaS revenue climbed more than 1,000% to $3.5 million, largely as a result of its $17.2 million buy of Sellpoints Inc. in late 2017.

Growth Plans

The combined company will have revenue of about $113 million and 145 employees once the merger is completed.

Managed services will account for nearly 80% of revenue, followed by e-commerce, 18%, and SaaS, 3%.

ConversionPoint wants to boost SaaS sales to 60% of annual revenue, and eventually eliminate its e-commerce line completely.

It coveted Inuvo’s high-margin AI-powered IntentKey product, which it plans to upsell to customers. The technology is used by Fortune 500 companies to help attract consumers to specific landing pages or to take action.

The software stores and updates more than 500 million, anonymous consumer profiles, and processes 20 billion ads per day, identifying some 24 million concepts, such as objects, ideas, emotions and places.

Inuvo technology pushes a billion marketing messages to consumers every month.

“This creates an increasingly large market opportunity for data driven e-commerce solutions to assist brands and retailers,” ConversionPoint said in the IPO filing.

Global e-commerce sales hit $2.9 trillion last year, according to e-Marketer.com, with sales pegged to grow between $70 and $80 billion this year.

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