10-K: Collective Audience, Inc. Files 10-K, Details Business Strategy and Financials for 2023

Collective Audience, Inc. reports its 2023 financial results and outlines its business strategy, highlighting its focus on digital advertising and lead generation markets.

Summary

• Collective Audience, Inc. was formed through a business combination with DLQ, Inc. on November 2, 2023.
• DLQ, a wholly-owned subsidiary, operates a consumer data management platform and a full-service digital marketing agency.
• The company's primary revenue streams are through its Push and BattleBridge business units.
• Push focuses on lead generation and performance-based engagement, while BattleBridge provides branding and digital marketing services.
• DLQ's proprietary technology, Marble, manages consumer data profiles and facilitates lead distribution.
• The company's lead generation market is expected to grow to $9.6B by 2028, and the digital advertising market is expected to reach $123B by 2026.
• DLQ's revenue for 2023 was $12.1 million, a decrease from $20.2 million in 2022, primarily due to a focus on completing the business combination and the termination of a managed services agreement.
• The company experienced a net loss of $4.6 million in 2023, compared to a net loss of $5.6 million in 2022.
• As of December 31, 2023, the company had $612,183 in cash and a working capital deficit of $2.9 million.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is currently not in compliance with Nasdaq listing requirements and has received a delisting notice.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including declining revenue, net losses, and a working capital deficit. The company also faces compliance issues with Nasdaq listing requirements and has identified material weaknesses in its internal controls. While there are some positive aspects, such as the company's proprietary technology and growth potential in its markets, the overall sentiment is negative due to the financial and operational risks.

Positives

• DLQ has developed proprietary technology, Marble, for consumer data management.
• The company operates in growing digital advertising and lead generation markets.
• DLQ has a strategy to expand its customer base and diversify its revenue streams.
• The company is integrating automation solutions to improve efficiency.
• The company is focusing on subscription-based revenue models for sustainability.

Negatives

• The company experienced a significant decrease in revenue from 2022 to 2023.
• The company has a substantial working capital deficit.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is not in compliance with Nasdaq listing requirements and has received a delisting notice.
• The company has a high customer concentration, with a significant portion of revenue from two customers.
• The company has negative operating cash flow.

Risks

• The company's independent auditor has expressed substantial doubt about its ability to continue as a going concern.
• The company faces risks associated with changing technologies in the digital marketing industry.
• Defects or errors in the company's platform and products could harm its reputation.
• The company relies on third-party providers for intellectual property and internet services.
• The company has substantial customer concentration, with a limited number of customers accounting for a large portion of revenue.
• The company may be unable to manage its growth and expand its operations successfully.
• The company may be unable to respond to customer demands for new digital marketing solutions.
• The company's insurance coverage may be insufficient to avoid material impact on its financial position.
• Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit growth.
• The company may be unable to adequately enforce or defend its intellectual property rights.
• The company may be unable to attract and retain qualified personnel.
• The company's stock price may be volatile and subject to significant fluctuations.
• The company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to warrant holders.
• The company may need to sell additional authorized shares in the future, which will result in dilution to existing shareholders.
• The company may be subject to securities litigation, which is expensive and could divert management attention.

Future Outlook

DLQ intends to grow its business by developing strategies that address each of its business units, focusing on direct sales of first-party data, expanding brands in additional verticals, diversifying its customer base, and integrating existing intellectual property. BattleBridge's strategy focuses on expanding to serve additional clients in growing industries including senior living, medical services, and consumer products for consumers aged 55 and older.

Management Comments

• Management believes that operational efficiencies will result in faster turnaround of testing new Lead Exchange buyers.
• Management believes that by increasing the subscription based suite of services, DLQ will gain an advantage in driving down the cost of acquisition within select verticals.
• Management believes that there is an opportunity to establish cross-selling across the various products and services of all DLQ business units.

Industry Context

The company operates in the digital advertising and lead generation markets, which are experiencing significant growth. The company's focus on first-party data and subscription-based services aligns with industry trends towards data privacy and recurring revenue models. The company's expansion into senior living, medical services, and consumer products for consumers aged 55 and older reflects the growing importance of these sectors.

Comparison to Industry Standards

• The company's revenue decline contrasts with the projected growth in the digital advertising and lead generation markets, suggesting potential underperformance compared to industry averages.
• The company's reliance on a small number of customers is a risk, as many successful digital marketing companies have a more diversified customer base.
• The company's focus on proprietary technology like Marble is a positive differentiator, but its effectiveness needs to be validated against competitors' platforms.
• Companies like AdTheorent (ADTH), Braze (BRZE), Quinstreet (QNST), and EverCommerce (EVCM) are listed as competitors, and their performance should be compared to DLQ's to assess its competitive position.
• The company's financial metrics, such as negative operating cash flow and working capital deficit, are concerning compared to industry benchmarks for established companies.

Management Changes

Corporate Governance

Legal Proceedings

• A creditor of Push Interactive, LLC filed a complaint against Push claiming an unpaid principal amount of $48,879.00 were due, which resulted in a judgment against Push for $35,240.00.
• A former employee of DLQ, Inc. filed an AAA arbitration demand against the Company, Logiq, Inc. and DLQ, Inc. claiming breach of contract and statutory wage payment violations.

Related Party Transactions

• The company has a related party receivable of $3.8 million as of December 31, 2022.
• The company has a related party payable of $7.9 million as of December 31, 2022.
• The company has a commitment from its Sponsor to be the exclusive financing source of capital up to $30 million.
• The company entered into a simple promissory note with the Companys Chief Executive Officer, Peter Bordes, for an aggregate principal amount of up to 300,000.

Stakeholder Impact

• Shareholders face the risk of dilution from future stock issuances and potential losses due to stock price volatility.
• Employees may be affected by potential restructuring or cost-cutting measures due to the company's financial challenges.
• Customers may experience disruptions in service if the company faces financial difficulties.
• Suppliers and creditors may face increased risk of non-payment due to the company's financial instability.

Next Steps

• The company intends to request a hearing to appeal the delisting process by July 1, 2024.
• The company is evaluating potential actions to regain compliance with all applicable requirements for continued listing on the Nasdaq Global Market.
• The company will continue to develop a deeper pool of more regional, direct or specialized buyers through the Outcome platform.
• The company will continue to develop a deeper pool of more regional, direct or specialized buyers through the Outcome platform.
• The company will create more value, data and revenue by going deeper into active markets.
• The company will improve customer acquisition strategy for DLQ agencies.
• The company will accelerate the acquisition of first-party data in order to increase the margins around its brands.

Key Dates

Keywords

digital advertising, lead generation, consumer data management, marketing agency, e-commerce, performance marketing, SaaS, subscription revenue, data management platform, digital marketing