Brand Engagement Network - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 print was largely qualitative; management did not disclose revenue, EPS, or margin figures in the furnished press release or prepared remarks, noting the Form 10‑K would be filed imminently.
• A material non-cash impairment of $13.475M was recorded to write off an automotive reseller-related customer acquisition asset after terminating the agreement, weighing on GAAP results in Q4.
• Execution updates were constructive: Dealer.com integration completed; first pilot dealer signed (Michiana Chrysler Dodge Jeep Ram) with AI agents expected to go live in Q2, and partnerships in Mexico/Europe (Vybroo, Grupo Siete) extended the media/ad footprint.
• Strategic path intact but timelines extended: Cataneo acquisition payment schedule was amended; two installments have been made and close now targeted for Q2 2025; liquidity actions continue (S‑1 on file) following the Q3 $50M SEPA facility.

What Went Well and What Went Wrong

• What Went Well
  • Automotive go-to-market progressed: integration with Cox Automotive’s Dealer.com completed; first pilot dealer signed with anticipated go-live in Q2, showcasing CPU‑efficient AI agents deployable across websites, apps, browsers, and kiosks.
  • Media/Ad tech strategy gained traction: expanded partnerships with Vybroo and Grupo Siete to modernize radio/audio advertising in Mexico and into Europe, aligning with BEN’s “AI Advertising Tech Stack” thesis and Cataneo synergy.
  • Security-first narrative resonated: BEN emphasized closed-loop deployments and data sovereignty, including engagement with California Assemblymember Carl DeMaio on AB 364 to strengthen consumer data protections (“disclose data storage, explicit consent, prohibit foreign-controlled access”).
• What Went Wrong
  • Financial disclosure visibility: No Q4 revenue/EPS/margin provided in the 8‑K exhibits or call script; management pointed to the forthcoming 10‑K, limiting near-term quant analysis for investors.
  • One-time impairment: $13.475M write-off tied to termination of an automotive reseller agreement, creating a sizable GAAP charge and raising questions about prior channel strategy and CAC accounting.
  • M&A timing: Cataneo closing slid; while progress includes installment payments, closure is now targeted for Q2 2025, introducing timeline risk to the media/advertising expansion pillar.

Transcript

Operator (participant)

Thank you for standing by, and welcome to Brand Engagement Network's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Susan Xu, Investor Relations. Please go ahead.

Susan Xu (Director of Investor Relations)

Thank you, Latif, and good afternoon, everyone. Welcome, and thank you for joining Brand Engagement Network Q4 and Full Year 2024 Earnings Conference Call. Joining me on the call today are CEO Paul Chang and CFO and COO Walid Khiari. The company's Q4 financial results were disseminated prior to this call and are available on the Investor Relations website at www.investors.beninc.ai. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These comments are based on management's plans, predictions, and expectations as of today, which may change over time. The company's actual results could differ materially due to a number of risks and uncertainties.

For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in BEN's most recent annual report on Form 10-K, as supplemented by the risk factors in its most recent quarterly report on Form 10-Q. Forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. As a reminder, this call is being webcast from our Investor Relations website, and audio replay will be available on the website in a few hours. With that, I'll turn it over to Paul to share a Q4 update. Over to you, Paul.

Paul Chang (CEO)

Thank you, Susan. Good afternoon, and thank you all for joining us today. Before we delve into our quarterly updates, I want to address the broader AI landscape and the recent turbulence sparked by DeepSeek. The rapid rise has raised awareness on AI training and run costs, scalability, and market dominance, triggering both excitement and volatility in the market. While DeepSeek's open-source model is making headlines, it merely reinforces what BEN has long championed since the beginning. AI doesn't have to rely on massive, expensive, GPU-heavy infrastructure to be effective. Last July, we demonstrated how small language models, retrieval-augmented generation, and industry-specific training can create a scalable and secure AI platform at a fraction of the cost. Unlike many large-scale AI systems that rely on costly, difficult-to-procure, energy-intensive GPUs, BEN's platform can run efficiently on CPUs.

The smaller computational footprint makes our AI more accessible, affordable, and scalable, enabling businesses of all sizes to leverage it without expensive infrastructure. BEN's approach and architecture also gives businesses the full control of customers' AI experience, while integration with legacy applications enables the automated processes that truly drive efficiency and enhanced customer engagement. This brings me to another critical issue shaping the AI industry: data privacy and security. The concerns surrounding DeepSeek are not just about AI dominance, but also about where and how user data is stored and used. Lawmakers and consumer advocates have raised alarms about foreign access to personal information, and the U.S. government is now considering banning DeepSeek AI on government devices due to national security risks. At BEN, we've prioritized data security from day one. Our AI platform operates within a closed-loop system, ensuring user data remains protected and never enters public training sets.

This security-first approach has led us to provide key insights to California Assemblymember Carl DeMaio on his proposed bill AB364 to strengthen consumer data protections. The bill would require AI and social media platforms to disclose where user data is stored, mandate explicit user consent, and prohibit foreign-controlled entities from handling sensitive healthcare, financial, and geolocation data. This commitment to security and efficiency has guided our work at Brand Engagement Network, and we continue to see strong traction across key verticals. In Q4, we reached two major milestones that positioned Brand Engagement Network for further growth in the automotive sector. First, we signed an agreement with Michiana Chrysler Dodge Jeep Ram, making them our first pilot dealer in the automotive sector. Since they already use Dealer.com software, which is fully integrated with our AI platform, this partnership allows us to seamlessly deploy our AI-powered agents, enhancing customer engagement and streamlining dealership operations.

This integration allows dealerships, using Dealer.com, to leverage BEN's human-like AI agents across their websites, apps, web browsers, and life-size kiosks. We anticipate the AI agents will go live in Q2, marking a significant step forward in our expansion into the automotive sector and demonstrating the value of our scalable AI-powered solutions in high-volume, customer-facing environments. Beyond our progress in automotive, we continue to execute on our broader strategic vision. Last October, we announced our agreement to acquire Cataneo, a leading media technology company based in Germany. This acquisition is a key part of our strategy to expand BEN's AI capabilities into global media and advertising, integrating our secure, scalable AI with Cataneo's MYDAS platform to enhance customer engagement and streamline ad sales and inventory management. We've made steady progress, and Walid will provide further details on the current status.

Looking ahead to 2025, we believe BEN is well-positioned for growth, continued growth in our target healthcare life sciences industry, as well as new markets we are entering. Our potential national chain clients appear interested to deploy BEN's AI Agents for mission-critical tasks, such as educating the public on the benefits and safety of vaccines as part of an outreach campaign. The key advantages are that the consumers will only be provided information from trusted, validated sources, and a campaign can scale effortlessly, reaching consumers at every corner of the country. Such a campaign is designed to increase our customers' revenues while significantly reducing the cost to run and manage the campaign. We'd like to thank our shareholders and partners for their ongoing support, and we look forward to keeping you updated on our progress this year.

Now, let's turn it over to our CFO and COO, Walid Khiari, who will walk us through our financial results from fourth quarter.

Walid Khiari (CFO and COO)

Thank you, Paul. I appreciate this opportunity to introduce myself to our audience and shareholders, provide a brief financial update, and share my perspectives on our M&A strategy and the announced acquisition of Cataneo. I joined the company in November after a 20-year career in financial markets, including more than 15 years as a technology investment banker working with software companies in Silicon Valley and across the world. What drew me to BEN is its highly specialized IP portfolio focused on conversational AI: 20-plus patents issued, with another 20 or so pending, all focused on advancing AI-human interaction. This includes innovations in user identification, personalization, image and video processing, human-like interaction, and gesture generation. From this IP portfolio, the BEN team has built B2B2C solutions in the form of AI agents that can interact with their audiences in a human-like fashion.

These AI agents can help transform consumer engagement and elevate customer experience. Each AI agent is uniquely designed for its specific business environment and use case, ensuring that elements such as voice, tone, cadence, and language, and even visual appearance in multimodal applications align seamlessly with a business's identity and goals. Ultimately, our AI agents serve as digital extensions of the brands they represent, aiming to provide businesses with the adaptability and scale to enhance engagement with their audiences. For BEN, 2024 was about investing in product development and refining our go-to-market strategy. Q4 saw the company continue to streamline its operations and rationalize its investments. We've continued to invest in our team in Seoul, Korea, which we see as a competitive advantage for BEN. Indeed, BEN has historical roots in Korea since our AI IP originally came from Korea University, which gives us access to strong local AI talent.

A significant financial update at year-end was the write-off of $13.475 million related to our exclusive reseller agreement in the automotive space, pursuant to our termination of that agreement. Let me explain. BEN previously issued shares of common stock to an automotive reseller pursuant to that agreement. The fair value of those shares at the date of issuance was $13.475 million and was deferred on the balance sheet as a customer acquisition cost. That asset was to be accounted for as a reduction in transaction price as the company transfers services to the reseller over the term of the agreement. In anticipation of terminating the reseller agreement, we performed an impairment analysis and concluded that the entire asset was impaired, given that there would be no future revenue associated with a reseller agreement upon termination. That's for major updates for Q4.

As it relates to 2025, it is and will continue to be all about execution. As it relates to our M&A strategy, we are in the process of acquiring Cataneo, a transaction that was announced at the end of Q3. It can take time to do things well. To that end, we agreed to an extension with the shareholders of Cataneo at the end of January and have already made two installment payments, which go against the consideration for the transaction. We aim to close the acquisition in Q2. I would like to take this opportunity to share some perspectives on our M&A strategy and explain how Cataneo fits into it, starting with what BEN is. BEN, B-E-N, is an acronym. It stands for Brand Engagement Network. The most important letter of that acronym is E, for engagement.

Our goal is to become the engagement AI platform, helping companies truly engage with audiences and go beyond simply advertising to them. Cataneo is a core building block of this strategy. Based in Munich, Germany, with a global footprint, the company's flagship product, MYDAS, is a software platform which provides a single pane of glass for advertisers as well as advertising agencies to schedule, operationalize, and voice ads, as well as manage ad inventory. Simply put, we at BEN view Cataneo as the ERP software of the ad industry. We believe that Cataneo's 20-year-plus tenure and reputation in the advertising industry matched with BEN's dedicated engagement AI capabilities can become a strong combination for advertisers and ad agencies worldwide to create an engaged connection with their audiences.

With this first combination, BEN aims to lay the first digital bridge of the new AI advertising tech stack, a stack which we intend to continue building on through both organic product development work as well as thoughtful acquisitions. In the field, we have expanded our partnership with Vybroo, a Mexican technology firm specialized in audio messaging strategy, and Grupo Siete a large Mexican media company, to extend our AI-powered engagement solutions to LATAM, Latin America, and Europe. These initiatives highlight AI's transformative role in media and advertising, which align with our long-term vision. We look forward to expanding our efforts globally, forging new partnerships, and continuing to innovate at the intersection of AI and advertising, and we will share more updates on our progress during our Q1 call. Thank you, and I would like to turn it back over to the operator for Q&A.

Operator (participant)

Thank you. As a reminder to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Jack Vander Aarde of Maxim Group. Please go ahead, Jack.

Jack Vander Aarde (Senior Research Analyst)

Great. Hey, thanks for the update, guys, and welcome to Walid. Paul, can you maybe help us understand just quickly? We reviewed some of the—you've had so many pilot programs you guys have announced during the entire course of 2024 and into 2025. Can you touch on some of the prior pilot programs? How many of them are still actively ongoing/are any moving forward towards a formal contract? Maybe, for example, some of the pharmaceutical companies you were working with. Yeah, I guess I'll start there, and I'll ask a few follow-ups. Thanks.

Paul Chang (CEO)

Yep. Thanks for the question, Jack, and good to hear from you again. Yeah, I would say the majority of the pilot programs, they were indeed contracts, right? They were paid engagements for customers to utilize our AI technology to ensure that it is going to deliver the sort of the promise of GenAI, and they have been testing it both internally and externally. What has extended, essentially, the pilot period has been due to, let's say, less than ideal performance of some of the other large language models that companies have been using. As you know, they are prone to hallucination, providing irrelevant responses, and I think, frankly, that has made these businesses much more cautious about fully adopting and deploying it into production. However, we are definitely seeing signs that many of those pilot customers are now ready to move forward.

We look forward to supporting them in their initiatives to deploy AI to not just their internal use cases, but to their own external customers.

Jack Vander Aarde (Senior Research Analyst)

Okay, got it. That's helpful. I guess just to touch on AFG quickly here, I know that as part of the agreement there originally, they were also an investor with, I believe, like a $6.5 million investment every first quarter for about four years or so. Can you talk to us about just kind of what does that mean that we do not have that investor or investment? What have you been doing, or how do you approach the capital structure, I guess? Maybe this is for Walid as well, in, I guess, to replace that capital, or what does this do for your overall, I guess, financing needs and growth investments as well? Thanks.

Paul Chang (CEO)

Sure. I'll defer to Walid on that question.

Walid Khiari (CFO and COO)

Very well. Thank you, Jack. Hi. Very simply, as it relates to the AFG lawsuits, I'd rather not comment given the situation. However, I can tell you that as it relates to funding, we have an S-1 on file with the SEC, which is currently going through the typical review process. We believe that with our current funding capabilities plus that S-1, that would address our financing need.

Jack Vander Aarde (Senior Research Analyst)

Okay. Gotcha. I appreciate that. As far as just, I suppose, I do not see any financial statements yet. When will the 10-K and financial statements be available? Unless I am completely missing that right now.

Walid Khiari (CFO and COO)

No, no worries. The 10-K, Jack, will be available. It has to be published by Monday, and we expect it to be there to be ready either tomorrow or Monday at the latest.

Jack Vander Aarde (Senior Research Analyst)

Okay. Great. I guess from sort of like a general business model, unit economics perspective, can we revisit kind of the general recurring revenue model of the business or that was in place in terms of like a—I think you had three sort of offerings with various startup costs associated with it, and then on a per-user basis is going to be—it seems like it was a high-margin SaaS business model. There are three sort of categories of it. Is that still the case, or just kind of where are we at with sort of how you're going to market and how you're strategizing in selling your assistants outside of the Cox moat of just in general? That'd be helpful. Thanks.

Paul Chang (CEO)

Yep, yep. I can take that. Thanks, Jack. Yeah. Our deployment options, all three are still in play. I can say that most customers, especially for POCs or internal pilots, are going with essentially a SaaS deployment where we have the entire software stack hosted on our cloud environment, and we provide it to the users in a secure manner. For external pilots, many of our customers are looking at private cloud environment, right? Especially when it comes to managing consumer data, especially anything healthcare-related. There are quite strict guidelines within their organizations to ensure the highest security and privacy. They are looking at private cloud deployments. However, we've actually seen quite a bit of interest for on-prem deployment from many of our potential customers. There are several reasons for that, right? One is obviously security and privacy, right?

Having it in their own four walls, I think that's the most secure deployment model you have. The second is their ability to essentially control the experience to their customers. Having it deployed locally, they could manage sort of the scaling of that. Obviously, the third is the cost aspect. Because of our small footprint of our platform, they recognize that they're able to service a large number of customer engagements with relatively small server boxes. I think that's where they see a big advantage of being able to deploy things on-prem.

Jack Vander Aarde (Senior Research Analyst)

Okay. Great. Maybe, Paul, just in general, I do not know if you have the exact numbers in front of you, but maybe just help us understand where are we at with total headcount currently? Just the size of the organization and the opportunities you are going after. How many people in your sales force are there? Are you going through a direct sales channel, indirect channel as well? Just give us an update. It has been a little bit, I think, with all the—it has been a lot of moving parts here, so I would just like to get a sense there.

Paul Chang (CEO)

Sure. I would say we have a relatively focused in-house sales team with deep expertise and connections in certain industries, so we depend on them. However, Jack, as you know, our go-to-market strategy has always been to work with partners who could help us scale. It is the partners that are doing the heavy lifting in terms of doing the outreach to their customers, getting engaged with them, educating them. Obviously, our sales team gets plugged in once the opportunity progresses to a certain level. We found that strategy really starting to pay off. I think in 2025, that is what you are going to see is the results of the maturing partnership between us and several partners we have and our ability to leverage their size and resources to scale our business.

We hope that in our upcoming earnings calls, that we'll be able to highlight some of those specific examples.

Jack Vander Aarde (Senior Research Analyst)

Okay. Great. Maybe just one more question. Of the verticals you're going after, you've outlined quite a few here that still remain in place, it sounds like. With automotive, healthcare, financial services, and I know there's some other opportunities outside of that. What do you see as the biggest near-term opportunities for Brand Engagement Network from a revenue ramp perspective in the near term and then longer term? Thanks.

Walid Khiari (CFO and COO)

Yeah. I'm happy to take this question, Jack. I would say in addition to the verticals you highlighted in your question, the media and advertising space is one where we really see very, very interesting prospects for us. As I mentioned, in the field, we've had some good traction from a commercial standpoint. I would say that that's organic. In addition, I know we're not supposed to talk about acquisitions that haven't closed, but the strength of Cataneo is really, among many things, its products, its people, the talents, the modularity of the software, and ultimately the quality and size of its customers, all of whom are—most of them, I should say—are in the media space and are very large companies in that space. It creates for us the ability to accelerate our growth in the media and advertising space. I would add that.

I'm not sure we can think of it as a vertical, but we might, and I would add that to the list.

Jack Vander Aarde (Senior Research Analyst)

Okay. Great. I said that was my last question. Maybe just one more. While as you get more acquainted into the business and you have a little more soak time, wondering if you're going to be thinking about what are some of the metrics maybe you're looking at or thinking about putting together that you think would be worthwhile tracking and updating as we go here to support your business?

Walid Khiari (CFO and COO)

That's a great question, Jack. Yeah. It's a great question. Allow me to adopt an organic perspective and a dynamic perspective in that as the business evolves, these metrics will evolve. I can't commit to those just yet. It's still a bit early. As it relates to my philosophy as a CFO, I don't think in terms of spend. I think in terms of investment. Return on investment internally is something that I really care about. Every dollar that we spend in the euro and the Korean won, and I mentioned Korean won as a way to salute our 30 people in our Korea office who do great work developing our products. All these amounts have to be accounted for with an ROI perspective. I would say that's for internal purposes.

As it relates to outside metrics, to the point that Paul made earlier, some of our sales based on what our customers want will be on-premise. That'd be kind of traditional software license sales. Others will want very much of a subscription model. All the metrics typically associated with SaaS will think through items such as retention rates over time and a whole slew of SaaS metrics that I think are relevant for a software company to highlight. As I mentioned earlier, dynamic is the name of the game. We'll come up with those KPIs. We have a few that we track internally. As the company matures and we engage with more investors, we integrate companies and we develop our verticals, we will develop a whole panoply of parameters and metrics and KPIs to manage and to communicate upon.

Jack Vander Aarde (Senior Research Analyst)

Okay. I appreciate the color there and look forward to watching you guys execute and learning more, I think, in May with Q1. Thanks.

Walid Khiari (CFO and COO)

We can't wait. Thank you very much, Jack.

Operator (participant)

Thank you. With that, I'd like to turn the conference back to Paul Chang for closing remarks. Sir?

Paul Chang (CEO)

Yep. Thank you. I appreciate everyone for joining our call today. As you can hear, we are very excited about 2025 and look forward to sharing our progress in the near future. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.