Fluent, Inc.

Music Playing We'll be right back. We'll be right back. Thank you. Hello and welcome to the Fluence Inc second quarter 2021 earnings results call. My name is Laura and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to your host to begin, Ryan McCarthy. Ryan, please go ahead.

Good afternoon and welcome. Thank you for joining us to discuss our second quarter 2021 earnings results. Joining me on today's call are Fluence Interim CEO, Don Patrick, and CFO, Alex Mandel. Our call will begin with comments from Don Patrick and Alex Mandel, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our investor relations page on our website, www.fluentco.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call will contain forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made during this call speak only as of the date hereof. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, may, anticipates, believes, should, intends, estimates, and other words of similar meaning. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Fluent's business, we encourage you to review the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During the call, we will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of our business on a variety of indicators, including media margin, adjusted EBITDA, and adjusted net income. The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measure are provided in the earnings press release issued earlier today. With that, I'm pleased to introduce Fluent's interim CEO, Don Patrick.

Thank you, Ryan, and good afternoon. Thanks to everyone for joining us today. Joining me today is Ryan Schuelke, now our chief strategy officer, chairman of the board, and company founder, as we've recently transitioned our roles. The key motivator to our recent executive changes is to position our founding team fully on the front lines of our business in order to harness their deep expertise and better align our executive team to drive our strategic agenda forward. On prior calls, Ryan has articulated Fluent's three strategic growth pillars, our media footprint, our performance marketplace, and our platform. and how they best position us in this very dynamic and rapidly evolving marketplace in which Fluent operates. The success we reflected upon in 2020 and beyond, vis-a-vis onboarding and scaling larger, more sophisticated clients on our performance marketplace, while increasing and sustaining improved monetization on our platform, motivated us to further redefine our media footprint in the form of our traffic quality initiatives. We see higher quality as the road to sustainable long-term growth and are resolute in our belief it will better position us as an industry leader, even though through these more strategic media and client investments, we will knowingly forego some near-term margin. In our earnings release today, our numbers for Q2 reflect revenue being up 3% year over year, media margin being down 19% year over year at 27% of revenue, reflecting investments in the quarter, which I'll discuss further, and adjusted EBITDA representing 3% of revenue. We see our strategic North Star as capitalizing on the demand for higher quality digital experiences for consumers and more effective and sustainable solutions for marketers. With quality as a foundational principle, we've been accelerating our strategic transition of our business and unwavering commitment to and significant investment in quality across our performance marketplace. In practice, this means we're continuing to enhance our media properties and consumer experience in order to create more meaningful, enduring, and high-value connections for consumers with our top-tier clients and brands. The end goal of these efforts is to enhance Fluent's brand's equity with our clients and in the marketplace. By meeting and exceeding client ROI goals, while building enterprise value for our stakeholders. And we believe we are already benefiting from these efforts as we progress our journey. So our current operating focus continues being anchored around our traffic quality initiatives. As Ryan has spoken to, in the latter part of 2020 and in Q1 of this year, we cut back significantly on our affiliate traffic sources that did not meet our quality requirements. While we continually monitor traffic quality, with the steeper cuts largely in our rearview mirror, our focus has been on growing traffic volumes with existing partners who share our commitment to quality while testing new partners, strategies, and media channels. Relative to our traffic volumes in early April, we are currently trending up 25%. Underpinning the rebound in our volumes has been accelerated expansion of traffic source from the big digital media platforms, including Facebook, Google, Snap, and TikTok. Well, on the last earnings call, we indicated an expectation Q2 revenue would decline 11% to 13% year over year. During the quarter, we found opportunities to more rapidly drive platform spend ahead of our prior expectations. However, this spend, along with investing in testing affiliate buying strategies, produced a considerably lower margin than our more established side of our traffic mix. As is typical in our business, a test and learn approach to validating scale and optimizing into profitability has positioned us to leverage our media investments with incremental margin as we move into the second half of the year. On the last two calls, we indicated a view that our traffic quality initiative would take a couple of quarters to reestablish prior trend levels. And we continue to maintain that outlook. We anticipate year-over-year top line growth in each of the third and fourth quarters. albeit with profitability concessions, as we invest to test and learn when new affiliate partners continue to source more media from the digital platforms. However, we do anticipate sequential improvements in profitability relative to Q2. And overall, we see the timelines in the arc of our traffic quality initiative as directionally similar to the industry precedents that we've alluded to previously by leading public companies that proceeded to rebuild volume, profitability, and substantial enterprise value. Certain strategically relevant yet smaller business units performed notably well in Q2. Our jobs business was up two times year-over-year as proliferation of vaccines spurned recruitment spend, and our ad parlor agency business enjoyed similar growth. Our content site, branded the Smart Wallet, along with our programmatic data sales business, were both up three times year-over-year, We foresee continued growth from these businesses in the second half of the year. We also expanded our international media footprint by launching in Canada, where we've already validated market viability and are working to scale. We remain optimistic about our growth prospects here and are targeting further international expansion in the back half of the year. Regarding our second growth pillar, our platform, We've mentioned for several quarters that monetization has increased significantly over the course of 2020, approximately doubling from Q1 to Q4. And I'm glad to share that our monetization remains robust, which we believe will continue through the second half. These results validate substantial return on investments we made in our technology and analytics over the last couple of years. Another aspect of our platform where we continue to invest is expansion of our CRM efforts, through which we've increased lifetime value of consumers on our properties by reengaging them beyond what we call day zero for their initial visit to our websites. A key initiative on this front has been our investment in the Winopoly business, which provides live agent telephony activations for fluent leads and has grown considerably beyond initial expectations. This platform enables us to take a consumer from digital experience to a live call interaction through which we can connect them to higher consideration, higher value transactions with top-tier brands in senior insurance, financial services, and home services. Regarding our third pillar, our performance marketplace, we continue to see world-class brands leaning in with strong demand that well exceeds our available supplies. These critical and valuable relationships enable our efforts to not only redefine our media footprint, but drive the establishment of new media partnerships. In turn, this will drive margin expansion, greater predictability of earnings, and our longer term growth opportunities. In sum, our growth strategy remains well grounded and intact. We are well positioned in our dynamic marketplace. And our investment in traffic quality is on track. As Ryan has previously noted, our approach to running the business is grounded in timeless principles, a sustainable growth strategy, leading-edge operating protocols, and best-in-class code of conduct. Our recent management shift further concentrates the operating focus of our organization to accelerate our strategic roadmap and growth agenda, leveraging the industry-renowned talents of our founders as lead innovators and operators. Thank you for your support as we continue to move full speed ahead on our mission. And with that, I'll turn it over to Alex to cover our financial results.