Fluent, Inc.

Hello and welcome to the Fluent Incorporated fourth quarter and full year 2021 earnings call. My name is Harry and I'll be your operator for today. If you'd like to ask a question during the Q&A session, you may do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Dan Barsky with Fluent to begin. Mr. Barsky, please go ahead.

Good afternoon and welcome. Thank you for joining us to discuss our fourth quarter and full year 2021 earning results. Joining me on today's call are fluent CEO Don Patrick, our CFO, Sagunda Kahan-Dawal, and Ryan Schulte, our co-founder and chief strategy officer. Our call will begin with comments from Don Patrick and Segunda Kahandewal, 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 the 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 the 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, anticipate, believe, should, intend, estimate, 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 Business, we encourage you to review the company's filing 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 related to media margins, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of our business on a variety of indicators, including median margins, adjusted EBITDA, and adjusted net income. The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release issued earlier today. With that, I'm pleased to introduce Fluent CEO, Don Patrick.

Thank you, Dan, and good afternoon. Thanks to all of you for joining our call today. I'm here together with Ryan Schuelke, our Chief Strategy Officer, Chairman of the Board and Company Founder, and Segunda Kondiwal, our new Chief Financial Officer. Segunda joined us in December 2021 from Sam's Club, a division of Walmart, and we're very excited to have our deep strategic and financial acumen as part of our team. Before we start, and on a serious note, Fluent has employees with family ties, as well as business partners who operate in the Ukraine, and thus we are compelled to comment on the crisis unfolding there. It is devastating to see friends, families, and professional colleagues so gravely impacted, with the gravest tragedy of all being the horrific loss of lives. Unfortunately, there will be more suffering in the weeks ahead. We want to express our most sincere thoughts and prayers for all the Ukrainian people who who are living in peril. Our results in Q4 speak to the continued progress we're making towards our long-term strategic growth plan. It was in Q4 of 2020 when we committed to a strategic transition of our business, focused on building higher quality digital experiences for consumers while creating more effective and sustainable customer acquisition solutions for marketers. This has been a major strategic and operational undertaking that Fluent Leadership has consciously chosen a course where we knew it would be challenging and would require us to forego near-term revenue and margin, which we consider to be an investment in a long-term and more sustainable roadmap. While our journey is far from complete, we are pleased with our progress and even more resolute regarding our strategic path. By delivering our clients a higher-quality, engaged consumer, while focusing squarely on delivering their ROI goals. We are enhancing Fluent's brand equity with our current partners while opening the door to new client opportunities. And while we continue to appropriately invest in our growth agenda, we do so with the confidence that has this building margin backed into these businesses over time, ultimately building enterprise value for our stakeholders. In the earnings released today, we reported a full year 2021 Revenue of 329.3 million, which represents top line growth of 6% versus 2020, 100.4 million of median margin, a decline of 9% at 31% of revenue, and 23.2 million of adjusted EBITDA, a decline of 44% at 7% of revenue. Overall, Our 2021 financial results were consistent with the business roadmap we laid out in our earnings release for the fourth quarter 2020 and full year 2021, which emphasized quality and value to both our consumers and clients as a strategic course to return historical growth revenue in the later part of the second half. Our fourth quarter results represent additional progress in our business agenda, where revenue hit a quarterly record of $99.8 million, up 22% year over year, media margin of 31.2 million, down 3% year over year, at 31% of revenue, which reflects ongoing media and strategic investments, and adjusted EBITDA of 10.2 million, or 10% of revenue. We accelerated revenue in Q4 as we leaned into different strategic areas of growth that we believe are more sustainable. At this stage of the transition, we are consciously investing margin to establish our brand position in the marketplace, taking share in these newer strategic markets and building fluent brand equity. We are confident that we will enhance our margins in these businesses as we scale them over time. As we've noted previously, fiscal year 2021 was about setting our strategic growth plan while positioning our founding team on the front lines of our business. where their leading edge industry expertise is driving our strategic and operational agenda forward. As we continue to learn, evolve, and scorecard our business initiatives, we ended 2021 in a stronger market position, and we're encouraged by our progress against a very thoughtful and deliberate strategic course. Reflecting on both the full year and the fourth quarter, I'll share some thoughts in context of our three strategic growth pillars. our media footprint, our platform, and our performance marketplace. I'll also speak to our key initiatives, sharing progress that we've made in each. Fluent's competitive advantage is grounded not only in the initiatives articulated within our pillars, but more so how the pillars intersect with one another in our operating model, providing forward-looking growth opportunities. Our media footprint continues to evolve, within our operating focuses of traffic quality initiative, or TQI. Succinctly stated, our commitment to quality grounding consumers' experiences is leading more quality outcomes in our marketplace. Fundamentally, Fluent is creating a higher value marketplace for consumers and for our partners. In turn, we believe this will pay strategic and financial dividends for our evolving Fluent business model as we work to capitalize on both. As we stated in the first half of 2021, our yielding commitment to TQI led us to make appropriate strategic and a financial call to forego near-term revenue as we eliminated traffic that did not meet our enhanced quality standards. In an industry that continues to rapidly grow and evolve with more discerning consumers who are redefining the quality engagement, we realize this work will remain ongoing. and we'll obviously adapt with the consumer as the marketplace demands. In turn, our efforts led us to growing our media spend on digital platforms like Facebook, Google, Snap, and TikTok. While this represents a significant fluent growth opportunity, as one might expect, this revenue comes at lower margins in the intermediate term versus our historical traffic mix. Throughout 2021, we were able to expand our platform media spend and grow our media margin dollars over 50% comparing second half versus the first half. Even though we pulled that growth back in Q4, given the seasonal increases in the cost of platform traffic around the holidays. As we had previously noted, while relatively more expensive, we believe traffic from these digital media and technology platforms secure higher quality and higher value while also representing a significant growth opportunity. Given the logical strategic connectivity to TQI across our entire business model, I will provide more detail regarding its relevancy as I review our performance marketplace, where we continue to improve monetization throughout 2021, which we have seen its sustainable growth trend moving forward. Throughout the year, we also continue to strategically expand our media footprint with more relevant content and offers for consumers and brands with our jobs business, our ad parlor agency, and our international business. Although these are early-stage, fluent businesses within our total mix, they continue to show long-term promise as they are performing very well, achieving 50% year-over-year revenue growth. In Q4, these business units accelerated revenue growth over 75% year-over-year. All are well positioned in 2022, although we anticipate international and ad parlors revenue growth will be more level in line with the industry growth rate as we now focus more on margin expansion. We expect our jobs business revenue will slow in Q1 as we migrate to an enhanced technology platform that better accesses our machine learning and data capabilities. We anticipate this higher quality consumer experience with tighter technical integration with partners will pay long-term dividends, and we expect to accelerate jobs growth in the second half of 2022. Another key strategy we're excited about is the successful launch of the expansion of our mobile apps business. While also in early stages, this is a sizable and growing audience marketplace and an excellent strategic growth opportunity for Fluent and margins that we will also expect to improve over time. The mobile app total available market for Fluent is roughly two times the size of mobile web, where our own media properties primarily connect digitally with our consumers today. To capitalize on this opportunity, we've developed new media products and are exploring strategic partnerships that enable us to bring our advertiser offers to mobile app consumers. We are quite excited regarding this long-term growth implications here and the corresponding strategic and financial returns. Our second strategic growth pillar, our performance marketplace, was driven primarily by two key niches in 2021, both grounded in higher quality experiences. First was our investment-influenced sales solution, which provided us enhanced capabilities in our live agent platform, which connects consumers with marketers in high-consideration, high-value categories, including insurance, home, financial, and legal services. new business for us in the second half of 2020 fluent sales solutions has already grown to represent roughly 10 of our 2021 annual revenue and performed notably well in q4 showing roughly six times revenue growth year over year as we leaned into the seasonality of the insurance market we saw very strong demand from high quality clients in a high value verticals where we've strategically grown the available size of our performance marketplace. This is another business we are confident we can grow as we expand into other high-value categories, so we will focus on margin expansion in the intermediate term, again, managing our mix is key. Overall, we are excited about the progress and anticipate being able to play more strategically into the various seasonal patterns of these verticals. Our second key initiative in our performance marketplace is expanding our CRM agenda. The build-out of our internal CRM capabilities as part of our platform pillar, which I'll speak to shortly, enables us to re-engage consumers after their initial visits to our own media properties. We previously mentioned having approximately double monetization in Q4 2020 to Q1 2020 and sustaining those increases going forward. In Q4, monetization continued to increase quarter over quarter, primarily as a result of our enhanced CRM capabilities and the impact of expanding our marketplace through fluent sales solutions. We see significant marketplace before us to further create meaningful downstream experiences for our consumers, expand relationships with world-class brands and key industry verticals, while grounded in enhancing our consumers' lifetime value. Shifting to our third growth pillar, our platform, where investments led us to make further strides in increasing monetization. Our CRM platform, specifically building out our internal email capabilities, which had previously been activated solely through partnerships, continued to scale and exceed our expectations. We are now driving significant, consistent, high-margin revenue by reengaging consumers after their initial visits to our owned media properties. CRM increased 50% in 2021 year over year. In Q4, we were able to continue to capture increases in revenue per user through strong client demand in certain verticals and through our efforts to reengage consumers beyond their initial visits to our website. Over time, as our media footprint and performance marketplace expand and strengthen, CRM will strategically drive incremental revenue and margin across our business units. In closing, we saw fiscal year 2021 as a consumer call to action with quality at the core and our fluent TQI initiative as an aggressive and appropriate strategic road forward. We recalibrated our strategic growth plan and made the tough calls in walking away from businesses that we felt were no longer strategic in nature. accepting the near-term revenue and margin impact. And we did so with confidence as we concurrently made appropriate business investments that set us up to grow long-term with our strategic client partners, not simply in 2022, but with sustainable growth trajectory beyond. For 2022, we will continue to strategically lean into revenue opportunities and grab market share, focusing execution on our businesses that differentiate brand fluent. In parallel, we'll manage the business mix across different investment profiles, being mindful of our margin expansion goals over time. Overall, we believe our 2022 financial results will show revenue growth returning at or above industry growth rates with sequential margin improvement over time. And finally, As our industry continues to rapidly evolve, we remain steadfast that building higher quality digital experiences for consumers while creating more effective and sustainable customer acquisition solutions for our clients represents the winning road forward. As we accelerate against our strategic and financial growth agenda, our team remains grounded in our operating principles and can be more proud of their ability to navigate the strategic transition. And to be clear, I'm excited about the long-term opportunity for Fluent and for our shareholders. And with that, I'll turn to Sugandha to provide more detail on her financial results.