Fluent, Inc.

And welcome. Thank you for joining us to discuss our first quarter 2024 earnings results. With me today are Fluent CEO, Don Patrick, Interim CFO, Ryan Perfect, and Chief Strategy Officer, Ryan Schultz. On our call today, we'll begin with comments from Don and Ryan Perfect, followed by a question and answer session. I would like to remind you that this call has been 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 at 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 Security 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 risk and uncertainty associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, 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 Security 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, management will also present certain non-GAAP financial information related to media margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of our business on a variety of indicators, including these non-GAAP metrics. The definition of these metrics and reconciliations to the most directly comparable GAAP financial measures are provided in the earnings press release issued earlier today. With that, I am pleased to introduce Fluent's CEO, Don Patrick. You may begin.

Good afternoon. Thank you all for joining our call today. I'm here together with Ryan Shulke, our Chief Strategy Officer, Chairman of the Board, and Company Founder, and Ryan Perfitt, our Chief Financial Officer. I'll make some brief comments about our first quarter results that reflect the strategic pivot we are making in evolving our 2024 growth strategies focused on leveraging our leadership position in owned and operated marketplaces as a competitive advantage. In concert, a proprietary technology platform is proving to be an effective springboard from our owned and operated marketplaces into new high-volume, high-growth syndicated performance marketplaces that we believe represent long-term strategic runways that will ultimately be margin-accretive to the core. In the earnings released today, We reported quarterly results that continue to demonstrate meaningful progress in our new performance marketplaces, while also reflecting our post-FTC settlement transition with the corresponding impact on our owned and operated marketplaces' business and financials. Overall, our financial results remain consistent with the roadmap we laid out in previous earnings releases. Our first quarter financial results were as follows. Revenue of $66 million, which represents a 14.6% decline versus Q1 2023. These results, driven primarily by the impact of our FTC settlement and our related strategic and financial decisions to forego revenue streams that we felt were no longer strategically compelling or did not meet our evolving quality standards in our owned and operated marketplaces. Revenue results were positively offset by the new performance marketplaces continuing to accelerate with strong double digit growth, albeit off a smaller base. Our median margin of $22.1 million was an increase of 1% year over year versus Q1 2023 at 33.6% of revenue. We saw media margin increase almost 500 basis points from 28.6 last year, consistent with our strategic plan and a direct reflection of shifting our business mix to a higher margin performance marketplaces. Adjusted EBITDA 0.7 million represents 1.1% of revenue reflecting seasonality as well as our continued investment in what we see as a strategically compelling, market-proven, and sustainable growth agenda. As outlined in our last earnings release, we expect to see year-over-year revenue decline in the first half of 2024 given, one, the residual impact of exiting our non-strategic businesses, which won't be fully cycled until the second half, and two, our new performance marketplaces, which, while still growing aggressively year over year, will have sequential quarterly declines based on the high seasonality of the verticals we presently serve. To be clear, we're ahead of expectations on our new performance marketplaces. Our foundational strength in owned and operated marketplaces provides us valuable access to consumers where we've built meaningful relationships that are very attractive to our world-class brand partners. Fluent's performance pricing model provides our partners with a differentiated marketplace that meets their customer acquisition growth needs while being strategically aligned with their goals. The revenue margin pressure on our owned and operated marketplaces are being driven by three significant headwinds, two ongoing and one new. In previous earnings releases, we've detailed, one, the impact of our post-FTC settlement, and two, continued macroeconomic headwinds that our advertiser clients continue shifting their consumer acquisition strategies to a clear prioritization of return on ad spend given the consumer volatility in the market. Our strategic adjustments to these headwinds have been grounded in our commitment to enhance the quality of our consumer experiences relative to the engagement and satisfaction with our owner-operated marketplaces while driving higher quality outcome for advertisers. Our third headwind is that in spite of the fact that Fluent has led the industry in establishing and executing leading edge protocols, which we believe are the best in class model for the entire industry, we are seeing certain competitors accelerate activity via non-compliant marketing practices that violate the FTC Act and guidance. In the immediate term, these non-compliant competitive practices put us at a market disadvantage in scaling certain media channels. We are not naive, and we certainly expected some competitors to try to financially take advantage of this situation, albeit at their own business and regulatory peril. But we also felt the FTC would more expeditiously and aggressively address the non-compliant marketers across the industry. It remains our view that these practices by our competitors will not continue indefinitely. And the FTC enforcement, along with our regulators at the state and federal level, and a very active class action plaintiff bar, will eventually eliminate the troublesome practices of some of our competitors in level playing field. Our strategic resolve remains, as we've seen in the near-term financial impact as an investment in distinguishing our brand in the market and creating a distinct competitive advantage. Given the realities of the current market, we will continue to de-emphasize growth of our owned and operated marketplaces and manage expenses over the next several quarters until our competitive set accepts and appropriately responds to the new FTC requirements. The strategic growth engine of our business is grounded in our performance marketplaces, and we're accelerating the Fluent brand into very large marketplace opportunities that unleash our core capabilities in dynamic and growing markets. To date, we've established vertical expertise in health, retail, and ticketing. Those businesses are more seasonal than our owner operated marketplaces, which have impacted our trend line in the quarter. But we are coming to the stronger season It will continue to grow market share, which will have Fluent Enterprise returning to year-over-year growth in the second half of 2024. Our ad flow and call solutions performance marketplaces are both driving strong double-digit revenue growth. We expect these businesses to continue to scale, become more meaningful bottom-line contributors, and we're excited by their early success. Adflow is our media solution we launched in the large and rapidly growing commerce media market, a market that is expected to reach $150 billion by 2030. Currently, 43% of U.S. brands have commerce media budgets, and that is expected to increase to 75% by 2025. We're headed to where the puck is going, and our foundational Adflow strategies continue to show dramatic year-over-year revenue growth driven by new partner wins, which are enabled by leveraging our proprietary technology, machine learning, and data platform capabilities that have yielded excellent results in these dynamic marketplaces. We're excited by these early results, that they represent a new and growing opportunity for world-class brands to reach consumers seeking higher quality engagement at the optimal purchase moment. Year to date, we've added new ad flow partners in both retail and ticketing, while also expanding into the grocery vertical. We expect this growing business will provide us broader brand partners access as we scale. We also see significant breakthrough before us that we'll detail further next quarter, where we are now working with our commerce partners to expand the marketplace via ad flow solution to expand beyond post-transaction include enhancing consumer engagement retention and loyalty across our partners commerce platforms in our call solutions business we've proven our operating model and established our financial metrics in our new business extension in the heart of the health vertical focused on the affordable care act market our business is growing double digits and we'll continue to scale our vertical market expansion by growing existing partners and adding new partners who are already recognizing our competencies. ACA is a high sequential, high growth opportunity where we believe Fluent can differentiate ourselves within a highly fragmented market. We find this attractive strategy given the margin potential exceeds the Fluent core. Importantly, a performance marketplace go-to-market model remains highly differentiated from the competitive set. We're uniquely positioned in the industry to leverage the inherent analytical capabilities we've established over a decade with our owned and operated market platform. So, while our market-leading owned and operated marketplaces continue to stabilize, it essentially enables and fuels our pivot into higher quality consumer engagement. We are quite enthusiastic regarding the strategic and financial roles that our performance marketplaces are playing in our longer term growth agenda. Importantly, as we grow market share, margin accretion will follow. We will continue to make strategic bets and investments, building higher quality digital experiences for our consumers while creating more effective and sustainable customer acquisition solutions for our clients. Our solution set is dramatically strengthened and our performance marketplaces are being thoroughly endorsed by our brand partners, the signature of marketplace credibility. We are confident that we're elevating Fluent's brand equity position within the industry. Moving forward, we're targeting growing revenue from our emerging businesses by greater than 50% in 2024, which should have Fluent returning to year-over-year consolidated growth in the second half. Importantly, as we enhance our market position, we are confident that we'll begin growing our total gross profit more rapidly than our revenue in the back half of the year. To date, we are ahead of expectations in our new performance marketplaces. And with that, I'll turn to Ryan Perfect to provide more detail on our financial results.

Thank you, Don, and thanks to everyone for joining us today. I'll now provide some additional color on our Q1 earnings. In Q1, we generated $66 million in revenue, down 15% from prior year and down 9% sequentially from Q4. As expected, our owned and operated marketplace business continued to experience the effects of a challenging macroeconomic environment and changes in business practices to reflect regulatory requirements in connection with the FTC consent order. These challenges influence sequential reductions in spend by key clients in the media and entertainment, retail and consumer, and staffing and recruitment sectors. However, we are optimistic that the owned and operated business will stabilize in the back half of the year as we continue to set a high standard for industry compliance on behalf of our clients. Our new syndicated performance marketplaces grew exponentially over Q1 of last year, but we're down slightly from Q4 2023 due to expected seasonality. The fundamentals are strong in our syndicated performance marketplaces and we are confident in the prospects for growth in this business as we look to the back half of the year. For the full year, we believe a better macroeconomic environment will allow for moderate sequential growth in our owned and operated marketplaces and we expect our performance marketplaces to continue to grow at strong double-digit rates year over year. In Q1, media margin was $22.1 million, which represents 33.6% of revenue compared to $22 million or 28.4% of revenue last year. We are pleased to see that media margin as a percentage of revenue improved despite decreased revenue in the business, which highlights the growth of our new performance marketplaces. On a gap basis, our aggregate operating expenses for Q1 were $20 million, a $2.1 million decrease year over year. Of note, our operating expenses in Q1 2024 and Q1 2023 include restructuring and other severance costs of $665,000 and $480,000 respectively. This includes severance related to a reduction in force during the first quarters to better align our cost structure. G&A in the quarter also includes an accrued compensation expense related to the Winopoly, True North, and TAP acquisitions of $782,000 for the three months ended March 31, 2024, and $623,000 for the three months ended March 31, 2023. Q1 2023 also includes $1.4 million of litigation and other related costs. All of these costs fall outside of the normal course of business and thus are excluded from our adjusted EBITDA calculation. Our Q1 adjusted EBITDA was $665,000, or 1% of sales, a year-over-year increase of $217,000. In 2024, we expect media margin growth in the second half driven by our new performance marketplaces to push adjusted EBITDA as a percentage of revenue into the high single digits. The company cannot provide a reconciliation to expected net income or net loss in 2024 due to the unknown effect, timing, and potential significance of certain operating costs and expenses, share-based compensation expense, and the provision for or benefit from income taxes. Interest expense in the first quarter increased to $1.4 million from $698,000 due to higher average interest rates on our citizens' term loan and as an effect of increased amortization of debt financing costs related to the citizens' facility. For the quarter, our income tax expense increased to $908,000, an effective tax rate of 16.9%. from 101,000, an effective tax rate of 0.3% in the first quarter of last year. We reported net loss of 6.3 million and an adjusted net loss, a non-GAAP measure, of 4.2 million, equivalent to a loss of 30 cents per share. Moving to the balance sheet, we ended the quarter with 11.7 million in cash and cash equivalents. Total debt, as reflected on the balance sheet as of March 31, 2024, was $31 million, representing a slight increase from $30.5 million as compared to the balance at December 31, 2023. As a reminder, on April 2, we entered into a credit agreement with SLR Credit Solutions that provides for a $20 million term loan and a revolving credit facility of up to $30 million that matures on April 2, 2029. The SLR credit facility had an opening outstanding principal balance of $32.7 million, and we used $30 million of the proceeds to repay our prior credit facility with Citizens Bank. In addition, we just closed a $10 million equity financing from investors, including our founders, our largest shareholder, and our CEO. The additional liquidity reduces our dependence on the SLR credit facility during our strategic pivot and reflects our confidence in the strategy. Working capital, as defined as current assets minus current liabilities, was negative $2.1 million at quarter end. This represents a decline from $29.2 million at December 31st, 2023, due to the required presentation of the entire $31 million debt balance as current related to potential financial covenant noncompliance under our credit agreement. In Q1, we invested $1.8 million into capitalized product development and technology, as compared to $1.1 million in Q1 2023. As we look into 2024, the management team continues to focus on the stabilization of our owned and operated marketplaces while we continue to grow the new syndicated performance marketplaces that provide our clients with high-quality customer acquisition opportunities. We're confident that our growth strategy will produce substantial long-term financial benefit in 2024 and beyond. We appreciate your ongoing support. We will be happy to take questions at this time.