Fluent, Inc.

Good afternoon and welcome. Thank you for joining us to discuss Fluent's first quarter 2025 earning results. With me today are Fluent's Chief Executive Officer, Don Patrick, and Chief Financial Officer, Ryan Perfect. Our call today will begin with comments from Don and Ryan Perfect, 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 Fluent's website. To access the website, please visit the investor relations page 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 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 such forward-looking statements due to risk and uncertainties 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 risk 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, management will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of the company's business on a variety of indicators, including these non-GAAP metrics. The definitions 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'm pleased to introduce Fluence CEO, Don Patrick.

Good afternoon. Thank you all for joining our call today. I'm here together with Ryan Schuelke, our Chief Strategy Officer and Company Co-Founder, and Ryan Perfect, our Chief Financial Officer. I'm going to make some brief comments about our first quarter results that reflects our enthusiasm for the strategic pivot we are successfully orchestrating as we continue to shift our mix and influence long-term higher gross margin growth strategies. On the strategic front, our pivot to focus on growth opportunities around our commerce media solutions is well underway. By leveraging our leadership position and competitive advantages of our owned and operated marketplaces as a springboard into new, high-volume, high-growth commerce media marketplaces, we are driving strong year-over-year growth in this segment. As of March 31st, 2025, our commerce media business has surpassed an annual revenue run rate of over 65 million as we continue to expand our model and grow market share. The effectiveness of our commerce media solution offering is further validated by the major brands that continue to join our roster of partners and advertisers. Last week, we announced the new strategic partnership with Rebuy Engine, the leading e-commerce personalization platform for Shopify brands. Rebuy is growing rapidly and provides unparalleled scale and insights for Shopify merchants. generating over $1 billion in revenue for 12,000-plus active e-commerce brands each year. Their expansive partner network and merchant-first approach align seamlessly with Fluent's mission to deliver high-impact commerce media solutions at scale. We view this as a win-win partnership that provides Fluent with access to a large and growing Shopify ecosystem as a new sales channel and represents another big step forward as we continue to lean into our growth strategy. While our foundational owned and operated businesses represent strong brand equity we built in the marketplace over the last decade, the strategic and financial role of these businesses have meaningfully evolved. Put simply, owned and operated provides the essential operational and capability platform that acts as a springboard for our marketplace expansion. And the cash flow in these businesses fuels our long-term growth strategies. However, our overall revenue mix continues to shift towards a rapidly growing commerce media solutions, where our gross profit margins are creative to the core. Going forward, our goals to stabilize our owned and operated business has become the lesser share of the total enterprise. This quarter, owned and operated revenue was impacted by tightened supply in the social media channels, and we're working diligently to counter any longer-term impacts. Importantly, the owned and operated business remains a productive driver for our Commerce Media Solutions growth strategy and is foundationally linked to our momentum. Our owned and operated proprietary first-party data and embedded AI-powered technology is leveraged by our commerce media solutions to create a competitive moat that allows us to establish mutually beneficial revenue share agreements and longer term contracts with our commerce media partners. As we scale commerce media solutions, we're beginning to see the positive financial impact across the entire Fluent enterprise. And as we continue to enhance our market position and move beyond the seasonality driven lower volume in the first half, we are confident that Fluent will return to year-over-year consolidated revenue growth and positive adjusted EBITDA. In keeping with our long-term strategic growth plan, we expect this accelerating mix shift in our business will begin expanding our margins across the entire Fluent enterprise. Let me crystallize this for you. We are approaching 2025 with strategic clarity and momentum that is building in a transformative commerce media marketplace. We are confident that Fluent is well positioned with our commerce media solution strategy, where over the last two years, we've successfully proven that we can adeptly enable and empower our commerce brand partners to participate in this large and rapidly growing marketplace that is still in its embryonic stage as an advertising channel. According to Boston Consulting Group, the commerce media market is expected to grow to $100 billion in total size over the next five years and account for more than 25% of digital media spend by 2026. This is a very encouraging projection for the commerce media industry, and with our annual run rate currently exceeding $65 million, we are poised for significant additional growth. As I mentioned earlier, following the close of the first quarter, we announced a strategic partnership with Rebuy Engine to launch Rebuy Ads powered by Fluent to offer post-purchase ads to merchants on the Shopify platform. To reiterate, Rebuy Engine generated $1 billion in revenue in 2024 for 12,000-plus active e-commerce brands. By combining post-transaction ads with Rebuy's e-commerce solutions for Shopify brands, we're significantly enhancing revenue procession for merchants on the Rebuy platform and gaining access to new audiences through Rebuy's extensive merchant network. Rebuy ads powered by Fluent will leverage Fluent's AI-powered advertised marketplace, extensive industry experience, and first-party customer database built over 14 years as a leader in customer acquisition to serve highly targeted ads to these merchant customers at the optimal post-purchase moment, creating additional buying opportunities and revenue. This partnership is a big step forward in our growth strategy as we prioritize commerce media in the Fluent ecosystem. Shopify is the most used e-commerce platform in the United States, and thousands of merchants and brands are currently leveraging Rebuy Engine to optimize their revenue and operations. With the combined expertise of both companies, Read by Ads powered by Fluent is set to redefine how Shopify merchants engage with performance-driven advertising. Overall, we're pleased with the progress that we've achieved in Q1. As you can see, Commerce Media Solutions revenue continues to become a larger portion of our overall revenue mix. growing to 23% of consolidated revenue in the first quarter of 2025 from 10% just a year ago. With our visibility today, we anticipate consolidated second quarter revenue will be consistent with first quarter of 2025, mainly due to reductions in owned and operated revenue related to reduced supply from the social media channels. Additionally, we're currently navigating a market that's absorbing new cost pressure from international tariffs and broader retail inflation. These dynamics are creating industry uncertainty for many of our brand and retail partnerships. That said, we expect accelerated growth in the back half of the year supported by triple digit growth in commerce media solutions. Fortunately, Our owned and operated and commerce media marketplaces are built to drive results for partners and advertisers in these challenging macroeconomic environments. Historically, our owned and operated marketplaces tend to improve margin and economic headwinds, as any potential pullback in advertisers' return on ad spend are usually more than offset by lower media costs. And our commerce media platform delivers attributable revenue in a margin-conscious environment. for many partners were the only upside revenue layer after the checkout. We believe any decline in consumer behavior driven by tariffs and corresponding price increases will be offset by sales acceleration in the onboarding of new commerce partners trying to mitigate the impact of a down market. Put simply, when the market contracts related to reduced spending, this increases interest from commerce partners therefore offsetting the potential loss in spending from advertisers. While there is still little visibility on the potential impact on the consumer and the economy, we believe that we're in a strong position to deliver on our growth. We remain bullish on our agenda and excited about the momentum we've generated as we continue to lean into the exciting and significant mega growth opportunity in the large and growing commerce media industry where we can uniquely leverage the competitive advantages of our owned and operated marketplace. Importantly, we are expanding our strategic value proposition to world-class partners beyond customer acquisition and delivering higher quality consumer engagements across the entire marketing funnel. And as our strategic trend line continues throughout 2025, we believe shareholder value will follow. And with that, I'll turn the call over to Ryan Perfit to provide more detail on our financial results.

Thank you, Don, and thanks to everyone for joining us today. I'll now provide a review of our first quarter results. We generated total revenue of $55.2 million in the first quarter of 2025, a decrease of 16 percent from the prior year. Seven percent of that decrease, or $5.2 million, was due to businesses we exited in 2024. Commerce Media Solutions built on 2024 momentum and achieved impressive growth in the first quarter of 2025. Revenue from this business increased 99% to $12.7 million, and we anticipate strong growth in this segment to continue through the balance of 2025. Commerce Media is at the core of our evolving model, and we expect Commerce Media Solutions to be a key driver of consolidated revenue growth and incremental margin enhancement going forward. owned and operated revenue decreased 30% year-over-year to $31.1 million. As Don mentioned, this decrease is primarily related to ongoing challenges in acquiring media for the O&O sites, specifically from social media channels. This trend has continued into the second quarter, and given the revenue mix shift and strong growth in commerce media, we expect second quarter consolidated revenue to be relatively consistent with Q1. We are working to broaden our supply channels to counter long-term impacts on the owned and operated business. Gross margins in the first quarter of 2025 decreased when compared to the prior year period related to continued media cost pressure on our call solutions business, the growth of certain lower margin commerce media placements, and the shift in revenue mix related to the strategic discontinuation of certain businesses in 2024. While these discontinued businesses contributed to the higher margin in Q1 of last year, they challenged operating cash flow, and their discontinuation is part of our focus on more sustainable, high-growth, long-term opportunities for the business. We expect margins to improve over time as our commerce media solutions business continues to scale. On a sequential basis, gross margin, excluding depreciation and amortization, remained at 21%. Media margin in the first quarter was $13.7 million, which represents 24.9 percent of revenue compared to $22.1 million or 33.6 percent of revenue last year. Media margin decreased slightly sequentially from 25.3 percent in Q4 of last year. Our commerce media gross margin in the first quarter of 2025 was $3.1 million or 24.6 percent of revenues compared with $2 million or 31.3% of revenues in the first quarter of 2024, demonstrating strong growth in this business. On a gap basis, total operating expense in the first quarter of 2025 totaled $16.1 million, compared with $20 million in the first quarter of 2024. The decrease reflects reductions in headcount made over the prior 12 months to align the business with the transition to commerce media and reduced costs associated with the businesses we exited. Adjusted EBITDA in the first quarter of 2025 was a loss of $3.1 million compared with adjusted EBITDA of $700,000 in the first quarter of 2024. As we continue to drive our shift in revenue mix to focus more on commerce media solutions, we expect adjusted EBITDA margin to improve over time. The loss is a function of the decline in our owned and operated business, coupled with the low seasonality related to commerce media solutions. We anticipate that adjusted EBITDA will remain negative in the second quarter, with projected revenue growth supporting a return to positive levels on a full-year basis. The company cannot provide a reconciliation to expected net income or net loss as a percentage of revenue for 2025 due to the unknown effect timing, and potential significance of certain operating costs and expenses, share-based compensation expense, and for the provision or benefit from income taxes. Interest expense in the first quarter decreased to $880,000 from $1.4 million, reflecting the significant reduction of debt that I'll discuss in a moment. We reported a net loss of $8.3 million in the first quarter compared with a net loss of $6.3 million in the prior year, and adjusted net loss, a non-GAAP measure of $6.7 million, equivalent to a loss of $0.31 per share, compared with an adjusted net loss of $4.2 million or a loss of $0.30 per share in the first quarter of 2024. Shifting now to our balance sheet, we ended the quarter with $6.1 million in cash and cash equivalents, including restricted cash. We significantly reduced our total debt in the quarter to $25.6 million at March 31, compared with $35.6 million at December 31, 2024. We will continue to strategically utilize debt as a source of capital as our business scales. As of March 31, 2025, we had an outstanding principal balance of $21.7 million on our credit facility with SLR Credit Solutions. This facility provides us with $20 million term loan and a revolving credit facility of up to $30 million that all matures on April 2, 2029. To conclude, we have a long-term view of our business and remain competent in our strategy and outlook for 2025 and beyond. We're successfully executing on our strategic pivot into commerce media and continue to drive considerable year-over-year revenue growth in commerce media solutions. This growth is supported by our deep industry experience and background, which allows us to differentiate ourselves in a competitive market environment and win partnerships with leading brands, as well as media partners and channel partners. As Don mentioned in his remarks, the most recent example of this is our partnership with Rebuy Engine to launch Rebuy ads powered by Fluent on the Shopify platform. This new offering allows Shopify merchants to seamlessly leverage Fluent's extensive expertise, first-party data, and AI-powered advertiser marketplace to significantly enhance customer engagement and unlock additional revenue streams, as well as giving Fluent immediate access to hundreds of millions of post-purchase e-commerce transactions. With our visibility today, we're confident that Fluent is positioned for long-term revenue growth, margin expansion, and enhance profitability as we continue to grow our commerce media business. With that, we'll be happy to take questions at this time.