Fluent, Inc.

Good afternoon and welcome. Thank you for joining us to discuss Fluent's second quarter 2025 earnings results. With me today are Fluent's Chief Executive Officer, Don Patrick, Chief Financial Officer, Ryan Perfitt, and Chief Strategy Officer, Ryan Schuelke. Our call today will begin with the comments from Don and Ryan Perfitt, followed by a question and answer session. I want 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 webcast, please visit the Investor Relations page at .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 Prairie Security's 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 risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, and 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 website, Fluent's business, we encourage you to review the company's finance 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 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'm pleased to introduce Fluent's CEO, Don Patrick. Please go ahead.

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 Perfit, our Chief Financial Officer. As we projected during our last earnings call, our second quarter consolidated financial results continue to reflect the investment we've made over the last 30 months to shift our mix into the commerce media growth strategies. While this has created expected difficult consolidated comps for our business as expected, we are executing a very intentional strategy that we are confident will build a more valuable business. We are approaching a tipping point. We're in the second half of 2025. We believe we will begin seeing the financial impact of our commerce media solutions business as the revenue and gross profit mix shift begins to show in the consolidated Fluent financials. Our Q2 consolidated financial results are as follows. Revenue of 44.7 million representing a 19% decline versus Q1 of 2025. Our median margin of 11.9 million was a decrease of 13% versus Q1 2025. An adjusted EBITDA of negative 2.8 million representing a 300K to .5% decrease in the improvement versus Q1 2025. Our positive commerce media revenue growth trend in the quarter was not yet enough to offset our owned and operated marketplace decline of 31% quarter over quarter exasperated by strong regulatory headwinds. One of our key strategic motivators behind our shift to mix strategy. We expect commerce media to become the majority of our revenue as we move into 2026. To be clear owned and operated means core to our long-term growth strategy. I'll be with a much tighter nucleus. And while we continue to reduce our strategic alliance on owned and operated, it represents the strong brand equity we built in the marketplace of the last decade that is still highly leverageable by our commerce media business. Put simply owned and operated provides an essential operational and capability platform that our competitors can't rival, which acts as a springboard for our commerce media marketplace expansion. And the cashflow our owned and operated business generates fuels our long-term growth strategies. That said, the key driver to our business trajectory right now is the growth in commerce media solutions. We fundamentally believe we are creating a differentiated commerce media business that represents a transformational pivot for fluent while delivering a competitive advantage in a rapidly growing higher gross profit marketplace. As of June 30th, 2025, our commerce media revenue grew 121% compared to the prior year, representing 36% of our consolidated revenue and has surpassed an annual revenue run rate of $80 million, over 20% sequential increase from Q1. As we continue to expand our model and grow market share based on the consumer value we are creating for our clients and advertisers. We are on a decided path to deliver sustainable growth with margins that are creative to our core business. To support the strategic pivot we are executing, today we announced over $10 million equity financing with high quality and diversified group of fundamental investors who are also joined by insiders. This financing bolsters our balance sheet and will fuel the growth of profitability. We appreciate the support of such a solid group of investors who got to know us, became confident in our strategy and growth trajectory. I just wanna take a minute to stand back and remind everyone the market opportunity that we are going after. Commerce media is projected to grow over 100 billion over the next five years and is expected to account for 25% of all digital media spend in 2026. This is a considerably larger market opportunity than our legacy owned and operated business and the growth we are seeing in the commerce media segment reflects how we are going to grow our business and how we are squarely positioned as a leader in this quickly growing marketplace. In Q2, Commerce Media Solutions revenue grew 121% year over year while increasing its percent of consolidated enterprise revenue from virtually zero two years ago to now account for 36% of our consolidated revenue as we aggressively established fluence equity in the commerce media marketplace. Its impact on fluence consolidated annual financials was actually partially masked by the seasonality driven lower marketplace volume that is reflective of the retail vertical. As such, its growth is not yet enough to offset the decline in our still larger owned and operated marketplace where revenue and media margins continue to be negatively impacted by the volatility of media costs on the biddable platforms which affect our ability to buy media at scale at acceptable margins. We will more aggressively shift the mixed commerce media in the second half as we onboard new partners and continue to scale our marketplace. In turn, our shareholders will begin to see the financial momentum behind our strategic pivot and that momentum will carry into fiscal year 2026. Importantly, our strategic premise continues to be validated by the staple of iconic brands who are choosing to partner with us. We are energized by the world class brands that continue to engage us in partnership as we added 15 new partners to our commerce media platforms since the beginning of Q2 that will provide long-term dividends. This growing list of partners recognizes the fundamental value we are creating in building consumer lead in the future. We are also building a new network of partners as we are consistently exceeding their revenue and advertiser return on ad spend expectations. As one example, subsequent to the quarter, we expanded our relationship with authentic brands, a leading sports, lifestyle, and entertainment brand owner generating more than 32 billion in global retail sales. This expanded relationship supports additional brands like Reebok, Champion, and more. Also, our recently announced strategic partnership with Reevi Engine, a leading e-commerce personalization platform for Shopify brands, has opened an expansive network of over 12,000 plus active e-commerce brands on the Shopify ecosystem, which is a new channel for us. That execution is progressing as planned, but the strategic partnership also creates an oasis of upside as we cultivate new business relationships. What's most important to the business and our shareholders is ultimately having our financial scorecard reflect our strategic wisdom. We expect to see strong momentum in the second half of the year and into 2026. Specifically, we expect the commerce media solutions will continue to grow at a triple digit rate this year and next. These results are testament to the investment we've made in the marketplace platform this fluent team has built, which is validated by the world-class brand partnerships we are establishing, and that trend is accelerating. As commerce media scales, we expect to be adjusted EVA-DOT positive in Q4 and achieve positive adjusted EVA-DOT for the full year 2026 and beyond. I will now turn the call over to Ryan to review the financial results.

Thank you, Don, and thanks to everyone for joining us today. I'll now provide a review of our second quarter results. While total revenue of 44.7 million in the second quarter of 2025 reflects a decrease of 24% from the prior year, as Don just mentioned, commerce media solutions revenue grew 121% to 16.1 million, consistent with our expectation of triple digit growth of this business for 2025. Commerce media solutions represents 36% of our total consolidated revenue in the second quarter of 2025, compared with just 12% in the second quarter last year. We're optimistic about the growth we're seeing in commerce media solutions and believe the segment is positioned to displace our owned and operated business as the main component of our consolidated revenues before the end of the year. Owned and operated revenue decreased approximately 49% in the quarter as our long-term strategy has shifted to focus on commerce media. Media margin in the second quarter was 11.9 million, which represented .7% of revenue compared to 15.7 million or .7% of revenue last year. Our commerce media margin in the second quarter of 2025 was 3.2 million or 20% of commerce media solutions revenue compared with 2.2 million or .4% of revenues in the second quarter of 2024. Second quarter commerce media margin was compressed related to flexibility around our pricing structure to remain competitive and win long-term partners and gain traction in new verticals. As we improve monetization in those new verticals and move past short-term pricing incentives, we expect media margin to return to the high 20s. On a gap basis, total operating expense in the second quarter of 2025 totaled 14.9 million compared with 18.2 million in the second quarter of 2024. Interest expense in the second quarter decreased to 702,000 from 1 million in the prior year period. We reported a net loss of 7.2 million in the second quarter compared with a net loss of 11.6 million in the prior year period. Net loss also improved on a sequential basis compared to 8.3 million in the first quarter of 2025. Adjusted net loss, a non-gap measure was 5.9 million, equivalent to a loss of 24 cents per share compared with an adjusted net loss of 7.3 million or a loss of 47 cents per share in the second quarter of 2024. Adjusted EBITDA in the second quarter of 2025 was a loss of 2.8 million compared with an adjusted EBITDA loss of 4.5 million in the second 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. Now shifting to our balance sheet. We ended the quarter with 4.9 million in cash and cash equivalents and an additional 2.4 million in the second quarter of 2025. of restricted cash. We also announced today a private placement in excess of $10 million with multiple quality new investors as well as participation from insiders. This private placement gives us the working capital to support the continued growth of our commerce media business and gives us sufficient capital to reach adjusted EBITDA profitability in Q4 and for the full year of 2026 and beyond. Our total net long-term debt was 19.9 million at June 30th, 2025 compared with 31.9 million at December 31st, 2024. We had an outstanding principal balance of 20 million on our credit facility with SLR Credit Solutions. This facility provides us with a $20 million term loan and a revolving credit facility of up to 30 million that matures on April 2nd, 2029. We will continue to strategically utilize debt as a source of capital as our business scales. We're encouraged by the progress we've made so far this year and we believe that we're well positioned for success as we move through the back half of 2025. Commerce Media Solutions has consistently grown at triple digit pace and we're approaching a key inflection point where revenue from this segment is set to surpass owned and operated revenue as the main contributor to consolidated revenue. With that shift, we expect to deliver increased revenue, enhanced margin performance, positive adjusted EBITDA and positive cash flow for our business. With our current visibility, we expect positive adjusted EBITDA in the fourth quarter of 2025 as well as full year double digit consolidated revenue growth and full year adjusted EBITDA profitability in 2026. With that, we'll be happy to take questions at this time.