Fluent, Inc. CEO Don Patrick, (FLNT) Q2-2022 Results – Earnings Calls Transcript

Earnings Calls Transcript

Fluent, Inc. CEO Don Patrick, (FLNT) Q2-2022 Results – Earnings Calls Transcript

Earnings Calls Transcript

Dan Barsky, Corporate Secretary and General Counsel

Don Patrick – Chief Executive Officer

Sugandha Khandelwal – Chief Financial Officer

Participants

Operator

Ladies and gentlemen, thank you so much for coming to Fluent Inc.’s 2022 Earnings Call. [Operator Instructions] Dan Barsky is the one who will be receiving today’s Earnings Calls Transcript. Sir, please proceed.

 

Dan Barsky

Good morning, and greetings. We are delighted to have you join our discussion about earnings results for the second quarter of 2022. Fluent’s CEO Don Patrick and Sugandha Karwal (our Chief Strategy Officers and Co-Founders) will join me today. The call will begin with Don Patrick’s remarks and Sugandha’s questions-and answers session. The call will be recorded and webcast live. A replay of the call will be available on our website after it has ended. The webcast can be accessed at www.fluentco.com’s Investor Relations page.

Before we begin with the Earnings Calls Transcript, I remind listeners that forward-looking statements will be discussed during the conference call by management. These statements are protected by the Safe Harbor provisions of the Private Securities Litigation Reform Act 1996. Forward-looking statements made during this conference call are not current as of their date. Actual results could differ from those we projected or implied due to risks and uncertainties inherent within the company’s business. These statements can be identified by words such as expects, plans, projects, could, should, might, anticipates or oughts, intends and estimates, or any other similar words. The company is not obligated to change the information provided on this call. Fluent’s filings to Securities and Exchange Commission are recommended. These include the most recent Form 10K annual and quarterly reports, as well the Form 10-Q.

This call will include non-GAAP financial information such as media margin, adjusted EBITDA and adjusted net income. The company’s financial performance is reviewed by management using various indicators, including media margin, adjusted EBITDA and adjusted net income. These metrics are compared to GAAP financial measures in today’s earnings press release.

Fluent’s Chief Executive Officer, Don Patrick, is now my pleasure.

 

Don Patrick

Good afternoon, Dan. We appreciate everyone’s participation today’s call. Ryan Schulke (Chief Strategy Officer, Chairman, Company Founder) and Sugandha Khandelwal (Ceel Financial Officer) are both here. We are pleased to share our second quarter results. This, we believe, strengthens our commitment towards quality in an evolving culture of test-and-lear. I will also update you on the progress toward our strategic priorities. We’ll also discuss the economic effects of the current environment.

We are pleased with the performance of our forward momentum in Q2 2022. These were our financial results. The $98.4 million revenue represents 34% year-over-year growth and is a positive outcome of prioritizing long term growth strategies. We are continuing to validate, validate and test our products and look for ways to enhance Fluent’s reputation in the marketplace. Media margin now stands at $32.3 million. This is 60% higher than last year, and 32.8% more than revenue. This is due in part to our ongoing strategic investments, which are focused on strengthening both our media presence as well as our performance market. These results exceeded our expectations.

A $9.4million adjusted EBITDA is 9.6% revenue. This represents a $7.6million increase year-over-year. Fluent’s strong revenue growth in Q2 gives it operating leverage over both our performance market and our business model. We are making progress on our long-term strategic plans, which is reflected in the strong operating results for the quarter. This plan is focused upon consumer engagement and improving their experience in performance market. Fluent’s core capabilities will help us go-to-market, and we believe the results validate our strategy.

To achieve strong revenue growth as well as media margin growth, we leaned on our momentum. This also reflects the Q3 2022 strategic initiative. We will continue to evaluate each initiative’s strategic relevance for our core, and then decide where to make longer-term investments. Fluent is a market leader within an ever-changing sector. Fluent’s business model is built on a strong brand.

Fluent’s strategic growth pillars are what give it its competitive edge. These are our platform and media footprint, as well as the performance marketplace. Each pillar is a pillar in our daily mission to improve our ability to go-to-market capabilities. This is what sets us apart in the industry. Our goal is to exceed the expectations of our clients and provide a higher quality, more engaged consumer audience. Fluent helps clients build brand equity and increases their credibility through increased ROI.

We are making great progress in strengthening and expanding the strategic growth pillars. Here are some highlights of Q2. Our media footprint expanded to include new media channels. We made steady progress in our biddable social network. We can offer our customers and clients more relevant content and offers, as well as leveraging macro pricing opportunities for platform and platform opportunities that are based on the provided value. We will continue to test, learn and expand our reach in other media channels. Additionally, we will explore the longer-term growth opportunities that a larger Fluent Media footprint can offer.

When considering our platform and performance market strategic initiatives, we leaned on our CRM capabilities for better customer experiences. The results were encouraging. We saw a double-digit increase in year-over-year sales and a significant improvement in the quality and length of our customer relationships. CRM provides us with a powerful platform to build meaningful downstream consumer engagements and strengthen our relationships in key industry verticals. As we build our model, our strategic framework includes the principle that each consumer has a lifetime value.

Fluent’s margins were increased by managing the business mix of all our investment profiles. This enabled us to keep our competitive edge, and ensured strong revenue. Our media properties were able to increase their sequential margins in Q2 relative to Q1 2022. Although this is not always true, it shows how long-term management of the mix is a priority for us. We are optimistic about Q3, despite uncertain economic conditions ahead. Due to the uncertain macro- and geopolitical outlook, we are experiencing the same level of uncertainty in digital advertising. The road ahead is available to both our clients and customers.

These implications are complicated so I will only briefly touch on Fluent and our performance marketplace. Fluent’s first-party data is rich in detail, which gives us an edge over our customers and clients. Our technology platforms and analytics provide real-time quantitative and qualitative insights. Recessions and economic uncertainty in the past have led to a decline in advertising spending and a shift of media mix. Core wealth is reflected in advertising spend that shows a smaller measurable decline and shifts to advertising that are easily quantifiable. Based on the client’s target ROI goals, our performance model generates revenue when consumers do something agreed to by the client. Fluent’s performance marketplace gives our clients direct, measurable and immediate attribution. They can derisk their marketing spend, regardless of how much they reduce.

We will continue to pursue our Earnings Calls Transcript long-term strategy for growth in this market. We will continue to work towards gaining market share and accelerating our growth agenda. We expect Q3 to see slower growth than Q2. The current economic uncertainty has caused clients and consumers to be more cautious, while Q3 growth is expected to slow. Recent changes in consumer sentiment have led to a shift in market sentiment. Consumers are now more interested with lower-cost, less-expensive products and services, such as media and entertainment, that are more resilient against recession.

We will have a strong market position following Q2 and Q3, even though we have accelerated Q3 initiatives in anticipation of headwinds. We will however have a very different flow. We are optimistic that Q2 Q3 will be as successful and profitable as we planned. We believe revenue growth will be at or above industry growth rates in 2022 as we try to gain market share. As our company grows, we expect to see a sequential improvement in margins in Q4. This will likely continue in the future. We will adapt our strategies to the economic realities in the near future.

We are very careful in managing expectations. We will remain focused on our clearly defined growth principles. Additionally, we will continue looking for strategically compelling 2022/2023 revenue opportunity opportunities. These opportunities are areas where we believe we have a unique position and significant consumer runway. Long-term growth strategies will be focused on increasing market share in areas where we can leverage our consumer-centric core, and executing via our operations capabilities. This strategy will allow us to win more customers, establish a competitive edge in the market, and create shareholder value for investors.

 

Now, let me turn to Sugandha for more information on our financial results.


Sugandha Khandelwal

Don, we are grateful and wish you a pleasant afternoon. We are pleased to report a strong quarter. This is due to our continued momentum and growth across all key P&L indicators. As a strategic move, we launched the traffic quality initiative to reposition our business and improve the quality of traffic we source for our media properties. We have seen our business grow and attracted more detailed plans for our platform. We also achieved strong quarterly revenue growth, which was profitable. This has allowed us to anchor our strategy and move forward towards our operational initiatives.

Fluent’s second quarter revenues were $98.4million. This is a 34% increase over the previous year. Fluent witnessed momentum in our core performance markets, new channels, and vertical expansion. Our team found opportunities to expand our reach and accelerate our testing-and-learn approach to supply discovery. Fluent’s new promotional campaigns were a huge success. They helped expand our reach and provided new ways to cross-promote programs across all of Fluent’s media properties.

The business of rewarded Discovery has seen solid growth both in the U.S. and internationally. Our CRM capabilities are constantly being improved and optimized to improve customer loyalty, retention, lifetime value, and other aspects. While we rely on brands, technologies, and channels, we encourage customers to use our platforms to build lifetime loyalty and increase their business’ margins.

Fluent sales solutions is our live agent capability that supports our strategic agenda to offer end-to-end customer service solutions for advertisers. The quarter saw strong revenue growth of nearly double digits due to higher registration monetization despite lower traffic volumes. Our monetization increased by almost 88% in Q2 over Q1 and was up 23% each quarter.

Our media properties have seen higher quality traffic, which has resulted in greater consumer engagement. This has also resulted in higher conversion rates and better client acquisition outcomes. We will keep focusing on quality traffic. This will allow us to monetize our media sourcing efforts and improve the product design. Client satisfaction and loyalty are key factors in this model’s success. Media margin is primarily determined by the mix of media spend from traditional affiliates and the biddingable platform. Q2’s media margin was $32.3million. This is an increase of 60% and 32.8% in revenue. Nearly $66 million of the quarter’s total investment was made in paid media.

We saw the potential for high-quality traffic to our biddable platform during the quarter’s conference calls. We are trying to make it more profitable in the future. There was a significant increase in biddable media spend and profitability over the last quarter, as well as an improvement on the quarter last year. The positive mix of media properties resulted in increased overall profitability for the second half. Our operating expenses (Gap basis), increased by $3 million or 17% to $21,000,000 in Q2. This includes sales and marketing, product development, G&A, and sales and marketing. Due to increased business travel, events and in-person meetings, sales and marketing expenses rose $1.5 million.

Continual investments in technology and an analytics platform resulted in product development costs rising by $1.4 million. New ad-based media assets were also created, which went beyond our current focus of web-based media property creation. Last, but not least: Our G&A expenses increased $160,000 because of higher operating costs. These increased costs reflect strategic investments in our company and improvements to our technology platform.

Let’s discuss profitability. The adjusted EBITDA (non-GAAP) was $9.4million for the second quarter. This represented 9.6% of revenue and an increase in revenue of $7.6million. These profits were a result of a higher topline and margin expansion, as well as a disciplined approach to overall operating expenses.

We will continue to manage media mix, with a focus on margin accretive and operating leverage. Our team is launching many strategic initiatives this year. Don mentioned that some of these initiatives were initiated in Q2. The early momentum will help us to learn faster and navigate the economic landscape. Advertising spending will be affected but Q3 growth will not be as strong.

Our interest expense was flat at $430,000 year-over-year. This is due in part to our replacement credit agreement’s lower cost debt. As a result, we expect to have a federal cash tax liability due to the use of all 2022 tax years’ carried forwards.

In its earnings release, the company stated that Q2’s decline in stock prices was a trigger. Fluent’s 2015 acquisition of its operating business led to impairment of goodwill. In the second quarter, the company estimated that a $55.4million non-cash impairment charge had been taken to goodwill. The adjusted EBITDA did not include this noncash impairment charge. It will have no impact on operations and liquidity.

GAAP net loss in the quarter was $56.9m, while adjusted net income (a measure that is not GAAP) was $550,000. The non-GAAP metrics were compared with comparable GAAP metrics in the earnings release, 10-Q, and 10-K filings.

Let’s look at the Earnings Calls Transcript balance sheets. Ending the quarter, $26.4million was in cash and cash equivalents. This represents a 5% increase in cash and cash equivalents year-over-year. The quarter’s working capital was $51.6million. Current assets less balance liabilities is what it was at the end. This is a 16% increase over the previous year. As shown in the balance sheet, $43million was the quarter’s total debt.

We are confident that high-quality traffic models and strategic investments will result in sustainable growth for the business. As we enter uncertain times and see slower economic growth, our management team is focused upon execution and operating discipline. Fluent’s shareholders, clients, and consumers will benefit from this long-term strategy.

We are expanding our Investor Relations Strategy in the hope that equity market will see the value of our business and the value we create for clients and consumers.

Thank you for your time. We are happy to answer any questions that you might have.

 

Questions and answers Earnings Calls Transcript

Operator

Don Patrick

We are very grateful. We are pleased with Q2’s strong results. We are proud of the hard work of our team and their strategic plan. We have an extremely well-structured Earnings Calls Transcript operational plan and aim to gain market share. We are grateful to you for your support and appreciate you being with us today.

 

Operator

Today’s call is finished. We are grateful you joined. You can now disconnect.