Jordyn Tarazi - IR Ryan Schulke - CEO Ryan Perfit - Interim CFO.

Jim Goss - Barrington Research William Gibson - Roth partners.

Good afternoon, and welcome to Fluent, Inc. Q3 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note that today’s event is being recorded. At this time I’d like to turn conference call over to Ms. Jordyn Tarazi, Ma’am, please go ahead..

Good afternoon and welcome. Thank you for joining us to discuss our third quarter 2018 earnings results. With me today are Ryan Schulke, CEO; and Ryan Perfit, Interim CFO. Our call today will begin with comments from Ryan Schulke and Ryan Perfit, 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 this conference call are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

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. The Company undertakes no obligation to update the information provided on this call.

For a discussion of risks and uncertainties associated with Fluent’s business, I encourage you to review the Company’s filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and the Company’s 10-Qs.

During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted EBITDA and adjusted earnings. Management evaluates the financial performance of our business on a variety of key indicators, including adjusted gross profit, adjusted EBITDA and adjusted earnings.

The definitions of adjusted gross profit, adjusted EBITDA and adjusted earnings and the reconciliation to most directly comparable GAAP financial measure is provided in the earnings press release issued earlier today. With that, I am pleased to introduce Fluent’s CEO, Ryan Schulke..

Thanks, Jordyn, and good afternoon, everyone.

As we continue to establish our standalone footprint in the marketplace we're pleased with our third quarter results with $66.5 million, $27.4 million and $12.4 million in revenue adjusted gross profit and adjusted EBITDA respectably, which march 21% growth on revenue, 43% adjusted gross profit growth and 56% adjusted EBITDA growth as compared to the third quarter of last year.

We're continuing to see positive trends on our core business. Our advertising partners remain confident influent strategic capabilities and they have been increasing demand for a performance based marketing services.

Simultaneously we've continued to drive operating efficiencies that are increasing our gross profit margins including advancing our lifecycle marketing initiatives and implementing machine learning technology.

These two factors coming together really increase demand from our advertising partners, lifecycle marketing along with machine learning are really helping to drive network effects across our performance marketplace. Our UK data launch has continued to show positive trends after two full quarters of testing.

We've increased scale and profitability and are receiving positive feedback from our partners. We'll continue to assess more expansive global rollout during our 2019 planning process.

Understanding consumer trends and expectations in the digital era has been vital to Fluent success are always on serving capability provide critical insight regarding the attitudes, the lifestyles and the purchase behaviors of millions of consumers every month.

The depth and breadth of our first party opt in self data data asset allows us to deliver an unparalleled point of view to advertisers which differentiates Fluent as a primary growth partner to many of the world's leading and fastest growing brands.

As we reach the midpoint of our third quarter as a standalone public company, Fluent’s leadership and [indiscernible] are very focused on delivering our growth agenda, while creating value for our partners, our brand and our shareholders.

Our performance commitment has facilitated our investment in personnel and resources so that we can continue to execute our key initiatives with excellence. In turn we're feeling positive about the traction we're gaining in the broader digital marketing ecosystem and our overall growth strategy.

I look forward to updating you on continued progress during our fourth quarter and 2018 full year earnings call and will now turn things Ryan Perfit on the financial results..

Thanks Ryan and thank you everyone for joining our Q3 2018 earnings call. As Ryan Schulke mention compared third quarter of 2017 Fluent delivered 20 plus percent growth on three of our key financial operating metrics. We drove 21% topline revenue growth, 43% growth in adjusted gross profit and 56% growth in adjusted EBITDA.

We also generated $4.5 million in net income from continuing operations, representing an earnings per share of $0.06. That's up from a loss of $0.19 per share for the third quarter of last year. I'll now review the P&L in more detail Unless otherwise noted I'll be comparing the third quarter of 2018 to the third quarter of 2017.

Favorable market conditions in Q3 drove revenue up $11.6 million to $66.5 million. The 21% increase was a result of increased adoption of our core performance based marketing products across multiple advertiser verticals and media channels. Adjusted gross profit increased $8.2 million to $27.4 million and adjusted gross margin increase to 41%.

That represents a 600 basis point increase in margin over Q3 2017. The increase in adjusted gross margin was the effective lifecycle marketing initiatives and the successful rollout of machine learning technology. Our lifecycle marketing initiatives expand margin by reengaging consumers at limited additional media cost.

And our machine learning technology creates custom audience segments and helps boost monetization through iterative testing. Selling and marketing expenses declined to 18% to $4.2 million mainly due to a decrease in the provision for bad debt. General and administrative expenses dropped 29% to $13.6 million in the third quarter.

The decrease was largely a result of decreased share based compensation expense to former executives. Partially offset by an increase in employee salaries and benefits. Salary and benefits are of course operating expense was up 77% and accounted for 45% of general administrative expenses in Q3.

Expansion of our co[ph] workforce to support growth accounted for the increase. Provision for income taxes for the quarter was zero consistent with prior year.

We recorded a full valuation allowance against our deferred tax assets for both periods and intend to continue to maintain a full valuation allowance until there's sufficient evidence to support a reversal of all or some portion of the allowance.

Income from continuing operations was $4.5 million, that represents a $15.2 million increase from $10.8 million loss in the same quarter of last year largely driven by the adjusted gross profit and the aforementioned decreases in selling and marketing expenses and general administrative expenses.

The historical results of [indiscernible] off in Q1 and the costs associated with the transaction are reflected influence consolidated financial statements as discontinued operations. The net loss from discontinued operations for the third quarter was zero but $3.3 million for the same period prior year.

Net income for the quarter was $4.5 million compared to the loss of $14.1 million prior year. The profitability effluent management team principally uses the metric adjusted EBITDA.

in the third quarter of 2008 18 adjusted EBITDA increased 56% to $12.4 million and adjusted EBITDA margin expanded 19%, a 500 basis point increase over the same period last year. Moving onto the balance sheet.

Cash and cash equivalents were $17.4 million at September 30th including the current portion of long term debt and net of capitalized debt cost was $59.7 million.

In accordance with the debt agreement a $3.7 million excess cash flow based principal payment is scheduled for November 15th 2018 and is presented in the current portion of long term debt on the balance sheet.

For the 9 months ended September 30th cash provided by operating activities from continuing operations was $22.5 million compared with $5 million for the same period in 2017.

The $22.5 million generated from operating activities was primarily the result of year to date income from continuing operations of $4.5 million adjusted for $23.5 million of non-cash items and an increase in assets and liabilities of $2.6 million.

Cash used in investing activities was $22.2 million for the 9 months ended September 30th, mainly the result of $19.7 million contributed to Red Violet [ph] in connection with the spin off and $1.4 million associated with Red Violence discontinued operations.

Cash provided by financing activities was $17.4 million for the nine months ended September 30, primarily the result of net proceeds from the issuance of 2.7 million shares of common stock used to help fund the contribution the Red Violet, offset by repayment of the term loan principal and cash paid to take shares related to vested [indiscernible] treasury.

We're extremely pleased with our financial performance in Q3. I'm confident we will achieve our full year financial goals communicated the beginning of the year. That concludes our prepared remarks on the third quarter financial results. Our operator will now open up the line for Q&A..

Our first question today comes from Jim Goss from Barrington Research. Please go ahead with your question..

Thank you. I've got a couple.

First is there anything further to unwind with Red Violet in terms of the information you had been sharing?.

No Jim, nothing further on wind. They're completely spun off at this point..

Okay. And you know one thing we've talked about in the past trying to create some better information to help us identify just what the vertical targets might be or the horizontal areas within the funnel that you would be serving.

And maybe you could provide some of the largest companies or sectors that are currently generating the bulk of your revenues?.

Yeah, Jim and I know there's been - shouldn't dialogue around that level of transparency.

You know, as previously mentioned we did just emerge as standalone March 26 had really been focused on the foundational elements of the business and governance as a standalone public company, really head down driving the business forward making sure we're delivering results for shareholders.

So that that level of transparency is something that we're eager to start to talk about a bit more.

As I've mentioned in the past, we really work across all consumer verticals due to the nature of our solutions and our interactions with audiences really understanding their lifestyle their interests connecting them with brands that deliver products and services that meet their need.

So whether it be financial home legal services, media and entertainment, CPG and retail, we're playing in all of these verticals at different capacities with our solution. So we will work to kind of talk about those trends a little bit more as you can imagine, any specific area where you have a lot of new products coming into market.

We've talked in the past about streaming services and some of the things happening in the music and video industry. Whenever there's a competitive landscape our acquisition solutions are really a go to for marketers. But to be honest we do run across all different verticals and are preparing on how we want to talk about that a bit more in the future..

Can you say if they tend to be the larger brand name companies or rather there might be a variety of smaller companies that might be a little less under the radar they could use their services as services for visibility from their product?.

Yeah, I would describe them as a mix of the disruptors and the disrupted. And clearly the disruptors are going to come on and be a bit more active. But you know we're continuing to see larger brands Fortune 500 that are attempting to be more innovative.

They want to defend their turf and make sure that they're interacting with the millennial consumer as much as are their legacy customers. So it certainly mix, maybe a little bit more on the disrupter side where you have new companies coming into markets using technology really as a differentiator. But it's a bit of a mixed bag..

All right. Thanks very much..

Our next question comes from William Gibson from Roth partners. Please go ahead with your question..

Thank you.

How many employees did you have at the end of the third quarter and what was that up for the year?.

I don't have the exact headcount handy, but it's right around 140 at the end of the third quarter..

Okay.

Those who are in sales and marketing?.

About 35 in sales and marketing, we’re still relatively light there compared to more of our product in technology and analytical resources..

And in terms of the debt, Ryan could you repeat what you were around, I missed you went so quick on that next repayment?.

Sure. So in terms of debt this isn't let's say before the debt capital - capitalized debt costs. Our outstanding debt is $64.9 million at the end of the quarter. We have a ECF or the excess cash flow payment. For November 15th scheduled of $3.7 million and then the other amortization pay interest is scheduled amortization payment at 12 31.

So with those two payments in Q4 we would be down to $60.3 million in debt. That's again pretty not taking into consideration the capitalized debt costs which would show up differently on the on the balance sheet..

Okay. Thank you.

And what sort of the timing do you think you can refinance that debt?.

I mean, there are - there are prepayment penalties that play out and that tear down over the life of the loan and make all payments. So I don't think there's anything in the near term but we're constantly kind of looking at the balance and what a refinance would look like and the profitability of that.

So we are - we're keeping an eye on it but I don't see anything in the near term happening..

Okay. Thank you..

Ladies and gentlemen at this time we'll conclude today's question and answer session. I'd like to turn the call back over to Ryan Schulke for any closing remarks..

Yeah, just thanks again to everybody for joining today, we're really pleased with the progress we're making as a second - full quarter as standalone public company and really hopefully we're demonstrating that this leadership team really has a lot of discipline rigor about it feel really positive and positive about our momentum right now.

And eager to get out in front of the 2018 full year and share more when that's upon us..

Ladies and gentlemen that does conclude today's conference call with you thank you for joining today's presentation. You may now disconnect your lines..