Good afternoon and welcome to Fluent, Inc., First Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please after today’s presentation there will be an opportunity to ask a question. [Operator Instructions] Please note that event is being recorded.

I’d like to turn conference call over to Ryan McCarthy. Please go ahead..

Good afternoon and welcome. Thank you for joining us to discuss our first quarter 2019 earnings results. With me today are Ryan Schulke, CEO; and Alex Mandel, CFO. Our call today will begin with comments from Ryan Schulke and Alex Mandel, 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 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 our 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, may, anticipate, believes, should, intense, estimates, and any other words are similar meaning. The Company undertakes no obligation to update the information provided on this call.

For discussion of risks and uncertainties associated with Fluent's business, I encourage you to review the Company's filings with the securities exchange commission, including the Company's most recent annual report on Form 10-K, and quarterly reports on Form 10-Q.

During the call, we will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA and adjusted net income. Management evaluates the financial performance of our business on a variety of key indicators including media margin, adjusted EBITDA and adjusted net income.

The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measure is provided an earnings press release issued earlier today. With that, I'm pleased to introduce Fluent CEO, Ryan Schulke..

Good afternoon and thanks for joining our first quarter 2019 earnings calls. As our numbers for Q1 indicate, we have solid first quarter delivering results consistent with our guidance. Revenue for the quarter increased 19% and media margin was up 20%, as we expanded the footprint and profitability of our Performance Marketing business year-over-year.

EBITDA decline 5%, which is a reflection of the investments we've made into our team and infrastructure to support future growth. On today's call, I'll be speaking about our philosophical and strategic approach to running the business as well as some of the performance factors contributing to our Q1 results.

And our CFO Alex Mandel will speak to the numbers in more detail. I'll start out by revisiting the framework through which we think about manage Fluent's business, there are two core constituencies which we seek to engage and earn trust with consumers and clients.

Our North Star is to deliver compelling value to both these groups and as we do so, our business will continue to thrive.

As we think about the key areas for operational excellence in our business, Fluent sits in the middle of our two core constituencies, connecting them through our platforms and managed service offerings, which we deliver on a true performance basis.

On the consumer side, we think about one, the media channels through which we attract consumers to engage them on our platform, and two products or experience they have as we engage with our content and surveys as well as the offers we deliver on behalf of our advertising clients.

On the advertiser side, we think about one, our in house sales and client success teams, which bring new clients to our platform and strive to ensure they win the Fluent. And two, the type and scope of offerings we bring the clients and drive value for them.

So, on these sides of the business, we think about going broader in terms of attracting incremental consumers and clients and deeper by standing and extending their engagement with us.

From where we sit in the middle, Fluent seems to create relevant, efficient and enduring connections between our consumers and clients, which we do primarily through proprietary analytics that fuel creative and campaign delivery in the right place at the right time.

I am running highlighting this framework, which we think of as our core because these are areas of operational focus, which if we execute on, invest to an expand effectively we believe we can take our business to the next level.

And as we report to you today and in future quarters, we will be able to share insights into our initiatives in this context, at a level of depth that hopefully balances being informative, along with protecting our proprietary plans and what is a highly competitive industry.

AS we look back to our performance in Q4, we referenced testing new media channels through which we look to expand our consumer reach. We continue that effort in Q1 and we anticipate that we will always reserve a portion of our budget towards testing and learning our new channels and platforms that consumers are engaging with.

So, as long as we see the opportunity to access than at scale with acceptable return on ad spend for our clients and ourselves.

Also the consumer side of our business, we have been testing and expanding new media formats through which to engage the consumers that have different user acquisition and retention dynamics as well as opportunities to communicate our clients' value proposition and drive outcomes for their businesses.

On the client side of our business, we've referenced our merging data offering in the 2018 10-K, which was filed in March.

In the course of executing our Performance Marketing business day-in and day-out and asset that we continuously build upon, which we believe have significantly in valued is the data we capture pertaining to the consumers interacting with our experiences.

And by data, we’re talking about first party demographic, attitudinal and behavioral data, which enables deep insights as to consumption and purchase behaviors and other attributes we notably highly valued by advertisers.

Our recently launch programmatic offering has been yet another example of the value of our data asset and has helped us drive greater recognition of the Fluent brand across our industry.

When you look at the talent we’ve added over the past few quarters and anticipate adding to further, you can see how that fits into our focus on the consumer side of our business with regard to media and product.

The client side of our business with regard to sales and data initiatives and the Fluent platform in terms of our analytics capabilities and execution that tile this together. So, if we zoom out our longer-term success can be themed around growing and innovating our Performance Marketing business and doing more to one last value from our data.

For context, we’re committed to growing revenue and profitability overtime organically. We also believe there are strategic investment opportunities that can generate an appropriate return on our capital. Our execution roadmap comprises several parallel ongoing disciplines.

First is the hammer and nail worth, optimizing and enhancing our Performance Marketing business which our team is committed through on daily basis.

Second, are the expansions and the extensions to our Performance Marketing business that we build, test and rapidly iterate on such as product format, access new media channels, new media formats for consumer to engage with and newer tailored offering to our clients. Third is what I referred to as a structured and strategic approach to innovation.

Our approach to-date has been to invest organically into initiatives, set up as pods with very specific focuses. We staff them with entrepreneurs who have demonstrated track records of performance since specific discipline that we anticipate can leverage our core platform on an accelerated basis.

And last is the potential for tuck-in acquisitions that could expand or extend our capabilities along the lines of this framework I have just shared. Natural investment and growth cycles will have some quarterly variability, but we are laser focused on executing our strategy and taking advantage of this exciting market opportunity.

We look forward to continuing to deliver long-term value for our consumers, clients and the Fluent brand and its shareholders. And with these thoughts, I’ll turn to Alex for review of our numbers for the quarter..

Thanks, Ryan, and good afternoon to those on the conference line. As Ryan noted, our results for Q1 were consistent with our outlook. In this quarter, the Company generated $66.6 million of revenue representing 19% growth year-over-year.

Growth derived primarily from our performance campaigns through which we deliver specific actions or outcomes desired by our clients, such as the submission of a registration form, an app install, a trial subscription to a better service, or a completed transaction.

These outcomes are specified by our clients with doable events from pricing that are designed to meet their profitability objectives. And we deliver these outcomes on a performance basis, enabling our clients to precisely measure the return on our standard with Fluent.

Included in our performance campaigns is our lifecycle marketing initiative through which we reengage consumers who have previously interacted with our media properties. This provides us with incremental revenue opportunities at a lower cost profile than the initial consumer acquisition.

Revenue growth in the quarter was also supported by the consumer side of our business. So, we access additional media supply, both by having new channels such as the larger digital media platforms as well as sourcing new partners in our existing publisher channels.

And we've also been able to scale a new content based media format, which Ryan referred to. The Company produced media margin of 23.1 million, representing growth of 20% year-over-year, and a margin of 35% of revenue. Media margin as a percentage of revenue was relatively unchanged from Q1 of 2018.

To reference, media margin is a non-GAAP metrics, which is reconciled in earnings release issued earlier this afternoon, and which is a primary metric we use to measure the return on our media spend and related expenses.

Adjusted EBITDA of 9.1 million in the quarter represents 14% of revenue as compared to 17% of revenue in Q1 of 2018 and had to decline a 5% year-over-year. As Ryan discussed, part of our core strategy is to invest in a structured and strategic manner into innovation opportunities that leverage the core assets of the Company.

Our investment in this area is observable and our product development expenses. We've also discussed previously our investment into human capital and expanded office space to support our growth plans, which are reflected in our G&A.

Provision for income taxes was zero, as we maintain the full valuation allowance against our deferred tax assets for both periods. With respect to the companies NOL position, we don't anticipate being a cash taxpayer in 2019.

Adjusted net income and non-GAAP metrics that exclusive from net income from continuing operations, certain non-recurring and non-cash items was 4.1 million in a quarter, an increase of 5.5% over 3.9 million in the prior year's quarter.

Moving onto the balance sheet, cash and equivalents were 18.7 million at March 31, while working capital defined as current assets minus current liabilities was 36.8 million. Total debt under the credit facility was 59.4 million, which reflects a reduction of 875,000 as compared with December 31st.

The Company continued to exhibit favorable cash flow dynamics with 9.1 million of adjusted EBITDA converting into 5.2 million of cash flow from operations with the primary uses of operating cash being 1.5 million of interest expense and a 2.5 million change in working capital.

Cash used in investing activities consisted primarily of 1.4 million of PP&E related to occupancy of our new corporate headquarters.

While cash used for financing activities of 2.5 million was comprised of our quarterly scheduled principal amortization on the credit facility of 875 K, along with 1.6 million deployed for withholding taxes to net settle the vesting of RSUs, enabling us to take close to 322,000 shares into treasury.

In conclusions, our numbers for the quarter were consistent with our outlook, reflecting a business that grew nicely at its core year-over-year, while investing and innovation and infrastructure to support our feature growth plans.

We have demonstrated consistent GAAP profitability on an operating and net income basis in each of the four quarters following the spinoff with favorable cash flow dynamics and maintaining a solid balance sheet. Should you have questions, we’re glad to take them now or later. Our IR contact info is concluded on the earnings release.

Thank you for your interest..

We will now begin the question-and-answer session. [Operator Instructions] The first question will be from William Gibson of ROTH Capital Partners..

You've moved into your new headquarters.

So would you expect the capital expenditures to be the rest of the year?.

On a PP&E basis, Bill, we don’t anticipate significant CapEx. We have a relatively smallish amount of capitalized cost included in the intangible assets that you can see in Q1 and the earnings press release and could be similar to slightly increase throughout the remainder of the year..

Thank you. And you referred that the new media formats and channels.

Could you share with us or give us a little more color on exact on what those are?.

Yes. Bill, it's good to hear from you.

So, we’ve just been expanding in terms of how we’re going out designing content to interact with consumers certainly been a very heavy into new video formats, user generated content things like that, buying in some of the social platforms as we work really hard to have our data inform creative across these different channels.

And on the half of our clients, one of the new properties we recently spun up is called thesmartwallet.com, for instance, and we're a lot with video content there. There is as a case of example..

The next question will come from Jim Goss with Barrington Research..

You put this several years in operation. You acquired a significant database.

And I’m wondering, how your request for information have varied and how well you’re able to take advantage of the previously acquired data and perhaps making the whole process more efficient?.

Yes, Jim, good to hear from you. In terms of how we go out and acquire data just to be clear that’s self reported from the consumer themselves and it’s a function of our media properties as they’re engaging with them. Many of our content in order to access some of it, you have to register. We weave surveys into our experiences.

So that’s been iterated on overtime as we’re seeing consumers over and over again were able to deepen the profile, refresh that. And with respect to how they’re going about requesting here from our advertising partners and their offers, that’s becoming more and more dynamics.

So, we’re starting to play into areas such as messenger and different areas like that. And seeing consumers starting to interact through some of the new platforms, new technology platform for communicating with brands. So, that certainly a big focus of some of the large platforms and it’s a big focus for us as well as results..

Yes. And that's actually what I was getting to and I understand its inflammation volunteered by the consumer in return for maybe something that you might promise them. But I wondered, how much more efficient the whole process gets over time because you probably have a lot of the same people coming back and back and then more and more.

And therefore, that, as you say, you deepening the profile.

Does that say improve their media margin? Does it improve other metrics you're measuring or the efficiency of getting the right sample group for the advertisers who is looking for that email list or whatever else is there trying to get from you?.

Yes, absolutely. So I'd answered that in two parts.

And one, absolutely, the consumers that we're seeing more and more, we can capture that information a lot more efficiently and efficiency has been a key there, how can we sort of condensed that experience and make sure we're matching them up with relevant content and advertising offers since we have such a deep knowledge on that base.

It also frees us up to get to the perimeters as I would characterize it and start to think breadth of audience and going out, design content to access new consumers, which is where a lot of our investment is going towards.

So, yes, those efficiencies are certainly in place and supporting margin expansion on the set of consumers and the demographics which we see more frequently..

Do you get a sense that the some of the people you're dealing with get to know that it's you are behind this and that they want to receive information from you on a more regular basis and there you can create some continuity out of it?.

Yes, absolutely and it's a big focus for us is to continue to strengthen the media brands in which we go to market with and really start to personalize and tailor around to consumer expectations. So a lot of that is very top of mind for us in terms of our existing brands and lot of demographics we see the most.

And again, that's freeing up resources to go out and spin up some of the new types of content and executions we're looking to go out and deliver the market in order to attract new audiences..

And finally, does this process then in affect that media merchants' measure you've talked about since that's especially serviced the cost of sales type measure.

And should that be an improving percentage overtime as you go through this continuation of this process?.

To a certain degree, yes, Jim, we can see the areas of the business where we have clear opportunities for margin expansion. At the same time, I'll just remind you, we're growth oriented organization. We're continually investing into innovation and growth. We do spend intermediate channels where we're not going to make money day 1 or day 30 even.

So, as those margins are coming in, we are reinvesting some of that towards new media channels that may take a bit more time to mature.

So I don't want to "call the shot on" the exact amount of margin expansion you'll see in whole, because we're seeing some very interesting opportunities across the marketplaces, as consumers are starting to shift some of their consumption behaviors.

And we're very actively trying to learn and grow on some of those new channels where they're engaging more frequently..

And with that, it does conclude today’s conference call. We want to thank everybody for attending today’s presentation. You may now disconnect your lines. Have a great day..