Hello and welcome to the Fluent, Inc. Fourth Quarter and full-year 2021 earnings call. My name is Harry and I'll be your Operator for today. I will now hand you over to Dan Barsky with Fluent to begin. Mr. Barsky, please go ahead..

Afternoon and welcome. Thank you for joining us to discuss our Fourth Quarter and Full Year 2021 earnings results. Joining me on today's call are Fluent's CEO, Don Patrick, our CFO for Sugandha Khandelwal, and Ryan Schulke, our Co-Founder and Chief Strategy Officer.

Our call will begin with comments with Don Patrick and the Sugandha Khandelwal 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 the 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 the 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, believe, should, intend, estimate, and other words of similar meaning.

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

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

The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release issued earlier today. With that, I'm pleased to introduce Fluent's CEO, Don Patrick..

Thank you, Dan. And good afternoon. Thanks to all of you for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer, Chairman of the board and Company Founder, and Sugandha Khandelwal, our new Chief Financial Officer.

Sugandha joined us in December 2021 from Sam's Club, a division of Walmart, and we're very excited to have her deep strategic and financial acumen as part of our team. Before we start and on a serious note, Fluent has employees with family ties, as well as business partners who operate in Ukraine.

And that's why we're compelled to comment on the crisis unfolding there. It's devastating to see friends, families, and professional colleagues so greatly impacted. But the greatest tragedy of all being the horrific loss of lives. Unfortunately, there will be more suffering in the weeks ahead.

We want to express our most sincere thoughts and prayers for all the Ukrainian people who are living in chaos. Our results in Q4 speak to the continued progress we're making towards our long-term strategic growth plan.

It was in Q4 of 2020 when we committed to a strategic transition of our business, focused on building higher quality digital experiences for consumers, while creating more effective and sustainable customer acquisition solutions for marketers.

This has been a major strategic and operational undertaking that Fluent leadership has consciously chosen, a course where we knew would be challenging, and would require us to forego near term revenue and margin, which we consider to be investment in our long-term and more sustainable road map.

While our journey is far from complete, we are pleased with our progress and even more resolute regarding our strategic path. By delivering our clients a higher-quality engaged consumer. We're focusing squarely on delivering their ROI goals.

We are enhancing Fluent 's brand equity with our current partners, while opening the door to new client opportunities. And while we continue to appropriately invest in our growth agenda, we do so with the confidence that has us building margin back into these businesses over time. Ultimately building enterprise value for our stakeholders.

The earnings release today, we reported a full-year 2021 revenue of $329.3 million, which represents top line growth of 6% versus 2020, 100.4 million of media margin, a decline of 9% at 31% of revenue in 23.2 million of adjusted EBITDA, a decline of 44% at 7% of revenue.

Overall, our 2021 financial results were consistent with the business road map we laid out in our earnings release for the fourth quarter 2020 and full-year 2021. We emphasized quality and value to both our consumers and clients, as strategic course to return historical growth revenue in the later part of the second half.

Our fourth quarter results represent additional progress in our business agenda. For revenue hit a quarterly record of $99.8 million, up 22% year-over-year. Media margin of $31.2 million down 3% year-over-year. At 31% of revenue, which reflects ongoing media and strategic investments. And adjusted EBITDA of $10.2 million or 10% of revenue.

We accelerated revenue in Q4, as we leaned into different strategic areas of growth that we believe are more sustainable. At this stage in the transition, we are consciously investing margin to establish our brand position in the marketplace, taking share in these newer strategic markets and building Fluent brand equity.

We are confident that we will enhance our margins in the businesses, as we scale them over time.

As we've noted previously, fiscal year 2021 was about setting our strategic growth plan, while positioning our founding team on the front lines of our business, where they're leading edge industry expertise is driving our strategic and operational agenda forward.

As we continue to learn, evolve in scorecard of business initiatives, we ended 2021 in a stronger market position, and we're encouraged by our progress against a very thoughtful and deliberate strategic course. Reflecting on both the full year and the fourth quarter, I'll share some thoughts in context of our three strategic growth pillars.

Our media footprint, our platform, and our performance marketplace. I'll also speak to our key initiatives, sharing progress that we've made in each.

Fluent's competitive advantages grounded not only in the initiatives articulated within our pillars, but more so, how the pillars intersect with one another in our operating model, providing forward-looking growth opportunities. Our media footprint continues to evolve within our operating focus is on traffic quality initiatives were TQI.

To think they stated, our commitment to quality grounded consumers experiences is leading more quality outcomes than our marketplace. Fundamentally, clues creating a higher-value marketplace for consumers and for our partners.

In turn, we believe this will pay strategic and financial dividend for evolving Fluent business model as we work to capitalize on both.

As we stated, in the first half of 2021, our unyielding commitment to TQI led us to make appropriate strategic and a financial call to forego near-term revenue, as we eliminated traffic that did not meet our enhanced quality standard.

In an industry that continues to rapidly grow and evolved with more discerning consumers who are redefining the quality engagement, we realize this work will remain ongoing. And we'll obviously adapt with the consumer as the marketplace demands.

In turn, our efforts led us to growing our media spend on digital platforms like Facebook, Google, Snap, and TikTok. While this represents a significant Fluent growth opportunity, as one might expect, this revenue comes at lower margins in the intermediate term versus historical traffic mix.

Throughout 2021, we were able to expand our platform media spend and grow our media margin dollars over 50% comparing second half versus the first half, even though we pulled that growth back in Q4, given the seasonal increase in the cost of platform traffic around the holiday.

As we previously noted, while relatively more expensive, we believe traffic from these digital media and technology platforms carry higher quality and higher value, while also representing a significant growth opportunity.

Given the logical, strategic connectivity to TQI across our entire business model, I'll provide more detail regarding its relevancy as I review our performance marketplace, where we continued to improve monetization throughout 2021, which we have seen its sustainable growth trend moving forward.

Throughout the year, we also continued to strategically expand our media footprint with more relevant content and offers for consumers and brands with our jobs business, our AdParlor agency, and our international business.

Although these are early stage Fluent businesses within our total mix, they continue to show long-term promise as they are performing very well, achieving 50% year-over-year revenue growth. In Q4, these business units accelerated revenue growth over 75% year-over-year.

All are well-positioned in 2022, although we anticipate international and AdParlor's revenue growth will be more at levels in line with the industry growth rates as we now focus more on margin expansion.

We expect our jobs business revenue will slow in Q1 as we migrate to an enhanced technology platform that better accesses our machine learning and data capabilities.

We anticipate that higher quality consumer experience with tighter technical integration with partners will pay long-term dividends, and we expect to accelerate jobs growth in the second half of 2022. Another key strategy we are excited about is the successful launch of the expansion of our mobile apps business.

While also in early stages, this is a sizable and growing audience marketplace, and an excellent strategic growth opportunity for Fluent, and margins that we also expect to improve over time.

The mobile app total available market for Fluent, is roughly two times the size of mobile web, where our owned media properties primarily connect digitally with our consumers today.

To capitalize on this opportunity, we've developed new media products and are exploring strategic partnerships that enable us to bring our advertiser offers to mobile app consumers. We are quite excited regarding this long-term growth implication here, and the corresponding strategic and financial returns.

Our second strategic growth pillar, our performance marketplace was driven primarily by two key initiatives in 2021, both grounded in higher-quality expenses.

First, with our investment in Fluent Sales Solutions, which provided us enhanced capabilities and our live agent platform, which connects consumers with marketers in high consideration, high value categories, including insurance, home, financial, and legal services.

A new business for us in the second half of 2020, Fluent Sales Solutions has already grown to represent roughly 10% of our 2021 annual revenue. And performed notably well in Q4, showing roughly six times revenue growth year-over-year, as we leaned into the seasonality of the insurance market.

We saw a very strong demand from high-quality clients in a high-value vertical, where we have strategically grown the available size of our performance marketplace.

This is another business we are confident we can grow, as we expanded to other high-value categories, so we will focus on margin expansion in the intermediate term, again, managing our mix of key. Overall, we are excited about the progress and anticipate being able to play more strategically into the various seasonal patterns of these verticals.

Our second key initiatives in our performance marketplace, is expanding our CRM agenda. The build up of our internal CRM capabilities, as part of our platform pillar, which I will speak to shortly. us to reengage consumers after their initial visits to our own media properties.

We previously mentioned having approximately doubled monetization in Q4 2020 to Q1 2020 and sustaining those increases going forward. In Q4, monetization continued to increase quarter-over-quarter, primarily as the result of our enhanced CRM capability and the impact of expanding our marketplace through Fluent Sales Solutions.

We see significant marketplace before us to further create meaningful downstream experiences for our consumers, expand relationship with world-class brands and key industry verticals are grounded in enhancing our consumer’s lifetime value. Shifting to our third growth pillar, our platform.

Where our investments led us to make further strides in increasing monetization. Our CRM platform, specifically building out our internal e-mail capabilities, which previously been activated solely through partnerships, continued to scale and exceed our expectations.

We're now driving significant, consistent, high-margin revenue by re-engaging consumers after their initial visits to our owned media property. CRM increased 50% in 2021 year-over-year.

In Q4, we were able to continue to capture increases in revenue per user through strong client demand in certain verticals, and through our efforts to re-engage consumers beyond their initial visits to our websites.

Over time, as our media footprint and performance marketplace expand and strengthen, CRM will strategically drive incremental revenue and margin across our business units. In closing, we saw fiscal year 2021 as a consumer Call to action, with quality of the core and our Fluent TQI initiative as an aggressive and appropriate strategic growth forward.

We recalibrated our strategic growth plan, and made the tough calls in walking away from businesses that we felt were no longer strategic in nature, accepting the near-term revenue and margin impact.

And we did confidence, as we can currently make appropriate business investments that set us up to grow long-term with our strategic client partners, not simply in 2022, but with sustainable growth trajectory beyond.

We will continue to strategically lean into revenue opportunities and grab market share, focusing execution on our businesses that differentiate brand Fluent. In parallel, we will manage the business mix across different investment profiles. Being mindful of our margin expansion goals over time.

Overall, we believe our 2022 financial results will show revenue growth returning at or above industry growth rates with sequential margin improvement over time.

And finally, as our industry continues to rapidly evolve, we remain steadfast that building higher quality digital experiences for consumers, while creating effective and sustainable customer acquisition solutions for our clients, represent the winning run forward.

As we accelerate against our strategic and financial growth agenda, our team remains grounded in our operating principles, and can be more proud of their ability to navigate the strategic transition. And to be clear, I'm excited about the long-term opportunity for Fluent and for shareholders.

And with that, I will turn to Sugandha to provide more detail on our financial results..

Thank you, Don, and good afternoon to everyone. I'm pleased to continue the discussion about our results for Q4 and full year 2021. In the fourth quarter, Fluent generated $99.8 billion of revenue, a record quarter of 22% year-over-year and up 16% sequentially in Q3.

In the last quarter, EBITDA jumped to double-digits for year-over-year revenue growth, as our strategic investment in quality provided a return in the form of growing new revenue streams, and supporting pricing spend in our marketplace.

Our Q4 results demonstrate continued progress against these investments, both from an operational and a financial perspective. For the full year, Fluent generated $329.3 million of revenue, up 6% year-over-year, driven by three primary areas.

These are significant growth of Fluent Sales Solutions, our live agent capability, focus on high consideration categories that expanded its operating skills through the increased use of contracted call center personnel.

Additionally, strong client demand in the and recruitment vertical resulted in improvements in both pricing and volume in 2021 compared to the prior year. We also expanded CRM capabilities, specifically, an internally developed email capability, which enables us to reengage consumers who have already registered on our own media properties.

In terms of volume versus monetization, our revenue and margin profile continue to shift. As part of the traffic quality initiative, our business moved more aggressively, to focus on high-quality traffic, but reducing the volume of lower quality traffic, our trend that continued throughout the year.

Our monetization increased by almost 50% from Q1 to Q4, partially offsetting the reduced volume with supported year-over-year and sequential revenue growth. To expect this trend to continue in Q1 and anticipate revenues to be up 15% to 20%, compared to the same period last year.

Our media margin in Q4 was $31.2 million, representing 31% of revenue and down 3% year-over-year. Our team continue to find new opportunities, to deploy media spend, and accelerate our test and learn discovery.

The incremental volume was sourced, primarily from digital media platform, which accelerated the discovery of supply, but carried a lower margin profile. This mix between the traditional traffic sources and the biddable platform, was the primary driver of our margin production.

Our context, we expand $68.6 million on paid media in the fourth quarter, representing our largest cost confident. On the positive side, we continue to see strong monetization, but I spoke to earlier along with CRM and data strategies, which targeted increase lifetime value of consumer relationships.

For the full year 2021, our media margin came in at a $100.4 million, representing 31% of revenue, and down 9% year-over-year. Looking at Q1 2022, and we continue to invest in margin by driving our topline. The macro situation in Ukraine has impacted our media business.

Ethanol for business partners have operations in the area, constraints the impact of both internal and external factors, we currently anticipate our media margin dollars to increase in the range of 1% to 3% in the First Quarter compared to the same period last year.

Our operating expenses on a GAAP basis for Q4, comprising sales and offerings, product development, and G&A grew an aggregate by $0.5 million or 3% year-over-year to $19.8 million. But then that next product development increased $9 million as we continue to invest in technology and analytics.

Sales and marketing increased asset $46,000 and our G&A came down by $1.2 million. Overall for the full year 2021, our OpEx increased by $5.6 million. The biggest component of ths increase was product development spend at $3.2 million, and G&A at $1.4 million, and sales and marketing expenses about $1 million dollars.

The increased operating expenses reflects strategic investments in the business, as product enhancements to our technology platform and internal capabilities. Finally, on profitability, our adjusted EBITDA for the quarter was $10.2 million, representing 10% of revenue and down 8% year-over-year.

And for the full year came in at $23.2 million or 7% of revenue and on 44% year-over-year. Looking at Q1 of 2022, we have seen the sequential increase in our operating expenses, driven largely by the continued investments that I mentioned earlier.

About the expense structure put short-term pressure on our P&L, they are confident that we will build margin into the business over time, to monitoring our media mix, focusing on margin accretive initiated, and driving operating leverage.

Given the outlook, as Alex noted, we currently anticipate to going adjusted EBITDA, in the range of 2% to 4% of revenue. Our interest expense benefited from the lower cost of debt under our replacement credit facility that has closed during Q1.

This credit facility consists of a $50 million term loan, that was drawn at close with a $15 million ramp on revolvers. And the new facility reduced our current effective interest rate by 500 basis points, resulting at $3.2 million year over year reduction and interest expense to $2.2 million.

In Q4, we continue to be a non-cash federal taxpayer, due to availability of NOLs. We reported GAAP net income of $3.8 million in the quarter and adjusted net income, non-GAAP measure of $6.4 million, For the full year, our GAAP net loss was $10.1 million, and the non-GAAP adjusted net income was $7.6 million.

As a reminder, our non-GAAP metrics are reconciled in the earnings release, and our 10-Q and 10-K filings. Turning to the balance sheet. At the end of the year, the $34.5 million of cash and cash equivalents. This represents an increase of $13.4 million year-over-year, and $17.4 million sequentially.

Working capital, defined as current assets minus current liabilities, ended the quarter at $49.3 million, up $13.3 million year-over-year. as reflected on the balance sheet, ended the quarter at $45.3 million.

In closing, we are confident that our high-quality model and strategic investments are the right path to achieving substantial growth by generating a strong earnings and revenue profile.

Our outlook this year reflects continued progress operationally and financially, with a strong focus on building long-term value for consumers, clients, and Fluent shareholders. questions at this time..

And our first question is from Maria Ripps from Canaccord. Maria, your line is now open if you'd like to proceed..

Great. Congrats on strong results. It's really great to see your traffic quality initiatives getting traction and Sugandha, congrats on joining the company. My first question is, so you just had a really strong Q4.

You're guiding to continue the growth in Q1 -- continue the strong growth in Q1; how do you feel about the sustainability of this growth? And what kind of signals or feedback you're getting from your advertising clients that may suggest that this elevated growth can be sustained through the year?.

Hi, Maria, it's Don.

How are you?.

Hi, Don. .

Your question. So there's pieces to the monetization piece, Maria, that you're sort of talking to. One is obviously demand from the advertiser and how we get -- and how that demand has increased in -- and that is basically based on, and our revenue per user or revenue versus what they're willing to pay.

We continue to see our big brands continue to lean in and asked for more supply and be willing to pay up, especially for that quality. So the TQI, as we've talked back in the past, has really driven a higher-quality consumer, which we're able to drive a higher ROI and get a higher price for. So that's the first piece of really that monetization.

The second piece is around CRM, where when the user comes onto our property, we are now engaging with that consumer in a more meaningful way, in a longer time period.

We're still in early stages there but we believe that ultimately we'll be able to look at it from a lifetime value perspective and really extend that relationship with the consumer in a much longer way than we currently do.

And the third piece, which we talked a lot about the Fluent Sales Solutions, that business greatly expands our performance marketplace. So we are now able to go after higher consideration higher value industries where in the past we usually would not and hand it off to an intermediary.

So the fact that the consumer can come onto our properties and we can continue to engage them through CRM and then also continue to bring them down in a meaningful way into the higher value, higher consideration is really what's driving that monetization and that growth..

Great. That's very helpful, Don. Thank you. Maybe extend a little bit on these. Should investors think about you managing your business to growth in media margin dollars here in the near-term? Or what are some levers that you could pull to improve your media margin, as a percent of revenue overtime.

And I know you mentioned some of the initiatives that have higher margins, but sort of how should investors think about that dynamic?.

Yes. We -- those are the exact same metric we worry at revenue growth and media margin. So from a revenue growth perspective, we have a very simple view is that for growing at or above the industry standard and how the industry is growing and we are in a position right within the industry and have a right products and services for our advertisers.

So revenue growth, clearly is the metric we're using. Going to judge ourselves externally. Internally, it's our media margin, right? And how well we can bring and manage that mix of media across our various businesses.

And that's the thing that's really changed over the past year, where as we bring -- brought on other businesses that we've talked about, there are relatively early stages to media margin might make take time to bring up to that levels that we go after it. But we have a very disciplined approach, in terms of what range or media margin should be in.

And if it's below a certain range, then we're very clear about the investments we're making. If it's above a certain range we're very clear about how -- we're mindful of how we might not be investing enough into that business..

Got it. Understood. That's very helpful. And maybe one last question if I could. You mentioned expanding into mobile app as one of the growth initiatives here, launching new products.

What are some key developments or key milestones for you here? And is this something that we could see developing or contributing to revenue this year?.

Yes, Maria, you can. And we've always been a mobile-first company, primarily on the mobile web. We began testing and incubating our rewards product primarily on Android -- on the Android platform. So we've been testing that, we have the KPIs right and we're ready -- we've launched it and we're ready in a larger way.

So just to give you a feel for the market size, according to eMarketer, the mobile app space is a $80 billion market and if you take away Google and Facebook, it's about $30 billion available to us. That is two times the size of the market -- the mobile web market that we're in now. So we're quite excited about the market opportunity in front of us.

It's less than 5% of our revenue right now, but it has been expanding and we believe there's a lot of opportunities for that in the latter part of this year..

Got it. Thank you very much, Don. And good luck with the rest of the quarter..

Thank you, Maria..

And our next question is from Jim Goss. Jim, your line is now open if you wish to proceed with your question..

And our next question is from Jim Goss. Jim, your line is now open if you'd like to proceed with your question..

Alright, thanks. Just summarizing a little of what you've been saying. Your financial statements are going to go through somewhat of a redo because you're going to have a higher cost of customer acquisition, but better solid through. I'm wondering if you might give any targets for key accounts as we might think about it.

And does the bottom line rate of profitability improve or deteriorate with maybe a higher turnover benefiting the growth..

Jim, how are you? Thanks for the question..

Good..

So I would not say, it's a redo of our financial statements. I think the way we are really looking at it is its expansion of how we're able to interact with the consumer and monetize that consumers. We went through a little bit of the monetization with Maria about what's driving that and how we can continue to look at.

So we don't really look at it as the redo, but we certainly look at it as the ability to drive that margin. Keep the margins within a range, talked about it, just drive revenue at a higher level.

From a bottom line perspective, we are investing from a perspective of both gross profit and operating margins, but we are very consistent in our outlook from where we were in early part of 2021.

Is that we looked to return to industry growth rates and then sequentially, we will drive that margin up over time, as we lean into the opportunities that are far less..

Okay. It does seem like the new shift will adjust somewhat your mix of end markets and perhaps even the mix of competitors you would be dealing with.

Is there any comments you can make in terms of those markets, you'll be addressing?.

Sure. You're absolutely right, Jim, because it does open up some different places to us. So let me just hit a little bit on the verticals. The verticals you will see that we've traditionally, as you know, are very diversified across. So verticals. And it is still diversified. And that's one of our strengths in terms of how we build our marketplace.

But you're going to see higher consideration, higher value verticals like insurance and financial and home services, things like that come into our into our mix. Right. So. That will be point number one. Point number two, strategically, you're bringing up a great point because there's a lot of people that are in that higher consideration.

I just want to point out sort of what our differentiation as is. Most of our competitors go out it from a sales perspective, which is let me win the client and then I'll work back towards the consumer, back towards supply. We're taking a very different approach.

Our approach is starting with the consumer, concerning with quality, and then moving towards the advertiser or brand and matching up to the brands that can best drive meaningful experiences for consumers and also drive the right ROI for the client.

So from a competitive standpoint point, we feel very, if we were going after the volume game, I would tell you that we're obviously at a disadvantage, but the fact that we get -- we've had a deep first-party database that we can utilize as the a strategic advantage.

It is a major opportunity for us to go at this in a much different way than people are ..

Okay. One last one, about a year ago, you undertook this adjustment to your business model and it sounded like at that time, it would be a quarter or two before you would stabilize and start to generate some renewed growth. We're about a year into it right now and I'm wondering, how you are thinking -- where you think you are in this process.

Obviously, it's taken a little longer than you thought, but maybe it's worth it if it gets you where you need to be.

How would you say you are relative to that process?.

Yes. Well, what we originally laid out, Jim, was that we'd returned it to our traditional growth rates in the later part of 2021. So I believe we've come back to that in 22% in Q4. Obviously, higher than what we've traditionally done. So we're happy with our ability to drive that value for our brands and then to be able to bid up for our inventory.

So I think we're ahead, we are very much ahead on that monetization part than we are. I think on the traffic quality initiatives to be blunt, we probably thought that we could work with media suppliers and get them to move over and have our intense quality. And it would be slightly easier than we thought, but it hasn't.

There was a number media people that have not chosen to go the quality just as required us to test and learn and be more aggressive in the platform side and on other media things that we're working on. So I think the journey over 2021 did not -- there were ups and downs, compared to where we thought it was going to be.

But in the end of the year, we believe we're at where we thought we'd be going into 2022..

Okay. Thanks very much..

Okay. Thanks, Jim..

. It appears we have no further questions. So hand back to the management team for further remarks..

Thank you, everyone, for joining us today. And we look forward to continuing to execute and build shareholder and stakeholder value. Thank you..

Thank you to everyone who has joined us today. This concludes the conference call, and you may now disconnect your lines..