Fluent Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 6 speakers on the call.

Operator

Afternoon, and welcome. Thank you for joining us to discuss our Q2 2023 earnings results. With me today are Fluent's CEO, Don Patrick, Interim CFO, Ryan Perfitt and Chief Strategy Officer, Ryan Schulke. Our call today will begin with comments from Don and Ryan Perfitt, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded.

Operator

A replay of the event will be available following the calling 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 forward looking statements due to risks and uncertainties associated with the company's business.

Operator

These statements may be identified by words such as expects, plans, projects, could, will, 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 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 ks 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.

Operator

Management evaluates the financial performance of our business on a variety of indicators, including these non GAAP metrics. The definitions 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.

Speaker 1

Good afternoon, and thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Sir, Chairman of the Board and Company Founder and Ryan Perfitt, our Interim Chief Financial Officer. I'll make some brief comments about our Q2 results that continue to reinforce the imperative behind our commitment to enhance quality of our consumer engagements within our performance marketplace, while also reflecting the more volatile macroeconomic and evolving regulatory environment we're reporting with him. I'll then update you on the meaningful progress we're making in establishing Fluent as the industry leader relating to our previously announced FTC settlement. After 3 plus years of cooperating fully with the FTC and investing strategically and financially in the process.

Speaker 1

We are now establishing leading edge protocols, which we believe will act as best in class model for our tire industry. This was the imperative we chose, to improve consumer experience relative to engagement and satisfaction and drive higher quality outcomes for our advertisers, while ultimately leveling the industry playing field that our less committed competitors have tilted against us. Our Q2, 2023 results reflect the current strong headwinds we continue to face and are consistent with the more cautious near term business roadmap we laid out in previous earnings releases. Our focus is in sequentially rebuilding our base, consisting with the strategic pivots we are making and the new business ventures that we embarked upon, some of which we'll explore with you today. Financial results were as follows.

Speaker 1

Revenue of $82,100,000 representing a 6% increase sequentially over Q1. We continue to see the parallel levels of unpredictability as does the entire digital advertising industry, with consumers and clients pausing to assess the current economic uncertainty. Our media margin of $25,900,000 was an 18% sequential increase over Q1. At 31.5 percent of revenue, our media margin percentage to expand quarter over quarter as we saw media costs, primarily on the social media platforms, return closer to historical norms. Adjusted EBITDA of $5,600,000 represents 7% of revenue.

Speaker 1

This reflects both our ongoing strategic investments in our growth opportunities as well as the impact of additional quality initiatives We proactively implemented during the last two quarters as we continue to learn and react on the regulatory front. Relative to the headwinds, first, our clients' consumer acquisition strategies continued to shift from growth and return on ad spend to clear prioritization on return on ad spend to the continued consumer volatility in the market. In the immediate term, we continue to leverage Fluent's performance marketplace to respond to those shifts by managing media margin mix. 2nd, second quality results were also directly impacted by our conscious strategic and financial decisions to forego certain revenue This decision will continue to impact us over the next several quarters as we reestablish our strategic base, while setting the course to lean into our growth agenda on a sequential basis in fiscal year 2024. To be clear, we look to lead the industry in redefining regulatory standards that exist in the market.

Speaker 1

Despite the short term impact it will have on growth to include some lingering impact in subsequent quarters. Our leading edge processes and protocols come with strategic purpose, and we are sending a resounding assertive message to the industry and the competitive set. They will lead in elevating the consumer engagement performance standards that we believe must be manifested more broadly in the marketplace. And I'll state again, we are resolute to that degree that we are willing to invest short term revenue and profitability in order to serve our commitment to the ongoing strategy that will begin paying more concrete financial dividends in fiscal year 2024 as well as longer term. More importantly, we are confident that this path represents a more strategic So let's speak about our evolving growth agenda.

Speaker 1

As we're investing today, We are bullish regarding our early stage strategic results in 3 specific business units, where we see more than $150,000,000 of revenue growth in the next 2 years. Importantly, these businesses will drive margin accretive to the core over time. Essential to our growth agenda is our core performance marketplace, a highly differentiated Fluent capability and the foundation on which we are leveraging and fueling our exciting new strategic investments. Although we see Our performance marketplace growing more modestly in the future. A strong and healthy core will act as a catalyst to drive the Significant growth opportunities we see in the business units we discussed today, influencer, call solutions and ad flow.

Speaker 1

First, we're excited to announce our major launch in the e commerce market where $38,000,000,000 of U. S. Advertising spend is growing double digits. Our Advil launch represents unique potential for us to expand our roster of major brand partnerships in a high growth vertical by leveraging our core capabilities in the Fluent performance marketplace. Over time, we're confident we can generate consumer and advertiser value so make us a credible player in the market.

Speaker 1

Fluent's core business brings consumers to our own digital owned and operated properties and through survey and discovery, we curate a more meaningful consumer experience that connects them to world class brands. With the recent launch of our turnkey e commerce solution, Adflo, Fluent is now leveraging our core proprietary performance marketplace technology platform and our robust first party data to connect world class brands where high quality consumers exist. This business creates an exciting new and growing market opportunity for Fluent, while opening the door to new brand partners we've yet to do business with. Adflo delivers incremental profit streams to our e commerce partners, while representing a new opportunity for world class brands to reach consumers at the optimal purchase point. Appearing between the purchase processing and the confirmation page, Adflo's powerful machine learning leverages the e commerce partners' 1st party data to analyze consumer behavior, preferences and purchase history in order to deliver relevant and personalized offers.

Speaker 1

Although early stage, Adflo is already active on more than a dozen e commerce sites with a strong pipeline of new partners where we are building a foundation by testing and learning and to enhance our differentiated value proposition. We are quite enthusiastic about this major and good progress is being made as we reported last quarter, where we continue to experience significant double digit growth in our influencer and Call Solution Businesses year over year. Both of these smaller strategic footprints are also high continuing sequential growth opportunities where we believe Fluent can differentiate ourselves in the marketplace with margin potential that exceeds Fluent's core. Importantly, in further validating our strategic veracity around the future course, all 3 of these business units, Adflo, Influencer and Call Solutions, enhanced Fluent's total value proposition for consumers and clients and are designed to generate greater long term shareholder value. We are quite excited by the early stage results.

Speaker 1

You can see why we continue to accelerate our strategic agenda and why we're so enthusiastic about our course. Yes, like so many in our industry, we're facing challenging and evolving regulatory environment where the rules of consumer engagements are rapidly changing in a meaningful manner and this will be reflected in our short term results over the next several quarters as we continue to reestablish our growth agenda. Last month, Fluent settled with the Federal Trade Commission, resolving the FTC's previously disclosed investigation. Working tirelessly and collaboratively with the FTC over 3 years. We're pleased to have reached a resolution.

Speaker 1

Our goal is to position Fluent at the forefront of our industry and the FTC consent order set the clear new industry compliance standard that we have led, The Fluent Way. Fluent's foundational commitment to enhance the quality of consumer engagement within our performance marketplace is an investment we believe is unequivocally worth making that will come at immediate term expense of top and bottom lines. With our commitment to quality consumer engagement at the forefront, we saw opportunity to improve our go to market capabilities and client deliverables in a differentiated manner. So we chose to lead and are forging ahead with those core fibers in place. Well, it may take a few quarters or more for the industry playing field to finally level.

Speaker 1

We will look to leverage our leadership position to grow our market share with our media and client partners. Importantly, we'll monitor the reality that some of our competitors regrettably and Suntan Unabashedly operate with less compliant protocols as they will now be strongly urged to meet our standards or take significant regulatory risk. So we have thoughtfully planned and executed over a couple of years will require competitors to react more immediately or risk regulatory action. Of strategic relevance and in light of these industry changes, Fluent can now leverage our proven track record of pivoting our performance market to leverage higher quality consumer engagement and create competitive differentiation and distance. This positively impacts our longer term business, while providing us a unique opportunity to develop deeper strategic relationships, both consumers and world class brands.

Speaker 1

The successful FTC settlement gives us important clarity on our strategic roadmap, And we will continue to appropriately invest in our growth agenda, quality as our North Star and with higher quality consumer experience as our scorecard. And we're excited about the level of competitive playing field that should have Fluent returning to growth atoraboveindustrygrowthrates with sequential margin improvement. However, in the immediate term, as the market reacts to the new industry standard Fluent has chosen to lead, We believe it will take a few quarters or more for competitors to implement these industry compliance standards. And frankly, We expect some of them to try to take advantage of us financially at their own business and regulatory payroll. Given the lack of short term clarity on this important industry inflection point, along with our continued investment in our exciting new strategic business ventures, We say you see it taking time for us to return to sequential growth trajectory in fiscal year 2024.

Speaker 1

In closing, we've invested aggressively and prudently in our forward path and remain confident that Fundamentals we have continued to put in place over the last fiscal year will pay longer term strategic and financial dividends as we move further into fiscal year 2024. Ultimately, market and industry conditions will improve and the new consumer norm will prevail. And our new business units will continue to strengthen our market position given the investments we're making. In the immediate term, will continue to implement our strategy while managing the mix across our different business units as a clear path to deliver our margin expansion goals. And with that, I'll turn to Ryan to provide more detail on our financial results.

Speaker 2

Thank you, Don, And thank you for joining us today everyone. I'll now delve into our Q2 earnings performance providing year to date comparisons where applicable. For the quarter, Fluent produced $82,100,000 in revenue, down 16% from prior year, but up 6% sequentially from Q1. Year to date, our total revenue stands at 159,400,000 reflecting a 15% decrease from the same period last year. Sequential growth was driven by the media and entertainment sector, specifically gaming and streaming clients and offset by continued challenges within the financial services and staffing and recruitment sectors.

Speaker 2

While still hindered by the challenges of the macroeconomic environment, we were heartened by year over year and sequential growth of our Strategic Influencer channel and year over year growth of the Call Solutions business. As mentioned previously by Don, prevailing economic headwinds primarily stemming from shifts in our clients' consumer acquisition strategies, including pricing pressures from certain sectors, along with our commitment to define and exemplify the evolving regulatory standards will continue to cause sequential growth challenges for the remainder of the year. Our media margin in Q2 of $25,900,000 represents a 20% year over year decline and 31.5% of revenue, up from 28.4 percent in Q1. Year to date, our media margin of 47,900,000 represents an 18% decline over the same period last year and 30% of revenue. The declines versus Prior year periods were largely a factor of the previously mentioned client spend challenges not being offset by lower cost of media.

Speaker 2

The sequential improvement of media margin as a percentage of revenue can be attributed to a market correction in media pricing and efficient sourcing. On a GAAP basis, our aggregate operating expenses for Q2 were 16,800,000 marking a $4,200,000 year over year decrease. For the 6 months ended June 30, our aggregate operating expenses with $38,900,000 a $1,800,000 decrease from the same period last year.

Speaker 1

Of note, our G and

Speaker 2

A line in Q2 includes specific litigation and related expenses amounting to 785,000 and the $2,500,000 benefit from an over accrual related to the FTC settlement. For the 6 months ended June 30, specific litigation and related expenses excluding the benefit from the overaccrual were 2,200,000 The G and A line also includes accrued compensation expenses linked to the monopoly and Shrew North acquisitions of $562,000 $1,200,000 for the 3 6 months ended June 30, respectively. All of these costs and benefits fall outside of the normal course of business and thus are excluded from adjusted EBITDA. The company did not bear any impairment expense in Q2, but on a year to date basis, we've recognized a non cash impairment charge $25,700,000 for the goodwill associated with the acquisition of the Fluent operating business in 2015. This impairments charge is disregarded in our year to date adjusted EBITDA calculations and does not impact our operations or liquidity.

Speaker 2

Our Q2 adjusted EBITDA totaled $5,600,000 representing 6.8 percent of revenue. This accounts for a year over year decrease of $3,800,000 and was a consequence of the previously noted decline in revenue, coupled with the decrease in media margin as a percentage of revenue, offset partially by a decrease in operating expenses. For the 6 months ended June 30, 2023, adjusted EBITDA of $6,000,000 represents 3.8 percent of revenue and an $8,100,000 decline from the same period last year. For the remainder of the year, as we continue to invest into growth opportunities like Call Solutions, Influencer and Adflo. We anticipate adjusted EBITDA as a percentage of revenue to remain in the low single digits.

Speaker 2

The company cannot provide a reconciliation to expected net income or net loss in Q3 and Q4 due to the unknown effect, timing and potential significance of certain operating costs and expenses, share based compensation expense and the provision for or benefit from income taxes. Interest expense in the Q2 increased over prior year by $365,000 to 795,000 as an effective increased interest rates. For the 6 months ended June 30, 2023, Interest expense increased $670,000 to $1,500,000 also an effect of increased rates. For the quarter, the provision for income taxes amounted to $750,000 For the year to date period, the provision is 851,000 For the Q2, we reported net income of $1,200,000 and an adjusted net income, a non GAAP measure of $956,000 equivalent to $0.01 per share. Year to date, our net loss stands at $30,800,000 with an adjusted net loss of $1,700,000 equivalent to a loss of $0.02 per share.

Speaker 2

Turning to our balance sheet. We ended the quarter with $21,000,000 in cash and cash equivalents, a $4,600,000 decrease from the end of 2022. Our working capital defined as current assets minus current liabilities closed at 37,000,000 a $5,000,000 decline from year end 2022. Total debt as reflected on the balance sheet as of June 30, 2023 with $38,000,000 representing a $5,000,000 reduction as compared to the balance at June 30, 2022. In Q2, we invested $1,200,000 into capitalized product development and technology as compared to $1,100,000 in Q2 2022.

Speaker 2

Year to date, the company has capitalized $2,400,000 in product development and technology versus $2,200,000 for the same period last year. As the management team, our focus remains on sourcing quality traffic and enhancing consumer experiences with the goal of improving our clients' return on ad spend. We maintain strong confidence that the groundwork we are laying now to rebuild our base will yield substantial and enduring strategic and financial benefit in fiscal year 2024 and beyond. Finally, I wanted to let our listeners know that we'll be not filing our Form 10 Q today as we continue to finalize our disclosures. And we will be availing ourselves of a permitted extension by timely filing a notice under SEC Rule 12b-twenty 5.

Speaker 2

We appreciate your ongoing support. We'll be happy to take questions at this time.

Operator

Thank you. Our first question comes from Maria Ripps with Canaccord Genuity. You may proceed.

Speaker 3

Great. Good afternoon and thanks So you mentioned the lack of predictability sort of across the space. Can you maybe talk about what you're seeing so far in Q3 relative to your expectations? And maybe broadly, how should we think about revenue sort

Speaker 1

of trajectory in the

Speaker 3

second half, To read in the second half, given easier comps, but also some of the dynamics or some of the headwinds that you talked about.

Speaker 1

Hi, Maria. Thank you for the question. So I'll break it into 2 pieces. 1 is the macroeconomic headwinds we talked about and then the second It's obviously the FTC related headwinds that we talked about. So from macroeconomic perspective, our advertisers are certainly more bullish on budgets And spending in the second half and into 2024, but we've not seen any specific change in sort of their spending.

Speaker 1

They certainly are talking about spending more in the second half, but we haven't seen any real major change in actions. We have seen some things move between the verticals. Ryan talked about the media side of it going, and even on the streaming side, although we're watching that extremely close Based on sort of the Hollywood strikes and would might reduce spend and also might provide some consumer Pull back based on the lack of inventory. So relatively speaking, we're hearing more positivity than we saw in the first half, but we've not seen that across our entire network. Regarding the FTC piece and this is a little less Clarity where we have great clarity in the medium term, but we have a little bit less clarity in the short term, Maria.

Speaker 1

We're pleased to have this behind us after 3.5 years. 95% of the settlement was already implemented by Fluent prior to The start of Q2 and we've implemented the remaining part before we signed the settlement in the end of May. In the medium term, this is a significant advantage to us. With our new compliance standard in the industry that others have to follow, And we worked on what we've worked on over 3 plus years to put into place and drive the quality of the consumer side of it. Our competitors are going to have to put in place in a relatively very short timeframe or face some risks.

Speaker 1

So, and in the SEC announcement, They talked about this being the beginning of how they're looking at the industry and change not at the end of an investigation. So Medium term, we have great, we think it's a significant advantage to us and we will look to gain market share and grow. In the immediate term though, the impact actually has some headwinds that don't have a ton of clarity to us. At the highest level, Our business model, as you know, is based on us buying media for our own account, bringing consumers to our websites, Providing meaningful experiences and connecting them to the brands. The difference between what the brands pay us for the connection to that consumer and our media is what we call our yield, it's just the difference in profit.

Speaker 1

In the immediate term, our competitors that do not have to that will not enforce the new FTC compliance standards, or the discipline on the media or the media partners that they work with, We'll have a short term advantage over Fluent in buying media. They'll be able to produce a higher yield and also have less Less restrictions with their medium part. So in the key pieces, they do not have a quality advantage over Fluent. Our quality is outstanding and they will not catch up to it, but they do have a volume advantage to us. That means Fluent either has to buy less media to slow down revenue or have to manage by the same medium to lower margins.

Speaker 1

And that's the balance that we're working through as we work through the FTC headwinds. We're confident that is a short term dislocation and as the playing field levels up over the few quarters, we will be able to significantly grow market share. So short term that's sort of the 2 headwinds that we see Maria.

Speaker 3

Got it. That's very helpful. And then just following up on the FTC stipulation order. I guess from the company's perspective, why did it make sense to enter into This arrangement instead of sort of continuing to litigate. And then you touched on this a little bit, but to what extent does this impact Any of your specific advertising verticals or which verticals are being impacted and sort of maybe which properties are impacted the most?

Speaker 1

Yes. I'm probably not allowed to say why we said, Maria, because obviously you read a lot about The FTC in the paper and you talked about a lot of things about how they moved things beyond the letter of the current law. But obviously after 3.5 years and evolving our business and our performance marketplace and knowing what we could do in terms of Creating a competitive advantage against our competitors and really driving better quality for the client. We obviously thought that it would be better for us To resolve it, move forward and drive the business forward the way we how to build the business rather than playing defense around how we're in court with the FTC. So that was a it was a very it was obviously, it was a very tough decision that was made over a long period of time, but We feel good about that and how we move forward.

Speaker 1

We've been very vocal about how it affected our jobs business. We talked about that in the last couple of quarters about how the Jazz business was affected and how we pivoted that business towards a different business model. That is the one that probably that was the most impacted directly from a percentage perspective based on the FTC. And then just the core rewards business around just more around Certain consents and certain disclosures, obviously, that business has been changed, but most of that has been over sort of the last Couple of years in terms of how we can solve that business.

Speaker 3

Got it. Thank you so much for the color, Don.

Speaker 1

Thanks, Maria.

Operator

Thank you. One moment for questions. Our next question comes from James Goss with Barrington Research. You may proceed.

Speaker 4

Thank you. Well, over the past several years, you've talked about this quality initiative and it appears that it overlaps This dialogue with the FTC. So is was the strategy under development Before this took place or were you just communicating that you had intended to do these things as you're negotiating with the FTC and they were sort of moving along at same pace.

Speaker 1

Hi, Jim. Thanks for the question. Ultimately, and this is something which we're most proud of and you've been part of our ride for a long time, Jim, is we started winning world class brands into our marketplace in sort of 2017 2018. And like any great company, great brands push you in a different direction. And the brands were asking us for higher quality, saying they'd be willing to pay for it more, offering to show more a data back to us in terms of being able to form our marketplace in terms of better purchasing.

Speaker 1

So for the most part, the main initiative was around us winning these brands and then these brands, quite honestly, pushing us to level up Our business in LevelUp the way we could work with them and how we could work broader with them across our entire Suite of solutions. So that was really the initiative that started everything off and obviously was an exciting piece of the business. At the same time, the regulatory things the regulatory environment changed, and we saw that happening in 2019 2020. And obviously, the quality initiatives and the things that we kicked off were part of that. But for the most part, it was driven By our clients and the world class brands that we work with.

Speaker 4

Okay. Well, and you were also talking about getting others to adapt your strategy or risk some potential regulatory risks. And I assume this all relates to the telemarketing consent Practices is a stipulated order you were outlining on July 17. So Is that the case? You're expecting that whatever you were negotiating with them is going to apply to others and they have to take notice?

Speaker 4

And which types of competitors did you have in mind as potentially being sort of commanded by these same issues.

Speaker 1

Yes. Good question, Jim. So our consent order and as I said, we had implemented 95% of these things beforehand Before the beginning of Q2 and mostly over the last couple of years, right. And what we much of what the FTC incorporated into their Consent order were policies and procedures that we had developed. So specifically, then the consent order coming out to the TC is not

Speaker 2

it's specific to Fluent, but

Speaker 1

it's also specific to the industry. So anyone who is buying media For interacting with the consumer or getting consent, they've clearly set out the standards that we currently have in our marketplace. And it's not debatable as that they should use it. They've clearly said this is the way we're going to interpret The law and this is the requirements that we're going to ask everybody in the industry to go up against. So the enforcement of that is really sort of Three ways for us.

Speaker 1

One is we've been very vocal in the marketplace and the compliance groups Some committees and things that are in the market in terms of how do we make it very clear about where we're going and where we're heading and how others should follow with us. The second one is obviously working with our brands and brand partners that we are in compliance. We have higher quality And you should definitely make sure that the other partners that you have have the same level of compliance, same level of quality as we do. And the third is that the FTC themselves have said that this is just the beginning, not the end. And we'll be looking at others in our industry.

Speaker 1

So that's how we kind of look at it. We compete, Jim, as you know, for our media from all sorts of different sources. We compete with our advertisers, obviously, specifically against a lot of different companies. But This order and the compliance standards that we call the Fluent way really are across multiple industries and across different types of competitors.

Speaker 4

Okay. One last one if I could. The gross profit was below expectations, but operating profit was actually a little better than It seems like the accounts between the 2 are sales and marketing and G and A. And I was just wondering which Or if or both are you pushing on?

Speaker 1

Yes. We are Obviously pushing on everything around that part of the mix you don't see, Jim, is just the mix between the different businesses. So As we talked about, we're investing aggressively into ad flow and the call solutions and influencer business. The other businesses We're obviously getting more into a we have operating leverage and we can achieve that leverage. So it's really the mix between the different business units.

Speaker 1

Some are at critical mass and we're getting operating leverage out of it significantly. Some are investment and we're actually investing into that and some of the operating expenses are going up. It's really the mix of those of the maturity of those different businesses.

Speaker 4

Okay. Thank you very much. Appreciate it. Thanks, Jim.

Operator

Thank you. Our next question comes from Bill Dezellem with Tieton Capital Management. You may proceed.

Speaker 5

Thank you. A couple of questions here relative To the $150,000,000 of growth potential that you referenced in your opening remarks, would you please Restate what the timeframe was for that? I missed it.

Speaker 1

Yes. Hi, Bill. Thanks for the question. We believe there's $150,000,000 of incremental revenue available to us in those three businesses over the next 2 years. So calendar year 2024 and calendar year 2025.

Speaker 5

And that would be the market and then you would have your market Sure. On top of that, you're not forecasting to garner an additional $150,000,000 in that for yourself.

Speaker 1

Yes, I'm sorry, Jim. I'm not sure I understand your question. We believe that we'll be able to capture another $150,000,000 Cross those three businesses over the next at the end of 2 years from now. It will be incremental to what we have today.

Speaker 5

All right. My sincere apologies. So that is specific to the Fluent potential?

Speaker 1

Yes.

Speaker 5

And so that would be on top of let's say $80,000,000 a quarter of revenues An additional $35,000,000 or so of revenue per quarter.

Speaker 1

That's the way you're looking at it, yes.

Speaker 5

Okay, great. That is helpful. And then with those buckets of business, What's the margin potential that you see relative to Fluent's historical margins?

Speaker 1

Yes, great question. At scale, these will be they will have larger margins, gross profit margins than what our traditional Obviously, in the earlier stages as we grow it, they have less. But as we get to scale, They have they run at gross profit margins that are higher than the traditional core of Fluent.

Speaker 5

And $150,000,000 that would be at scale. At the very beginning, you would not be. How much revenue brings you to a level of scale where you see the margins being above?

Speaker 1

Around that level, Bill, the three Opportunities that we outlined there has significant growth opportunities to us and we are looking to scale those aggressively to take market share. So in that environment where we're looking aggressively go market share, we are going to be obviously spending a little bit more heavily. When we get to that $150,000,000 of incremental, we'll start we believe we'll hit above the margins that we currently have for our business.

Speaker 5

All right. And then once those businesses are mature, what how much higher margin Do you anticipate relative to the current business?

Speaker 1

Yes. Our current as you guys know, our current as you know too well, Bill, our media margin, which is our core metric in our core business It tends to fluctuate between 28% and sort of 32% depending on traffic and depending on where we are in different investment scenarios. We see those three businesses being at the 35% to the high 30s as a percent.

Speaker 5

Congratulations and good luck putting all that together. And then relative to seasonality of the existing business. The call center business is stronger in the second half. Does that strength begin into Q3 or is that primarily a Q4 phenomenon?

Speaker 1

Yes. It tends to hit very early in Q4 for the call solutions business mostly around the health verticals ACA and Medicare and things like that.

Speaker 5

Excellent. And would you like to give some commentary about how you see the 3rd quarter Revenue playing out given that we're halfway through the quarter and you've kind of highlighted that you see opportunity and challenges with the FTC settlement.

Speaker 1

Yes. The way we've outlined it, Bill, in the earnings is, I think the clarity that we currently have now, we believe that we will be Sequentially down in Q3 based on those headwinds, and we look to get back to growth in the early we think it's going to take a couple of quarters to work through the FTC headwinds and then we'll see the growth returning as the FTC Advantage that we have starts to kick in and also as these 3 growth significant growth opportunities start to scale in sort of in 2024.

Speaker 5

Great. Thank you for taking all my questions.

Speaker 1

Yes. Thank you, Bill.

Operator

Thank you. I'd now like to turn the call back over to Don Patrick for any closing remarks.

Speaker 1

Thank you. Thanks for your time today. We've invested aggressively and prudently on our path forward. We feel great about the FTC settlement and the strategic clarity that it gives our business and clearly establishes ourselves as a leader in the business. Thank you for joining today and thank you all for your continued support.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Fluent Q2 2023
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