Fluent Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 15, 2024

There are 6 speakers on the call.

Operator

Good afternoon, and welcome. Thank you for joining us to discuss our Q1 2024 Earnings Results. With me today are Fluent's CEO, Don Patrick Interim CFO, Ryan Perfect and Chief Strategy Officer, Ryan Schult. On our call today, we'll begin with comments from Don and Ryan Perfect, 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 call on our website. To access the webcast, please visit our Investor Relations page on our website at www dotfluentco.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 provision 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.

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 10Q. During the call, management 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 these non GAAP metrics.

Operator

The definition 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 am pleased to introduce Fluent's CEO, Don Patrick. You may begin.

Speaker 1

Good afternoon. Thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer, Chairman, Board and Company Founder and Ryan Perfitt, our Chief Financial Officer. I'll make some brief comments about our Q1 results that reflect the strategic pivot we are making in evolving our 2024 growth strategies, focused on leveraging our leadership position in owned and operated marketplaces as a competitive advantage. In concert, a proprietary technology platform is proving to be an effective springboard from our owned and operated marketplaces into new high volume, high growth syndicated performance marketplaces that we believe represent long term strategic runways that will ultimately be margin accretive to the core.

Speaker 1

In the earnings release today, we reported quarterly results that continue to demonstrate meaningful progress in our new performance marketplaces, while also reflecting our post FTC settlement transition with the corresponding impact on our owned and operated marketplaces business and financials. Overall, our financial results remain consistent with the roadmap we laid out in previous earnings releases. Our Q1 financial results were as follows. Revenue of $66,000,000 which represents a 14.6% decline versus Q1 2023. These results driven primarily by the impact of our FTC settlement and a related strategic and financial decisions forgo revenue streams that we felt were no longer strategically compelling or did not meet our evolving quality standards in our owned and operated marketplaces.

Speaker 1

Revenue results were positively offset by the new performance marketplaces continuing to accelerate with strong double digit growth, albeit off a smaller base. Our media margin of $22,100,000 was an increase of 1% year over year versus Q1 2023. At 33.6 percent of revenue, we saw media margin increase almost 500 basis points from 28.6 percent last year, consistent with our strategic plan and a direct reflection of shifting our business mix to a higher margin performance marketplaces. Adjusted EBITDA of $700,000 represents 1.1 percent of revenue, reflecting seasonality as well as our continued investment in what we see as a strategically compelling market proven and sustainable growth agenda. As outlined in our last earnings release, we expect to see year over year revenue decline in the first half of twenty twenty four given, 1, the residual impact of exiting our non strategic businesses, which won't be fully cycled until the second half and 2, our newer performance marketplaces, which while still growing aggressively year over year, will have sequential quarterly declines based on the high seasonality of the verticals we presently serve.

Speaker 1

To be clear, we're ahead of expectations on our new performance marketplaces. Our foundational strength in owned and operated marketplaces provides us valuable access to consumers where we built meaningful relationships that are very attractive to our world class brand partners. Fluids' performance pricing model provides our partners with a differentiated marketplace that meets their customer acquisition growth needs while being strategically aligned with their goals. The revenue and margin pressure on our owned and operated marketplaces are being driven by 3 significant headwinds, 2 ongoing and 1 new. In previous earnings releases, we've detailed 1, the impact of our post FTC settlement and 2, continued macroeconomic headwind that our advertiser clients continue shifting their consumer acquisition strategies to a clear prioritization of return on ad spend given the consumer volatility in the market.

Speaker 1

Our strategic adjustments to these headwinds have been grounded in our commitment to enhance the quality of our consumer experiences relative to the engagement and satisfaction with our owned and operated marketplaces while driving higher quality outcome for advertisers. Our 3rd headwind is that in spite of the fact that Fluent has led the industry in establishing and executing leading edge protocols, which we believe are the best in class model for the entire industry, we are seeing certain competitors accelerate activity via non compliant marketing practices that violate the FTC Act and guidance. In the immediate term, these non compliant competitive practices put us at a market disadvantage in scaling certain media channels. We are not naive and we certainly expected some competitors to try to financially take advantage of this situation, albeit at their own business and regulatory peril. But we also felt the FTC would more expeditiously and aggressively address the non compliant marketers across the industry.

Speaker 1

It remains our view that these practices by our competitors will not continue indefinitely. And the FTC enforcement, along with our regulators at the state and federal level, in a very active class action plaintiff bar, will eventually eliminate the troublesome practices of some of our competitors and level the playing field. Regardless, our strategic resolve remains, As we've seen in the near term financial impact as an investment in distinguishing our brand in the market and creating a distinct competitive advantage. Given the realities of the current market, we will continue to deemphasize growth of our owned and operated marketplaces and manage expenses over the next several quarters until our competitive set accepts and appropriately responds to the new FTC requirements. The strategic growth engine of our business is grounded in our performance marketplaces and we're accelerating the Fluent brand into very large marketplace opportunities that unleash our core capabilities in dynamic and growing markets.

Speaker 1

To date, we've established vertical expertise in health, retail and ticketing. Those businesses are more seasonal than our owner operated marketplaces, which have impacted our trend line in the quarter. But we are coming to the stronger season and we'll continue to grow market share, which will have Fluent Enterprise returning to year over year growth in the second half of 2024. Our ad flow and call solutions performance marketplaces are both driving strong double digit revenue growth. We expect these businesses to continue to scale, become a more meaningful bottom line contributors and we're excited by their early success.

Speaker 1

Adflo is our media solution we launched in the large and rapidly growing commerce media market, a market that is expected to reach $150,000,000,000 by 2,030. Currently, 43% of U. S. Brands have commerce media budgets that is expected to increase to 75% by 2025. We're headed to where the puck is going and our foundational ad flow strategies continue to show dramatic year over year revenue growth, driven by new partner wins, which are enabled by leveraging our proprietary technology, machine learning and data platform capabilities that have yielded excellent results in these dynamic marketplaces.

Speaker 1

We're excited by these early results as they represent a new and growing opportunity for world class brands to reach consumers seeking higher quality engagement at the optimal purchase moment. Year to date, we've added new ad flow partners in both retail and ticketing, while also expanding into the grocery vertical. We expect this growing business will provide us broader brand partners access as we scale. We also see significant breakthrough before us that we'll detail further next quarter, where we are now working with our commerce partners to expand the marketplace via Adflo solution to expand beyond post transaction to include enhancing consumer engagement, retention and loyalty across our partners' commerce platforms. In our call solutions business, we've proven our operating model and established our financial metrics in our new business extension in the heart of the health vertical, focused on the Affordable Care Act market.

Speaker 1

Our business is growing double digits and we will continue to scale our vertical market expansion by growing existing partners and adding new partners who are already recognizing our competencies. ACA is a high sequential, high growth opportunity where we believe Fluent can differentiate ourselves within a highly fragmented market. We find this attractive strategy given the margin potential exceeds the Fluent core. Importantly, our performance marketplace go to market model remains highly differentiated from the competitive set. We're uniquely positioned in the industry to leverage the inherent analytical capabilities we've established over a decade with our owned and operated market platform.

Speaker 1

So while our market leading owned and operated marketplaces continue to stabilize, it essentially enables and fuels our pivot into higher quality consumer engagement. We are quite enthusiastic regarding the strategic and financial roles that our performance marketplaces are playing in our longer term growth agenda. Importantly, as we grow market share, margin accretion will follow. We will continue to make strategic bets and investments, building higher quality digital experiences for consumers, while creating more effective and sustainable customer acquisition solutions for our clients. Our solution set is dramatically strengthened and our performance marketplaces are being thoroughly endorsed by our brand partners, the signature of marketplace credibility.

Speaker 1

We are confident that we're elevating Fluent's brand equity position within the industry. Moving forward, we're targeting growing revenue from our emerging businesses by greater than 50% in 2024, which should have Fluent returning to year over year consolidated growth in the second half. Importantly, as we enhance our market position, we are confident that we'll begin growing our total gross profit more rapidly than our revenue in the back half of the year. To date, we are ahead of expectations in our new performance marketplaces. And with that, I'll turn to Ryan Perfitt to provide more detail on our financial results.

Speaker 2

Thank you, Don, and thanks to everyone for joining us today. I'll now provide some additional color on our Q1 earnings. In Q1, we generated $66,000,000 in revenue, down 15% from prior year and down 9% sequentially from Q4. As expected, our owned and operated marketplace business continued to experience the effects of a challenging macroeconomic environment and changes in business practices to reflect regulatory requirements in connection with the FTC consent order. These challenges influenced sequential reductions in spend by key clients in the media and entertainment, retail and consumer and staffing and recruitment sectors.

Speaker 2

However, we are optimistic that the owned and operated business will stabilize in the back half of the year as we continue to set a high standard for industry compliance on behalf of our clients. Our new syndicated performance marketplaces grew exponentially over Q1 of last year, but were down slightly from Q4 2023 due to expected seasonality. The fundamentals are strong in our syndicated performance marketplaces and we are confident in the prospects for growth in this business as we look to the back half of the year. For the full year, we believe a better macroeconomic environment will allow for moderate sequential growth in our owned and operated marketplaces, and we expect our performance marketplaces to continue to grow at strong double digit rates year over year. In Q1, media margin was $22,100,000 which represents 33.6 percent of revenue compared to $22,000,000 or 28.4 percent of revenue last year.

Speaker 2

We are pleased to see that media margin as a percentage of revenue improved despite decreased revenue in the business, which highlights the growth of our new performance marketplaces. On a GAAP basis, our aggregate operating expenses for Q1 were $20,000,000 a $2,100,000 decrease year over year. Of note, our operating expenses in Q1 2024 and Q1 2023 include restructuring and other severance costs of $665,000 $480,000 respectively. This includes severance related to a reduction in force during the 1st quarters to better align our cost structure. G and A in the quarter also includes an accrued compensation expense related to the Winopoly, True North and TAP acquisitions of $782,000 for the 3 months ended March 31, 2024, and $623,000 for the 3 months ended March 31, 2023.

Speaker 2

Q1 2023 also includes $1,400,000 of litigation and other related costs. All of these costs fall outside of the normal course of business and thus are excluded from our adjusted EBITDA calculation. Our Q1 adjusted EBITDA was $665,000 or 1 percent of sales, a year over year increase of 217,000 In 2024, we expect media margin growth in the second half driven by our new performance marketplaces to push adjusted EBITDA as a percentage of revenue into the high single digits. The company cannot provide a reconciliation to expected net income or net loss in 2024 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 Q1 increased to $1,400,000 from $698,000 due to higher average interest rates on our Citizens Term Loan and as an effect of increased amortization of debt financing costs related to the Citizens facility.

Speaker 2

For the quarter, our income tax expense increased to $908,000 an effective tax rate of 16.9% from $101,000 an effective tax rate of 0.3% in the Q1 of last year. We reported net loss of $6,300,000 and an adjusted net loss, a non GAAP measure of $4,200,000 equivalent to a loss of $0.30 per share. Moving to the balance sheet, we ended the quarter with $11,700,000 in cash and cash equivalents. Total debt as reflected on the balance sheet as of March 31, 2024 was $31,000,000 representing a slight increase from $30,500,000 as compared to the balance at December 31, 2023. As a reminder, on April 2, we entered into a credit agreement with SLR Credit Solutions that provides for a $20,000,000 term loan and a revolving credit facility of up to $30,000,000 that matures on April 2, 2029.

Speaker 2

The SLR credit facility had an opening outstanding principal balance of $32,700,000 and we used $30,000,000 of the proceeds to repay our prior credit facility with Citizens Bank. In addition, we just closed a $10,000,000 equity financing from investors, including our founders, our largest shareholder and our CEO. The additional liquidity reduces our dependence on the SLR credit facility during our strategic pivot and reflects our confidence in the strategy. Working capital as defined as current assets minus current liabilities was negative $2,100,000 atquarterend. This represents a decline from $29,200,000 at December 31, 2023 due to the required presentation of the entire $31,000,000 debt balance as current related to potential financial covenant non compliance under our credit agreement.

Speaker 2

In Q1, we invested $1,800,000 into capitalized product development and technology as compared to $1,100,000 in Q1 2023. As we look into 2024, the management team continues to focus on the stabilization of our owned and operated marketplaces, while we continue to grow the new syndicated performance marketplaces that provide our clients with high quality customer acquisition opportunities. We're confident that our growth strategy will produce substantial long term financial benefit in 2024 and beyond. We appreciate your ongoing support. We will be happy to take questions at this time.

Speaker 1

Thank

Operator

Our first question comes from the line of Maria Ripps with Canaccord. Your line is open.

Speaker 3

Great. Good afternoon and thanks for taking my questions. First, I just wanted to ask you about your media margins and which have been pretty strong last couple of quarters despite sort of revenue softness. Sort of it seems like a big part of that is coming from kind of growth in your emerging businesses. But how should investors think about sort of some of the levers of media margin maybe expansion going forward?

Speaker 3

And do you anticipate sort of further improvements from the current levels? Great. Thanks for

Speaker 1

the question, Maria. So when you're looking at media margin, there's sort of 3 pieces that are in play here. 1st is revenue and we've talked about the decline of our owned and operated that is being partially made up by the new performance marketplaces. And the gross profit margin specifically, the new performance marketplaces have high all have higher gross profit margins and are making up for the decline in that business. And then the 3rd piece, which will play a little bit into Q1 and more into Q2 is just the seasonality of these new marketplaces.

Speaker 1

So they tend to they're based on retail and ticketing and healthcare. They're more on the second half and Q1 tends to be a little bit low coming off of Q4. Q2 tends to be the low point before it bounces back in Q3. So those 3 in those three trends we see our GP continuing to increase in the back half of this year, probably equal in Q2, slightly down in Q2 compared to Q1, just based on the seasonality of those new marketplaces.

Speaker 3

Got it. That's very helpful. And then can you maybe talk about sort of performance of the gaming vertical just given how important sort of that is for your revenue base? And maybe more broadly, are there any sort of new functionality or ad products that you have or working on to be able to maybe better serve some of their advertisers within this vertical?

Speaker 1

Yes. Great question, Maria. So gaming continues to be our largest vertical by far. If you guys remember in beginning part of Q3 last year, one of our largest clients pulled back and we were able to replace that demand and also keep it steady as we go. So it has been the solid vertical for us and has been basically at the same revenue margin over revenue rate over the last couple of quarters.

Speaker 1

The players tend to change a little bit on the top five list based on whether they're leaning into growth or more on return on ad spend, but that continues to be a very strong vertical for us. We have been working specifically on ad products, both specifically around the syndicated some of the syndicated performance marketplaces around gaming. We also have been doing some things in the in app solution that we expect to roll out. And we're really been pushing that demand into the other marketplaces to continue to serve that market.

Speaker 3

Got it. That's very helpful. Thank you, Don.

Speaker 1

Thank you, Maria.

Operator

Please stand by for our next question. Our next question comes from the line of Jim Goss with Barrington Research. Your line is open.

Speaker 4

Good afternoon. I'm wondering if it seems like media and entertainment, which had been a pretty important vertical, has been deemphasized somewhat. And I'm curious why that would be given the nature of the streaming wars, they're pretty intense.

Speaker 1

Yes. Thanks for the question, Jim. In the past, when we broke out verticals, we had a number of things in media and entertainment. And as those as that is scaled, we started to break those things out between streaming services, gaming, etcetera. So part of that context, Jim, might be just that we lump things in a broader category couple of years ago and now we're now breaking out based on the importance of that.

Speaker 1

Overall, our brand is still focused on ROAS overgrowth, but it tends to be very vertical specific. Year over year, the strong growth in subscription and in health and in loyalty and in retail. Gaming is, as I mentioned before, with Maria's question was basically flat. And there's been some weakness in the streaming services business just around there. They are really focusing on retention and not so much on acquisition.

Speaker 4

Okay. And when you talk about sort of reducing the emphasis on the owned and operated sites in favor of syndicated marketplaces, Could you describe that process a little more and talk about the timeframe and just how the execution would take place?

Speaker 1

Sure. Well, first of all, owned and operated marketplaces, as you know, Jim has been with us for 12 years. It is still a foundational piece of our business and it has very distinct competitive advantages for us to build off those. So the fact that we have that is critical in terms of launching us into those new syndicated performance marketplaces that we talked about. Basically, what we have been doing is leveraging the either the demand or the technology stack that we've developed or around our analytics and data capabilities across owned and operated and launching them into those syndicated marketplaces.

Speaker 1

So we're leveraging capabilities that we've built over the years that allow us to go move faster and quite honestly scale at a much faster rate than we could if we were launching these into ourselves. Over the last couple of years, you guys have seen we have done some changing of our headcount. We've reduced headcount and then we brought back in headcounts that have been more geared towards the new performance marketplaces. We've been doing it in a very measured way based on the performance of that business and where it plays. And what we've started consolidating our advertising business across all of those solutions.

Speaker 1

And we so now we have much broader solution set in which to go out to the great brands that we work with and offer things beyond owned and operated and into ad flow into our ad flow modules and call solutions and our purpose health. So it's been sort of gradual transition over the last couple of years as we scale those businesses. But everything starts with a foundational piece of that owned and operated competencies and competitive advantages that we have.

Speaker 4

Are there certain financial metrics that will shift and adjust based on this transition?

Speaker 1

Yes. Good question. You'll see 2 things, Jim. 1 is, as the owned and operated marketplace stabilizes, which as we pointed out is in the second half of this year, you'll start to see the revenue growth return based on the growth in the new performance marketplaces. So when we say that we're down close to 14.6%, obviously the owned and operated marketplaces are down deeper and our performance marketplaces are growing aggressively just at a lower pace.

Speaker 1

So you'll start to see that revenue shift in the second half to be in growth overall for Fluent. And then you'll continue to see the margin improvement. All of these syndicated margins of marketplaces have margins higher than our core and you'll start to see margin expansion at the same time.

Speaker 4

Okay. Last question is, the $10,000,000 equity investment, could you tell me how that was affected? What was the nature of the investment? Did you gain shares or?

Speaker 2

Yes. Hi, Jim. This is Ryan Parekh. This is a private placement with 5 individuals. We sold pre funded warrants, dollars 2,955,000,000 of them at a purchase price of $3.38.4 each.

Speaker 2

There will be a shareholder approval expected in July.

Speaker 4

Okay. Thank you very much.

Speaker 3

Thank you.

Operator

Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Your line is open.

Speaker 5

Thank you. I came in late, so I apologize if some of these questions are repeats. And if so, just let me know and we can talk offline. But first of all, would you please discuss how the Media margin was up 1% with the revenues being down? And it seems like a surprisingly favorable outcome.

Speaker 1

Yes. Hi, Bill. Thanks for the question. We did touch on that. Basically, as we talked about this sort of three things that are playing into our numbers right now.

Speaker 1

The revenue on the owner operated marketplaces are declining greater than that 14%, 14.6% and partially being made up by the growth in the new performance marketplaces like Adflo, Call Solutions and Purpose Health. But all those the new performance marketplaces have higher gross profit margins in the core. So even though it's not growing as fast as the decline in owned and operated in Q1, the margins because of the business mix at a much higher margin, we were able to keep margins flat to 1% up over a year ago.

Speaker 5

So in essence, it's a mix phenomenon most specifically?

Speaker 1

That's right. The business mix on it, which we believe, especially in the second half, will be at a big advantage to us because the new performance marketplaces right now are more seasonal than core. So you'll see that accelerate in the second half.

Speaker 5

Great. That's helpful. Thank you. And talk to us, if you would, please, about the signs that you are seeing that the new initiatives are working. You've mentioned that they're growing rapidly, but presumably that's off a smaller base.

Speaker 5

So but there's probably some data points that are relevant to the longer term implications here.

Speaker 1

Sure. So I'll focus mostly Bill on external. And as you know, everything comes down to the brands and what they choose to interact with. We have had great success in those performance market those performance marketplace with brands coming on board and equally important and I brought this up in a very narrow way. They're asking us to do more than just what the solution currently is.

Speaker 1

For example, ad flow until about a quarter ago is 100% focused on post transaction. So after you purchase something before you get the confirmation page, our ad module then serves the most relevant ad to that consumer on a commerce site. We are now being asked to help use that same technology in the same demand and help bring into loyalty, retention and engagement across the commerce site. So the brands are speaking obviously with their wallet and their intent in terms of getting us more aggressively into their business and help them drive a pretty important opportunity for them. And we gave some stats in the page in the earnings release just that how big this commerce media market is and how it's growing.

Speaker 1

So I think we're sitting at the right place in the right time with a lot of tailwinds from that market. So ultimately it comes from the brand side and then leaning in and us winning the new brand. Internally, Bill, there's lots of operating metrics in terms of how do we get to what's the right number to get to scale, how we're running based on either revenue metrics or cost metrics or engagement metrics. We're fortunate enough to have a very clear model what we need to go after and we look at that on probably a pretty much minute by minute basis to make sure that we're moving towards those or exceeding those internal metrics.

Speaker 5

Great. That's also helpful. And so let me ask about the restructuring and severance expense in the quarter, the $665,000 Would you dive into that? Help us understand what you're doing behind the scenes there, please?

Speaker 2

Hey, Bill, this is Ryan. Perfect. That happened in January and it was a reduction in force essentially aligned around where we are making our investments. So as kind of mentioned previously by Don, taking resources away from the owned and operated as we focus on building out syndicated performance marketplaces.

Speaker 5

And so no, there was not a reduction in force with these new performance marketplaces?

Speaker 1

Not with the new ones, no, no.

Speaker 5

Okay, great. Thank you. And then income tax, you actually paid or had a $900,000 of income tax even though you had a pre tax loss. What were the dynamics that led to that?

Speaker 2

There's a lot of pieces that go into that. Obviously, our tax income is different than our than the income on our Q. Last year, we had an impairment of goodwill and tax credits from research and development tax credits. So there were a number of things that pushed it down to nearly 0 last year as compared to this year. But at 16.9%, we're still below the 21% level for our income rate.

Speaker 5

Great. Thank you. And then do we have time for me to do a couple more?

Speaker 2

Sure.

Speaker 5

So, first of all, I guess, you have referenced that your competitors in the owned and operated market have not been following the FTC guidelines or rules after they were following them earlier after your settlement. Has there been any change either more compliance or less compliance here in the Q1 relative to the Q4?

Speaker 1

Yes. I would just to qualify a couple of things. The one is, first of all, the compliance it has everything to do with our owned and operated marketplaces, not our new performance marketplaces. So everything that we talked about at the new performance marketplaces, it's not around this compliance issue. So and secondly, as we saw people leaning in, our competitors leaning in to find out what the settlement was and the new rules and the guidelines that FTC was putting in into our best practices when we settled in May and we saw them we saw our competitors leaning in to figure out what we agreed to, how they could work that way.

Speaker 1

We never saw them really adapt to our levels. So it wasn't that so much they took they adopted and took a step back. But over the last 4 to 5 months, and through the beginning year, we've seen the competitors actually revert back to more non compliant behavior. We can make guesses on why that is. Part of it, we believe is that there's a lack of a clear further FTC action.

Speaker 1

And second is the industry headwinds we have, they have. And I think it creates opportunity for them to economically in the very short term do the incentive to run towards finance the financial part of their business rather than towards compliance. So we don't we've been unwavering in our driving and our drive and our commitment to quality. We know that in the long term, when the industry levels up either by the FTC or by state or federal regulators that we will be in a great position to accelerate and take back market share. But we did underestimate, we thought that the industry will keep moving towards us, but we did not expect people to move back over the last 4 to 5 months.

Speaker 5

Don, have you heard any comments out of the Federal Trade Commission referencing that firms that demonstrate some increased compliance and then less compliance ultimately become more culpable with that bad behavior because they essentially showed their hand that they cannot claim ignorance because they were actually trying to move towards the guidelines and then went backwards. And so ultimately that the FTC views that lack of compliance even less favorably. Have you heard anything like that?

Speaker 1

So don't take this wrong way, but we're really happy that we don't hear from the FTC all the time anymore because we used for 4 years, We talked to them pretty much every day. And we are in a we're not in obviously inquiry mode with them now, we're in a reporting mode. So our contacts that we dealt with directly, obviously, the good news is it's more on our just commitment to keep the reporting in the context. So in theory, Bill, everything you say makes sense. And I will tell you when we were going through our inquiry, there was a spotlights on, okay, you did this and then why did you do this way.

Speaker 1

And if there was for us, there was no lack of trying to do the right thing. It was around business side. But if they see that from an economic perspective, I can imagine it would be much harder and a much harder discussion and settlement with them.

Speaker 5

Yes. That will be fascinating to watch that unfold. So relative to your media margin in the Q1, it was 33.6 percent and that was up slightly from the 4th quarter at 33.1 percent even though Q1 revenues are seasonally lower versus the 4th quarter. Now I know before in response to my first question, you referenced the mix as the performance marketplaces have grown, but you've also referenced that there's seasonality with those performance marketplaces that maybe would work against this. So can you address that margin media margin percentage on a sequential basis in a bit more detail?

Speaker 1

Yes. It's always a very good question. These businesses are scaling, especially the ad flow business has been scaling and we've been investing in the technology and analytics. So what you're seeing there is not only even though in Q4 is a big increase in volume, Our ability to gain revenue per what they call session has continued to increase in Q1 even though the volume has gone down. So you're seeing the monetization increase, which the good news as you know from this business model is we have a revenue share with our partners.

Speaker 1

So the more we make, the more our partners make, so the more successful they are also. So it's around really improving the margin and the monetization of that business.

Speaker 5

So that should have very favorable implications for the second half of the year when the seasonal strength in the revenues picks up?

Speaker 1

Yes, absolutely.

Speaker 5

Okay. That is how you are viewing it also then?

Speaker 1

Yes.

Speaker 5

Great. Thank you for taking all my questions.

Speaker 1

Thank you, Bill.

Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Don for closing remarks.

Speaker 1

Thank you for joining our Q2 2024 earnings. We remain steadfast in our strategic pivot, leveraging our own and operated marketplaces competitive advantage to launch into adjacent high growth, high margin performance marketplaces that will enhance Fluent's brand equity and also create shareholder value. Thank you for your continued support and we look forward to giving you an update after Q2.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

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Fluent Q1 2024
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