Good day, ladies and gentlemen, and welcome to Cogint’s Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. At this time, I would like to introduce your host for today's conference, Jordyn Kopin, Investor Relations. Ma'am, please go ahead.

Good afternoon and welcome. Thank you for joining us to discuss our fourth quarter 2017 earnings results. With me today are Derek Dubner, our Chief Executive Officer; Dan MacLachlan, our Chief Financial Officer, and Ryan Schulke, CEO of Fluent. Our call today will begin with comments from Derek Dubner, Ryan Schulke and Dan MacLachlan, 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 Web site. To access the webcast, please visit our Investor Relations page on our Web site, www.cogint.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Form Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. The Company undertakes no obligation to update the information provided on this call. For a discussion of risks and uncertainties associated with Cogint's business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and the subsequent 10-Q. During the call, we may also present certain non-GAAP financial information relating to adjusted EBITDA. Management evaluates the financial performance of our business on a variety of key indicators, including adjusted EBITDA. The definition of adjusted EBITDA and the reconciliations to the most directly comparable GAAP financial measure is provided in the earnings press release issued earlier today. With that, I am pleased to introduce Cogint's Chief Executive Officer, Derek Dubner.

Thank you, Jordyn, and good afternoon to those joining us today to discuss our fourth quarter 2017 results. Cogint is pleased to report a very strong fourth quarter with yet another quarter of record revenues of $59.2 million, a 9% increase over the fourth quarter 2016. Gross profit margin increased 3 percentage points over prior year to 36% and adjusted EBITDA increase 36% to $8.6 million. For the full year 2017, total revenue increased 18% to $220.3 million and adjusted EBITDA grew 62% to $24.2 million. Our performance is a result of continued strong customer demand across the enterprise from existing and new products in both our risk management and marketing services businesses. As evidenced by our increasingly strong gross profit margins, we remain intently focused on quality of revenue within our digital marketing business. A metric that sets that business apart from others within the digital marketing landscape. Even more exciting is that gross profit margins here in Q1 are trending even stronger than Q4 which demonstrates the effectiveness of the execution of our plans to focus on higher quality revenue. And on the risk management side of the business, we continue to see increased adoption of contract subscriptions as opposed to just transactional usage by customers. Over the last several quarters, you have heard me discuss our goals of leveraging our unique technology platforms on both sides of our business to generate proprietary data, analyze that data and deliver mission critical solutions to a vast array of industries. But what has become a abundantly clear over time is that while our risk management digital marketing businesses are complementary in many ways, they are very distinct businesses and both are at a key inflection point in their evolution. Therefore, I would like to take the time to discuss the…

Great. Thanks, Derek, and good afternoon to everybody joining us today. On behalf of myself, our leadership team and the entire Fluent colleague base, I can't say how thrilled we are to have to on board for what we believe to be a landmark phase in Fluent's development. Fluent achieved many milestones in 2017 notwithstanding yet another record year for revenue, profit and EBITDA on a standalone basis. As a business we have been profitable since early days of our founding 2010, a testament really to the durability of our model, the discipline in which we operate and the foresight and talent across our versatile leadership team and the broader colleague base over here at Fluent. Before I touch on our competitive advantages and really some of the plans underway for 2018, I recognize that some of you might know less about us as standalone business and we would like to give an overview of Fluent from my perspective as its cofounder and CEO since inception in late 2010. Fluent is a leading digital marketing company offering performance based marketing solutions across a variety of industry verticals. Our business is fueled by a highly proprietary data asset, unique and intelligent approach to mass consumer engagement and innovative entrepreneurial culture that was born in the era of disruptive new media and technology platforms. We work with clients across verticals such as financial services, media, entertainment, health and CPG retail, just to name a few, to help them acquire new customers, promote new products to existing customers and gain insights to better retain customers and make them brand loyal. Due to the performance nature of our model, our clients work with Fluent on open budgets in many instances as we are commonly viewed of as cost of goods sold as opposed to…

Thank you, Ryan, and good afternoon. In addition to the key business accomplishments that Derek and Ryan addressed, I wanted to highlight some 2017 financial metrics and how they laid the foundation for the next evolution in our growth story. What we saw in 2017 was an intent focus on margin expansion, focusing our efforts on those clients and verticals that provided the highest contribution margin. Looking back at the first quarter of 2017, we have revenue of $50.8 million, gross margin of 31%, adjusted EBITDA of $5 million and EPS of negative $0.24. With record fourth quarter revenue of $59.2 million, gross margin of 36%, adjusted EBITDA of $8.6 million and EPS of negative $0.10, we have seen a transformation in our P&L as a result of the investments we made early in our growth story. Red Violet has gone from a capital intensive technology startup with a run rate revenue of $5.7 million, at the end of 2016 to a sales driven emerging growth technology company with run rate revenue of $11.5 million at the end of 2017. On a pro forma standalone basis, in 2017 Fluent produced $211.7 million in revenue, $34 million in adjusted EBITDA and basic EPS of $0.03. Fluent is dialed in and performing as strong as it ever had. We know today that the value of these two company's far exceed what is reflected in our current market cap. Moving on to our results. Unless otherwise noted, I will be comparing fourth quarter 2017 to the fourth quarter 2016, walking you through our results of operations including segment information and adjusted EBITDA. I will conclude with the balance sheet and cash flow statement. Moving on to our fourth quarter results. Revenue increased 9% to $59.2 million, driven by strong growth within our information…

[Operator Instructions] Our first question today comes from William Gibson from ROTH Capital Partners. Please go ahead with your question.

With relation to Red Violet and the spin out, do you think you maintain that name or to align it with your operating names, IDI or FOREWARN or something like that. What's the thought there?

Thanks, Bill. Well, much like Cogint is a holding company of some pretty incredible brands. Red Violet is the same. Red signifies strength on the color spectrum and violet is a look into the future, almost psychic abilities. So for us, it's a great umbrella for our brands. Right now idiCORE, as you know, our leading investigative system. We have introduced for FOREWARN, which has taken the real estate market by storm. And we have a product roadmap of many more brands to rollout. So we really don’t want to hang our hat on one name in a certain product segment because we are crossing over in different verticals. So you will see, like we have always done with those brands, they will be a Red Violet Company as opposed to a Cogint Company moving forward. But as a public company, that will be our brand and that will the holding company for many many products to come.

Thank you. And I know you just recently took a minority position in Dragonchain. Could you flush out your thinking there?

Sure. Absolutely. So you can't turn on the TV without seeing or hearing all about blockchain and all about crypto currency. Certainly there are questions about what crypto currencies will be in the future. Which ones survive, which one thrive. But it's undoubtedly true that blockchain, the underlying technology, a distributed ledger, if you will, is very important moving forward. You have financial services in the largest banks filing patents on it. Investing millions and millions of dollars in blockchain technology. You have IBM working with Maersk for supply chain management. You have many others tracking pharmaceuticals for recalls and also it's going to be quite amazing in the payment system. As you know, on the IDI side for risk management, idiCORE, as I mentioned, is our investigative system. Our core business is investigative. It's due diligence. It's identity authentication. It's fraud prevention. And when you ask people or when you just read the news and you try to figure out what are the risks that are inherent with any of those different solutions that blockchain can power, it really comes with anonymity, counterparty risk. Not understanding who you are doing business with. So we see a tremendous opportunity moving forward, albeit it's a longer term opportunity and not tomorrows revenue of powering those identity verification solutions for any blockchain technology. Now we have formed a strategic alliance and now acquired a minority interest in Dragonchain. Dragonchain is a hybrid technology born out of Disney, the technology team of Disney when the private blockchain, and is now a commercial enterprise. Unlike the public Bitcoin or Ethereum technology, it's a hybrid in that its partly private and partly public. So enterprises of think of, for example an Orbitz for booking travel can move their transactions on to Dragonchain for example and still maintain the confidentiality of sensitive data, while still recording these many transactions, these billions of transactions. So it was our opportunity and our team in Seattle, our technology team is working with Dragonchain to power those identity verification solutions on the backend.

Thank you. And then a question for Ryan, if I may. In that, what percent of business do you think comes from international this year and maybe even looking out to the trend towards the following year.

Yes. Absolutely. So this year will be low single digits. We will begin most likely in the U.K. market and then flesh out to EU and APAC from there. The model is fairly straight forward to prop up, if you will. But one of the things we need to be sensitive to is really local culture. Every region behaves differently. In our previous experiences having sales talent on the ground is going to be critical. We do have partners right now, clients of ours that have international demand which is how we are going to initially get things off the ground but ultimately boots on the ground from a sales perspective and then of course with GDPR coming into play more heavily towards the end of May, servers and product folks and analytics embedded out there as well. So I think this year probably a low single digit percentage. Our U.S. business is performing phenomenally right now. We are continuing to make really great plays in the us but ultimately we do feel that between the U.K., EU and some of the other markets, it could be almost the same size as Fluent's core business today within the next three to four years.

Our next question comes from James Goss from Barrington Research. Please go ahead with your question.

This is [Pat] [ph] on for Jim. Kind of touching again on Fluent. To the extent that there is additional, I would say there are protection regulations that could come to the U.S., how would that affect your overall U.S. business and sort of repositioning your products as needed to that type of regulation.

It would an overwhelming win for us. It would be an immediate win for us. We are first party data collector. For those on the call not as familiar with digital marketing landscape, first party data means we collect data from consumers on our own sites directly from them. We are gaining opt-in consent. So we are not working and trading data behind the scenes like some of the third party data players. Nor just working off of cookies. So that would be a pure play competitive advantage based upon how we operate our model. We are directly interacting with consumers one to one and gaining consent to market which is where a lot of the EU and U.K. privacy laws are going. So you know it would be a much bigger impediment to a lot of our broader competitive sets than it would be to Fluent.

Okay. And then one on Red Violet. You guys touched on the run rate of revenue. What would be run rate of EBITDA for that business right now? And where would you guys see it going in terms of profit -- when would you expect to sort of turn the corner in terms of profitability for that segment.

Yes, sure. Thanks, Pat. This is Dan. So at the end of the year, as you can see from the recently filed Red Violet financial statements on Form 10 with the SEC, that we had negative adjusted EBITDA at the end of the year. Just because we have moved out of that development life cycle if you will. So what we are looking at in 2018 is growing revenue exponentially and because of the fixed cost model and how every dollar revenue comes in as contribution margins, we expect by the fourth quarter that you will start to see positive adjusted EBITDA and by the end of the year profitability within that business.

Our next question comes from Jim McIlree from Chardan Capital. Please go ahead with your question.

Ryan, the gross margins as Fluent had a real nice increase in 2017 and I think it's kind of the highest you have ever had. Is that 34% peak for you or is there opportunity to get the gross margins in the Fluent business higher.

No, we will continue to grow. Really what you are seeing is kind of a combination of -- we are doing a much better job of having our data and really customer audience segmentation inform our sales strategy. So we are on boarding more of the right direct customers, which is important metrics for us in terms of working directly with the right types of partners that have strong product and service offerings for our audience. And we are getting stronger and stronger on predictive modeling on really how to run the right creative against the right type of product or service to really get consumers to that point where they are actually converting for our partners. In many instances we are actually starting to work with our partners where we are actually working on a pure further down the funnel outcome event at a higher compensation rate. This is giving us deeper insight into actually who is converting on what. We have all the consumer data and we have all the conversation data housed here at Fluent. So our model is just getting smarter and smarter and really that’s where you are seeing a lot of the margin expansion come from. In times of high top line revenue growth, we will occasionally make some sacrifices on gross profit margin to go out and build new lines of business and gain greater equity but really between the direct customers, going out and having stronger modeling against predictive modeling on who is going to convert against what and some of the re-engagement initiatives I spoke about that more kind of recurring revenue stream on reengaging our audience over time against that 150 million American consumer identity graph. That’s where you are seeing the margin expansion come from and as Derek alluded to, we typically -- seasonality peaks in Q4 but we are seeing even stronger margins here in Q1 it looks like.

And so as you enter into additional geographies, is that one of those time periods where your revenue growth is going to accelerate but you might suffer some margin compression at that time.

Yes. Absolutely. Yes, 100%, but not to an unhealthy degree. We have it measured out. We are pretty disciplined how we operate. We are not going to go out and burn 3, 4, $5 million in media spend when we are not making any money on it. So you can expect us to be vigilant in terms of protecting the margin profile of the business but we don’t want to cut off our nose despite our face. If we have the opportunity and/or a market, we think that the metrics are falling in line, we will take full advantage. So I don’t think it's anything that’s going to show any dramatic drop in the gross profit margins. And we will be able to be very transparent about those initiatives but our expectations is to be able to launch in markets like U.K. and within two to three months be able to get to breakeven based on our core model.

Okay. And headquarters of Fluent will be New York, is that correct?

Absolutely, yes.

All right. Thank you. And Dan, on the Red Violet side. In the prior quarter you were talking about EBITDA and the leverage. So I understand the fixed cost model and leverage in the business. I just want to make sure that I am clear about what's happening on the spending side. So as far as gross margins or cost of sales, you kind of have that -- and that’s fixed to semi-fixed. On the marketing side is there an incremental associated with revenue growth?

Nothing that would be material at this point. I mean we have kind of laid the foundation in our OpEx and have a tremendous amount of run rate to leverage of that. Right now as Derek mentioned earlier, I mean we are getting inbound calls left and right. The industry is large enough from a revenue standpoint but small enough from a competitor standpoint that our competitors feel us right now. Their customers know us right now and we don’t have to go out and spend a tremendous amount on marketing. It will actually go down over time because, again, once the word of mouth gets out there, everybody has to jump from the old system on to the new system. It really snowballs. And we are starting to see that now.

And in terms of the verticals that Red Violet is targeting right now. Can you articulate, let's say the top three or four verticals that you are targeting and then what you might be targeting in 12 or 18 months.

Yes. Financial services collections, investigative, those are the top three where we are at right now. But what we are starting to see is a tremendous amount of uptake in retail. Kind of the non-regulated side of the business as well as dealing with those real large collection firms that have a number of [skip] [ph] tracers across the country. So really leveraging up, if you will, on the financial services side and collections and investigative and really attacking that retail market. And then with some of our new products, kind of green pastures if you will, for the real estate industry being able to take FOREWARN, which doesn’t have a competitor out there right now, and grow that quickly and exponentially over the next few quarters.

Right. Thanks for mentioning FOREWARN, it's seems like there has been a number of announcements for that product. And what I am trying to understand is, where is the sale on that? Is the sale to regional real estate brokers or is it to the national? How do you go about selling that product?

So there is a number of ways to sell the product. Obviously you have seen from a lot of releases that we are getting involved with the associations at the highest level, dealing with large brokerage all the way down to the individual level. The great thing about the product is, it's a really a skin of what we have today built on our idiCORE platform. So there is not a tremendous amount of cost to bring that to market. And dealing with the large associations, again word of mouth and then with the releases and such, it's kind of snowballing throughout the industry but really going after the associations, large brokerage, and then we will also do at kind of the individual level.

And our next question comes from [Bill Gordon from Gordon Capital] [ph]. Please go ahead with your question.

Can you give us a little insight into the nature of your database stuff? How you build up your database since you mentioned it's obviously not from cookies and search. You are doing, obviously you are meeting consumers head to head and building up the data base. Just, if I might get a little clarity on that number too. Can you give us an idea in terms of ad spend that will kind of return new customers to getting to on ad spend.

Absolutely. And, yes, to speak to our data assets, really it's fueled by our consumer engagement capability on our owned media properties. So Fluent owns hundreds of properties, spanning from promotions offers to [snapable] [ph] content. It could be anything from you and three friends to the Super Bowl to seven tips on how to save money on your home bills. A lot of our media is geared towards getting a consumer to actually engage with us and register. Get them highly engaged. So we see 4 million visitors on our sites every single day, nearly a million of whom will actually register with us to access a specific piece of content. We are reading surveys into these experiences to collect data first hand from those consumers about their lifestyle, their interest, really with the goal of tailoring the most relevant offerings to them. So we served well over half a million Americans every single day on our sites, making us most likely the largest surveyor in the world of consumers directly on our own property. So that’s really how these data asset is being built and constantly refreshed and further complied. We have a constant flow of audience coming through our sites that we are engaging with and literally talking to on a daily basis. And your second question, again?

Ad spend. Return on ad spend, new customers.

Yes, absolutely. So all of our clients are highly metrics driven. They typically have some type of a [indiscernible] to go out and drive a new customer. Really Fluent works to generate very strong economics for them through a lens of people based marketing. So we are going about a very intuitive means of audience segmentation as they are coming through any of our sites and understanding more about them to understand which one of our advertisers products or services they most qualify for. So that really helps us to build an economically strong model for them. If I can just give you an example of an instance, we have some sights around generating supplemental income, job opportunities, things like that. As folks are coming through and responding to the surveys, we are able to identify an individual who may be lives in a city, has a car, they are looking for supplemental income opportunities. They would be great for one of the big ride sharing companies and so long as they meet certain criteria, we would put that offer in front of them. If for instance they live at home, they have some available income to invest to start a business venture and have a great network of friends and things like that. They are highly driven on social media. Maybe one of the beauty product companies that tend to have that type of model would be better for that individual. So our partners really benefit from those market place type economics that we create on our platform and that’s where the, you know the return on ad spend really starts to take shape. And we spoke earlier to the increase in gross margins on Fluent's behalf, many of our partners, they don’t typically always share with us their profitability but when they are coming to us and saying, hey, this is now an evergreen contract, we know that they are looking at this in such a way that we are embedded in their workflow. They are seeing great return on ad spend and we look to consistently deliver that and provide more value in that equation.

And ladies and gentlemen, at this time we will conclude today's question-and-answer session, I would like to turn the conference call back over to Derek Dubner for any closing remarks.

Thank you, very much. I appreciate it. Once again, thank you to all for joining the call today. I think you can hear from our expressions on both the Fluent side and the Red Violet side that we are extremely happy with the performance during the quarter and for the year. And we are even more optimistic about the futures of both of our businesses. We are in incredible markets. We have enormous demand. We have extremely valuable technology and data sets and, again, we are very confident in 2018 and beyond. So thank you all again for joining us.

Ladies and gentlemen, that does conclude today's conference. We do thank you for joining. You may disconnect your lines.