Good day, and welcome to the Fluent Inc. Q1 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ryan McCarthy. Please, go ahead.

Good afternoon and welcome. Thank you for joining us to discuss our first quarter 2020 earnings results. Joining me on today's call are Fluent's CEO, Ryan Schulke; and CFO, Alex Mandel. Our call will begin with comments from Ryan Schulke and Alex Mandel, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investor Relations page on our website www.fluentco.com. Before we begin, I would like to advise listeners that certain information discussed by management during the conference call will contain forward-looking statements, covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made during this call speak only as of the date hereof. Actual results could differ materially from those stated or implied by our forward-looking statements, due to risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, may, anticipates, believes, should, intends, 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-K and quarterly reports on Form 10-Q. During the call, we will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA and adjusted net income. Management evaluates the financial performance of our business on a variety of indicators, including media margin, adjusted EBITDA and adjusted net income. The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measure are provided in the earnings press release issued earlier today. With that, I'm pleased to introduce Fluent's CEO, Ryan Schulke.

Thanks, Ryan and good afternoon and thanks to everyone for joining us today. I hope you're all healthy and staying safe. Needless to say, the backdrop of today's call is unlike any time I or perhaps any of us have ever experienced, the time that requires unique and special considerations. We all know the real heroes are those on the front lines of the COVID-19 crisis, working tirelessly to support those who are sick or in need to be. We're extremely grateful for the commitment and sacrifices healthcare professionals, first responders and essential personnel are providing in an unprecedented situation. While you can rest assured, we're extremely focused on driving our business forward, it's critical that our priorities are being led through the lens of safety and well-being of our employees, families and business partners. And that we operate in a manner that fully respects the sensitivities of the conditions we're all confronting. Since our offices closed across North America in mid-March, we made a conscious decision to make no layoffs, while committing many resources and financial aid to Fluent colleagues and the communities we operate in. Foremost, our home base here in New York City, where the majority of our colleague base resides. Despite of the uncertainty in the marketplace, as we and our clients navigate unchartered waters, we delivered a solid Q1, with revenue up 19%, media margin up 4% and adjusted EBITDA off just 1%, each case versus previous year. Even while some of our valued clients are taking a cautious approach, our revenue growth is a strong indicator that Fluent is forging stronger bonds with leading brands across numerous verticals. We're becoming a more critical component of our partners' overall marketing strategy in the process. Yes, we chose to invest on margin, but we did so…

Thanks, Ryan and good afternoon. As Ryan mentioned and as we alluded to on our last earnings call, we saw considerable revenue expansion in the first quarter as the company achieved 19% year-over-year growth to $78.9 million in the quarter. For the quarter overall, we saw low teens growth year-over-year in user traffic to our websites. Earlier in the year we saw a brief period of reduced competition for media while later in the quarter, the onset of the COVID pandemic resulted in consumers spending more time on their mobile devices as the country largely sheltered at home. After peaking in April, volume is moderating somewhat albeit still pacing well. In terms of monetization, early in the quarter we saw particular strength from two verticals, financial products and services and media and entertainment. Later in the quarter, economic dislocation caused advertisers in several verticals, notably staffing and recruitment and financial products and services to reduce their demand with us. This reduced advertiser demand in certain segments coincided with particularly strong growth in user traffic such that our monetization was reduced later in the quarter. We offset some of this in turn by reducing the cost of unit traffic acquisition. But importantly, as Ryan mentioned, we saw the diversity of client verticals and breadth of our client base, which totaled over 500 clients in 2019, as an important benefit of our business model and a differentiator in the performance marketing industry. While rapid shifts in supply and demand can affect economics within our marketplace, we were very pleased that demand could rotate from certain verticals to others relatively quickly in this unprecedented environment. As a result, our media margin dollars grew 4% year-over-year to $23.9 million and represented a margin of 30.3%. In addition to the core supply demand factors affecting…

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Jim Goss with Barrington Research. Please go ahead.

Hi, good afternoon. I was wondering streaming services are a pretty hot item at a time when there's a stay-at-home manifest. Can you talk about how many different ones you can support and represent all at the same time? Or do you have a competitive issue where – around one that their competitors aren't really anxious to have you do the other?

Hey, Jim it's good to hear from you and great question. I think it's something that's often a little bit misunderstood about the Fluent business model, since we aren't an agency. To answer the back end of your question, we're not subject to any type of non-compete or anything like that. So we're able to service the whole sector. And really, the way our business model functions we're dynamically segmenting audiences. We're able to inject survey questions to discover more about them to for instance and not to say that, these are necessarily clients understand, who maybe is more apt to be a sticky customer for a Spotify versus a Pandora. You look at certain companies that are maybe more specifically embedded to certain devices. Apple would be an example of somebody, who is going to do really well with an audience that has an Apple phone – has an iPhone, but not perform very well with folks on Android devices. On the video streaming, it's a bit more of a competitive marketplace based upon the types of content they're featuring and things like that. But we're also able to really dynamically segment audiences and service across the category for the best consumer not just for adoption for that trial period, but the long-term value of that consumer. So a lot of the data we bring to the table and our capabilities enable us to operate across these categories and work with many, if not the majority of the key players that are out there trying to recruit new subscribers right now.

Okay. And with regard to the components of media margin, can you talk about the trends in the – in the media costs right now versus those same trends as applied to your own ability to price your services? And how do they sort of interrelate?

Yeah. So it's essentially – you're seeing similar types of patterns where we're able to go out and access media at a lower cost. We referenced – at the top of the call, there were segments of advertisers who were somewhat dislocated and had to decrease their pricing or pause. So it's been somewhat similar though due to the diversification of our model we've been able to lean in, and I've historically referenced these uncapped type budgets in sectors like media and entertainment, which has shown no pullback whatsoever. So we're able to go out and operate still in this environment though we have had to make some conscious decisions on where to make more strategic investments around media margin profiles based upon the types of clients we're servicing and where we really want to drive into. So both parts are moving a bit, but it's basically staying consistent with one another and things are staying in line. Overall, it's just been a bit of a balancing act, if you will to make sure that we're hunting in the right places and we're going out and operating strategically with the client side the demand side of our business.

One last one. One thing has I think helped perk up your stock a little bit over the past month has been the announcement of your international expansion. I wonder, if you could talk more about the details of that in terms of size and scope. And what you plan to do with the new position?

Yeah. Jim international has really been sort of fundamentally supported by a great, great job that our team has done with partnering and leveling up the types of advertiser partnerships. We're operating directly we're working with leading global brands. And that's truly helping us to expand our footprint international. We rely on unit economics, not just one client but many clients that may have products and services in market that are attractive to a broad set of consumers. So those leading global brands and some of the partnerships we're forging there is really helping to drive that charge and we had one who's I can say is one of the 10 largest companies in the world, banging the table asking us to get into more markets as recent as just a month ago. So we're really proud of the company we keep. It's helping us to drive that. We've also talked about mobile gaming, which tends to translate into almost any language and any type of country typically, the more established mobile gaming companies are open for business in most countries especially Western Europe and North America. So, we'll stay focused on the larger markets in Western Europe, North America. We think it's something that we can continue driving into. And we've seen our model work quite effectively there even without a ground presence and now that we're emphasizing it a bit more internally here and it's a bit more of a big focus for us we're certainly seeing signs that this will be a fairly fruitful expansion line for the business.

Okay. Thank you very much.

Thank you.

Our next question will come from Bill Dezellem with Tieton Capital. Please go ahead.

Hi, thank you. I had a couple of questions here. The first one is on the last conference call, which was around the middle of March, I think you had said that your revenue growth through that time was about 10% quarter-to-date, and you just turned in a 19% number. If we do the math, you would have had gargantuous growth in the last couple of weeks, is that what happened, or were you just being a bit cautious with your 10% number, at least to give us some positive indication where things were going not knowing where the last two weeks were headed?

Yeah, great question and good to hear from you Bill. I think it's a little of column A, a little from column B. To be honest with you, we certainly did want to be a bit more conservative. And on top of that, what you historically see is at the end of any period, monthly or quarterly, certain capped budgets, which albeit the minority of our revenue has any type of cap on it. They do tend to be fairly profitable dollars. So we wanted to be a bit more conservative when we forecasted that during our end of year conference call. But also the spike in activity especially at the onset from some of our traffic partners where they had very sudden shutdowns from other clients who were essentially competitors of ours and few options in which to deliver in addition to just increased consumption of internet activity worked somewhat in our favor. We did know that as advertisers started to get their arms around their overarching strategies in specific sectors, some budgets and pricing did come down. We were able to largely offset that. But it is a little bit of a column A and column B there to your point.

And then, if you allow me to have a little fun with you here. You've given some indication that the second quarter will essentially be flat. And since you did so much better in Q1 relative to your initial read, how much conservatism are you building into -- I mean, the genuine unknowns for the remainder of this quarter?

I think in this operating environment, we just -- we have to be a little bit more conservative and we tend to be fairly conservative in our estimates in general. But I certainly understand where the question comes from, right now that is what we're seeing. But it's really -- with the way things are playing out and the way demand and supply really shift on a weekly if not daily basis based on what's going on in the country right now, it's something that we feel good about that in terms of being able to stay level being able to make no layoffs whatsoever and retain 100% of our colleague base and make sure that we're moving forward in a productive and positive way on behalf of our partners. So it's a tough question to answer. We gave this a lot of thought when we put it out there. And we thought it best -- and it is what we're seeing right now. Now, could the back half of the quarter look a lot different? It potentially could be and we would, obviously, give any signs of anything truly negative if we saw anything. But right now, we're trending about equal with last year. But, obviously, our team is working hard and we're looking for ways to serve our clients in new and innovative ways and we're hoping that that does drive some upside.

Great. And then lastly, the 10-K points out that in the last year, you had an average of about 900,000 first-party registrations on a daily basis. How many are you seeing since mid-March with so much of the country home?

That number has gone up. I'm actually going to defer to Alex Mandel to comment on that, because I think he probably has the numbers a bit more accessible to him in terms of what we are able to share. So Alex do you mind? Just the…

Sure. We see traffic up to our websites over 20% since that time. There's been volatility to it. And now with the country beginning to reopen in many states in limited degrees we're keeping an eye out to see whether those trends will continue or not, but that's what we have seen to date.

Great. Thank you.

Thanks, Bill.

Our next question comes from Ben Rubenstein with Robotti. Please go ahead.

Hi, Ryan. Hi, Alex.

Hey, Ben. Good to hear from you.

I guess, could you talk on the international expansion? What's the biggest hurdle to replicating the success you've had in the U.S. and then what does it mean potentially financially if you do hit your goals?

Great question Ben. So I think the biggest hurdle is it's really a cultural thing. We were able to get U.K. off the ground. We talked about that back in 2018 actually when we first launched. And get to profitability at reasonable rates pretty quickly and scale became more of the issue. We found that especially in -- with European culture, U.K. culture not having that on the ground presence it leads to some skepticism in forming true partnerships which is how Fluent really goes about acquiring traffic at great scale. We make partnerships with a lot of different types of media companies, media owners not just the duopoly of Facebook and Google, but many other types of media companies. And those look different overseas. So that on-the-ground talent and domestic flavor is certainly something we've been missing. We feel as we start to fill in more gaps with respect to local advertisers in these markets, but also traffic partners media owners that we can partner with and go out to gain more scale. We have some really big opportunities. The large brands that I referenced to the earlier question that Jim posed, the global brands, mobile gaming they can fill in 80% of the gaps in terms of the monetization of traffic. But those local brands that only a German would know and trust or somebody in the U.K. residing in London or Birmingham would trust those are important relationships to forge. And without the on-the-ground talent we haven't done that yet. Also the scale of our mobile gaming client is greatly helpful here. We see our users are attracted to those types of campaigns and they tend to be -- have a large appetite for international. So I think as we start to fill in the gaps on -- on the ground talent local relationships and better understanding for these cultures, we start to accelerate a lot more quickly here.

That's helpful. And then I guess just on operating expenses related to COVID. I mean is there anything -- is there any meaningful amount of operating expenses that are higher just related to COVID that aren't necessarily repetitive going forward?

It's -- there's some puts and takes there. We're certainly trying to provide resources to our staff. We're located here in New York City. We've had people who have themselves contracted COVID, have had family members, we're trying to do everything in our power to be sensitive to that to provide financial aid where possible. And just -- our people team in general has done an extraordinary job of just finding ways to keep the staff engaged. And so, you have some minor costs, but really obviously we're -- we're tugging on some overhead that you normally wouldn't need if you're all working from home, but also there's some savings in there too. We're clearly not traveling to events right now and doing things like that. So we have made a commitment to make no layoffs. So we're going to hold the line there. But ultimately I'm not seeing any dramatic increases in operating cost per se.

And then lastly just on -- it looked like you repurchased a little bit of stock in the quarter. Can you just comment on your thoughts going forward? Given that the results seem pretty robust is it -- can you be more aggressive with that? I guess just how are you thinking about capital allocation?

I'll let Alex augment off this. But in general, we launched that program because we felt we were undervalued. We feel good about the amount of stock we were able to acquire. I will say in this operating environment cash on hand is valuable and important to us. We do see the potential for opportunities down the road to deploy cash strategically. And we'll be mindful about that. So the stock repurchase did end at the end of Q1 as planned prior to COVID. And I think preserving cash on the balance sheet at this point is probably the priority, but I'll let Alex augment off any other comments there.

Thanks Ryan. I clearly share the same point of view. We're always looking to make investments when we think we can earn an attractive rate of return on our capital. Of course in this environment we believe that as a general matter there is a greater value and importance to be placed on cash. And ensuring that we preserve liquidity both for a variety of potential operating scenarios and for potential other kinds of strategic opportunities. And so for the moment we're pursuing that path. And as the circumstances evolve we'll continue to make active decisions about our capital deployment strategies.

Thanks a lot. It’s great to see the company execute so well especially in these times. Thanks.

Thanks Ben.

This concludes our question-and-answer session and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.