Good afternoon, and welcome. Thank you for joining us to discuss our first quarter 2024 earnings results. With me today are Fluent's CEO, Don Patrick; Interim CFO, Ryan Perfit, and Chief Strategy Officer, Ryan Schulke. On our call today, we'll begin with comments from Don and Ryan Perfit, 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 at 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 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. 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-K and quarterly reports on Form 10-Q. 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. 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.

Good afternoon. Thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer, Chairman of the Board and company Founder; and Ryan Perfit, our Chief Financial Officer. I'll make some brief comments about our first quarter 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 runway that will ultimately be margin accretive to the core. 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 road map we laid out in previous earnings releases. Our first quarter financial results were as follows: revenue of $66 million, which represents a 14.6% decline versus Q1 2023. These results were driven primarily by the impact of our FTC settlement and related strategic and financial decisions [indiscernible] revenue streams that we felt were no longer strategically compelling or did not meet our evolving quality standards in our owned and operated marketplaces. 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 $22.1 million was an increase of 1% year-over-year versus Q1 2023. At 33.6% of revenue, we saw media margin increase almost 500 basis points from 28.6% last year, consistent with our strategic plan and a direct reflection of shifting…

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 million 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. 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 $22.1 million, which represents 33.6% of revenue compared to $22 million or 28.4% of revenue last year. 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 million, a $2.1 million decrease year-over-year. Of note, our operating expenses in Q1 2024…

[Operator Instructions] Our first question comes from the line of Maria Ripps with Canaccord.

First, I just wanted to ask you about your media margins, which have been pretty strong the 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? And do you anticipate further improvement from the current levels?

Great. Thanks for the question, Maria. So when you're looking at media margin, there's sort of 3 pieces that are in play here. First is revenue, and we've talked about the decline of our own and operated that is being partially made up by the new performance marketplaces. And the gross profit margin, specifically, the new performance marketplaces have -- all have higher gross profit margins and are making up for the decline in that business. And then the third piece, which will play a little bit into Q1 and more into Q2, it's just the seasonality of these new marketplaces. So they tend to -- they're based on retail and ticketing and health care. They're more on the second half. And Q1 tends to be a little bit low [indiscernible] Q2 tends to be [indiscernible] Q3. So those 3 -- in those 3 trends, we see our GP continue 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.

And then can you maybe talk about the 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?

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. The players tend to change a little bit on the top 5 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 [indiscernible] 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've really been pushing that demand into the other marketplaces to continue to serve that market.

Our next question comes from the line of Jim Goss with Barrington Research.

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 that are pretty intense?

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 scales, we started to break those things out between streaming services, gaming, et cetera. So part of that context, Jim, might be just that [indiscernible] things in a broader category a couple of years ago, and now we're now breaking out based on the importance of that. Overall, our brand is still focused on ROAS over growth, but it hadn't 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, they're really focusing on retention and not so much on acquisition.

And when you talk about sort of reducing the emphasis on the owned and operated sites in favor of syndicated marketplace, could you describe that process a little more and talk about the time frame and just how the execution would take place?

Well, on an operating 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 of. 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. 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, 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 headcount 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 started consolidating our advertising business across all of those solutions. And so now we have a much broader solution set which to go out to these great brands that we work with and offer things beyond owned and operated and into AdFlow -- into our AdFlow modules and call solutions and our purpose health. So it's been a 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.

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

Good question. You'll see 2 things, Jim. One 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 operating marketplaces are down deeper and our performance marketplaces are growing aggressively just at a lower pace. 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 -- marketplaces at margins higher than our core, and you'll start to see margin expansion at the same time.

The last question is the $10 million equity investment. Could you tell me how that was affected? What was the nature of the investment? Did you [indiscernible]?

Yes. Jim, this is Ryan Perfit. This is a private placement with 5 individuals. We sold prefunded warrants, $2.955 million of them at a purchase price of [indiscernible] each. There will be a shareholder approval expected in July.

[Operator Instructions] Our next question comes from the line of Bill Dezellem with Tieton Capital Management.

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 off-line. But first of all, would you please discuss how the media margin was up 1% with the revenues being down? I mean that seems like a surprisingly favorable outcome?

Bill, thanks for the question. We did touch on that basically as we talk about the sort of 3 things that are playing into our numbers right now. 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 AdFlow, call solutions and purpose health. But all those -- the new performance marketplaces have higher gross profit margins than 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 1% up over a year ago.

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

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

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

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 marketplace 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. For example, AdFlow until about a quarter ago was 100% focused on post transaction. So after you purchase something before you get the confirmation page, our ad module, then served the most relevant ad to that consumer on a commerce site. We are now being asked to help use that same technology and 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 -- in the page -- in the earnings release just that how big this commerce media market is and how it's growing. 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 are we 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 a minute-by-minute basis to make sure that we're moving towards those or exceeding those internal metrics.

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?

Bill, this is Ryan Perfit. 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.

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

[indiscernible] no, Bill.

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

There's a lot of pieces to 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.

And then do we have time for me to do a couple more?

Sure.

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 first quarter relative to the fourth quarter?

Yes. I would -- just to qualify a couple of things. One is, first of all, the compliance has, it has everything to do with our own and operated marketplace, as you know, not our new performance marketplaces. So everything that we talked about at the new performance marketplace, it's not around this compliance issue. And secondly, 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. We never saw them really adopt to our levels. So it wasn't so much they took -- they adopted and took a step back. But over the last 4 to 5 months through the beginning of the year, we've seen the competitors actually revert back to more noncompliant behavior. We can make guesses on why that is. Part of it, we believe, is that there's a lack of clear further FTC action. 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 [indiscernible] run towards finance -- the financial part of their business rather than towards compliance. So we don't -- we've been unwavering in 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.

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 [indiscernible] 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?

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 for 4 years, we talked to them pretty much every day. And we are in a -- we're not obviously in inquiry mode with them now. We're in a reporting mode. So our contact that we deal with directly, obviously, the good news is it's more on our commitment to [indiscernible] reporting in the context. So in theory, Bill, everything you say makes sense. And I will tell you, when we were going through inquiry, there was a lot of spotlights on, okay, you did this and then why did you do it this way? And if there was -- for us, there was no lack of not trying to do the right thing. It was around business [indiscernible], but if they see that from an economic perspective, I can imagine it would be much harder and much harder discussion and settlement with them.

It will be fascinating to watch that unfold. So relative to your media margin in the first quarter, it was $33.6 million and that was up slightly from the fourth quarter at 33.1%, even though Q1 revenues are seasonally lower versus the fourth 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?

It is always -- still very good question. These businesses are scaling, especially the AdFlow 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 -- 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 is the good news, as you know, from the -- this business model is we have a revenue share with our partners. So the more we make, the more our partners make and so more successful they are also. So it's around really improving the margin and the monetization of that business.

So that should have very favorable implications for the second half of the year when the seasonal strength in the revenues picks up? That is how you are viewing it also then?

Yes, absolutely.

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.

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 and do 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.

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