Q4 2019 Earnings Call
[music].
Good afternoon, everyone and welcome to the fluid Inc. Q4, 2019 earnings conference call.
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Good afternoon and welcome. Thank you for joining us to discuss our fourth quarter and full year 2019 earnings results.
Me today, our fluid CEO, Brian Schoepke and CFO Alex Mandel.
Our call today, we'll begin with comments from Brian Chunky 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 <unk>.
To access the webcast. Please visit our Investor Relations page on our website www dot fluent TCO dotcom.
Before we begin I'd like to advise listeners that certain information discussed by management. During this conference call will contain forward looking statements covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 90 95.
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 well may anticipates believes should intends estimates and other words of similar meeting.
The company undertakes no obligation to update the information provided on this call for a discussion of the risks and uncertainties associated with fluids 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, a 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 CEO Ryan chunky.
Thanks, Ryan good afternoon, everyone and thanks for joining us today.
Strong Q4 results confirm the improvements in our core operating performance that I noted in mid November which further strengthen in the back half the corridor.
Mid January we announced preliminary results for full year 2019 in Q4.
Our press release today confirms that our final results came in at higher end of the preliminary ranges for revenue and media margin.
We delivered approximately 80 million of revenue 26.3 million of media margin and 11.5 million of adjusted EBITDA, representing year over year growth of 13, five and 4% for revenue media margin and adjusted EBITDA, respectively.
The strong sequential uptick in our business in Q4 demonstrates the resilience of both our business model and our team and fundamentally endorses the markets demand for performance marketing services.
Before we dig into the key drivers of a re Dan I'd like to take this opportunity to offer greater transparency in three key elements of the fluent business model that are working in concert to distinguish us in the market today.
Number one we're a pure play performance marketing company. This means that we're working with the advertisers and mutually agreed upon consumer actions tied to specific transactional payouts when driven by fluent.
In order to execute on this model means that fluent and our partners have server to server integrations. So we can record which consumers are taking those actions in real time, both for the purposes of revenue recognition and quality control.
The end product our clients received varies based upon the nature of the vertical and client themselves. Examples of our most sought out product executions ranged from driving trial subscriptions mobile app installs inbound phone calls and lead generation and recruitment campaigns.
Delivering these products to market requires constant technical integrations marketplace, Knowhow and strong direct to advertiser relationships in order to operate sustainably and that scale.
Two we have developed in house technology, and analytics stack that leverages unique proprietary dataset to power AD targeting and delivery historically weve hardwired. This tech stack to exclusively power our owned media environments.
Throughout 2019 and into 2020, we've been making steep investments into this core pillar of our business to both strengthen our core business, but also create opportunities to expand the business potentially through the syndication of parts or all this technology.
Machine learning and automation have been our main areas of focus with our core commercial business as the proving ground for viability.
We anticipate the opportunity to release new products on the back of this work over the course of 2020 and into 2021.
Lastly, we're a publisher and develop our own proprietary content, which we traffic predominantly through paid media. Unlike traditional publishers almost 100% of our inventory is direct sold to end to advertisers all on the performance basis.
Its inception, we've spent over a billion dollars on paid media to drive visitors to our properties.
Our ability to expand the format in which we develop and monetize content as well as international represent large opportunities to expand this media footprint.
The vast majority of our inventory can be categorized as promotions and offers which were able to collect rich self declared information from consumers to better inform the add content, we delivered to them.
Well these three assets working in concert have created a dynamic business model that's demonstrated consistent growth since inception. They also offer tremendous upside to us within their standalone capacity historically, we've operated within a lean business model and driven moderate too aggressive growth throughout her tenure history almost all organic.
Please.
As we assess our future along with our commitment to maximizing shareholder value well contemplate notion of exercising more dedicated roadmaps will still committing to a strong core that optimizes value for trading partners.
Now highlighting the key drivers of Q4 gross which we believe will continue in 2020 as I've mentioned in past calls we've been working continuously top grade our client base by building strategic relationships and capturing greater wallet share with clients, where we believe we can drive significant value.
While initially there will be investment into these relationships book to capture margin overtime and in Q4, we struck a well balanced positioning between scale and profitability in relation to the quality of leading global brands were partnered with.
In terms of drivers of Q4 results, we experienced particularly strong demand from client and our media and entertainment and financial services verticals and those clients represent some of the highest quality, leading global brands and innovative Disruptors. We've had the honored serving to date.
Underpinning the mediation of supply and demand is our marketplace, which represents the centerpiece of our platform their marketplace benefited from important advances in innovation in particular, we invested in building our analytics team in 2019, and the fruit of their efforts in bringing expanded machine learning capabilities to our AD serving was notable.
By enhancing our algorithms to create more relevant AD, serving we achieved improved responsiveness by consumers and monetization with our advertisers.
We are then able to deploy that incremental efficiency into our media acquisition that cycle of positive effects becomes our flywheel.
Along with more intelligent analytics capabilities mediating our marketplace, we invested in expanding our technology team in 2019 that team has made important advances and fortifying the infrastructure of our platform and enabling the analytics improvements that support the flywheel as noted technology and analytics will be a continued area of focus.
Summit in 2000, Tony.
I will remind our investors that always good work is happening while our industry continues to experience rapid change both in the way of consumer consumption as well as regulators attitudes towards marketplace practices.
Phone is very much digital Thoroughbred having been born and raised in this environment. We're optimistic that these changes will work to our favor overtime as we continue to evolve our products and business model to match the needs of brands and consumers they are seeking to attract.
Given this dynamic and maybe more so the events impacting world health and the economy.
We are opting out of offering full year guidance I know this has been a desire of many of our shareholders for some time, we've come to this decision thoughtfully.
One thing I can say throughout my own tenure in performance marketing industry will opt in the last AD dollars to be taken out of the cycle is were often the most predictable from an ROI perspective.
However, given the magnitude of the Ccrone virus effect across the us in the world in conjunction with our diverse client base, we've opted to be conservative and forward forecasting.
We are somewhat reassured that some of our largest clients our operators digitally delivered goods and services, which should not be interrupted by the outbreak.
Our colleague base remains healthy and fully intact at this time and being that fluent is digitally born organization. We believe we're prepared to ensure the continuity of our operations in any scenario.
To recap, we're happy with our fourth quarter results and have our sights set on a productive and growth oriented 2020 are three key pillars performance marketing publishing and proprietary insights are giving line of sight to many new opportunities for the fluent business. We're eager to report on our progress in the coming months and with that I'll turn things to.
Average for the detailed financial results.
Thanks, Ryan and good afternoon as their numbers for the quarter points, you and its Ryan spoke to we experienced a solid uptick in the business in Q4 revenue of 80 million for the quarter and 281.6 million for the year, both represented year over year growth of 13%.
Driving Q4 topline Brian referenced our clients in the media and entertainment and financial services verticals. As one example, the marketplace for video and music streaming services offered significant demand deriving from new product launches and competitive playing fields.
Well positioned to serve market leaders there given a set of our audiences with our clients products.
We also experienced strength, serving health insurance clients, starting your national open enrollment period, which takes place during the fourth quarter, our team lined up strategically to address this market opportunity and improve performance considerably year over year and in so doing we proved to our clients that they can count on fluent with we plan to further leverage in the next open enrollment.
Later this year.
Beyond these examples more broadly we had clients with particularly strong seasonal budgets for homes scale was the primary imperative and they expanded pricing to achieve that objective.
With that demand profile, we were able to access supply profitably.
Our media margin of 26.3 million for the fourth quarter and 93.6 million for the full year, both represented margin profiles of approximately 33%.
Brian spoke with a continued leveling off of our client base to include leading global brands, along with disruptive innovators and we have been increasingly focused on not just driving in period volume, but developing strategic relationships that will embed fluent more deeply and our clients marketing mix.
Developing these relationships requires a careful balancing of investment in profitability over the relationship lifecycle. We're pleased with how we executed in the fourth quarter in this regard.
Yes also reflects our having access significantly more traffic during the quarter at margins acceptable to our business.
Ryan also spoke about evolving our product an area, where things strategically investing in as what we referred to as the consumer experience, we strive to deliver experiences that consumers engaging with our owned media properties will enjoy and find value with as they seek to earn win or save with fluent.
During the past year, we have lead and to enhance our product development efforts to drive innovation and accelerate test and learn cycles.
In so doing we seek to develop and optimize products that consumers will increase their engagement with driving trust and satisfaction and ultimately forging more meaningful connections with our advertisers.
Our DNA expense reflected strategic investments, we have made and which line referred to in our analytics and tech team, which remain key areas of investment in strategic priority for fluent we see these functions is providing the necessary infrastructure to support our next next tranche of growth.
Our DNA expense on a GAAP basis in the fourth quarter also included 1.6 million of restructuring and severance costs and a 700000 accrual in relation to the sales in U.S tax matter with New York State that we previously disclosed both of which are added back for purposes of our adjusted EBITDA metric.
Adjusted EBITDA of 11.5 million in the fourth quarter represented a 14.4% margin and grew by 4% year over year.
Interest expense declined year over year as we continued to reduce our debt principal outstanding and we continue to be a non cash taxpayer due to the availability of and allows.
We thereby reported GAAP net income of 1 million in the quarter or one cents per share.
Turning to the balance sheet, we ended the year with $18.7 million of cash on hand, and an expanded receivables balance from the strong revenue activity in Q4.
From capital defined as current assets minus current liabilities ended the quarter at 29.3 million.
Total debt as reflected on the balance sheet ended the quarter at 51 million, while including unamortized discount yield to closing balance of 54.8 million.
During the quarter. Our primary uses of cash included 2.2 million of principal reduction on our credit facility and approximately $1.8 million deployed through our stock repurchase program.
In the quarter, we repurchased approximately 968000 shares at an average price of $1.87 cents per share.
Well I spoke to the Corona virus situation globally, our most sincere concerns and thoughts go out to those who is health has been affected and his day to day lives has been disrupted given the rapidly evolving an unprecedented circumstances, we are taking appropriate precautions with respect to our employees and offices as of this time our business.
We need to perform in line with where we were proceeding outbreak and then a similar seasonal pattern to this time last year.
While we're not providing guidance at this time directionally in Q1 to date, we have seen year over year topline growth in the 10% plus area.
And we continue invest strategically into client relationships consumer experience and our analytics and technology capabilities.
Thank you for your interest and support we're glad to field questions at this time.
Ladies and gentlemen at this time will begin any question and answer session to ask a question you May Press Star then one if you are using a speaker phone. We do actually you. Please pick up your handset before pricing the keys to.
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Our first question today comes from Jim Goss from Barrington Research. Please go ahead with your question.
Okay. Thanks, I'm just looking at the numbers here I think they were pretty much longer for expectations in gas you're in a different way with.
Revenue again, that's costing offsetting it so the gross margin was what sort of level if your ago.
Is this just how you're thank you can go forward with a higher level of investment and batch.
Now that that you might put outperform margin squeeze for a while as you.
As you a two step up the investments in key verticals.
Yeah, Jim and thanks for calling and it's exactly what we're looking at here is.
We sort of invest into larger client relationships strategic verticals, if we have to come in at slightly lower margins to begin with.
Our expectation is that we'll be able to build that overtime as we we show improve and.
That's that's really been the story of fluent over time, so so your head on there.
Margins not coming along for the right as quick as topline, but that's that's the typical story when we're building into new and strategic areas. So.
So that's that's what we're seeing in our expectation is that we will be able to fill those margins overtime.
Well one comment you made that there was an interesting with their health insurance doing well in the open enrollment period is that sort of a one off type projects that or.
Is that an area, where you think you're getting more involved in.
It happens every season I think we took more notable.
In this past year, and we will more so even in the future.
We're just in a position where we're in front of Americans every single day, many of whom.
I need to be better informed on options within the healthcare system and as things change.
You know, we're able to go out not only educate them, but introduce them to to potential options. So.
It's something that you know we see is a good opportunity for the business it's not.
By any means.
You know something that that we're riding on to make the quarter for instance, but but it's something that we certainly certainly can play into given where we sit today.
So we're thinking about this with a market share, but all of our companies.
In terms of the Corona versus you raise.
Im wondering does fluent fare better or worse than sort of physical marketing.
In a situation where.
I guess your distribution.
To access the online that physical way, so maybe relative to some of these companies you might get damage.
Or or do you do get more competition.
And do wind up getting further down the food chain in.
Yeah.
Basis.
Yeah that we're dealing with right now.
Yeah.
Jim Gray question in something that's been asked.
Across the board.
We want to be respectful of the situation and what's going on and obviously everybody affected by it.
But fluent to.
Now a digital company.
You know we service our model through the delivery of.
Media wooden which were engaging with consumers every day.
Through our digital media environments and sound performance marketing services on top of it.
So.
You know when we look at our client base when we look at our core in terms of how we go out and engaging consumers.
We're very much likely to be less impacted Dan.
Other companies that may be.
No.
You know closer to this situation and impacted by by things that are going on but.
That being said, it's there's just so much moving on right now we don't want to make any specific comments regarding how will that affect our business. It will affect some of our customers for for certain.
And.
It's something that.
And we're paying very close attention to but.
But.
You know as being a digitally born company.
We do think that we're prepared to deal with this.
The situation as is.
As often as it is right now and again you know our thoughts go out to everybody.
Close to it and it's something that we're trying to be sensitive too.
That's a good deal Mitchell.
Impact.
Yes.
Appears to be muted relative to.
What are your expectation.
Finally, I won't comment you made.
Yeah the fair.
I don't think we made any comments on percent.
Oh.
I'm sorry.
Hi, guys back or just a race at the outset of corridor.
Corridor, Yeah yeah.
You haven't to this point gain a significant.
Correct.
But even though you're not making projections.
Right, Okay, Hi, it's Alex I mentioned that as at this point since the outbreak of the virus, we have not seen a material change to our business and it's following seasonal patterns at this time similar to what we saw last year.
Okay I'll leave it work after I appreciate it.
Good luck.
Thanks, Jim.
Our next question comes from Ben Rubenstein Farmer body. Please go with your question.
Hey, Ryan are the new media relationships are those uncapped.
Hey, Ben good to hear from Yeah, and in terms of the media side, if you're speaking to the vertical and the demand side media and entertainment.
Spit specifically.
No.
Music and video streaming services.
A lot of our mobile gaming clients I would say, 90% plus of that is on cap. These guys are in all you can eat mode were priced right in terms of quality, we're able to I'd. The traffic, we're sending into them. So they can right price it very dynamic model.
In which we have really really great communication with the client on the long term value of what we're delivering so.
Everybody in terms of.
Both client side as well as fluent where were in.
Concert with one another and working toward.
The goal of being at a transactional payout where they can be uncapped. So vast majority is uncapped at this day does this help you really get deeper relationships. When you talk about like marketing services or you know.
I don't know who consulting role that you ultimately want to play with some of these companies.
Yes, absolutely I it today.
Obviously, when you're working with the client in such situation where.
We only if both sides are really.
Benefiting.
Theres a level of trust its garnered and it helps us really go out and develop a more strategic relationship within that that client I'm. So whether its consulting data services insights things like that you know it gives us more opportunities to works decline on a variety of levels.
That's great to hear and then just lastly, just can you talk a little bit about capital allocation I saw you I mean, you repurchase of stock in the quarter, but.
Just in terms of what you want to do with the debt and then is the M&A are there more buybacks coming just kind of how do you think about capital allocation.
Hi, Ben it's Alex.
In terms of what we've been doing you noted that correctly, it's consistent with what we spoke to on the call which is that our primary uses of Ben.
Reducing the credit facility and repurchasing our shares.
With some investment into the business in terms of initiatives and so forth and as we grow obviously, we're in for investing into the working capital cycle of the business.
That's that continues to be our primary set of priorities at the moment.
As a natural course of.
Operating our business, we look at all kinds of opportunities.
But there's nothing eminent that we have.
On that.
The cost of announcing.
Great. So it sounds good thanks, guys.
And our next question comes from so that's the one from Teton capital. Please go with your question.
Thank you I have a couple of questions that first of all what indications have you had to from your existing clients about changes they may or may not make going forward relative to coking Nike and then secondarily on the right could you please scale what.
What you did.
From an <unk> perspective, it's just too great.
Nike and what [noise].
Plants are for major changes for 2020.
Hi, Bill good to hear from you and I'll I'll speak to bolt both your questions and I might need point of clarification on the second one of your line chopped up little bit.
With respect to our own client base.
We're into them every single day word again I mentioned in on the call were direct sold so we know exactly who are clients are what their goals are what their expectations are appfluent.
And how they're going about marketing to what we delivered to them. So at this point in time.
We have not received any major indicators that our clients wish to slow down their marketing activities with the fluid or that their capabilities or capacity to market or go out and acquire new customers is going to be impacted by the outbreak now do we have an ancillary.
Sorry situation, where client may have been manufacturing out of China, and they don't have enough product and they don't want new customers right now and they're going to prioritize existing customers there could be those situations hearing there.
But I would say that's by far the minority by what we've heard so far and the majority of our client base.
Continues to be interested investing fluent again as I mentioned on the call because we are probably their most predictable ROI source of marketing investment.
So at this point in time.
We don't have any reason to give guidance otherwise and.
You know really.
Create a framework, but we're being sensitive to it again. This thing is moving as everybody knows everybody's it's close to this I mean that was down close to 10% today. So we're all.
Keeping our head on a swivel over here, but a lot of our clients are continuing to to be bullish in terms of at least their spend with alone.
In terms of your second question.
And that was relative to Alex remind me technology infrastructure. There. So our investment in technology age. It's obviously, an ongoing thing, but this has been upgraded over time as weve recognized opportunities too.
Go out enhanced.
And really create a means of going out and.
Syndicating components of our business.
To scale further.
We we really wanted to make sure that our data infrastructure infrastructure was tight being in the public markets. It's an area of sensitivity you're seeing things in the news.
And what's going on with with the Facebook, Google and the like so we're making sure that everything's tight there in terms of how we're collecting data our usage of it or clients usage of it.
But also.
At large we've built the business that we feel is very powerful and we're demonstrating the ability to go out and execute performance buys we buy media.
We go out and generate profit on it very predictably, we're working with direct end clients on all of that so we get the feedback that what our client spend with us is profitable and what we spend they ran on paid media is profitable. So our technology infrastructure. We believe is a core pillar of the business it's really.
Something that special in something that needs to be evaluated as as a a pillar and also an independent roadmap potentially for the future.
So that's some of the things that we're evaluating and why we're investing deeply into our technology and analytics infrastructure.
Thank you for the comps and the Cantor Fitzgerald.
Good night.
Yeah.
Thank you.
And ladies and gentlemen, with that Weve reached the end of today's question and answer session.
In today's conference call, we'd like to thank you for attending today's presentation.
You may now disconnect your lines.
Good bye.