Q1 2020 Earnings Call

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'cause too so I think Q1 2020 earnings conference call.

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I'd like to turn the conference over to Rein Mccarthy. Please go ahead.

Good afternoon and welcome. Thank you for joining us to discuss our first quarter 2020, earning results.

Joining me on todays call or Wuhan, CEO, Brian Showpiece, and CFO Alex Mandel.

Our call will begin with comments, Brian So again, Alex Mandel, followed by a question and answer session.

I'd 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.

Accessing the webcast. Please visit our Investor Relations page on our website www dot blue coat Dot com.

Before we begin I'd like to advise listeners that certain information discussed by management. During the conference call will contain forward looking statements covered I'm just under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking statements made during this call speak only as of the date Europe.

Actual results could differ materially from those stated or implied by our forward looking statements due to risks and uncertainties associated with companies 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, 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 evaluate 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 earnings press release issued earlier today.

With that I'm pleased to introduce fluid CEO rigel.

Thanks, Ryan and good afternoon, and thanks, everyone for joining us today I.

I hope, you're all healthy staying safe.

Needless to say the backdrop of today's call is unlike anytime I or perhaps any of us I've ever experienced.

I know it requires unique in special considerations.

We all know real heroes of those on the front line will be called 19 crisis working tirelessly to support those who are sick or need to be.

We are extremely grateful for the commitment sacrifices health care professionals first responders essential personnel are providing unprecedent situation.

Well 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 over our employees families business partners.

And that we operate in a manner that fully respects the sensitivities the conditions world confronting.

Since our offices close across North America in mid March we've made a conscious decision to make no layoffs.

Many many resources and financial aid to fluent colleagues and the communities we operate in foremost or home base here in New York City, where the majority of our colleague based resides.

Despite the uncertainty in the marketplace as we and our clients navigate unchartered waters, we delivered a solid Q1 revenue up 19% meaty marching up 4% and adjusted EBITDA off just 1%.

Each case first previous here.

Even while some of our valued clients are taking a cautious approach or revenue growth is a strong indicator that fluid is forcing stronger bonds with leading brands across numerous verticals.

We are becoming more critical component of our partners overall marketing strategy in the process.

Yes, we chose to invest some margin, but we did so and strategically important growth areas centered around solutions, we provide our clients.

Growing our media footprint domestically and now investing in international expansion, where we feel confident will improve our margin mix over time.

Start with some headlines.

First I will touch on how the crisis has impacted our business and what we're doing about it.

Second I'll speak to three core pillars, driving influenced performance marketplace our performance solutions.

Publishing platform and our in house technology platform.

I think overarching trend, it's been well documented across our industry is that while consumers are spending more time on the internet advertisers for spending less overall dollars to reach them.

In turn fluids business model as a performance marketing company playing in a range of verticals has helped somewhat insulated us from the volatility occurring across the marketing and advertising space.

Good news is that we're seeing more traffic to our media properties at lower cost to acquire that traffic, but the offsetting this challenging window is that we have had certain advertisers segment decreased pricing were temporarily pause depending upon how their industry and business has been impacted by the crisis.

With that said, we've talked about how diversified fluids advertiser base is due to the nature of our business model.

And the multitude of verticals in which we play.

This diversification has helped us maintain our balance through this period, what capturing greater market share in our sector.

Revenue growth was an important metric driving our strategy as we continue to build strong relationships with top tier brands, who rely on fluent for profitable customer acquisition solutions at scale.

Well media margin, obviously grew at a more modest rate, we're bullish on our ability to optimize down the road as we continue to press on capturing greater share of wallet with advertisers to the expansion of our media footprint.

This challenging environment, we're continuing to look for opportunities to provide value to our partners.

Well, the marketing environment remains dynamic and where we will need to react to our new realities. Here's an example of a strategy were fluid is winning.

Consistently emphasized the importance of our media and entertainment sector, which hosts to key stables clients streaming services and mobile games.

We have deeply embedded partnerships with a host of clients in each of these verticals and they are performing very well in this environment.

We've got momentum will continue here as we enhance these strategic relationships.

On a global scale fluent aspires to be a much larger performance marketplace connecting consumers with great products and services long powering advertisers to execute more efficient digital marketing programs.

Three pillars driving influenced performance marketplace, our one.

Our performance solutions, which service the advertiser demand driving the marketplace dynamics.

Two.

Our publishing platform, which establishes our media footprint, including a portfolio of web properties and the channels, where we engage consumers to traffic those sites.

And three our in house platform, which is the data technology and analytics that tie the marketplace together.

Our first pillar performance solutions enable us to directly partner with thousands of top advertisers across numerous verticals. The clients are able to operate with us on a pay for performance basis across a number of executions, such as App installs subscriptions lead generation and inbound phone calls.

We're leaning in here to enhance our capabilities as we recently announced our investment into a nobly, which is essentially contact center with technology to enable live agent to work from home, while still protecting sensitive consumer data.

This further expands our marketplace, enabling us to host sales calls on behalf of our advertising partners.

In addition to driving things like inbound calls and phone verified leads.

The second pillar, our publishing platform, which today is predominantly comprised of a number of owned and operated web properties with about 90% of consumption happening on mobile devices.

We previously talked about product development initiatives centered around winning big on messaging and video applications. These are taking shape nicely and represent some of the fastest growing revenue streams, the understandably slightly lower media margin.

Importantly, Facebook Snapchat, and some of the emerging social and gaming platforms still represent a large growth opportunity for fluid and we'll continue to be an area of focus.

The other key Avenue to grow our media footprint via the publishing platform is through international expansion.

We've learned a lot in our 10 years in the marketplace, both successes and failures now it's time for us to leverage all that key learning as we crystallize and expand our international strategy.

Beta launch, Germany in November and are now ready to begin scaling to do so we've engaged on the ground resources help us take that effort to the next level.

Fortunately, we believe this investment is leaning into pre validated client demand our existing clients cooperate leading global brands are asking us to expand our footprint to meet their needs.

Our European footprint now includes two large market UK and Germany.

We're also prioritizing additional markets in Europe, and North America, and anticipate this will be a continued area of focus and growth over the next few years.

Third pillar influence in house platform, which utilizes proprietary first party data collected on or media properties, and our technology and analytics stack to service, our marketplace and expand our media footprint.

You can think of this is the creation of relevant experiences for consumers as they engage with us and offer us information about themselves along with the opportunity to present our clients offerings.

In closing we're doing all of this under a set of conditions. We certainly didn't plan for since we closed our offices in mid March thankfully, our colleague bases transition well to working in remote environments. Our team has always exhibit at a high degree adaptability and agility and thus are businesses remain solid.

Looking forward to the second quarter, we two will be affected by the near term industry realities, we see our revenue pacing is relatively flat compared to the same period year ago.

Within this challenging environment.

We also believe we're strengthening fundamental alignment between fluids performance marketing capabilities and our clients objectives. Our platform brings consumers further down the bundle, providing greater clarity on consumer needs, while increasing our clients return on investment and de risking their marketing budgets.

As a result, we believe the dollars being deployed to us or more sustainable in good times and embed as they are better alternatives in the marketplace in general.

Thank you for your support let me turn the discussion Alex to review the numbers more specifically and I'll return for Q and a afterward.

Thanks, Ryan and good afternoon.

I mentioned and as we alluded to on our last earnings call. We thought considerable revenue expansion in the first quarter has 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 end user traffic to our websites.

Oh in any year, we saw a brief period of reduced competition from media. While later in the quarter the onset of the covert pandemic <unk>.

Resulted in consumer spending more time in their mobile devices.

Largely sheltered at home after peaking in April volume is moderating somewhat albeit still facing 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 and several verticals, notably staffing in recruitment.

Natural products and services to reduce their demand.

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 their performance marketing industry.

While rapid shepton 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, I'm 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 our margin in the quarter certain of the initiatives that Ryan discussed such as newer media supply channels consumer media formats and geographic markets represented an increase portion of our overall media margin dollars.

The key directly relevant to our core growing nicely year over year and profitable. These segments of our business actually carry a lower margin relative to their stage of development.

In Q2 to date, we have continued to reduce our unit cost of supply while demand continued to reflect the uncertain economic environment broadly, which along with traffic trending are the factors underpinning Ryan comment on our current pacing approximately flat to last year's quarter.

Our operating expenses, comprising sales and marketing product development and DNA grew by an aggregate of 1 million year over year.

To date, we discussed or investments into technology and analytics largely in terms of human capital and.

In addition, we began the configuration of our new ERP system net suite in Q3 of 2019.

General Electric company went live on January 1st I'll integration of platform throughout the business is currently ongoing and we anticipate will be largely complete in Q3 of this year.

Connection with this investment we incurred approximately five hundreds of thousands of expense in Q1 with no corresponding cost in the prior years quarter.

As part of this implementation, we anticipate remediating the existing material weakness in our internal control of the financial reporting by automating certain processes and controls that have historically been carried out manually.

We also anticipate this investment than our technology infrastructure will provide meaningful business benefits in terms of visibility and internal reporting enabling efficiencies in the years ahead.

Adjusted EBITDA of 9 million in the quarter represented a decline of 1% and a margin of 11.4% as compared with a margin of 13.7% than the prior year period.

Interest expense decline year over year, as we reduced our debt principal outstanding by 7.7 million year over year and benefited from a lower effective interest rate and we continue to be a noncash tax payer doing the availability if any wells.

We thereby reported GAAP net income of 408000 in the quarter well one cent per share.

Turning to the balance sheet, we ended the quarter with 14.6 of cash unrestricted cash.

Working capital defined as current assets minus current liabilities ended the quarter at 32.8 million.

Total debt as reflected on the balance sheet ended the quarter had 48.3 million, while including unamortized discount yield the clothing balance a 51.8 million.

During the quarter. Our primary uses of cash went towards fortifying our capital structure, including 3 million a principal reduction on our credit facility and approximately 1.3 million in deployed through our stock repurchase program.

In the quarter, we repurchased approximately 658000 shares at an average price of $1.98 per share.

Notwithstanding the extraordinary challenges brought about by the pandemic. Our team has operated relatively seamlessly having pivoted fluid lead to a completely remote work environment.

We're very fortunate that our business has continued to perform as it has more sincerely appreciate if I ever team's efforts as a strong relationships with our business partners.

Beyond all were most grateful to the real heroes Ryan acknowledged those on the front lines.

At this time it we're glad to field questions.

Thank you we will now begin my question and answer session.

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At this time, we'll pause momentarily to assemble over there.

My first question comes from.

Jim Goss with Barrington Research. Please go ahead.

Hi, Good afternoon, I was wondering streaming services our.

Pretty hot item and time when.

There's a stay at home or 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 the their competitors aren't really anxious every do the other.

Hey, Jim it's good to hear from you and great. Great question I think it's something that's often a little bit misunderstood about the fluid business model since we arent in 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 were dynamically segmenting audiences were able to inject survey questions to discover more about them to for instance, and not to say these are necessarily clients understand who maybe is more.

Apt to be you know a sticky customer for a spot of five versus a Pandora you know you look at a certain companies that are maybe more specifically embedded to certain devices. You know I'm you know Apple would be an example of somebody who is going to do really well with an audience that [laughter].

As an Apple phone has an iPhone, but but I'm not performed 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, there 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 I'm. So a lot of the data we bring to the table in our capabilities enable us to operate across these categories and work with many if not the majority.

<unk> of the key players that are out there trying to recruit new subscribers right now.

Okay, and with regard to the components of a media margin.

Okay.

Can you talk about the trends in the.

In the media costs right now versus those same trends is plaid through your own ability to pressure services and how they have that sort of interrelated.

Yeah. So it's it's essentially you know you're seeing similar types of patterns, where we're able to go out and access media to lower cost. We reference you know that.

The top of the call they're worth segments of advertisers, who were somewhat dislocated and I 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, but historically reference these uncapped tight budgets.

In sectors like media and entertainment, which is shown no pull back 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 around you know media margin profiles based.

Upon.

The types of clients were servicing and you know, 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 spend a bit of a.

Balancing act if you will to make sure that you know where we're hunting in the right places and were going out and.

Operating strategically with the client side, the demand side of our business.

And then one last one one thing is I think help perk up your stock little that for the past month is then the announcement the your international expansion I Wonder if you talk more about the details of that in terms of size and scope and what's planned to do it.

The new position.

Yeah, you know Joe International there's 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 were operating directly we're working with Lee leading global brands, you know and that's that's truly helping us to expand our footprint international we rely on.

Unit economics on not just one client odd, but many clients that you know may have products and services in market that are attractive to you know 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 whose.

I can say is one of the 10 largest companies in the world.

You know banging the table asking us to get into more markets as recent as a just a month ago. So.

We're really proud of the company, we keep its 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 a the more established mobile gaming companies are open for business in most most countries, especially western.

Europe and North America. So you know, 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 works quite effectively there even without a ground present 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 that this will be I'm fairly fruitful expansion <unk> line for the business.

Okay. Thank you very much.

Thank you.

Our next question will come from Bill Dezellem with Titan capital. Please go ahead.

Thank you I had a 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 here that time was about 10%.

Quarter to date and you just turned in a 19% number.

If if we do the math you would have had gargantuan growth in the last couple of weeks is that what happened or where you just being a big a cautious with youre at 10% number that we used to give us some positive indication where things were going not knowing where the last two weeks we're headed.

Yeah, Great Great question, good to hear from your Bill I I think it's a little of Collin a little from column B to be honest with you. We certainly did want to be a bit more conservative and and on top of that.

Historically see is at the end of a any period, a monthly or quarterly certain capped budgets, which albeit the minority of our revenue is has any type of cap on it they do tend to be fairly profitable dollars I'm. So.

We wanted to be a bit more conservative when we when we forecasted that.

During our into your 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 average clients who were essentially competitors of ours.

And and few options in which to deliver in addition to just increased consumption of you know internet activity.

Work somewhat in our favor we did note that.

As advertisers started to get their arms around their overarching strategy is in specific sectors.

Some budget some pricing did come down a we were largely offset that but but it is a little bit of a column nave in Colombia, there to your point.

And then Oh, that's still allow me to have a little fund with you here.

You've given a given some indication that the second quarter will essentially be flat and since you did so much better in Q1.

Relative to your your initial read how much conservatism are you building into I mean, the genuine unknowns for the remainder of this quarter.

I you know I think in this operating environment. We just we have to be a little bit more conservative in and we should we tend to be fairly conservative in our estimates in general, but certainly understand where the question comes from right now that is what we're seeing but you know its.

It's really you know with with the way things, you're playing out and the wave demand and supply really shift on a weekly if not daily basis based on what's going on in a country right. Now you know, it's it's something that we feel we feel good about that in term.

As of being able to stay level being able to make no layoffs whatsoever, and retain 100% of our colleague base and make sure that you know where we're we're moving forward in a productive and positive way on behalf of our partners. So it's 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.

<unk> potentially could be and and we would obviously give any signs of anything truly negative. If we saw anything but you know right now we're trending about equal with with last year, but but obviously our team is working hard and where we're looking for ways to serve our clients in new and innovative ways and we're hoping that that does drive smoke.

[music].

Great and then lastly, the 10-K points out that test in the late last year, we had an average of about 900001st party registrations on on a daily basis.

Many are you seeing since mid March with so much of the country home.

That number has gone up I'm, I'm actually going to defer to Alex Mandel to 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 just the.

You bet those.

Sure, we seen traffic up to our website over 20% since that time, that's been volatility to it and now what the country and beginning to reopen in many states in limited degrees.

What keeping an eye out to see whether those trends will continue or not but that's what we've seen to date.

Great. Thank you.

Thanks Bill.

Our next question comes from Ben Rubenstein body. Please go ahead.

Hey, Ryan Alex.

I've been on a year from it.

I guess could you talk on 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 you know if you do hit your goals.

Great question band I, you know so I think the biggest hurdle is it's really a cultural thing.

We were able to get you pay off the ground, we talked about that backing in 2018 actually when we first launched and get to profitability at reasonable rates pretty quickly and scale became more the issue we found that especially in.

With European culture, U.K. culture are not having not on the ground presence. It leads to some skepticism informing through partnerships, which is how fluid really goes about acquiring tropic at great scale, we make partnerships with a lot of different types of media companies media owners not just.

The the do awfully of Facebook, and Google, but but many other types of media companies.

And those with different overseas, so I'm not on the ground talent and domestic flavor is certainly something we've been missing a we feel as we start to fill in you know 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 the large brands that I referenced to the earlier question. Your question that Jim posed you know 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 UK residing in you know Londoner, Birmingham would would trust those are important relationships to fortune without the on the ground talent, we haven't done that yet I'm also the scale of our mobile gaming clients is greatly helpful. Here, we see or users or.

Tracked into those types of campaigns and they tend to be a you know I have a large appetite for international So I think as we start to filling the gaps on on the ground talent local relationships and better understanding for these cultures.

We start to accelerate a lot more a lot more quickly here.

That's helpful. And then I guess just on operating expenses related to co bid I mean is there anything.

You know.

It is there any meaningful amount of operating expenses there higher just just related to two co good that aren't necessarily.

You know repetitive going forward.

You know, it's it's a there's some puts and takes there were certainly trying to provide resources to our staff were located here in New York City. We've had people who have themselves contracted Cove it'd have had family members I'm, we're trying to do everything in our power to be.

Sensitive to that to provide financially we are possible and just.

Our people team in General Center, an extraordinary job both.

Just finding ways to keep the stat engaged and you know you know so you have some minor costs, but really obviously, we're we're talking on some overhead that you know you normally wouldn't need if you're all working from home, but also there's some savings in there too we're certainly not traveling to events right now and doing things like that so we.

I've made a commitment to make no lay offs I'm. So would you know we're going to hold the line, there, but but but ultimately you know not seeing any dramatic increases in operating cost per se.

Thank you then lastly, just on it looks like you repurchased a little bit of stock in the quarter.

You just comment on your thoughts going forward given you know given up the results seem pretty robust <unk> you know can you be more aggressive with that.

I guess, how just how are you thinking about capital allocation.

I'll, let Alex augment off this but in general you know we launched that program because we felt we were undervalued 'em. We feel good about the amount of stock we were able to acquire a I will say in this operating environment a cash on hand is valuable and important to us a we do see or the potential for opportunities.

Down the road to deploy cash strategically and you know will be mindful about that so the stock repurchase did end at the end of Q1 as planned.

Prior to covert and you know I think you know 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, Brian had 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's greater value on important to be placed on cash and ensuring that we preserve liquidity both for a variety of potential operating scenarios and or.

Thanks, a lot other kinds of strategic opportunities so for the moment well, we're pursuing that path and as the circumstances evolve will continue to make active discussions 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 is also now concluded.

Thank you for attending today's presentation you may now disconnect.