Q2 2020 Fluent Inc Earnings Call
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Good day and welcome to <unk>.
Second quarter 2020, <unk> earnings conference call.
All participants will be it looks as though.
She was really an assistant push of only cauldron specialists focus in the starting followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please note today's about Israel recorded I would now let's turn the conference over right because the please go ahead, Sir good afternoon and welcome. Thank you for joining us to discuss our second quarter 2020 earnings results.
Joining me on todays call, our fluid CEO, Brian Jokey, and CFO Alex Mandel.
Our call will begin with comments from Ryan Soaking, Alex Mandel, followed by a question 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 fluids code dotcom.
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 provisions of the private Securities Litigation Reform Act of 1995.
Any 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 the company's business.
Statements made de identified by words, such as expects plans projects could will 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 evaluates the financial performance of our business on a variety of indicators, including media margin adjusted EBITDA and adjusted net income.
Definitions of these metrics and reconciliations and most directly comparable GAAP financial measures are provided in the earnings press release issued earlier today.
With that I'm pleased to introduce fluent CEO Ryan show.
Good afternoon, and thanks to everyone for joining us to.
As we continue to navigate this challenging and uncertain environment I want to thank our entire Tali base for their exceptional work under the most difficult circumstances.
During these unprecedented times, what remains resilient instead best striving to support our colleagues clients consumers and communities.
Second quarter's performance once again demonstrated strengthen diversification of our platform and macro benefits performance marketing.
Despite of uncertainty in the marketplace, we delivered a solid Q2 with revenue up 1% and media margin up 8% ahead of our prior business outlook for result in line with the previous year.
Adjusted EBITDA is up 3% first last year's Q2, which reflects an investment into our owned and operated media properties as well as the overhead impacted polar whose business we acquired in Q3 last year.
On today's call I'd like to first speak about the Q2 operating environment, along with our results and then provide broader context relative to our strategic growth pillars.
Regarding the operating environment, our core focus remains on access to cost effective media at scale leveling out volatility across our advertiser base. Currently we're enhancing our owned and operated media properties, which enable consumers to earn win or Steve with fluid and our partners.
Well, maybe remained accessible at relatively favorable pricing for most quarter, we did see a bit more on predictability on a channel by channel basis, and our team did an excellent job of Rightsizing, our pricing against volume.
On the advertiser side of our business the diverse nature of our client base helped to offset any verticals that locked in demand as a result of coated vertical standpoint, the quarter was again, a standout for media and entertainment clients, particularly in the streaming services and gaming App categories, where we continue to fortify strategic relationships with.
To your global brands.
The key strategy would remain enthusiastic about as or international expansion in particular do UK business more than doubled its topline year over year, well expanding its media margin profitability that revenue from non U.S. markets exceeded 5% of total revenue in the quarter for the first time.
Now I'll turn to an update on fluids three strategic growth pillars.
First our performance marketplace. This refers to the demand we're interactions between our advertising clients and consumers on our platform.
Fluent advertiser solutions enable our clients to bid on outcomes, not impressions and predictable pricing and scale.
As part of our ongoing effort to expand our performance solution offering in April we acquired 50% interest and monopoly contact center that further extends our ability to engage consumers in order to connect them with our advertisers products and services across multiple industries, we're not really specifically geared operationally to service.
We went consumers affording us the opportunity to provide high quality experiences, while yielding incremental monetization.
Today, we're not believes achieving its plan and continuing to scale strategically we view this as a critical capability and further extending the lifecycle fluids relationship with its consumers.
Second our media footprint. This pillar represents our portfolio of media properties, which enable us to entice engaged consumers learn about their interest in preferences and match them with brands and offers within our performance marketplace.
Keypad to extending our equity and expanding our media footprint has been via deployment beyond the U.S. Our European launch now includes two large markets UK and Germany in North America, where in the early stages of test in Canada.
Growth in the UK in Q2, which I touched on was enabled by operational enhancements that increased our monetization or LTV profile, thereby further enabling us to drive additional traffic.
Well continue to focus on non U.S. market and anticipate continued growth over the next few years.
Third our platform represents the technology analytics and product innovation that why are the first two pillars together.
You referenced investments being made into our media properties as we constantly seek to better align our value proposition with consumer expectations well. Some of these enhancements increase certain operating expenses, we believe they create a foundation for future revenue centers and strategic growth for the business.
In addition to these front end platform upgrade we also made meaningful improvements to our Bakken technology, which seek to help us onboard advertisers with greater efficiency and test new media channels at a more rapid pace. We're excited about how these new capabilities and features should help us move faster in the back half of 2020 into 2021.
In closing, giving the current operating environment, we're pleased with our second quarter results.
Our business remains solid benefiting from the strengthen diversification of our platform and our unique and advantageous positioning within the industry.
Looking ahead to Q3 will continue to adjust to the dynamic realities of the marketplace during coated and we'll remain focused on driving our business board on behalf of fluid and our clients through further innovation such as media format expansion deeper insights around conversion behavior and exploring new channels to engage consumers cost effectively.
We see this operating environment is further validation regarding the benefits performance marketing to our clients, we're bringing consumers further down the path to purchase well, giving our clients clarity on their ROI, creating predictability that de risks their marketing budget.
We see this as a fundamental alignment with our clients needs and objectives. As a result, we believe the dollars available to us or more predictable in times like this then with other marketing channels, which don't provide the same benefits and financial return.
Thank you for your support now as always.
Let me turn the discussion to Alex to review the numbers more specifically and I'll return for Q and afterwards.
Thanks, Ryan good afternoon.
Please turn to the second quarter, we met our prior business outlook for revenue up 1% year over year to 71.5 million and exceeded on media margin up 8% year over year to 24.8 billion.
I spoke about media trends during the quarter.
Well I break we capitalized on the market opportunity to acquire substantial volumes of traffic potentially owing to consumer spending more time with their devices and economic uncertainty among other buyers of traffic and that's the pandemic.
Well it stepped up and took on that volume opportunity, while achieving favorable media pricing due to our strong an always on presence in the market.
We were confident in doing so as demand from our client base was sufficient to absorb the volume and at favorable markets to fluid.
Our clients include large global brands innovative disruptive disruptors and ambitious entrepreneurs, who leveraged fluids performance marketing platform to build our scale their businesses.
The interaction of strong volume at favorable pricing with ongoing client demand from robust counterparties underpinned our profitability in the corner.
Media margin dollars grew 8% year over year to 24.8 million representing 34.7% of revenue.
Based on Q3 performance to date, we see the quarter returning to the seasonal patterns experienced in 2016 through 2018 as it relates to media margin dollars without a recurrence of the factors, which affected Q3 results last year.
Our operating expenses on a GAAP basis, comprising sales and marketing product development and DNA grille in aggregate by 400000 or 2.6% year over year.
If we think about flow with non-GAAP metrics of media margin on adjusted EBITDA and the amount between them.
Represented by expenses included in adjusted EBITDA, but not media margin that also grew year over year. This was primarily attributable to the inclusion of the AD parlor business as well as increased reward redemptions by consumers on our media properties during the quarter, we tested certain changes to our reward redemption flows which elevated these expenses.
As we optimize relative to our learnings we anticipate this cost to moderate going forward.
Accordingly, adjusted EBITDA of 9.4 million in the quarter represented a decline of 3% year over year and the margin of 13.1%, while a reduction of 60 basis points year over year. This margin reflects an improvement of 170 basis points quarter over quarter.
Interest expense declined by 400000 year over year as we reduced our debt principal outstanding by 6.3 million and benefited from a lower effective interest rate environment.
In Q2, we continued to be in on cash taxpayer due to the availability of I know wells, we reported GAAP net income of 452000 in the quarter or one cents per share and adjusted net income non-GAAP measure, a 4.2 million or five cents per share.
Adjusted net income reflects the add back of 2.6 million of non cash expenses and 1.1 million of certain legal and related costs.
Our non-GAAP metrics are reconciled in today's earnings release, and our 10-Q and 10-K filings.
Turning to the balance sheet, we ended the quarter with 21.7 million of cash unrestricted cash working capital defined this current assets might its current liabilities ended the quarter at 30.5 million.
Total debt as reflected on the balance sheet ended the quarter at 47.8 million, while including on amortize discount yields of closing balance of 50.9 million.
At the beginning of the quarter, we completed the acquisition of a 50% stake in monopoly a contact center that sources consumer leads exclusively from fluid.
Taking this competency in house provide several benefits and enables us to correct directly control the experiences as consumers have what the operators contacting them.
<unk> better connections and more value for clients.
And capture incremental economics for fluent.
During the quarter, we funded the initial purchase price and the first milestone payments totaling approximately 1.75 million.
There's also when all of your consolidated in our income statement the structure of the transaction involves the put call feature.
In relation to this option structure, a noncash quarterly expense of 530000 deemed accrued compensation to the sellers run through DNA on our GAAP income statement.
This amount is added back in the reconciliation of non-GAAP metrics.
Based on current performance of the business versus plan. We anticipate this will be a consistent and recurring amount each quarter until exercise, which has at least for years and the acquisition date.
Our team continues to operate seamlessly in a fully remote environment, while the risks and uncertainties remain to date. The pandemic has not had any material adverse effect on our business.
Meantime, ongoing shift of performance based digital solutions from its and brands, who seek measurable outcomes and greater accountability from their spend place squarely to fluids long term market opportunity.
I'm glad to field questions at this time.
Thank you well and I'll begin my question answer session.
Lastly question Anyway Press Star then one on the touched on Oh.
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Once again, ladies and gentlemen that stores in warm if you have a question.
Well pause momentarily to assemble a roster.
And it looks like your first question very cultural Bill the zone with Titan Capital. Please go ahead I.
Thank you I had a a group of questions. The first one you've referenced the return to normal seasonality and am I seeing that correctly that that's a pretty meaningful increase in revenues in Q3 versus Q2.
Hey, Bill here [laughter] you'd go ahead, Alex please.
Thanks.
Likewise, good good to be with the Bell, we were referring in that context to leading in marketing dollars as it related to the seasonal pattern that we've experienced couldn't comment specifically on revenue.
All right. So I have a I have gone back and looked at revenue and other than it last year and a couple other years, there's actually been a pretty decent increase sequentially or is there something different about the business then either younger more faster growing or something different now.
That would Ah Ah that would skew would I was looking at historically.
Hi, Bill as you're familiar and our business is one that involves volume of consumers that come into our platform modernization that we achieved with our and advertisers and the cost of traffic and bringing it to our platform.
And so there may be dynamics, among that was different levers and metrics at different points in time and hence at this point, we're not making a specific reference that metric and we're focused I knew the margin, which is often lead to dollars that help us pay to bill.
Alright, Thank you, let's jump to the UK <unk>.
What do you see driving that success there.
Is it the same streaming and gaming companies or is there something different that is a that is driving that success and I. Suppose also your success in Germany.
Yes, Oh feel though when bill it's really.
The international market launches, we've sort of ticketing phased approach a phase one being heavily reliant on a lot of those global brands we referenced.
Within the media and entertainment sector as well as a couple other verticals that we play in where our clients have international demand show.
Largely phase one of these launches have been on the back of those domestic relationships that we have a very strong reputation relationship within the U.S. and expanding it overseas actually partnering with.
Oh local advertisers in those markets is more of our our fees to as we've announced further expansion. We do expect that to help us continue driving forward.
And that phase two expansion Ryan what what's the timeframe when you're expecting that to hit full stride with that.
Were already a knee deep in it in terms of having you know several people overseas at this point and actively recruiting for additional rules that will help US you know just moved the ball that much faster. So we're moving moving right along and it's something that will be a focus.
Back half this year into 2021.
Great. Thank you and then two additional I income statement questions. The goodwill impairment and I want you. Please discuss that and then secondarily the expense for the put call consideration would you talk to a kind of what that is I I I'll have to apologize in advance I just simply do.
Not know what you're referring to there.
Oh sure thing Bill this is Alex.
As it relates to the goodwill impairment.
In the quarter, we deemed there to be a triggering event as it related to.
One of our business segments, which is primarily the AD parlor business that we acquired last year in July.
The triggering events and disclosed.
In our upcoming document.
Speak to the macro conditions that were playing out relative to the call the backdrop as well as some of the social unrest that took place in the United States during the course as of quarter.
And some of those factors we deemed to have.
Caused us to adjusted our near term forecast for the business and our other elements of our outlook for the business. So while we don't see any material impact of the business on a long term basis. In fact, we were actually quite pleased interestingly that doing eight bucks or earnings call, just a week or two ago Sheryl Sandberg actually.
He referenced a campaign for one of their advertisers who happens to be a client of AD Parliament is for some of their innovative work during the quarter. We were very pleased with that but as a result of just the near term financial aspects that are relevant to the business. We re address the carrying value of the.
Of the doubling our balance sheet.
[noise] estimating a and then to put call.
But call.
The the structure of the when awfully transaction involves a put call last between the counterparty who owns 50% of the business vis-a-vis fluent who owns 50% of the business as we work through the purchase accounting.
For the transaction in the course of the corridor.
Worked on the ongoing accounting for the business as it.
Goes into the future.
We determined that the structure of the but call indicated that there was a deemed compensation expense and accrued compensation expense. That's not paid out currently along the way, but essentially relates to some estimate as to a point in the future of the value of the business at a time, where the put call could be exercised and in relation to that.
Value that ultimate value was deemed to be a compensation expense and therefore, there is an accrual between now and that future point of such expense.
On a ratable basis going forward and so that amount was going to continue to run through our income statement, but represent the noncash expense and we've added it back to our <unk>. Our non-GAAP metrics that are provided in the reconciliation with today's press release and we'll be in our quarterly report as well. So helpful. It is thank you both.
Thank you Bill.
I don't know its wasn't good cultural Jim Jim Goss with Barrington Research. Please go ahead.
Hi, I've got a couple of them first in the media and entertainment area.
A couple of the big.
Sectors are staying services and mobile game I'm wondering are.
Are these price than an exclusive basis or does it depends on what Oh, you know what the demand is and whether they will tell you have multiple clients and nonexclusive price versus exclusives thing more.
And then maybe start with that.
Oh, Yeah, Jim good to hear from you and I'll speak directly to that the nature of our model was more more of a marketplace model, where we're willing to work with our clients to drive those further down funnel actions and streaming services, whether that be somebody who actually pulled their credit card out for a free trial, where somebody that even goes from.
Free to paid a a larger premium it's really that action on that they're looking to go out and habits strive for them on that.
Informs all the pricing and you know, we don't really entertain exclusive arrangements because of the performance nature of our work it really doesn't work as well with our model. So I'm really what you see in a way of pricing is more reflective of us being able to hunt with a bit more of a accuracy with.
Disappear as opposed to a machine gun, if you're willing and be able to go out.
Drive at precision drive that quality, and that's where we see premium pricing.
Okay and thank you and then the one other thing right.
The seasonal pattern for 26 10 to 28 or 10, you referenced could you talk about the.
What what type of pattern you were talking too is that.
And.
And what are the factors there were driving that a seasonality.
Whether they were higher cost in certain areas are higher revenues and certain time frames.
Yeah, and you know Alex reference that we really think about media margin as that most important metric driving the business. So.
We might have some ebbs and flows on revenue, but if we're preserving and building on media margin. We know that were efficiently growing the business. So the reference there was you know if you recall.
Q3, 2019 was was really low point for the company had a couple of stumbles there and we're really referencing that you know we don't expect to see.
That type of aberration you know this this coming quarter.
Okay. That's good.
That's all for now I appreciate it.
Thanks, a lot to him.
Thank you ladies and gentlemen. This concludes today's question and answer session. After this conference call. Why don't you also have done in todays presentation. You may now disconnect your lines another wonderful there.