Fluent Q4 2024 Earnings Report

Fluent EPS Results

• Actual EPS: -$0.21
• Consensus EPS: -$0.30
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: N/A

Fluent Revenue Results

• Actual Revenue: $65.41 million
• Expected Revenue: $68.06 million
• Beat/Miss: Missed by -$2.65 million
• YoY Revenue Growth: N/A

Fluent Announcement Details

• Quarter: Q4 2024
• Date: 2/28/2025
• Time: Before Market Opens
• Conference Call Date: Friday, February 28, 2025
• Conference Call Time: 9:00AM ET

Fluent (NASDAQ:FLNT) is a digital marketing and advertising technology company that helps brands, agencies and publishers reach and engage consumers across digital channels. Its offerings are designed to support customer acquisition, audience targeting and campaign performance through data-driven marketing solutions.

The company provides programmatic advertising, media buying, audience development, data management and marketing technology services. Fluent’s platform supports campaigns across channels such as display, mobile, video, social media and connected television, with tools intended to help advertisers identify relevant audiences, deliver personalized messages and measure results.

Fluent serves marketers, agencies and media owners in the United States and international markets. The company was established as a digital marketing business and has evolved through the expansion of its advertising technology, data and performance-marketing capabilities.

Fluent Q4 2024 Earnings Call Transcript

Key Takeaways

• Commerce Media Solutions revenue surged 139% in Q4 and 284% for full-year 2024, reaching an annual run rate above $60 million, with triple-digit growth expected through 2025.
• Strategic pivot to Commerce Media Solutions from legacy Owned & Operated assets, focusing investments on higher-margin opportunities while contracting non-core properties to boost long-term growth.
• Adjusted EBITDA for Q4 was a negative $1.7 million due to a $2.5 million one-time ACA accounts receivable write-down and elevated media costs driven by record social media ad spending.
• Owned & Operated revenue declined 23% in Q4 (29% full-year) and call solutions faced headwinds from regulatory changes and ACA fraud, pressuring margins and overall profitability.
• Ended 2024 with $10.7 million in cash, $31.9 million in debt, and a $20 million term loan plus $30 million revolver; expects flat consolidated revenue in H1 2025 due to seasonality and divestitures, then H2 acceleration.

Presentation

[Operator]

Good morning and welcome. Thank you for joining us to discuss Fluent's fourth quarter and year-end 2024 earnings results. With me today are Fluent's Chief Executive Officer, Don Patrick; Chief Financial Officer, Ryan Perfit; and Chief Strategy Officer, Ryan Schulke. Our call today will 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. Additionally, there is a slide presentation that accompanies today's remarks, which can be accessed via the webcast and is also available on Fluent's website. A replay of the event will also be made available following the call on Fluent's website. To access the webcast and slide presentation, please visit the Investor Relations page at www.fluentco.com.

[Operator]

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 only speak as of the date hereof. Actual results could differ materially from those stated or implied by such forward-looking statements due to risk 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.

[Operator]

For a discussion of risk 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 relating to the Media Margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of the company's 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 measure are provided in the earnings press release issued earlier today. With that, I'm pleased to introduce Fluent's CEO, Don Patrick.

[Don Patrick, CEO at Fluent, Inc]

Good morning. Thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer and company co-founder, and Ryan Perfit, our Chief Financial Officer. Our key focus is to reinforce why we are confident in our strategic commitment to win in the rapidly growing commerce media industry. We achieved 139% growth in Commerce Media Solutions revenue in the fourth quarter compared to Q4 2023, and 284% growth for the full year. As of December 31st, 2024, our Commerce Media Solutions business surpassed an annual revenue run rate calculated, as explained in our earnings press release, in excess of $60 million, up from $50 million as of September 31st, 2024. We continue to expand our model and grow market share. We are confident that this momentum will continue, and we expect strong year-over-year triple-digit revenue growth continuing throughout 2025.

[Don Patrick, CEO at Fluent, Inc]

The key driver of this growth has been our growing list of major brands that see our value proposition and continue to join our roster of partners and advertisers. In 2024, we announced several key partnerships with leading brands during the fiscal year, with significantly more in the pipeline as we move into fiscal 2025. Our strategic plan is grounded in shifting our business mix to the Commerce Media Solutions, where we've invested our financial and human resources to win big. That focus has our post-transaction business building strong brand equity in the marketplace, substantiated by our triple-digit year-over-year revenue growth in every quarter of 2024. Of strategic significance and a Fluent competitive differentiator, we are providing tremendous value to consumers, partners, and advertisers with margins that are accretive to our consolidated business.

[Don Patrick, CEO at Fluent, Inc]

While we're confident that we are on a sustainable path, every winning strategy comes with an investment cost, which we've recognized in our financial performance throughout fiscal year 2024. As we invested in growing Commerce Media Solutions, we've also embarked on a parallel path, contracting our larger nucleus of owned and operated properties to focus on fewer targeted businesses that we find strategically compelling in the longer term. As we continue to stabilize and ultimately strengthen our Owned and Operated Marketplace position against businesses we can grow, Q4 revenue and Media Margins were negatively impacted by significant increases in media costs on the biddable platforms. The key driver here was the enormous social media advertising spend driven by the U.S. presidential election, which significantly affected our ability to buy media at acceptable margins.

[Don Patrick, CEO at Fluent, Inc]

We consciously chose not to chase this volume until media pricing came back to more traditional levels post-election. Make no mistake, we still maintain our leadership position in owned and operated marketplace and provide this market credibility and unique client access based on those capabilities we bring to market and at a level that is effective, efficient, and higher quality than any of our competitive set. Still, this has cost us profitability in 2024 that we see as a required investment in our future. Furthermore, as part of our broader strategic repositioning, we discontinued the ACA portion of our Call Solutions business. In Q4, adjustments made by insurance companies in response to widespread fraudulent activity in the government ACA marketplace necessitated a $2.5 million non-recurring write-down of revenue to reflect this change in our estimate of accounts receivable.

[Don Patrick, CEO at Fluent, Inc]

This write-down caused adjusted EBITDA to be negative for the quarter. All this being said, the consolidated Q4 performance was a disappointment, particularly the continued industry-wide issues affecting Call Solutions. However, we see this as having no additional effect on our longer-term strategy to drive value through our strategic pivot to Commerce Media Solutions. We are confident in our ability to return to year-over-year double-digit consolidated revenue growth, profit growth, and enhance our enterprise margins in 2025. As we enter 2025, we are doing so with strategic clarity and momentum that continues to grow alongside a transformative near $50 billion marketplace. It is important to stand back and understand how our pivot significantly expands our addressable market.

[Don Patrick, CEO at Fluent, Inc]

According to Boston Consulting Group, the commerce media industry is estimated at a total value of over $50 billion and is expected to reach over $100 billion over the next five years, accounting for over 25% of all digital media spending as the market continues to evolve. Importantly, we are now well grounded as an emerging leader in this explosive, high-growth market with significant upside. Over the last two years, we have successfully proven that we can adeptly enable and empower our commerce media partners to participate in this large and rapidly growing market, and we are a proud reflection of the brands with whom we partner. Here's a sample of some great companies in our commerce media network. Partnerships like these validate Fluent's products and are driving the growth of our commerce media solutions business.

[Don Patrick, CEO at Fluent, Inc]

We're honored to be working with such an impressive roster of media partners across diverse verticals, including retail, grocery, ticketing, and quick-serve restaurants. Our line goals are consistent as we aim to maximize revenue opportunities for our partners, increase conversion rates for advertisers, and build more meaningful, higher-quality experiences for our consumers. To put our ongoing shift in business mix into perspective, in 2023, Commerce Media Solutions accounted for 4% of Fluent's consolidated revenue compared to 16% in 2024. That trendline shift continued in Q4, where Commerce Media Solutions represented 26% of consolidated revenue, its strongest seasonal quarter. We certainly expect this healthy growth to continue as we've delivered triple-digit year-over-year percentage growth in Commerce Media segments since its inception.

[Don Patrick, CEO at Fluent, Inc]

This growth is supported by our proprietary first-party data that we've collected over 14 years as a leader in customer acquisition services via our Owned and Operated Marketplace, as well as embedded AI-powered technology that allows us to establish long-term contracts and mutually beneficial revenue share agreements with our commerce media partners. Accordingly, and as we continue to place our financial and human resources against our growth strategy, while Owned and Operated will continue to play a vital role in our business, revenue will continue to decrease as a percentage of sales as higher-margin Commerce Media Solutions revenue grows and as advertisers lean into our higher-quality consumer engagement platform.

[Don Patrick, CEO at Fluent, Inc]

Before I turn the call over to our Chief Financial Officer, Ryan Perfit, I wanted to provide a brief quarter-by-quarter comparison of the performance of our Commerce Media Solutions dating back to its launch in the first quarter of 2023. As you can see in the graph on slide seven, our Commerce Media Solutions revenue has demonstrated exponential growth with steadily improving gross margins since this segment was launched in the first quarter of 2023. The business obviously continues to represent a growing share of our consolidated revenue mix. Looking ahead, we expect to see flat year-over-year consolidated revenue in the first half of 2025, primarily due to revenue declines related to the businesses we discontinued or shifted investment away from in 2024, as well as seasonality in the many commerce media verticals that we presently serve.

[Don Patrick, CEO at Fluent, Inc]

As we progress through the year, we expect the total company revenue growth will accelerate in the second half of 2025, driven by strong performance in our commerce media segment. The corresponding impact on the fiscal year will be significant, as we expect to deliver double-digit year-over-year growth in Fluent consolidated revenue and gross profit. We remain bullish about the momentum we have generated in our strategic pivot as we leverage the competitive advantages of our owned and operated marketplaces and accelerate into exciting and significant high-growth opportunity in the large and growing commerce media industry. Importantly, we are expanding our strategic value proposition to world-class partners beyond customer acquisition, delivering higher-quality consumer engagement across the entire marketing funnel. As our strategic trendline continues in 2025, we believe shareholder value will follow. With that, I will turn it to Ryan Perfit to provide more detail to our financial results.

[Ryan Perfit, CFO at Fluent, Inc]

Thank you, Don. Thank you to everyone for joining us today. I'll now provide some additional color on our Q4 and full-year results. We generated revenue of $65.4 million in the fourth quarter of 2024, a decrease of 10% from prior year. As Don mentioned in his remarks, we are intently focused on our strategic shift in revenue mix to commerce media. We believe this represents a significant opportunity for Fluent, as more and more of our media partners and advertisers are turning to this dynamic advertising medium to maximize customer monetization and return on ad spend. Commerce Media Solutions achieved triple-digit year-over-year growth to cap off an exceptional year for this business. In the fourth quarter of 2024, Commerce Media Solutions revenue increased 139% to $17.2 million over the fourth quarter of 2023.

[Ryan Perfit, CFO at Fluent, Inc]

For the full year, Commerce Media Solutions revenue totaled $41.3 million, an increase of 284% over fiscal 2023. As Don mentioned, we anticipate triple-digit year-over-year growth rates to continue through 2025, with Commerce Media Solutions serving as a key driver for the year-over-year double-digit company-wide revenue growth that we expect in the back of the year. As Don mentioned, while Owned and Operated revenue continues to stabilize, we expect revenue from this business to decrease and Commerce Media Solutions to become a larger portion of the overall revenue mix. We saw a decrease in O&O revenue of 23% in the fourth quarter of 2024 when compared with the prior year period, and a decrease in full-year O&O revenue of 29% compared to full-year 2023. Media Margin in the fourth quarter was $16.5 million, which represents 25.3% of revenue, compared to $24.2 million or 33.1% of revenue last year.

[Ryan Perfit, CFO at Fluent, Inc]

For the full year of 2024, Media Margin totaled $72.5 million, representing 28.5% of revenues, compared with $91.3 million or 30.6% of revenues in 2023. Media Margin was particularly low in the fourth quarter of 2024 due to two unrelated factors, the first being the previously mentioned ACA revenue write-off and the second being a function of increased media costs in our health insurance vertical in the Call Solutions business. Our Commerce Media Solutions Media Margin in the fourth quarter of 2024 was $6.8 million or 39.3% of revenues, compared with $1.3 million or 18.5% of revenues in the fourth quarter of 2023, demonstrating strong growth in this business. On an annual basis, Commerce Media Solutions Media Margin totaled $14.5 million or 35.1%, compared with $912,000 or 8.5% of revenues in 2023.

[Ryan Perfit, CFO at Fluent, Inc]

On a GAAP basis, total operating expenses for the fourth quarter of 2024 totaled $16.9 million, a decrease of $2.9 million compared to the fourth quarter of 2023. Full year 2024 total operating expenses totaled $72.3 million, compared with $72.4 million in 2023. We recognize no goodwill and intangible asset impairment charges in the fourth quarter of 2024 or the fourth quarter of 2023. For the full year, we recognized goodwill impairment charges of $1.3 million, compared with $55.4 million in 2023. Additionally, we recognized impairment of intangible assets of $980,000 in full year 2024, compared to no impairment of intangible assets in 2023. Adjusted EBITDA in the fourth quarter of 2024 was -$1.7 million, compared with adjusted EBITDA of a +$2.5 million in the fourth quarter of 2023.

[Ryan Perfit, CFO at Fluent, Inc]

As Don stated in his remarks, we recorded an ACA-related write-off of accounts receivable and an equal offset of revenue of $2.5 million, which drove adjusted EBITDA into negative territory for the quarter. Adjusted EBITDA for the full year was -$5.6 million, compared with adjusted EBITDA of $6.8 million in 2023. As we continue to drive our shift in revenue mix to focus on Commerce Media Solutions, we expect adjusted EBITDA margin to improve over time. The company cannot provide a reconciliation to expected net income or net loss as a percentage of revenue for 2025 due to the unknown effect, timing, and potential significance of certain operating costs and expenses, share-based compensation expense, and the provision for or benefit from income taxes.

[Ryan Perfit, CFO at Fluent, Inc]

Interest expense in the fourth quarter increased to $1 million from $784,000, primarily due to a higher average interest rate on our term loan with SLR Credit Solutions compared to our term loan with Citizens Bank in the prior year period. For the full year, interest expense was $4.7 million compared with $3.2 million in 2023. We recognized an income tax benefit in the quarter of $1.9 million compared to an income tax benefit of $667,000 in the fourth quarter of 2023. In the full year, we recognized an income tax benefit of $1.8 million and an effective tax rate of 5.8%, compared with an income tax benefit of $116,000 and an effective tax rate of 0.2%.

[Ryan Perfit, CFO at Fluent, Inc]

We reported a net loss of $3.4 million in the fourth quarter compared with a net loss of $1.9 million in the prior year period, an adjusted net loss, a non-GAAP measure, of $3.3 million equivalent to a loss of $0.18 per share, compared with an adjusted net loss of $386,000 or a loss of $0.03 per share in the fourth quarter of 2023. For the full year, we reported net loss of $29.3 million compared with a net loss of $63.2 million in the full year of 2023, and an adjusted net loss of $18.5 million or a loss of $1.14 per share, compared with adjusted net loss of $7.2 million or a loss of $0.52 per share in 2023. Importantly, the full year of 2023 included goodwill impairment charges of approximately $55 million, which significantly impacted net income in this period.

[Ryan Perfit, CFO at Fluent, Inc]

Shifting now to our balance sheet, we ended the quarter with $10.7 million in cash and cash equivalents, including restricted cash. Total debt, as reflected on the balance sheet as of December 31st, 2024, was $31.9 million, $1.4 million higher than the $30.5 million at December 31st, 2023. As of December 31st, 2024, we had an outstanding principal balance of $31.5 million on our credit facility with SLR Credit Solutions. This facility provides us with a $20 million term loan and a revolving credit facility of up to $30 million that matures on April 2nd, 2029. We're very pleased with the growth of our commerce media business in 2024, and our results reflect the ongoing strategic shift that we've been driving for the past several quarters now. Looking ahead to 2025, our focus is on the continued execution of our strategic pivot to grow our commerce media solutions.

[Ryan Perfit, CFO at Fluent, Inc]

To do this, we're entering into partnerships with leading advertising brands and media partners, which we detailed earlier in this call, to enhance Fluent's credibility and market recognition as a leading provider of products and services in the commerce media space. We're also bringing on leading industry talent to help us further our goals. Subsequent to the close of the quarter in the fiscal year, we announced the addition of Adrian Stack as our new Chief Product Officer. Adrian has extensive experience in product development leadership and the commerce media space, and we are thrilled to welcome him to the Fluent team. As we execute on this strategy, we believe that we're positioning Fluent to drive revenue growth, margin expansion, and enhanced profitability metrics underscored by the growth and success of our commerce media solutions. With that, we'll be happy to take questions at this time.

[Operator]

Thank you. As a reminder, to ask a question, please press star one oneon your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Maria Ripps with Canaccord. You may proceed.

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Great. Good morning, and thanks for taking my questions. First, you scaled your CMS revenue pretty nicely last year. Now that it has reached over $60 million run rate, what's the right way to think about sort of the pace of growth going forward? You talked about partnerships, but maybe more broadly, what are some of the sort of key drivers or building blocks from here? Do you have the necessary infrastructure in place to scale this business further?

[Don Patrick, CEO at Fluent, Inc]

Yep. Hi, Maria. Thanks for your question. I'll hit a couple of different things in your questions around the CMS revenue. As you know, we started this business in the first quarter of 2023, and we built it off the really strong competitive assets that we have within the owned and operated business. From a data perspective, technology perspective, etc., we were building off a foundation that we had built over 14 years. Our pipeline is growing aggressively. You can see the numbers, and we do see visibility that we can continue to grow at a triple-digit rate in 2025, and we actually see that continuing on in 2026. Two primary drivers, as you know, one, commerce media is one of the most transformational changes to digital advertising in the last 10 years.

[Don Patrick, CEO at Fluent, Inc]

There is a lot of greenfield here where partners are coming in and brands are coming in to participate in commerce media. The second is that we have now been building our brand and building our ability to drive superior results in the competition based on our competitive advantages. They are starting to get out into the market to accelerate where we are. That is part of why we really came out in Q3 to start to talk more about the numbers on commerce media because we do see that visibility, and we are confident. It does two things that are our business model. The first one is obviously it is more seasonal based on the verticals that we serve within commerce media on the retail side. That obviously is changing our business model and how we look at quarter to quarter.

[Don Patrick, CEO at Fluent, Inc]

The more important piece is that revenue is more predictable, and it's more valuable, right? We are embedding our technology onto our commerce media partners' websites. We're getting all their transactions that they're getting in a post-transaction environment, and it's a very favorable rev share. Compared relative to the legacy and owned and operated business of Fluent, it is much more predictable. We have great visibility in terms of how to grow that. You asked a question around how the building blocks and infrastructure and partners. I'll hit the infrastructure. We are leveraging off the core of what Fluent has built, both from a technology and data perspective, but equally important from sort of a cultural perspective. We come at it as a marketing company.

[Don Patrick, CEO at Fluent, Inc]

We've been marketing to our own consumers and interacting with them, and we have tons of great first-party data to leverage, and we're bringing that to bear for our new partners on the commerce media side. The infrastructure, you've seen it in our financial numbers the last two years in 2023 and 2024, was a heavy investment on the technology and the analytics side to build out specifically for commerce media versus our core owned and operated business. We see that as we grow this business, it's a much more we'll be able to manage those expenses, those investments much easier, and as the business grows, the revenue comes in. Did I answer all your questions, Maria, or?

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Yeah. Yeah. Thank you. That's very helpful. As it relates to your O&O segment, I guess, is there a portion of the $168 million in revenue that you generated last year that's perhaps a little bit more durable? I guess, what are your thoughts on maybe stabilizing that segment or some parts of that segment and returning it to growth?

[Don Patrick, CEO at Fluent, Inc]

Yep. As we talked, it's a huge competitive advantage for us, but it is not a growth engine, and we don't look at it growing again, Maria. We look at it as really just how do we stabilize that, and how do we leverage those assets? Some of it has to do with the regulatory changes that we talked through at length in the past couple of years about the headwinds there. Equally important, it's primarily around where do we allocate our priorities. We've continued to invest and move capital and move people towards that commerce media side because of the opportunity there. That really has been our context around that business. It's a huge competitive advantage. If we keep it flat or we keep the decline in a lower percentage, we will win big on the commerce media side.

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Got it. Thank you, Don.

[Don Patrick, CEO at Fluent, Inc]

Thank you, Maria.

[Operator]

Thank you. Our next question comes from Patrick Scholl with Barrington Research. You may proceed.

[Patrick Sholl, Research Analyst at Barrington Research]

Hi. Kind of following up on the O&O segment or O&O business, do you include the call centers within that? I guess just on the call center side, if you're stepping away from the ACA marketplace, could you maybe just talk about where else you have kind of scale within that business?

[Don Patrick, CEO at Fluent, Inc]

Sure. Sure. Thanks for the question. No, we do not include call center in the O&O business. As we've outlined in the last earnings call, we now look at our business as the O&O business marketplace, commerce media solutions, and then agency services where call solutions is under that agency services line. Just to take a step back, Pat, I know you've been with us for a while, but strategically, call solutions expands the size of the O&O marketplace because it allows Fluent through live agent capabilities to direct our consumers to higher value, higher consideration categories like health and life and home services. We do continue to grow that business. Historically, it has been a very consistent, steady performer for us.

[Don Patrick, CEO at Fluent, Inc]

That's really the same value proposition on the O&O marketplaces where we're bringing quality consumers to healthcare providers, primarily Medicare and also an ACA in terms of leads that are going to aggregators that connect to the insurance companies. We have, it's been a steady performer. There have been two huge, obviously changing, sweeping changes that we are working our way through that happened in 2024. The first one was the FCC and the CMS came out with new regulations that caused the demand in our market from our clients to shift from taking warm transfers to taking inbound calls. We did make that shift successfully in Q2, and we were able to drive significant margin in the business. In Q4, the fact that we were buying media to drive those inbound calls, the media costs caused us to have challenges in Q4 in that business.

[Don Patrick, CEO at Fluent, Inc]

It's continued on in Q1, that elevated level of media costs. We have a very good plan around diversifying that. It's going to take us a couple of quarters to work through. The high-quality consumer and the demand and the high-quality partners that we work with continue to be in place for us to drive that business forward.

[Patrick Sholl, Research Analyst at Barrington Research]

Okay. On commerce media solutions, I think you had mentioned that you're able to leverage the data on the O&O side to support that. I'm just kind of curious with the continued softness in O&O, if that kind of limits the ability to have that data bolster the commerce media side and just any sort of, I guess, maybe sort of like an inflection where you have enough scale in commerce media where weakness in the O&O side wouldn't necessarily be of kind of risk to continuing to grow that business.

[Don Patrick, CEO at Fluent, Inc]

Yeah. Yeah. So you're absolutely right. Obviously, as we've really focused and repositioned O&O around the quality side rather than on the growth side, the data that comes in on a daily basis is less than it was in the past. But we have 14 years of first-party data and consumers coming to over 200 million unique email addresses. And that database is obviously incredibly deep and incredibly large breadth in terms of campaigns and things like that. Even with the smaller traffic and consumers coming on our O&O, that data continues to be very relevant and fresh for us for the commerce media. I think your second question, there's two big business model things that we're seeing. One is in the second half of this year, we get significant seasonality in that commerce media solution.

[Don Patrick, CEO at Fluent, Inc]

We see the second half where we will return to growth, double-digit growth that will drive double-digit growth across the consolidated side of Fluent. I think that is the inflection point that we see based on where we are in the growth and the wins that we're getting in that commerce media platform.

[Patrick Sholl, Research Analyst at Barrington Research]

Okay. Thank you.

[Don Patrick, CEO at Fluent, Inc]

Thanks, Pat.

[Operator]

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Bill Dezellem with Tieton Capital Management. You may proceed.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Pat, thank you. Would you please expand further on a comment in your opening remarks relative to the pipeline in the commerce media business, both in terms of the size of that pipeline in terms of number of prospects, but also the size of those prospects relative to the customers that you currently have on board?

[Don Patrick, CEO at Fluent, Inc]

Thanks, Bill. Thanks for the question. As I was just talking a little bit in the interview with Maria, our pipeline continues to grow very successfully based on the fact that we are obviously building our brand around driving better results and also by the fact that the industry, we're sitting in the middle of a fantastic transformative industry with a lot of headwinds, with a lot of tailwinds. The pipeline continues to grow at a great pace for us to provide that visibility of triple-digit growth rate for that business in 2025. As we continue to land these brands, these new wins in the verticals, we're able, obviously, from a marketing perspective, to penetrate that vertical with great case studies and great marketing materials to accelerate the sales side.

[Don Patrick, CEO at Fluent, Inc]

It is fantastic momentum, and the pipeline is significant in size for us to deliver on our commitment that we've made in terms of growth. Regarding size, there's obviously different size brands that we work with. There's large ones that can have hundreds or have millions of consumers. There's some that have smaller ones that come in. We manage the pipeline based on the breadth of that and how do we segment that. There are some very large transformative partners that we're discussing, and we're in the midst of a pipeline that could accelerate that growth rate that we've positioned. We don't factor that into our business, Bill. We don't factor that into our forecast.

[Don Patrick, CEO at Fluent, Inc]

As we build our brand and we build our results that we've been able to drive for our partners, we're very pleased with some strategic partnerships that would be transformational for us and grow and accelerate that business revenue that we've laid out for you. We do not plan our business around that, and we do not run our business by those big deals.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Don, would you please quantify kind of what transformative would be any way that you can scale that for us? What's the timeline? Generally speaking, larger leads to a longer sales cycle. Is this something that might happen next year or nearer term?

[Don Patrick, CEO at Fluent, Inc]

Yep. Okay. Great questions, Bill. If you look at an average, it depends a lot on the verticals we're in, but I'll just take retail verticals because that's our largest vertical. An average-sized partner that we work with might have 10 million post-transaction sessions a year, right? That could mean we have very valuable partners that are doing a million. We have very valuable partners that are doing 30 million or 50 million, right? That's the range in which you kind of see in the mix of our portfolio and in the mix of our current clients also. The transformative deals that we're talking about will be a multiple of the high end of that range. We're talking about things that could literally significantly change the growth projector that we have.

[Don Patrick, CEO at Fluent, Inc]

Regarding timing, they do take a little bit longer at times, but I'm going to tell you, you guys will be the first to hear when we close one of these deals. There are things in the pipeline that we think can happen, obviously, in 2025.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Great. Thank you. Would you please talk about what your conversion is? Once you've won a customer and their customer has purchased a product and you're presenting the post-sale ad, what's your conversion rate versus the competition, the rest of the industry?

[Don Patrick, CEO at Fluent, Inc]

Yeah. We do have some case studies, Bill, that we've made public around the conversions and revenue in our investor deck. Obviously, some of this is competitive that we don't want to disclose. There are two important pieces of this, right? One is the size of how the quality of the consumer that we're connecting to our brands, our world-class brands like a Disney or an Apple, etc. We've seen compared to head-to-head competition that the consumer is up over 25% more valuable than the ones that the consumers were or the brands were connecting the consumers to with our competitors. That is a significant value proposition for us: higher quality consumers based on our technology and our data and our ability to identify and serve the right ad.

[Don Patrick, CEO at Fluent, Inc]

On the partner side, we also have a very similar increase in an uptick in the revenue that we provide our e-commerce partners, up over 20%. Significant uplift in the competitive advantage that we have head-to-head against our competition.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

When you think about these large prospects or, frankly, the rest of the pipeline that's maybe not necessarily transformative, but all part of the pipeline, is there anything about that pipeline that is different so that you would not be able to generate for them that 25% more value? Because where my mind is going is it seems like your probability of winning, if they're basing their decision on the financial aspect of the transaction, it really increases your chance of winning those deals.

[Don Patrick, CEO at Fluent, Inc]

Right. Yep. The answer is we believe that we are heavily, as we've talked about, and we're not in all the verticals, Bill. Obviously, even within the verticals, if you take retail example, there are different audience segments and different things that we've got to work through in terms of getting that same sort of return. Again, that sort of sits to where our value proposition and how we go to market. We're a marketing company that we've been doing it for owned and operated properties for 14 years, and we know how to drive consumer engagement, and we know how to drive results. We're confident that that DNA and that expertise in owned and operated will translate into the different verticals that we enter into.

[Don Patrick, CEO at Fluent, Inc]

We have laid out in the presentation, we are not in some of the verticals that we believe we are going to get into and grow. It is going to take a little bit of time to work through that if we get into, for example, travel. We are not into travel right now, but we are confident that marketing DNA and our first-party data will drive those results across every vertical and across different types of partners within those verticals.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

That is helpful. Thank you for all the color. One additional question. Your gross profit dollars, approximately half, came from the commerce media business. You all have been very clear about seasonality within your business. The question is, as you look over the course of the next four quarters, do you see the gross profit dollars coming from commerce media holding and/or growing, particularly in Q1 and Q2, or due to the seasonality that those would be under pressure as a percentage of the total gross profit?

[Don Patrick, CEO at Fluent, Inc]

Bill, I think I understand your question. I'll answer it two different ways. First, the business mix, right, is going to—we're very transparent on the business mix that's been happening around that commerce media. We see that business mix continuing to increase as a percentage of the total value of the Fluent business. That business mix will continue to drive. The margin itself in that commerce media business is relatively consistent and predictable based on that revenue share that we have. We'll see the margin percent be consistent, but we'll see the mix of that business continue to drive and be a more significant part of Fluent overall.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

In Q1 specifically, do you anticipate commerce media percentage of the business to increase or decrease? That is really trying to get my head wrapped around the seasonality from that perspective.

[Don Patrick, CEO at Fluent, Inc]

Yep. Yep. Yeah. It will increase as a percentage of the overall Fluent business, yes, in Q1. We do go down sequentially from Q4 to Q1. The commerce media business will continue to grow at the rates that we've talked about. It's just the seasonality from Q4 to Q1, the revenue will decline based on that seasonality.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Great. Thank you. Good luck closing some of these large prospects.

[Don Patrick, CEO at Fluent, Inc]

Thank you, Bill.

[Operator]

Thank you. I would now like to turn the call back over to Don Patrick for any closing remarks.

[Don Patrick, CEO at Fluent, Inc]

Thank you for joining our call today. The key headline is reinforcing why we're so confident about our strategic commitment to win in the rapidly growing commerce media industry. It leaves us poised for growth through execution to deliver breakout performance in the second half of this year. Thank you for your continued support, and we look forward to giving you an update after Q1.

[Operator]

Thank you. This concludes the conference.

[Operator]

Good morning and welcome. Thank you for joining us to discuss Fluent's fourth quarter and year-end 2024 earnings results. With me today are Fluent's Chief Executive Officer, Don Patrick; Chief Financial Officer, Ryan Perfit; and Chief Strategy Officer, Ryan Schulke. Our call today will 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. Additionally, there is a slide presentation that accompanies today's remarks, which can be accessed via the webcast and is also available on Fluent's website. A replay of the event will also be made available following the call on Fluent's website. To access the webcast and slide presentation, please visit the Investor Relations page at www.fluentco.com.

[Operator]

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 only speak as of the date hereof. Actual results could differ materially from those stated or implied by such forward-looking statements due to risk 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.

[Operator]

For a discussion of risk 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 relating to the Media Margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of the company's 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 measure are provided in the earnings press release issued earlier today. With that, I'm pleased to introduce Fluent's CEO, Don Patrick.

[Don Patrick, CEO at Fluent, Inc]

Good morning. Thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer and company co-founder, and Ryan Perfit, our Chief Financial Officer.

[Don Patrick, CEO at Fluent, Inc]

Our key focus is to reinforce why we are confident in our strategic commitment to win in the rapidly growing commerce media industry. We achieved 139% growth in Commerce Media Solutions revenue in the fourth quarter compared to Q4 2023, and 284% growth for the full year. As of December 31st, 2024, our Commerce Media Solutions business surpassed an annual revenue run rate calculated, as explained in our earnings press release, in excess of $60 million, up from $50 million as of September 31st, 2024. We continue to expand our model and grow market share. We are confident that this momentum will continue, and we expect strong year-over-year triple-digit revenue growth continuing throughout 2025. The key driver of this growth has been our growing list of major brands that see our value proposition and continue to join our roster of partners and advertisers.

[Don Patrick, CEO at Fluent, Inc]

In 2024, we announced several key partnerships with leading brands during the fiscal year, with significantly more in the pipeline as we move into fiscal 2025. Our strategic plan is grounded in shifting our business mix to the Commerce Media Solutions, where we've invested our financial and human resources to win big. That focus has our post-transaction business building strong brand equity in the marketplace, substantiated by our triple-digit year-over-year revenue growth in every quarter of 2024. Of strategic significance and a Fluent competitive differentiator, we are providing tremendous value to consumers, partners, and advertisers with margins that are accretive to our consolidated business. While we're confident that we are on a sustainable path, every winning strategy comes with an investment cost, which we've recognized in our financial performance throughout fiscal year 2024.

[Don Patrick, CEO at Fluent, Inc]

As we invested in growing Commerce Media Solutions, we've also embarked on a parallel path, contracting our larger nucleus of owned and operated properties to focus on fewer targeted businesses that we find strategically compelling in the longer term. As we continue to stabilize and ultimately strengthen our Owned and Operated Marketplace position against businesses we can grow, Q4 revenue and Media Margins were negatively impacted by significant increases in media costs on the biddable platforms. The key driver here was the enormous social media advertising spend driven by the U.S. presidential election, which significantly affected our ability to buy media at acceptable margins. We consciously chose not to chase this volume until media pricing came back to more traditional levels post-election.

[Don Patrick, CEO at Fluent, Inc]

Make no mistake, we still maintain our leadership position in owned and operated marketplace and provide this market credibility and unique client access based on those capabilities we bring to market and at a level that is effective, efficient, and higher quality than any of our competitive set. Still, this has cost us profitability in 2024 that we see as a required investment in our future. Furthermore, as part of our broader strategic repositioning, we discontinued the ACA portion of our Call Solutions business. In Q4, adjustments made by insurance companies in response to widespread fraudulent activity in the government ACA marketplace necessitated a $2.5 million non-recurring write-down of revenue to reflect this change in our estimate of accounts receivable. This write-down caused adjusted EBITDA to be negative for the quarter.

[Don Patrick, CEO at Fluent, Inc]

All this being said, the consolidated Q4 performance was a disappointment, particularly the continued industry-wide issues affecting Call Solutions. However, we see this as having no additional effect on our longer-term strategy to drive value through our strategic pivot to Commerce Media Solutions. We are confident in our ability to return to year-over-year double-digit consolidated revenue growth, profit growth, and enhance our enterprise margins in 2025. As we enter 2025, we are doing so with strategic clarity and momentum that continues to grow alongside a transformative near $50 billion marketplace. It is important to stand back and understand how our pivot significantly expands our addressable market.

[Don Patrick, CEO at Fluent, Inc]

According to Boston Consulting Group, the commerce media industry is estimated at a total value of over $50 billion and is expected to reach over $100 billion over the next five years, accounting for over 25% of all digital media spending as the market continues to evolve. Importantly, we are now well grounded as an emerging leader in this explosive, high-growth market with significant upside. Over the last two years, we have successfully proven that we can adeptly enable and empower our commerce media partners to participate in this large and rapidly growing market, and we are a proud reflection of the brands with whom we partner. Here's a sample of some great companies in our commerce media network. Partnerships like these validate Fluent products and are driving the growth of our commerce media solutions business.

[Don Patrick, CEO at Fluent, Inc]

We're honored to be working with such an impressive roster of media partners across diverse verticals, including retail, grocery, ticketing, and quick-serve restaurants. Our line goals are consistent as we aim to maximize revenue opportunities for our partners, increase conversion rates for advertisers, and build more meaningful, higher-quality experiences for our consumers. To put our ongoing shift in business mix into perspective, in 2023, Commerce Media Solutions accounted for 4% of Fluent's consolidated revenue compared to 16% in 2024. That trendline shift continued in Q4, where Commerce Media Solutions represented 26% of consolidated revenue, its strongest seasonal quarter. We certainly expect this healthy growth to continue as we've delivered triple-digit year-over-year percentage growth in Commerce Media segments since its inception.

[Don Patrick, CEO at Fluent, Inc]

This growth is supported by our proprietary first-party data that we've collected over 14 years as a leader in the customer acquisition services via our Owned and Operated Marketplace, as well as embedded AI-powered technology that allows us to establish long-term contracts and mutually beneficial revenue share agreements with our commerce media partners. Accordingly, and as we continue to place our financial and human resources against our growth strategy, while Owned and Operated will continue to play a vital role in our business, revenue will continue to decrease as a percentage of sales as higher-margin Commerce Media Solutions revenue grows and as advertisers lean into our higher-quality consumer engagement platform. Before I turn the call over to our Chief Financial Officer, Ryan Perfit, I wanted to provide a brief quarter-by-quarter comparison of the performance of our Commerce Media Solutions dating back to its launch in the first quarter of 2023.

[Don Patrick, CEO at Fluent, Inc]

As you can see in the graph on slide 7, our Commerce Media Solutions revenue has demonstrated exponential growth with steadily improving gross margins since this segment was launched in the first quarter of 2023. The business obviously continues to represent a growing share of our consolidated revenue mix. Looking ahead, we expect to see flat year-over-year consolidated revenue in the first half of 2025, primarily due to revenue declines related to the businesses we discontinued or shifted investment away from in 2024, as well as seasonality in the many commerce media verticals that we presently serve. As we progress through the year, we expect the total company revenue growth will accelerate in the second half of 2025, driven by strong performance in our commerce media segment.

[Don Patrick, CEO at Fluent, Inc]

The corresponding impact on the fiscal year will be significant, as we expect to deliver double-digit year-over-year growth in Fluent consolidated revenue and gross profit. We remain bullish about the momentum we've generated in our strategic pivot as we leverage the competitive advantages of our owned and operated marketplaces and accelerate into exciting and significant high-growth opportunity in the large and growing commerce media industry. Importantly, we are expanding our strategic value proposition to world-class partners beyond customer acquisition, delivering higher-quality consumer engagement across the entire marketing funnel. As our strategic trendline continues in 2025, we believe shareholder value will follow. With that, I'll turn it to Ryan Perfit to provide more detail to our financial results.

[Ryan Perfit, CFO at Fluent, Inc]

Thank you, Don. Thanks to everyone for joining us today. I'll now provide some additional color on our Q4 and full-year results.

[Ryan Perfit, CFO at Fluent, Inc]

We generated revenue of $65.4 million in the fourth quarter of 2024, a decrease of 10% from prior year. As Don mentioned in his remarks, we are intently focused on our strategic shift in revenue mix to commerce media. We believe this represents a significant opportunity for Fluent, as more and more of our media partners and advertisers are turning to this dynamic advertising medium to maximize customer monetization and return on ad spend. Commerce Media Solutions achieved triple-digit year-over-year growth to cap off an exceptional year for this business. In the fourth quarter of 2024, Commerce Media Solutions revenue increased 139% to $17.2 million over the fourth quarter of 2023. For the full year, Commerce Media Solutions revenue totaled $41.3 million, an increase of 284% over fiscal 2023.

[Ryan Perfit, CFO at Fluent, Inc]

As Don mentioned, we anticipate triple-digit year-over-year growth rates to continue through 2025, with Commerce Media Solutions serving as a key driver for the year-over-year double-digit company-wide revenue growth that we expect in the back of the year. As Don mentioned, while Owned and Operated revenue continues to stabilize, we expect revenue from this business to decrease and Commerce Media Solutions to become a larger portion of the overall revenue mix. We saw a decrease in O&O revenue of 23% in the fourth quarter of 2024 when compared with the prior year period and a decrease in full-year O&O revenue of 29% compared to full-year 2023. Media Margin in the fourth quarter was $16.5 million, which represents 25.3% of revenue, compared to $24.2 million or 33.1% of revenue last year.

[Ryan Perfit, CFO at Fluent, Inc]

For the full year of 2024, Media Margin totaled $72.5 million, representing 28.5% of revenues, compared with $91.3 million or 30.6% of revenues in 2023. Media Margin was particularly low in the fourth quarter of 2024 due to two unrelated factors, the first being the previously mentioned ACA revenue write-off and the second being a function of increased media costs in our health insurance vertical in the Call Solutions business. Our Commerce Media Solutions Media Margin in the fourth quarter of 2024 was $6.8 million or 39.3% of revenues, compared with $1.3 million or 18.5% of revenues in the fourth quarter of 2023, demonstrating strong growth in this business. On an annual basis, Commerce Media Solutions Media Margin totaled $14.5 million or 35.1%, compared with $912,000 or 8.5% of revenues in 2023.

[Ryan Perfit, CFO at Fluent, Inc]

On a GAAP basis, total operating expenses for the fourth quarter of 2024 totaled $16.9 million, a decrease of $2.9 million compared to the fourth quarter of 2023. Full year 2024 total operating expenses totaled $72.3 million, compared with $72.4 million in 2023. We recognize no goodwill and intangible asset impairment charges in the fourth quarter of 2024 or the fourth quarter of 2023. For the full year, we recognize goodwill impairment charges of $1.3 million compared with $55.4 million in 2023. Additionally, we recognized impairment of intangible assets of $980,000 in full year 2024, compared to no impairment of intangible assets in 2023. Adjusted EBITDA in the fourth quarter of 2024 was -$1.7 million, compared with adjusted EBITDA of a +$2.5 million in the fourth quarter of 2023.

[Ryan Perfit, CFO at Fluent, Inc]

As Don stated in his remarks, we recorded an ACA-related write-off of accounts receivable and an equal offset of revenue of $2.5 million, which drove adjusted EBITDA into negative territory for the quarter. Adjusted EBITDA for the full year was -$5.6 million, compared with adjusted EBITDA of $6.8 million in 2023. As we continue to drive our shift in revenue mix to focus on commerce media solutions, we expect adjusted EBITDA margin to improve over time. The company cannot provide a reconciliation to expected net income or net loss as a percentage of revenue for 2025 due to the unknown effect, timing, and potential significance of certain operating costs and expenses, share-based compensation expense, and the provision for or benefit from income taxes.

[Ryan Perfit, CFO at Fluent, Inc]

Interest expense in the fourth quarter increased to $1 million from $784,000, primarily due to a higher average interest rate on our term loan with SLR Credit Solutions compared to our term loan with Citizens Bank in the prior year period. For the full year, interest expense was $4.7 million compared with $3.2 million in 2023. We recognized an income tax benefit in the quarter of $1.9 million compared to an income tax benefit of $667,000 in the fourth quarter of 2023. In the full year, we recognized an income tax benefit of $1.8 million and an effective tax rate of 5.8%, compared with an income tax benefit of $116,000 and an effective tax rate of 0.2%.

[Ryan Perfit, CFO at Fluent, Inc]

We reported a net loss of $3.4 million in the fourth quarter compared with a net loss of $1.9 million in the prior year period, an adjusted net loss, a non-GAAP measure, of $3.3 million, equivalent to a loss of $0.18 per share, compared with an adjusted net loss of $386,000 or a loss of $0.03 per share in the fourth quarter of 2023. For the full year, we reported net loss of $29.3 million compared with a net loss of $63.2 million in the full year of 2023, and an adjusted net loss of $18.5 million or a loss of $1.14 per share, compared with adjusted net loss of $7.2 million or a loss of $0.52 per share in 2023. Importantly, the full year of 2023 included goodwill impairment charges of approximately $55 million, which significantly impacted net income in this period.

[Ryan Perfit, CFO at Fluent, Inc]

Shifting now to our balance sheet, we ended the quarter with $10.7 million in cash and cash equivalents, including restricted cash. Total debt, as reflected on the balance sheet as of December 31st, 2024, was $31.9 million, $1.4 million higher than the $30.5 million at December 31, 2023. As of December 31st, 2024, we had an outstanding principal balance of $31.5 million on our credit facility with SLR Credit Solutions. This facility provides us with a $20 million term loan and a revolving credit facility of up to $30 million that matures on April 2nd, 2029. We're very pleased with the growth of our commerce media business in 2024, and our results reflect the ongoing strategic shift that we've been driving for the past several quarters now. Looking ahead to 2025, our focus is on the continued execution of our strategic pivot to grow our commerce media solutions.

[Ryan Perfit, CFO at Fluent, Inc]

To do this, we're entering into partnerships with leading advertising brands and media partners, which we detailed earlier in this call, to enhance Fluent's credibility and market recognition as a leading provider of products and services in the commerce media space. We're also bringing on leading industry talent to help us further our goals. Subsequent to the close of the quarter in the fiscal year, we announced the addition of Adrian Stack as our new Chief Product Officer. Adrian has extensive experience in product development leadership and the commerce media space, and we are thrilled to welcome him to the Fluent team. As we execute on this strategy, we believe that we're positioning Fluent to drive revenue growth, margin expansion, and enhanced profitability metrics underscored by the growth and success of our commerce media solutions. With that, we'll be happy to take questions at this time.

[Operator]

Thank you.

[Operator]

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Maria Ripps with Canaccord. You may proceed.

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Great. Good morning, and thanks for taking my questions. First, you scaled your CMS revenue pretty nicely last year. Now that it has reached over $60 million run rate, I guess what's the right way to think about sort of the pace of growth going forward? You talked about partnerships, but maybe more broadly, what are some of the sort of key drivers or building blocks from here? Do you have the necessary infrastructure in place to scale this business further?

[Don Patrick, CEO at Fluent, Inc]

Yep. Hi, Maria. Thanks for your question.

[Don Patrick, CEO at Fluent, Inc]

I'll hit a couple of different things in your questions around the CMS revenue. As you know, we started this business in the first quarter of 2023, and we built it off the really strong competitive assets that we have within the owned and operated business. From a data perspective, technology perspective, etc., we were building off a foundation that we had built over 14 years. Our pipeline is growing aggressively. You can see the numbers, and we do see visibility that we can continue to grow at a triple-digit rate in 2025, and we actually see that continuing on in 2026. Two primary drivers, as you know, one, commerce media is one of the most transformational changes to digital advertising in the last 10 years.

[Don Patrick, CEO at Fluent, Inc]

There is a lot of greenfield here where partners are coming in and brands are coming in to participate in commerce media. The second is that we have now been building our brand and building our ability to drive superior results in the competition based on our competitive advantages. They are starting to get out into the market to accelerate where we are. That is part of why we really came out in Q3 to start to talk more about the numbers on commerce media because we do see that visibility and we are confident. It does two things that are our business model. The first one is obviously it is more seasonal based on the verticals that we serve within commerce media on the retail side. That obviously is changing our business model and how we look at quarter to quarter.

[Don Patrick, CEO at Fluent, Inc]

The more important piece is that revenue is more predictable and it's more valuable, right? We are embedding our technology onto our commerce media partners' websites. We're getting all their transactions that they're getting in a post-transaction environment, and it's a very favorable rev share. Compared relative to the legacy and owned and operated business of Fluent, it is much more predictable. We have great visibility in terms of how to grow that. You asked a question around how the building blocks and infrastructure and partners. I'll hit the infrastructure. We are leveraging off the core of what Fluent has built, both from a technology and data perspective, but equally important from sort of a cultural perspective. We come at it as a marketing company.

[Don Patrick, CEO at Fluent, Inc]

We've been marketing to our own consumers and interacting with them, and we have tons of great first-party data to leverage, and we're bringing that to bear for our new partners on the commerce media side. The infrastructure, you've seen it in our financial numbers the last two years in 2023 and 2024, was a heavy investment on the technology and the analytics side to build out specifically for commerce media versus our core owned and operated business. We see that as we grow this business, we'll be able to manage those expenses, those investments much easier as the business grows, the revenue comes in. Did I answer all your questions, Maria, or?

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Yeah. Yeah. Thank you. That's very helpful.

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

As it relates to your O&O segment, I guess is there a portion of the $168 million in revenue that you generated last year that's perhaps a little bit more durable? I guess what are your thoughts on maybe stabilizing that segment or some parts of that segment and returning it to growth?

[Don Patrick, CEO at Fluent, Inc]

Yep. As we've talked, it's a huge competitive advantage for us, but it is not a growth engine, and we don't look at it growing again, Maria. We look at it as really just how do we stabilize that and how do we leverage those assets. Some of it has to do with the regulatory changes that we talked through at length in the past couple of years about the headwinds there. Equally important, it's primarily around where do we allocate our priorities?

[Don Patrick, CEO at Fluent, Inc]

We have continued to invest and move capital and move people towards that commerce media side because of the opportunity there. That really has been our context around that business. It is a huge competitive advantage. If we keep it flat or we keep the decline in a lower percentage, we will win big on the commerce media side.

[Maria Ripps, Managing Director and Senior Research Analyst at Canaccord]

Got it. Thank you, Don.

[Don Patrick, CEO at Fluent, Inc]

Thank you, Maria.

[Operator]

Thank you. Our next question comes from Patrick Sholl with Barrington Research. You may proceed.

[Patrick Sholl, Research Analyst at Barrington Research]

Hi. Kind of following up on the owned and operated segment or owned and operated business, do you include the call centers within that? I guess just on the call center side, if you are stepping away from the ACA marketplace, could you maybe just talk about where else you have kind of scale within that business?

[Don Patrick, CEO at Fluent, Inc]

Sure. Sure. Thanks for the question.

[Don Patrick, CEO at Fluent, Inc]

No, we do not include call center in the owned and owned business. As we've outlined in the last earnings call, we now look at our business as the owned and owned business marketplace, Commerce Media Solutions, and then agency services where Call Solutions is under that agency services line. Just to take a step back, Pat, I know you've been with us for a while, but strategically, Call Solutions expands the size of the owned and owned marketplace because it allows Fluent through live agent capabilities to direct our consumers to higher value, higher consideration categories like health and life and home services. We do continue to grow that business. Historically, it has been a very consistent, steady performer for us.

[Don Patrick, CEO at Fluent, Inc]

That's really the same value proposition on the owned and operated marketplaces where we're bringing quality consumers to healthcare providers, primarily Medicare and also ACA in terms of leads that are going to aggregators that connect to the insurance company. It has been a steady performer. There have been two huge, obviously sweeping changes that we are working our way through that happened in 2024. The first one was the FCC and the CMS came out with new regulations that caused the demand in our market from our clients to shift from taking warm transfers to taking inbound calls. We did make that shift successfully in Q2, and we were able to drive significant margin in the business.

[Don Patrick, CEO at Fluent, Inc]

In Q4, the fact that we were buying media to drive those inbound costs, the media costs caused us to have challenges in Q4 in that business. It's continued on in Q1, that elevated level of media costs. We have a very good plan around diversifying that. It's going to take us a couple of quarters to work through. The high-quality consumer and the demand and the high-quality partners that we work with continue to be in place for us to drive that business forward.

[Patrick Sholl, Research Analyst at Barrington Research]

Okay. On Commerce Media Solutions, I think you had mentioned that you're able to leverage the data on the owned and operated side to support that.

[Patrick Sholl, Research Analyst at Barrington Research]

I'm just kind of curious with the continued softness in owned and operated, if that kind of limits the ability to have that data bolster the commerce media side and just any sort of, I guess maybe sort of like an inflection where you have enough scale in commerce media where weakness in the owned and operated side wouldn't necessarily be of kind of risk to continuing to grow that business.

[Don Patrick, CEO at Fluent, Inc]

Yeah. Yeah. You're absolutely right. Obviously, as we've really focused and repositioned owned and operated around the quality side rather than on the growth side, the data that comes in on a daily basis is less than it was in the past. But we have 14 years of first-party data and consumers coming to over 200 million unique email addresses.

[Don Patrick, CEO at Fluent, Inc]

That database obviously is incredibly deep and incredibly large breadth in terms of campaigns and things like that. Even with the smaller traffic and consumers coming on our owned and operated, that data continues to be very relevant and fresh for us for the commerce media. I think your second question, there are two big business model things that we're seeing. One is in the second half of this year, we get significant seasonality in that commerce media solution. We see the second half where we will return to growth, double-digit growth that will drive double-digit growth across the consolidated side of Fluent. I think that is the inflection point that we see based on where we are in the growth and the wins that we're getting in that commerce media platform.

[Patrick Sholl, Research Analyst at Barrington Research]

Thank you.

[Don Patrick, CEO at Fluent, Inc]

Thanks, Pat.

[Operator]

Thank you.

[Operator]

As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Bill Dezellem with Tieton Capital Management. You may proceed.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Thank you. Would you please expand further on a comment in your opening remarks relative to the pipeline in the commerce media business, both in terms of the size of that pipeline, in terms of number of prospects, but also the size of those prospects relative to the customers that you currently have on board?

[Don Patrick, CEO at Fluent, Inc]

Thanks, Bill. Thanks for the question.

[Don Patrick, CEO at Fluent, Inc]

As I was just talking a little bit in the interview, Maria, our pipeline continues to grow very successfully based on the fact that we are obviously building our brand around driving better results and also by the fact that the industry, we're sitting in the middle of a fantastic transformative industry with a lot of headwinds, with a lot of tailwinds. The pipeline continues to grow at a great pace for us to provide that visibility of triple-digit growth rate for that business in 2025. As we continue to land these brands, these new wins in the verticals, we're able to, obviously, from a marketing perspective, penetrate that vertical with great case studies and great marketing materials to accelerate the sales side.

[Don Patrick, CEO at Fluent, Inc]

It is fantastic momentum, and the pipeline is significant in size for us to deliver on our commitment that we've made in terms of growth. Regarding size, there's obviously different size brands that we work with. There's large ones that can have hundreds or have millions of consumers or some that have smaller ones that come in. We manage the pipeline based on the breadth of that and how do we segment that. There are some very large transformative partners that we're discussing, and we're in the midst of a pipeline that could accelerate that growth rate that we've positioned. We don't factor that into our business, Bill. We don't factor that into our forecast.

[Don Patrick, CEO at Fluent, Inc]

As we build our brand and we build our results that we've been able to drive for our partners, we're very pleased with some strategic partnerships that would be transformational for us and grow and accelerate that business revenue that we've laid out for you. We do not plan our business around that, and we do not run our business by those big deals.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Don, would you please quantify kind of what transformative would be in any way that you can scale that for us? What's the timeline? Generally speaking, larger leads to a longer sales cycle. Is this something that might happen next year or nearer term?

[Don Patrick, CEO at Fluent, Inc]

Yep. Great questions, Bill. If you look at an average, it depends a lot on the verticals we're in, but I'll just take retail verticals because that's our largest vertical.

[Don Patrick, CEO at Fluent, Inc]

An average-sized partner that we work with might have 10 million post-transaction sessions a year, right? That could mean we have very valuable partners that are doing a million. We have very valuable partners that are doing 30 million or 50 million, right? That is the range in which you kind of see in the mix of our portfolio and in the mix of our current clients also. The transformative deals that we are talking about will be a multiple of the high end of that range. We are talking about things that could literally significantly change the growth projector that we have. Regarding timing, they do take a little bit longer at times, but I am going to tell you, you guys will be the first to hear when we close one of these deals. There are things in the pipeline that we think can happen, obviously, in 2025.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Great.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Thank you. Would you please talk about what your conversion is? Once you've won a customer and their customer has purchased a product and you're presenting the post-sale ad, what's your conversion rate versus the competition, the rest of the industry?

[Don Patrick, CEO at Fluent, Inc]

Yeah. We do have some case studies, Bill, that we've made public around the conversions and revenue in our investor deck. Obviously, some of this is competitive that we don't want to disclose. There are two important pieces of this, right? One is the size of how the quality of the consumer that we're connecting to our brands, our world-class brands like a Disney or an Apple, etc. We've seen compared to head-to-head competition that the consumer is up over 25% more valuable than the ones that the consumers were connecting or the brands were connecting the consumers to with our competitors.

[Don Patrick, CEO at Fluent, Inc]

That is a significant value proposition for us: higher quality consumers based on our technology and our data and our ability to identify and serve the right ad. On the partner side, we also have a very similar increase in an uptick in the revenue that we provide our e-commerce partners, up over 20%. Significant uplift in the competitive advantage that we have head-to-head against our competition.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

When you think about these large prospects or, frankly, the rest of the pipeline that is maybe not necessarily transformative, but all part of the pipeline, is there anything about that pipeline that is different so that you would not be able to generate for them that 25% more value?

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Because where my mind is going is it seems like your probability of winning, if they're basing their decision on the financial aspect of the transaction, it really increases your chance of winning those deals.

[Don Patrick, CEO at Fluent, Inc]

Right. Yep. The answer is we believe that we are heavily, as we've talked about, and we're not in all the verticals, Bill. Obviously, even within the verticals, if you take retail example, there are different audience segments and different things that we've got to work through in terms of getting that same sort of return. Again, that sort of sits to where our value proposition and how we go to market. We're a marketing company that we've been doing it for our owned and operated properties for 14 years. We know how to drive consumer engagement, and we know how to drive results.

[Don Patrick, CEO at Fluent, Inc]

We're confident that that DNA and that expertise in owned and operated will translate into the different verticals that we enter into. We've laid out in the presentation, we are not in some of the verticals that we believe we are going to get into and grow. It's going to take a little bit of time to work through that if we get into, for example, travel. We're not into travel right now, but we're confident that marketing DNA and our first-party data will drive those results across every vertical and across different types of partners within those verticals.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

That is helpful. Thank you for all the color. One additional question. Your gross profit dollars, approximately half, came from the commerce media business. You all have been very clear about seasonality within your business.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

The question is, as you look over the course of the next four quarters, do you see the gross profit dollars coming from commerce media holding and/or growing, particularly in Q1 and Q2, or due to the seasonality that those would be under pressure as a percentage of the total gross profit?

[Don Patrick, CEO at Fluent, Inc]

Bill, I think I understand your question. I'll answer it two different ways. First, the business mix, right, is going to—we're very transparent on the business mix that's been happening around that commerce media. You know, we see that business mix continuing to increase as a percentage of the total value of the Fluent business. That business mix will continue to drive. The margin itself in that commerce media business is relatively consistent and predictable based on the revenue share that we have.

[Don Patrick, CEO at Fluent, Inc]

We'll see the margin percent be consistent, but we'll see the mix of that business continue to drive and be a more significant part of Fluent overall.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

In Q1, specifically, do you anticipate commerce media percentage of the business to increase or decrease? That's really trying to get my head wrapped around the seasonality from that perspective.

[Don Patrick, CEO at Fluent, Inc]

Yep. Yep. Yeah. It will increase as a percentage of the overall Fluent business, yes, in Q1. We do go down sequentially from Q4 to Q1. The commerce media business will continue to grow at the rates that we've talked about. It's just the seasonality from Q4 to Q1, the revenue will decline based on that seasonality.

[Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management]

Great. Thank you. Good luck closing some of these large prospects.

[Don Patrick, CEO at Fluent, Inc]

Thank you, Bill.

[Operator]

Thank you.

[Operator]

I would now like to turn the call back over to Don Patrick for any closing remarks.

[Don Patrick, CEO at Fluent, Inc]

Thank you for joining our call today. The key headline is reinforcing why we're so confident about our strategic commitment to win in the rapidly growing commerce media industry. It leaves us poised for growth through execution to deliver breakout performance in the second half of this year. Thank you for your continued support, and we look forward to giving you an update after Q1.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Participants

Executives

• Don Patrick, CEO
• Ryan Perfit, CFO

Analysts

• Maria Ripps, Managing Director and Senior Research Analyst at Canaccord
• Patrick Sholl, Research Analyst at Barrington Research
• Bill Dezellem, Founder, President, and Chief Investment Officer at Tieton Capital Management