Good day, and thank you for standing by, and welcome to the Fluent, Inc's First Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Later on, we will have a Q&A session. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Dan Barsky, please go ahead.

Good afternoon, and welcome. Thank you for joining us to discuss our first quarter 2023 earnings results. With me today are Fluent's CEO, Don Patrick; Interim CFO, 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. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investor Relations page on our website, www.fluentco.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call will contain certain 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 hereof. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, estimates, and other words of similar meaning. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainty 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 this 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 these non-GAAP metrics. The definition of these metrics and reconciliation to the most directly comparable GAAP financial measures are provided in the earnings press release issued earlier today. With that, I'm pleased to introduce Fluent's CEO, Don Patrick.

Thank you, Dan, and good afternoon. Thank you all for joining our call today. I'm here together with Ryan Schulke, our Chief Strategy Officer, Chairman of the Board, and Company Founder; and Ryan Perfit, our Interim Chief Financial Officer. I'll make some brief comments about our first quarter results that continue to reinforce the imperative behind Quality as our North Star. Our foundational commitment to enhance the quality of consumer engagement within our performance marketplace is an investment we believe is unequivocally worth making, and this reality is indeed reflected in our Q1 results. But we will remain committed that this is a strategic course required for sustainable revenue growth. Concurrently, the infrastructure we're presently laying in place will yield increased profitability, along with margin expansion in future quarters. Succinctly stated, higher-quality content strengthens the connectivity in client partnerships. It's also worth a premium price in the marketplace. And we remain steadfast that as we crystallize our strategies, it's our focused execution in the marketplace that will enhance Fluent's brand equity, both with consumers and our clients, while creating greater shareholder value. We continue to accelerate against our strategic agenda and are enthusiastic about our course. Yet, like so many in our industry, we're facing a challenging macroeconomic period, compounded by an evolving regulatory environment that has us proactively pausing on revenue and profit opportunities, while we research their long-term viability even though at the immediate-term expense of our top and bottom line. To be clear, our goal is to position Fluent at the forefront of our industry in establishing leading-edge compliance standards versus following the competitive majority who regrettably and sometimes unabashedly operate with less compliant protocols. We saw our opportunity to improve, so we chose to lead and are forging ahead with that core fiber in place. In this market context, I'll also update you on the disciplined progress we continue to make against our strategic priorities, along with the required tactical enhancements we're making to continue upgrading our consumer solutions. Execution against these initiatives has us encouraged by significant positive feedback we're receiving from our consumers, along with the improving financial trend line of our performance marketplace that started at the end of Q1 and where momentum is continuing into Q2. Our Q1 2023 results reflect the current strong headwinds I've outlined and are consistent with the more cautious near-term business roadmap we laid out in previous earnings releases. Financial results were as follows: revenue of $77.3 million, representing a 13% year-over-year decline. We continue to see parallel levels of unpredictability in the digital advertising industry, with consumers and clients pausing to assess the personal and professional uncertainty in the lives in the road ahead. Our media margin of $21.9 million, a 15% year-over-year decline. At 29.1% of revenue, our media margin percentage did expand quarter-over-quarter as we focused on some of our early-stage business opportunities that are showing long-term progress. Our business units also exhibited proficiency in managing our margin mix. Adjusted EBITDA of $0.5 million represents 0.6% of revenue. This reflects both our ongoing strategic investments in our growth opportunities as well as the impact of the additional quality initiatives we proactively implemented in the last two quarters as we continue to learn and react on the regulatory front. Q1 results were directly impacted by our conscious strategic and financial decisions to forgo certain revenue streams that we felt may not meet our evolving quality standards in our job business. More importantly, we are confident that this path represents a more sustainable growth in the future quarters that is margin accretive. This creates positive long-term implications for our jobs platform as we pivoted our business model to strengthen our strategic integration with our client partners. In concert, we improved the quality of the consumer experience along with our ability to build a long-term relationship with potential job seekers. The online recruitment industry, led by Fluent, continues to proactively respond to changing regulatory considerations and guidelines. Given the enhanced functionality of our new jobs technology platform, we see this as an opportune environment to invest and build a more strategically sustainable business that differentiates us from our competitors, while also making it a more value-added partner for our clients. As such, we see this business regaining growth trajectory within the next two to three quarters. Fluent has a proven track record of pivoting our performance marketplace to leverage higher-quality consumer engagement. This positively impacts our long-term business while leading us to develop deeper strategic relationships with both consumers and world-class brands. We are seeing the same strategic benefit within our new jobs business platform, and key strategic brand partners are already leaning in. More to follow regarding the progress on the strategic front next quarter. As we previously identified in Q1, we continue to see our clients' consumer acquisition strategy shift from growth and return on ad spend to clear prioritizations on return on ad spend due to the continued consumer volatility in the market. And while Fluent's performance marketplace is well positioned to respond to these shifts by managing media margin mix, our Q1 margin was impacted primarily based on certain media cost increases in our core rewards business. These increases were above historical seasonal norms on the social media platforms, which is an industry-wide reality. We did see this trend abate late in Q1, returning to industry norms, which we see as a positive signal moving forward. While we have much more to articulate in subsequent quarters, we are energetically building out several strategically relevant yet smaller business units that represent excellent long-term growth potential with margins that exceed our Fluent core. And we are quite pleased that they performed notably well during the quarter, strategically and financially. In particular, our Call Solutions and our Influencer business both grew revenue and profit double digits year-over-year in a trend that we see continuing. We are energized that these businesses continue to perform as we projected, as they will strategically enhance Fluent's total value proposition with consumers and clients and ultimately, shareholders. Importantly, and as a direct result of our strategic initiatives and the proactive quality enhancements we continue to make, we're encouraged by a significant positive trend line in our performance marketplace that started at the end of Q1 and where momentum is continuing into Q2. This is despite the economic turbulence and the regulatory realities that require industry and Fluent to be fluid and continually assessing course while making strategic decisions moving forward. And we have more exciting initiatives in mid-stage development that have broad-based revenue and profit impact across the entire enterprise. Of compelling strategic relevance and where we are enthusiastically accelerating our investment is in strengthening our data to insights performance model and what most of our strategic partners see as the Holy Grail. It's not just leading-edge capabilities that separate us from our competitive set. It also strengthens and expands our client partnerships with world-class brands. Our most strategic partners in key verticals have continued to invest more aggressively with us and are willing to share critical client data, which enables our performance marketplace to analyze real-time consumer behavior, providing insights to share along with the ability to see a direct connection between the Fluent consumer and our client brand. This is a major strategic undertaking with high potential applicability across multiple business units. In turn, Fluent's platform is leveraging these consumer insights to fuel our media spend while generating more targeted ad serving, enhancing the consumer experience, and breeding higher levels of satisfaction. This not only improves our brand partners' return on ad spend, but it also validates Fluent's growing equity in the marketplace, further solidifying the value of the client-Fluent partnership. We see this initiative as redefining win, win, win for the consumer, our clients, and for Fluent, as it is an initiative that also allows us to expand our margins. Exciting developments to follow here. Yet another early mid-stage win where we're seeing compelling results is through accelerating our media footprint via spending on social channels, especially against the emerging channel of Influencers. This is a strategy where we're developing more strategic relationships with those who are motivated to leverage our expanding best-in-class capabilities. The Influencer marketplace is growing significantly given Influencers' ability to affect consumer behavior and impact trends in demand for products and services in a variety of verticals based on the consumer trust they earn. By leveraging Fluent's proprietary Influencer platform, with functionality and tools that support Influencer effectiveness, we're ensuring high-quality consumer experiences for our clients. Importantly, we are building differentiated market capabilities that improve the Influencer experience while enhancing consumer engagement and satisfaction. Net, Influencers are growing an increasingly important industry channel for customer acquisition, and we'll continue to evolve and invest in this opportunity. As we expand our strategic growth platforms with early success indicators I've outlined, we're buoyed by the fact that we are also seeing media costs return to more historical norms. At a corresponding basis, our ability to successfully manage our media mix within our performance marketplace has shown meaningful improvement as well. Certainly, we've had a challenging Q1, but the strategic moves we're making and executing against are definitive and without hesitation. And we believe double-digit sequential quarterly revenue and profit growth will return in Q2. This is a key deliverable as we look for our 2023 annual financial results to show growth at or above industry growth rates with sequential margin improvement over the fiscal year. In turn, we will continue to appropriately invest in our growth agenda, with Quality as our North Star and a higher quality consumer experience as our scorecard. We've invested aggressively in our forward path. We remain confident that the fundamentals that we've continued to put in place over the last fiscal year will pay longer-term strategic and financial dividends, regardless of elevating consumer expectations, coupled with the uncertainty on the more stringent regulatory environment. Ultimately, market conditions will improve, and the new consumer norm will prevail. In the immediate term, we'll continue to crystallize our strategy while managing the mix across different business units as a clear path to deliver our margin expansion goals. And with that, I'll turn to Ryan to provide more detail of our financial results.

Thanks, Don, and good afternoon, everyone. I'll now dive into our Q1 results. For the quarter, the company generated $77.3 million of revenue, down 13% year-over-year and down 9% sequentially from Q4 and in line with expectations. As Don mentioned, Q1 continued to be affected by unpredictability in the broader digital advertising industry, along with proactive regulatory changes in the jobs business. In our core business, we saw growth in segments of the media and entertainment sector, offset by declines in other segments of the media and entertainment sector and the staffing and recruitment and financial products and services sector. We continue to be encouraged by the growth of our Call Solutions and Influencer businesses. In Q2, we've seen an easing of the macroeconomic headwinds and improved media pricing. Although we haven't historically experienced sequential seasonal increases in Q2, we are seeing similar trends to 2022 and anticipate revenue to be up low double-digits sequentially as compared to the first quarter. Our expanded media footprint in the Influencer channel has been a key to growth in Q2 and will continue to drive growth in 2023. Our media margin in Q1 of $22 million represented a 15% year-over-year decline and 28.4% of revenue. The first quarter decline was largely a factor of the previously mentioned ad spend challenges, not being offset by a lower cost of media. Media margin as a percentage of revenue did increase sequentially from Q4 2022, and we expect better media pricing and continued growth and efficiency of our early-stage business opportunities to drive media margin and media margin as a percentage of revenue higher again in Q2 as compared to Q1. Our operating expenses on a GAAP basis in aggregate for Q1 were $22.1 million, up $2.4 million year-over-year. In Q1, we completed a reduction in headcount and are continuing to review strategic investments and operating expenses given the current environment, with $480,000 of severance costs related to the reduction included in our operating expenses but excluded from adjusted EBITDA. In the first quarter, the G&A line includes certain litigation and related costs of $1.4 million and $623,000 of accrued compensation expense relating to the Winopoly and True North acquisitions. These costs are outside of the ordinary course of business and are excluded from our adjusted EBITDA. As detailed in our 10-Q filing, the company determined that the decline in our market cap from Q4 represented a triggering event and an indication of impairment of our goodwill. Based on an analysis, the company recorded a noncash impairment charge to goodwill associated with the acquisition of the Fluent operating business in 2015 of $25.7 million in the first quarter. The noncash impairment charge is excluded from our adjusted EBITDA and has no impact on our operations or liquidity. Q1 adjusted EBITDA of $448,000 represents 0.6% of revenue, a year-over-year decline of $4.3 million, an effect of the year-over-year decrease in media margin, coupled with the year-over-year increase in operating expenses. In the second quarter, we expect adjusted EBITDA as a percentage of revenue to return to historical norms in the mid-single digits. The company cannot provide a reconciliation to expected net income or net loss in Q2 due to the unknown effect of timing and potential significance of certain operating costs and expenses, share-based compensation expense, and the provision for or benefit from income taxes. First quarter net interest expense increased by $305,000 to $689,000 as an effect of increased rates. For the quarter, the provision for income taxes was $101,000. We reported a net loss of $31.9 million and adjusted net loss, a non-GAAP measure, of $2.7 million or $0.03 per share. Our non-GAAP metrics are reconciled in today's earnings release and 10-Q filing. Turning to the balance sheet. We ended the quarter with $26.6 million of cash and cash equivalents, up $1 million from year-end 2022. Working capital, defined as current assets minus current liabilities, ended the quarter at $34.4 million, down $12.2 million year-over-year and $7.6 million sequentially from Q4. Total debt, as reflected on the balance sheet, ended the quarter at $39.4 million. Our debt balance has declined by $4.7 million as compared with the prior year balance sheet. Quarter-over-quarter, we invested $1.1 million into capitalized product development and technology and $1.3 million into acquisition-related costs compared to $1.1 million and $1 million respectively in Q1 2022. As a management team, we remain focused on sourcing high-quality traffic and creating quality consumer experiences in an effort to increase return on ad spend for our clients. We're committed to the strategy, and we'll continue to invest in strengthening the fundamentals and increasing monetization across the business. We're confident in our ability to execute on the goals in front of us. We appreciate your support. We're happy to take questions at this time.

Thank you. Our first question comes from Maria Ripps from Canaccord. Your line is now open.

Good afternoon and thanks for taking my questions. First, Don, you mentioned regulatory considerations sort of creating some near-term headwinds here. Can you maybe just expand on that a little bit? Are there any recent sort of incremental developments on that front? And do you expect these headwinds to continue for some time here?

Hi Maria, thank you for the question. Regarding the regulatory challenges, we have responded positively and proactively to the changes, particularly in our jobs business, which has been operational for over seven years. This segment focuses on connecting hourly workers with leading brands in e-commerce, retail, transportation, and hospitality. However, the regulatory landscape has shifted, with greater scrutiny on data privacy, especially concerning consumers who may be vulnerable while seeking employment. To address these issues, we have made significant adjustments to our business and enhanced our approach to regulatory compliance, particularly in data privacy. A major factor in this was our recent platform overhaul for the job business, which enables us to deliver more targeted and relevant advertisements to job seekers while also enhancing integration with our partners. This has been a key challenge we took on at the end of Q4 and the start of Q1. Specifically, with respect to overall regulations, we are in our third year of implementing our traffic quality initiatives. You may recall that in 2020, we adopted a proactive approach to stay ahead of these issues. This area continues to evolve and is influenced by various agencies. Our commitment to quality ensures that higher-quality consumers lead to better engagement and stronger relationships with our brands. We are confident that we have the appropriate business model and a robust system to navigate through these challenges.

Got it. Thank you. That's very helpful. And then I just wanted to maybe get a little bit more color around your efforts to develop the Influencer channel a little bit more here. Can you maybe expand on your progress there? How much work is still left to complete on that front? And maybe broadly, what kind of media margins do you see there today versus where that channel can be over time?

Thank you. It's an exciting initiative that we discussed last quarter. Influencers have been a part of the market for a long time, and it's substantial, with estimates putting it at a $16 billion market that is growing at 30%. Interestingly, 49% of consumers rely on Influencers' opinions when making purchasing decisions, and this percentage is increasing, highlighting the importance of consumer acquisition for our business. Last year, we developed a technology platform that acts as a marketplace for Influencers, allowing us to connect them with our rewards products and services. We assist them in determining how to market these products, and they can receive immediate payment for their efforts. Our model remains performance-based, and we prioritize brand safety for these Influencers, addressing the primary concern brands have had in engaging more with Influencer marketing. We believe we have identified significant solutions for brands, and from a margin standpoint, this initiative exceeds our current rewards model. As we continue to focus on this area, we anticipate that margins will expand over time.

Got it. Thank you very much. Appreciate the color.

Thanks, Maria.

Thank you. Our next question comes from James Goss from Barrington Research. Your line is now open.

Okay, good afternoon. I was wondering, as you talk about this process you're going through, how much time do you think you have in terms of moving things around? You did point out a better second quarter revenue. Maybe that's the start. How will we recognize the turn? Maybe that's what you're looking at? And does the financial pressure you've had and the low stock price cause any businesses to express caution about working with you? Or is that just something not part of that process?

Hi Jim, thank you for your question. Regarding the general business momentum, in the first quarter, we observed three significant trends, two of which are closely linked. The macroeconomic environment, which we've discussed, has shifted most of our brands from growth and a focus on return on ad spend to concentrating more on that return. While this doesn’t necessarily lead to budget cuts for us, it does create pressure on our margins. Traditionally, when demand decreases, media costs tend to drop. However, we have been transparent that in the fourth quarter and most of the first quarter, we did not observe this trend. Instead, as demand fell, media costs for certain biddable platforms increased. On a positive note, we have seen this correlation return at the end of the first quarter, continuing into the second quarter. We believe that the historical relationship between demand and margin is restored, enabling us to manage our mix and margins effectively going forward. Additionally, we proactively adjusted our revenue and profit to strategically position ourselves better, which we believe will enhance our value and allow us to capture market share as regulatory changes arise. Together with our initiatives around Influencer and the rollout of data insights, we are confident we will carry good momentum into the second quarter and beyond. Regarding financial pressure and our stock price, we remain highly committed to improving our stock value. However, we believe that focusing on delivering strong financial results with the right strategy and long-term sustainability will ultimately take care of that aspect.

Could you explain more about the decision to forgo certain revenue streams? Also, regarding online recruitment, do you consider that your main focus at this point?

No. Thanks, Jim. It's not a key vertical, but it is meaningful to us. So again, we've had the online recruitment jobs business for over seven years and have built it very successfully. And we've always been leading the regulatory and compliance piece, but we again saw a number of changes coming, decided to be proactive like we have historically with our other businesses. So the primary revenue and gross profit we took off the board in Q1 came from that jobs business. And it was primarily around partners that would not adhere to our higher levels of compliance. So we decided to part ways with them and build deeper relationships with other partners that would adhere to that compliance.

All right, thank you.

Thank you. And our next question comes from Bill Dezellem from Tieton Capital Management.

Thank you. I believe in your opening remarks, you referenced the performance marketplace and the Influencer market, both showing strength as you exited the first quarter and came into second quarter. Would you please expand on what you were seeing there?

Sure, Bill. I'm doing well, thank you for asking. Regarding momentum, as I mentioned to Jim, we are still facing macroeconomic challenges in the marketplace. However, we're beginning to observe a correlation between decreased demand and media costs adjusting accordingly, which enables us to manage our margins effectively. This trend has been present for the 12 years since we started, although the correlation hasn't been as strong recently, it is now returning to historical norms. Concerning the Influencer business, which we launched towards the end of last year, it has taken time to establish the right KPIs and operational protocols. We now believe we have those established and are actively investing to grow this part of our business. These factors have significantly contributed to our momentum heading into Q2. Additionally, I want to emphasize the importance of return on ad spend. The Fluent marketplace allows us to track how we engage a consumer and link that to our brand partners. Our most strategic partners are providing more data about what happens after an initial action. For example, if we collaborate with a leading media entertainment company, we may receive compensation based on whether someone remains subscribed for three months. We are analyzing the data from the initial consumer engagement to that three-month period. Our top clients have been requesting data on subscription duration and consumer demographics, which we can use to make informed media buying decisions and enhance return on ad spend for our clients. This focus on data insights beyond initial actions has gained traction towards the end of Q1, which we are optimistic about.

Great. Thank you, Don.

Thanks, Bill.

Thank you. And I am showing no further questions. I would now like to turn the call back over to Don Patrick for closing remarks.

Thank you for joining our Q1 2023 earnings. We remain steadfast in our strategy that Quality as our North Star. And we're focused on execution in the marketplace that will enhance Fluent's brand equity while creating greater shareholder value. We thank you for your continued support, and we look forward to giving you an update on our progress after Q2. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.