Fluent, Inc. Q1 FY2026 Earnings Call

Good afternoon, and welcome. Thank you for joining us to discuss Fluent's First Quarter 2026 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 Patrick 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. Before we begin, I would like to advise listeners that certain information discussed by management during the conference call will contain forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made during this call speak only as of the date hereof. Actual results could differ materially from those stated or implied by such 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 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 media margins, 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 definitions of these metrics and reconciliations to the most directly comparable GAAP financial measures are provided in the earnings press release issued earlier today. With that, I am pleased to introduce Fluent's CEO, Don Patrick.

Good afternoon, and thank you all for joining our call today. I'm here with Ryan Schulke, our Chief Strategy Officer and Company Co-Founder; and Ryan Perfit, our Chief Financial Officer. We entered 2026 with a clear strategy, strong momentum and a commitment to deliver. Our strategy is to aggressively invest in a high-growth, high-margin commerce media industry, leveraging the competitive advantages of our owned and operated marketplaces as our foundation. We've built a leading, highly differentiated Fluent brand with a clear and compelling purpose, delivering superior, measurable performance outcomes for our commerce partners and advertisers. We are establishing a leadership position in our industry, and we are just getting started. Q1 is proof that our strategy is winning. Let me take you through the quarter. Commerce Media is the lead story of this company and where we will deliver shareholder value. And Q1 gave us another powerful and strategic validating chapter. The consumer and our partners are verifying that Fluent's Commerce Media Solutions is redefining the industry performance standard. That is the foundation we can and will build upon. Commerce Media Solutions delivered revenue of $25.9 million, 104% growth year-over-year. Gross profit grew 78%. Commerce Media now represents 58% of our total consolidated revenue, up from 23% just four quarters ago. This is especially encouraging, given that the first quarter is seasonally our slowest of the year. The first quarter marks our ninth consecutive quarter of strong double- to triple-digit Commerce Media revenue growth in a market defined by an incumbent with a decade head start. Not an easy place to establish your equity, yet we are doing just that. The consistency of that track record is what gives us confidence and what should give you confidence that this is not just momentum, it is a trajectory. Think about that for a moment. In four quarters, Commerce Media went from less than a quarter of our business to more than half. That is not incremental progress. This represents strategic transformation. Moreover, this is just the ground floor. Our strategic plan is revealing business adjacencies that our partners are leaning into because we are solving for unmet consumer needs that sit at the top of their boardroom agendas. That is the road to long-term strategic partnerships. During the quarter, we entered into partnerships with Wyndham Hotels and Squire, a barbershop booking platform, two new verticals that validate the breadth of demand for what we are building. The platform is working, the partners are growing, the numbers prove it. And now we own a differentiated leadership position in the commerce media space. On a consolidated basis, our Q1 2026 results were as follows: Revenue of $44.9 million, that is down 19% versus Q1 2025, but that figure includes $10.9 million from Call Solutions in 2025, which we divested in January. Excluding the impact of the divestiture, revenue was down 3% year-over-year. Importantly, Commerce Media Solutions continued its strong revenue momentum in the first quarter with a 104% increase year-over-year, representing 58% of total consolidated revenue compared to 23% in the first quarter of 2025. Gross profit of $10 million, a decrease of 12% compared to Q1 2025 and representing 22% of revenue. Our Commerce Media gross profit grew 78% year-over-year, and the growth engine of this company is performing. Gross profit on our aggregate continuing businesses declined 7% year-over-year. Adjusted EBITDA of negative $3.6 million compared to a negative $3.1 million in Q1 2025. Our cost discipline is holding. Excluding a $2.4 million benefit from the divestiture, operating expenses are down over $1.4 million year-over-year. Slide 4 helps to visualize the growth of Commerce Media Solutions revenue over the last two years. As you can see in the graphs on this slide, Commerce Media revenue in the first quarter of 2024, one year after its launch, accounted for just 10% of our total revenue during that period. Fast forward to the first quarter of 2025, and Commerce Media Solutions' contribution to total consolidated revenue increased to 23%, representing an increase of 100% in Commerce Media Solutions revenue when compared to Q1 2024. In the fourth quarter of 2025, Commerce Media Solutions broke the 50% threshold as the primary driver of total consolidated revenue in the quarter. And as of the first quarter of 2026, Commerce Media Solutions revenue accounted for 58% of the total consolidated revenue. Our Commerce Media growth has been encouraging, to put it simply, and we expect this trend to continue as we scale. I'd like to take a moment to reiterate the market opportunity that we're seeing for Commerce Media and why this offering is at the core of our business and growth strategy. The U.S. Commerce Media market is expected to reach $100 billion by 2027 and is expected to grow at a compound annual growth rate of 21% from 2023 to 2027. Our Commerce Media Solutions business demonstrated triple-digit growth in the first quarter and is currently operating at an annual revenue run rate of $110 million, positioning us well to capture new opportunities and market share as the Commerce Media market continues to expand. At the core of our Commerce Media platform is our post-transaction solution, and Q1 demonstrated we are entering a new phase of maturity and scale. Post-transaction is structurally one of the most valuable moments in the consumer journey. The consumer has just completed a purchase, they are engaged, their credit card is out and they are receptive to relevant offers. That moment is premium real estate for advertisers. And Fluent through our post-transaction platform has built meaningful scale at that moment across a growing network of commerce partners. What makes our post-transaction solution increasingly powerful is the network effect at its core. More commerce partners means more consumer touch points. More touch points means more value for advertisers. More advertiser demand means stronger yields and performance for commerce partners. That flywheel is turning and each quarter, it turns faster, earning Fluent real market credibility. Q1 Commerce Media performance is the financial proof that our post-transaction platform is scaling correctly. Revenue more than doubled, gross profit grew 78%. The trajectory into Q2, Q3 and Q4 and the second half is our strongest seasonal period gives us strong confidence in the full year outlook we have planned. As our post-transaction platform continues to scale, we are making targeted investments outside of traditional retail and in the Commerce Media adjacencies that deepen our value to the partners who know us best as well as those potential partners that are seeking a differentiated outcome. During the first quarter, we welcomed Wyndham and Squire as new commerce partners, two well-recognized brands that chose Fluent because of our proven performance and the quality of our platform. These partnerships are in line with our broader strategy to expand beyond traditional retail platforms, and we look forward to penetrating new verticals to expand our addressable market. As demand for Commerce Media offerings grow, our commerce partners are asking us for more, and we are responding. We are currently developing and piloting adjacent opportunities that extend our Commerce Media Platform beyond the post-transaction moment and into new stages of the consumer journey. These are demand-driven extensions validated by our existing partner relationships, not speculative bets. Our pipeline is strong, and we look forward to updating you on the new opportunities and partnership wins in future quarters. Before I turn the call over to our CFO, Ryan Perfit, I want to provide an update on our owned and operated business. Our owned and operated marketplace business has faced persistent headwinds, an uneven competitive landscape and inconsistent industry compliance standards that after three years, we are treating as a structural reality rather than a temporary condition. We are not managing to those headwinds. We are managing through them. What I want to focus on is how we're responding strategically. We made a deliberate decision to reposition our owned and operated marketplace as the core enabler of our Commerce Media Platform. The first-party consumer data, intent signals and audience relationships that flow through our owned and operated properties are the exact assets that differentiate Fluent's Commerce Media offering in the market. That infrastructure takes years to build and it is proprietary. We have it, and we are putting it to work. Our owned and operated marketplace is operating under two mandates. First, it is a disciplined gross profit contributor. We are managing it to margin. Second, it is a live test-and-learn engine that feeds consumer intelligence directly into Commerce Media, improving targeting, attribution and yield across the platform. Bottom line, owned and operated is directly contributing to our aggressive Commerce Media growth. We have consciously redeployed owned and operated demand to Commerce Media. The growth we are driving in Commerce Media is not just expected to offset owned and operated pressure, it is expected to more than replace it at better margins and with stronger long-term durability. With that, I'll turn the call over to Ryan Perfit to take a deeper dive into our financial results in Q1.

Thank you, Don, and thanks to everyone for joining us today. I'll now provide a deeper review of our first quarter results. Total consolidated revenue was $44.9 million in the first quarter of 2026 compared with $55.2 million in the prior year period. The year-over-year decline primarily reflects the January 2026 divestiture of our Call Solutions business. As Don noted, revenue from our aggregate continuing businesses declined approximately 3% year-over-year as Commerce Media Solutions growth largely offset the expected contraction in our owned and operated business. As Don also noted, Commerce Media Solutions represented 58% of total consolidated revenue in the quarter compared with 23% in the first quarter of 2025 and above 50% for the second consecutive quarter. Commerce Media Solutions revenue of $25.9 million represents 104% growth compared with the first quarter of 2025. Revenue from our owned and operated business continued to decline in the quarter, which was in line with our expectations as we continue to prioritize Commerce Media. In the first quarter, owned and operated revenue decreased 49% to $15.7 million compared to $31.1 million in the first quarter of 2025. Media margin in the first quarter was $14 million, representing 31% of total consolidated revenue compared with $13.7 million or 25% of revenue in the prior year period. Commerce Media Solutions media margin in the first quarter of 2026 was $7.7 million or 30% of Commerce Media Solutions revenue compared with $3.1 million or 25% of revenue in the first quarter of 2025. Commerce Media Solutions gross profit was $5 million in the first quarter of 2026, an increase of 78% compared to the first quarter of 2025 and representing 19% of revenue. As we said last quarter, we expect our gross margin on Commerce Media Solutions to return to the mid-20s over the course of 2026 as our newer partnerships and placements move beyond early-term incentive periods. Total operating expense in the first quarter of 2026 totaled $12.3 million compared with $16.1 million in the first quarter of 2025. The reduction in operating expenses benefited from a $2.4 million noncash gain on the sale of Call Solutions and a reduction of other operating expenses of $1.4 million, reflecting our continued cost discipline. Interest expense in the first quarter decreased 31% to $605,000 from approximately $880,000 in Q1 2025, reflecting a lower daily average outstanding loan balance on the new facility with Bayview. We reported a net loss of $5.4 million in the first quarter of 2026 compared with a net loss of $8.3 million in the prior year period. Adjusted net loss, a non-GAAP measure, was $5.9 million or a loss of $0.19 per share compared with an adjusted net loss of $6.7 million or a loss of $0.31 per share in the first quarter of 2025. The acquisition-related line in our non-GAAP reconciliation reflects the $2.4 million noncash gain on the Call Solutions divestiture, which is excluded from adjusted net loss and adjusted EBITDA, another non-GAAP measure, as a nonrecurring item. We recognized adjusted EBITDA loss of approximately $3.6 million in the quarter compared with a loss of $3.1 million in the first quarter of 2025. As we stated on our fourth quarter call, we believe that we are well-positioned to deliver double-digit consolidated revenue growth on aggregate continuing businesses and improved full year adjusted EBITDA in 2026, supported by the continued growth of our Commerce Media Solutions business. Shifting now to our balance sheet and cash flow. We had $10.3 million in cash and cash equivalents at March 31, 2026, compared with $12.9 million at December 31, 2025. Accounts receivable declined from $46.7 million at the year-end to $31.8 million at March 31, reflecting normal Q1 seasonal collections and the divestiture of Call Solutions. AR collections drove positive operating cash flow of $5.1 million in Q1 of 2026 compared with $2.1 million in Q1 of 2025, a $3 million improvement year-over-year. That operating cash flow funded a net $6.3 million paydown on our revolving facility, driving a reduction in net debt from $30.8 million at year-end to $23.5 million as of March 31, 2026. To recap, our first quarter results were in line with expectations and continue to reflect the ongoing transformation of our business mix. Commerce Media Solutions grew 104% year-over-year and represented 58% of total consolidated revenue, up from 23% in the first quarter of 2025. Although Q1 is our seasonally softest quarter, operating cash flow was positive and the continued growth of Commerce Media Solutions, coupled with OpEx discipline, will drive adjusted EBITDA improvement as the year progresses. With that, I'll turn it back over to Don.

Our view on 2026 has not changed. First quarter demonstrated strong execution against our plan, and it gives us confidence in what the rest of the year will deliver. We entered Q2 with Commerce Media at 58% of revenue and growing. And we see Q2 revenue similar to Q1 with improving margins. This will represent Fluent's returning to year-over-year revenue growth from aggregate continuing businesses in the quarter. And the strongest seasonal quarters of the year are ahead of us in the second half with an adjacent solution pipeline that is responding to real partner demand. For full year 2026, we expect double-digit year-over-year consolidated revenue growth on our aggregate continuing businesses, driven by Commerce Media acceleration in the second half. We expect expanding gross margins as our highest margin business becomes an increasingly dominant share of the mix. And we expect an improvement in adjusted EBITDA as that revenue growth and margin expansion flow through the P&L. Q1 is our seasonally softest quarter. The story of 2026 is written in Q2, Q3 and Q4. We are confident in what those quarters will show. Q1 delivered what we said it would. Commerce Media grew 104%. Revenue was nearly flat ex-Call Solutions. Cost discipline continued. We are planning conservatively around strategic repositioning of our owned and operated marketplaces while we focus our resources against our strategy and growth. Nine consecutive quarters of strong double- to triple-digit year-over-year Commerce Media growth, 58% of consolidated revenue and climbing, a post-transaction platform that is earning more partner trust every single quarter, adjacent solutions being pulled by market demand and the strongest part of the year is still ahead. The strategy is right. The platform is built. The numbers are beginning to show what this company is becoming. We are energized by what lies ahead, and we look forward to demonstrating it quarter-by-quarter. With that, we can now open the call for questions.

The first question comes from Maria Ripps with Canaccord.

I just wanted to ask about some of the pricing dynamics within your Commerce Media segment. I think you mentioned sort of extending price incentives to some of the newer clients. Can you maybe talk about if those incentives have been stabilizing as clients mature on the platform? And is that one of the key variables for the segment to return to the mid-20s of gross margins? Or what are some other puts and takes for you to return to that level of gross margin?

Great. Thanks, Maria. Thanks for the question. So we did talk about that in the last earnings release. And the answer is, yes, we did put incentives in place early on as we were scaling the Commerce Media business. Once we built up our brand, we stopped using those as part of our sales initiatives. So they have stopped in terms of how we win business, but we are seeing them roll off and we'll see them roll off throughout 2026. So what you're seeing as part of the margin is really three things. Some is some of the incentives that are left. You're also seeing some of the investments that we're making in those adjacent Commerce Media solutions that haven't scaled yet and obviously are at lower margin while we get to scale. And some of it, a very small amount, are some of the new partners that are coming on that have come on later in the quarter that we hadn't yet brought to the projected yield. So those are the three pieces that are in play. But you're absolutely right. We used those incentives when we started launching in 2023, and they are not part of our sales strategy or portfolio right now.

Got it. That's very helpful. And then secondly, you mentioned several newer verticals in addition to retail. Can you maybe talk about the timeline of scaling those verticals? I know you mentioned that you added new clients across two different verticals here. Is that largely a function of expanding your media partners or are there other factors? It would be great to hear your thoughts on how you see that developing over the next couple of quarters.

Yes. Great. Thanks, Maria. So as you know, retail has been our primary focus, and that is where we obviously spent most of our investment in terms of sales and marketing and winning those great partners. And you can see the proof points in how we've been able to scale that business. We've gotten into ticketing. We're in early stages of grocery. With Wyndham, that is our entry into travel, and Squire is into more of a marketplace platform. So we're excited specifically about Wyndham and Squire, not only because they get us into new verticals, which is strategic and validates that our platform can get outside of retail and start to scale, but equally important, these partners were already in post-transaction and they chose Fluent. So that was very much a performance story of them coming over to us. Our strategy on the sales side is very similar to retail. We land a premier partner like Wyndham, we prove out and demonstrate that we can provide superior results that exist in the market, and then we leverage that into broader wins across that category. So as we expand into 2026, you'll start to see wins coming specifically around those other two verticals that we're in. You'll also see grocery starting to pick up, which will help diversify some of the seasonality that we have. We'll still, for the next couple of years, be heavily seasonal toward the second half, but as we expand into other verticals, some of that seasonality will diminish.

Our next question comes from Patrick Sholl with Barrington Research.

Just on some of the comments that you made around expanding the number of partners and how that contributes to a flywheel on expanding the roster of advertisers. Could you maybe talk about the additional scale you need and about the categories of advertisers that are maybe not spending as much as you think would warrant the type of inventory that you deliver?

Pat, thanks for the question. Heavily in retail, it's obviously cash back, streaming services, credit card offers, etc. As we start to expand into other verticals, some of them are very much like retail and play into that bucket. Travel is different, which is one we are very excited about. You'll start to see different verticals based on that audience. Also, we'll have additional placements with Wyndham outside of the transaction, and you'll see us in other areas of their commerce platform. That will bring diversification. On the Squire side, what's exciting is that it is a very specific age and demographic audience, which will open up a number of different verticals that we are testing and learning right now. Our advertiser base is diversified—there's no single advertiser with a very high concentration. From a retail perspective, we are heavily into cash back offers and streaming, which we'll start to diversify away from as we expand.

Okay. And then on the turnaround in Commerce Media margins back into the mid-20s, are you seeing that shift in strategy away from promotional margin affecting client acquisition? Any comments on the general competitive environment and customer acquisition?

Yes, thanks. It's a great question, Pat. Specifically, and this is what we're most excited about, we have proven our ability to drive superior results for our partners and advertisers compared to the competition. Partners that have left competitors and come to us, we've been able to do head-to-head tests and prove that we provide superior revenue to media partners and better quality audiences to advertisers embedded with return on ad spend, which in turn brings them back to buy more on the platform. We started in 2023. We have strong results and case studies proving that out, and that's how we lead. We can drive the best results across the industry. If you're looking for a commerce partner that can drive results and help manage other places across your commerce sites and drive strategy, we are the right partner. If you're looking for more of a pure tech or SaaS play, there are other competitors better suited. Regarding the competitive environment, and this is where the adjacent solutions play significantly, our partners are asking us to help them get into other pieces and adjacent sites. The more we can get there, the stickier we are, and it becomes a much more strategic relationship. We have a very big competitor that is aggressive and smaller competitors that compete on price. We feel great about our brand and how we compete on results and can win when we're on our playing field and with partners that match our solutions and capabilities.

Our next question is from Eric Martinuzzi with Lake Street Capital Markets.

Congrats on that terrific triple-digit growth rate on CMS. That 104% was ahead of where I was modeling things. I wanted to ask a couple of questions on partners, in particular, to the extent you can talk about it. The Wyndham implementation—just wondering if you have any lessons learned or hot takes from diving into travel and hospitality in helping that partner ramp up?

Eric, welcome. It's exciting to have you here. Thanks for the question. This is where I'll go back to our owned and operated strategy and why it's such a competitive advantage. If we didn't have that owned and operated business, there would be a learning curve to understand that audience, how they behave, and how we build meaningful relationships and provide the right offer at the right time. Having that owned and operated business and 15 years of understanding how to curate audiences, we assumed Wyndham would take a little time to scale from a results perspective, but it actually launched very strong out of the blocks. It is a different audience and reacts differently than retail, but the owned and operated capability is a huge competitive advantage for us. If we start to work with a partner like Wyndham and want to do creative testing or different offers, it takes time for approvals and implementation. On our owned and operated properties, we can test within hours, have results in days, and use those results to inform our Commerce Media strategy. That has been a huge competitive advantage as we enter new verticals.

Okay. And then penetrating a vertical, a lot of times people in the industry know each other. What's the dynamic as far as using one account as a reference to penetrate another account? Is there an opportunity there?

It is spot on. That is our best sales strategy: have our current partners talk to our prospects and partners. That's why we like land and expand. We make sure we get results, ensure that partner is very satisfied, and then leverage them as references. CMOs, retail media network heads, and others in the space do talk to each other; they move around, and it's a tight group in terms of how they share information.

Okay. And then you talked about some of the pressure on the current CMS gross margins. You talked about incentives that haven't run their course yet, some subscale adjacent solutions, and some new partners later in the quarter. I was wondering if Rebuy, which signed up in 2025 and is more of a reseller-type margin, is also a factor in the pressure on CMS gross margin?

Yes. You're absolutely right, Eric. Because of the partnership and strategic nature, we do have a lower margin with what we're doing with Rebuy, but it hasn't been a major factor. We're very happy with that partnership. It continues to grow, and we think there's a lot of opportunity to grow that relationship in revenue and strategic position. The major factors in the margin pressure were incentives rolling off, new adjacent solutions that are lower margin as we scale, similar to how post-transaction was when we launched in 2023.

As I see no further questions in the queue, I will conclude the Q&A session and conference for today. Thank you for participating, and you may now disconnect.