Fluent, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Repositioning: The company is pivoting towards Commerce Media Solutions, rebranding syndicated marketplaces as such to leverage leadership in owned and operated marketplaces for growth in high-volume, high-growth syndicated performance marketplaces.
• Commerce Media Solutions Growth: Showed strong growth with triple-digit year-over-year revenue growth, added 15 partners in Q3 and 5 in Q4. Expanding into verticals like retail, ticketing, quick-serve restaurant, and grocery, with plans to enter entertainment, travel, and finance in 2025. Achieved an annual revenue run rate over $50 million as of September 2024.
• Owned and Operated Focus: Focused on financial stabilization with core assets, impacted by election-related media supply restrictions starting mid-August, with media pricing improving after the election.
• Loyalty Solution: A new adjacent growth opportunity, leveraging proprietary insights and owned and operated leadership to provide a next-generation loyalty solution that can be a profit center for partners by integrating post-transaction ad revenue with loyalty programs.

Segment Performance

• Commerce Media Solutions: Generated $10.4 million in Q3 2024, achieving triple-digit year-over-year revenue growth. In Q3 2024, it contributed 16% of total revenue (up from 3% in Q3 2023). Gross margins were 33% in Q3, higher than the consolidated 24%. Added 15 new partners in Q3 and 5 in Q4, with an annual revenue run rate exceeding $50 million as of September 30, 2024.
• Owned and operated marketplaces: Revenue decreased 18% year-over-year in Q3 2024 due to presidential election-related media cost increases. It is focused on financial stabilization with core assets, and is expected to be slightly down in 2025.
• Call solutions and AdParlor agency business: Provide performance marketing and agency services for health, retail, and direct-to-consumer verticals, enhancing media capabilities and customer expertise.

Guidance

• Q4 Outlook: Expect continued strong quarter-over-quarter revenue growth in Q4 2024.
• 2025 Projections: Anticipate double-digit consolidated revenue growth in 2025 as Commerce Media Solutions scales. Growth embedded from added partners and expansion with existing partners. Owned and operated marketplace expected to be slightly down in 2025, with all growth coming from Commerce Media Solutions.

Risks

• Cyclical Advertising Headwinds: Owned and operated marketplace affected by presidential election-related social media ad spend driving up media prices, restricting supply and impacting acquisition margins.
• Sales Cycle Challenges: Longer sales cycle in Commerce Media Solutions affecting quarterly trajectory due to enterprise sales process, technology integration, and vertical seasonality.
• Regulatory Uncertainties: Potential shifts in regulatory pressure, such as around TikTok, could impact business operations and media channel availability.

Question and Answer

• Q: Talked about softer Q3 and Q4 outlook relative to expectations, especially election headwinds.

A: The biggest impact was election-related social media ad spend driving up media prices, restricting supply in the owned and operated marketplace starting mid-August, with media pricing improving after the election.

• Q: Expectations for double-digit revenue growth next year.

A: Growth will come from the Commerce Media Solutions side. Owned and operated is expected to be slightly down, with all growth from Commerce Media Solutions, which has embedded growth from added partners and expansion with existing partners.

• Q: Why media margins in Commerce Media Solutions are higher.

A: Revenue share model leads to more consistent margins, expected to expand to late 30s/early 40s as scaled.

• Q: Third quarter unfolding vs original plan.

A: Commerce media added 15 new partners as expected, while the owned and operated marketplace was hit by election-related media challenges in late August, improving after the election.

• Q: Loyalty business details.

A: Integrates post-transaction ad revenue with loyalty programs, serving non-endemic ads to generate revenue for partners, making loyalty a profit center vs a loss leader.

• Q: Q1/Q2 cadence and election impact on business.

A: Q4 year-over-year decline in owned and operated, Q1/Q2 see low single-digit growth with acceleration in 2025; election regime shift could be a tailwind, but uncertainty around TikTok pressure exists.