Fluent, Inc. (FLNT) Earnings Call Transcript & Summary

Thank you. Good afternoon and welcome. Thank you for joining us to discuss Fluent's second 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 Schilke. Our call today will begin with comments from Don Patrick and Ryan Purfitt, 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 be also available following the call on Fluent's website. To access the webcast and slide presentation, please follow the Investor Relations page at fluentco.com. 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 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. Thank you. 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 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 definitions 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 CEO, Don Patrick. Good afternoon, and thank you for joining us today. I'm here with Ryan Schuelke, our Chief Strategy Officer and Company Co-Founder, and Ryan Purfitt, our Chief Financial Officer. Our Q2 financial results marked an important milestone in the execution of our business strategy, fluent return to year-over-year revenue growth. On an aggregate continuing business basis, revenue grew 25% year over year in the second quarter, And even on a reported basis, inclusive of the Call Solutions divestiture, total revenue grew 8%. This is not an isolated data point. As we discussed in previous earning calls, this is part of our strategic plan that we have been aggressively investing to capture the significant opportunity in front of us in commerce media. We are solidly positioned to accelerate as we become a recognized brand in the industry based on the results we provide our partners. This quarter is the proof. Revenue growth paired with improving margins, the signature of a sustainable business strategy, showing up on a consolidated level, not just within a single business line. Looking ahead, we believe that we are well positioned to drive double-digit growth in revenue on an aggregate continuing business for full year 2026. Q2 was also a quarter where we leveraged our credentials and extended our platform into new adjacent commerce media markets with innovative first mover advantage. In June, we announced our in-store partnership with BILT, extending commerce media beyond digital post-transaction moments and into physical checkout. More than 80% of retail transactions still happen in the physical store. And this gives us a way to engage our partners' most valuable customers wherever they shop, online or in person. I'll go deeper on this in a few minutes. Let me take you through the quarter, starting with the financial results, and then spend time on where Fluent will continue to innovate in leading commerce media. Q2, 2026 results were as follows, inconsistent with what we advised last quarter. Revenue of $48.4 million, up 25% year-over-year on an aggregate continuing businesses, excluding the impact of the call solutions divestiture and other divested and runoff revenue. Year-over-year revenue was up 8% on a reported basis. Our Commerce Media Solutions business again led that growth with revenue up 90% year over year. Gross profit of $14 million, up 36% year-over-year and representing 28.9% of revenue, a 650 basis point improvement from Q1 2026, driven directly by improved monetization with certain key commerce media solution partners, and those partnerships becoming a larger share of our business. Adjusted EBITDA of negative 1.8 million A margin of negative 4%, a sequential improvement of 1.8 million from Q1 of 2026. Commerce Media continues to be the lead story of our company. It's where we will deliver shareholder value by expanding our footprint in the rapidly growing marketplace. What gives us increasing conviction isn't just the growth rate. As the momentum we're building with world-class brands, combined with new, innovative adjacent solutions, we're beginning to build in loyalty and in-store. The marketplace continues to expand, and we're leading in meeting our partners' current and future needs. That strategic combination, a growing roster of premier partners, plus real future product innovation beyond our core, is what positions Fluent to be a market leader in the commerce media industry. Commerce media solutions revenue grew 90% year over year in the second quarter, our 10th consecutive quarter of high double digit to triple digit growth. That growth in Q2 was driven by continued momentum in online post-transaction, and as we ended the quarter with an annual revenue run rate of over $125 million. A second strategic breakthrough within STOR lays the foundational platform for additional future growth. and it's not part of our successful Q2 financial performance. In-store represents a large market opportunity we're moving decisively to prove out in the second half of this year with material revenue impact beginning in 2027. Let me walk you through both. Our core online post-transaction business remains the largest and most mature piece of our commerce media solutions, and it continues to do the heavy lifting. This isn't a new thesis. It is validated based on the continued superior execution by our team and built on our ability to deliver superior results through our data and performance marketing industry leadership. Our foundation is uniquely grounded in our owned and operated marketplace, which our competitors simply cannot replicate, given our decade-plus of industry experience. The first-party data, performance marketing expertise, and consumer and advertising relationships we built there are the competitive advantages we're now leveraging to deliver superior, measurable results for commerce partners. That foundation is driving our growth and has established a competitive moat. We continue to add world-class partners to our commerce media network in Q2. We believe we are a reflection of the partners we do business with, and our partner pipeline has grown significantly in both size and quality. Given the seasonality of the retail partner sales cycle, we expect that pipeline to convert and accelerate in the second half. and we'll take that redefined baseline into fiscal year 2027. As validation of our business and brand momentum, one of the largest retail pharmacy chains in the country, CVS has chosen us to partner with Fluent and they came online in Q3. We are excited to enrich the checkout experience for the customers with an eye towards deeper loyalty and integration over time, which will add value to an already best-in-class experience. A meaningful trend that we're seeing in our online post-transaction business bringing non-endemic advertising demand into traditional captive retail media networks. As those networks continue to look for new growth opportunities, they're beginning to turn to partners like Fluent for non-endemic demand. Our partners understand that their customers enjoy products and services that they don't directly sell, and our post-transaction business enables them to do so successfully on their behalf. These captive network relationships are more bespoke compared to our traditional enterprise partnerships. clear meaningfully, expand our addressable market, and further validate Fluent's competitive position in commerce media. We're already delivering non-endemic demand into one of the largest retail media networks in the world. proof point of how we expand these captive networks addressable market. And our partner sales pipeline is expanding with other retail media networks. Importantly, working directly with captive retail media networks gives us a differentiated avenue to unlock massive new audiences for advertisers. During the second quarter of 2026, we introduced in-store, a strategic marketplace opportunity that will lean on loyalty for success. Loyalty data is what lets us recognize the same shopper, whether they're checking in online or standing at the physical register. And this is the connective tissue between the two moments. That matters because we're not building two separate online and in-store businesses. We're building one commerce platform that follows the shopper wherever they transact. And that makes both sides of the marketplace more valuable to the shopper and to our retail partners. Our first proof point here is our expansion into in-store commerce media through a partnership with Built Technologies. nationwide commerce and loyalty network that offers in-store point-of-sale systems for retailers. In an estimated $140 billion commerce media industry, in-store remains the hardest segment to measure, and this partnership is built to close that gap. The in-store offering is the first mover position for Fluent and we're deliberate about how we're going to build it. The partnership launches later this year with Beyond Inc., operator of Bed Bath & Beyond, Bye Bye Baby, and The Container Store. We've developed a strong pipeline of potential additional partners for onboarding in early 2027. In the second half of 2026, we are committed to testing and learning, proving at the consumer experience, the measurement and the advertiser return on ad spend. We are not expecting any meaningful financial contribution from in-store this year. We expect that in 2027 once we've validated the Model X scale. To put this in perspective, online post-transaction is driving our results today. in-store is what we're building for tomorrow. A vast market that allows us and commerce partners to tap into 83% of transactions that do not happen online. which represents an additional 70 to 80 billion annual transactions in the U.S. This is a 5x unlock across commerce, and for media partners in pharmacy, grocery, and home improvement retail sectors, this could mean a 10x increase over monetizable transactions. In short, this is a huge market opportunity and one where being first matters. Returning to year-over-year growth this quarter, layered on top of accelerating and now two-pronged commerce media business strategy, us more visibility than at any other point since we've completed our strategic pivot. We remain confident in our stated financial targets for the full year. We expect continued double digit consolidated revenue growth on aggregate continuing businesses. to maintain the gross margin expansion reflected in Q2 as our higher margin business becomes an increasingly dominant share of the mix. We also expect continued improvement in adjusted EBITDA as that revenue growth and margin expansion flow through the P&L. And with that, I'll turn it over to Ryan Purfit for a deeper look at the financials.

Thank you, Don, and thanks to everyone for joining us today. I'll now provide a deeper review of our second quarter financials with commentary on year-to-date results where relevant. Total consolidated revenue was $48.4 million in the second quarter of 2026 compared with $44.7 million in the prior year period. No Notably, total consolidated revenue increased by 8% compared to the second quarter of 2025, and revenue from our aggregate continuing businesses increased 25% when compared to the second quarter of 2025. As Don mentioned, we view this as a key milestone that demonstrates the impact Commerce Media Solutions is having on the overall business. business. And accordingly, we expect to continue to drive double-digit growth in revenue from aggregate continuing businesses through the balance of the year. Commerce Media Solutions revenue grew 90% to $30.5 million in the quarter when compared to Q2 2025 and represented 63% of total consolidated revenue compared with 36% in the prior year period. Demand is strong and we're very encouraged by the interest we're seeing from leading across diverse industries, including some of the largest retail chains in the United States, as we continue to strategically invest in our growth, specifically in the launch of our new in-store offering that we expect to significantly expand our addressable market. Commerce Media Solutions is now firmly established as the main driver of total consolidated revenue across our business. With our visibility today, we expect CMS to continue to grow at high double digits and increase as a percentage of total revenue going forward. as expected, owned and operated revenue decreased 24% to $16.3 million compared to $21.4 million in the second quarter of 2025. Media margin in the second quarter was $17.5 million, representing 36% of total consolidated revenue, compared with $11.9 million, or 26.7% of revenue, in the prior year period. Commerce Media Solutions' media margin in the second quarter of 2026 was $10.5 million, or 34% of Commerce Media Solutions' revenue, compared with $3.2 million, or 20% of revenue, in the second quarter of 2025. Commerce Media Solutions' gross profit was $8.2 million in the second quarter of 2026, an increase of 186% compared to the second quarter of 2025 and representing 27% of revenue. This is especially encouraging given our stated expectation that CMS margins would return to the mid-20s range over the course of 2026 as we continue to scale and grow this business as a percentage of total revenue. And newer partnerships and placements move beyond early-term incentive periods. The major driver of the increased media margin and gross margin was improved monetization and scale of certain media partners that do not operate on rev share agreements. Total operating expense in the second quarter of 2026 totaled $17.3 million compared with $14.9 million in the second quarter of 2025. The year-over-year increase was driven largely by higher incentive-based compensation, which scales with our results and steps back if performance moderates, rather than adding to our fixed cost base. Interest expense in the second quarter decreased 9% to $637,000, down from approximately $702,000 in Q2 2025. This decrease continues to reflect the lower average daily outstanding loan balance and lower amortization of debt costs under the new year. facility. We reported a net loss of $6.2 million in the second quarter of 2026, compared with the net loss of $7.2 million in the prior year period. Adjusted net loss, a non-GAAP measure, was $4.2 million, or a loss of $0.13 per share, compared with adjusted net loss of $5.8 million, or a loss of $0.24 per share in the second quarter of 2025. We reported an adjusted EBITDA loss of approximately $1.8 million in the quarter, compared with a loss of $2.8 million in the second quarter of 2025, reflecting our ongoing commitment to improved adjusted EBITDA throughout 2026. Shifting now to our balance sheet and cash flow. We had 6.9 million cash and cash equivalents at June 30, 2026, compared with 12.9 million at December 31, 2025. Accounts receivable was 39.4 million compared with 48.7 million at year-end 2025, contributing to total assets We also drove operating cash flow of approximately 300,000 in the first half of 2026 and reduced short-term debt from 30.8 million at year end to 26.8 million as of June 30th, 2026. Our liquidity continues to be supported by our accounts receivable financing facility, and we remain focused on improving free cash flow and liquidity as Commerce Media Solutions scales. Overall, we're very pleased with our results this quarter and the progress that we've made year to date. Commerce Media Solutions continues to grow at high double-digit rate on a year-on-year basis, and we're validating the Fluent brand with interest from Tier 1 media partners and advertisers across diverse market verticals, and now with our in-store offering. Our execution has been strong, and with our visibility today, we remain confident in our stated goals for 2026 to deliver double-digit consolidated revenue growth on aggregate continuing businesses and improved full-year adjusted EBITDA supported by continued growth in Commerce Media Solutions. With that, I'll turn it back over to you.

to Don. This was a milestone quarter for a number of reasons. Consolidated revenue growth turned positive. Commerce Media grew 90%, powered by continued strength in post-transaction and captive retail media network expansion. margins expanded, adjusted EBITDA improved, And we planted the flag on our second major commerce media growth front in-store that we believe will matter a great deal in 2027 in further differentiating the Fluent brand as a market leader in our space. Our business model is accelerating and we are encouraged by the results we are driving for our stakeholders.

If you'd like to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Maria Ripps with Canaccord. Your line is now open.

Great, good afternoon and thanks so much for taking my question. I just wanted to ask about your CBS partnership, which was great to see. maybe just talk about sort of what does that mean for your commerce business? And just maybe talk about the integration that's required to bring that partner sort of on board. And then maybe more broadly, what does it mean for maybe for attracting other partnerships similar to CVS?.

Thank you for the question. So specifically, what does it mean to the commerce? It is going to be one of our largest partner wins, but more importantly, it brings us into a different vertical, you know, obviously heavily into pharmacy and into along with their retail pieces. So it expands our audience. which obviously plays well into our diversified advertiser strategy. So it's a great partner to bring on that diversifies our marketplace and continues to make it stronger. The integration online is no different than any of our other integrations, and So our ad tech and our ad module will be placed within their post-transaction site, and it's a fairly straightforward integration in terms of how we work through it from a technical perspective. So there's nothing unusual from that. And as far as attracting other, what that means to us in terms of, A, we're in the new vertical, which you guys know, we land that vertical, we prove out superior results the case study and then go deeper. So we certainly expect that to continue to allow us to get deeper into that vertical and at the same time, We believe that getting them will also attract other big-name retail partners that we're working with.

Got it. Thank you so much, Don. Thanks, Maria. Our next question comes from Eric Martinucci with Lake Street Capital Markets.

Hey, congratulations on that return to positive consolidated revenue growth. That's got to feel good. Given the success of the first half of the year on the aggregate consolidated business, you're already at 10 percent growth there for the first half of the year. I guess you don't want to over promise and under deliver, but that growth rate in the back half of the year, I assume we're talking about an acceleration. be thinking about for the growth rate in Q3, Q4? Anything you can talk to us about beyond just 10%?.

Hi, Eric. This is Ryan. Perfect. We're not giving specific guidance on the growth rate. Your point is well taken in terms of us being at double-digit growth already, but yes, that is something we expect to.

continue to maintain and even grow upon. Okay. And then the adjusted EBITDA, we are, you know, we can almost reach out and touch break even here. I'm modeling for Q4 to be positive. Is there a chance you could do that in Q3?.

We do expect to have a positive Q4. Q3, you know, we're not giving specific guidance on Q3, but we expect continued improvement from where we are now throughout the year, and then Q4 has the seasonality that will bring us positive.

Okay. All right. And then the CVS, just congratulations on that tremendous partnership. You've signed him up for the post-transaction. Is there an opportunity for in-store with CVS?.

It's a great question, Eric. This is Don Patrick. Yes, the clear roadmap for CVS was both online post-transaction and then getting into in-store in 2027. Okay. So, is that something? Sorry, go ahead. Oh, go ahead. Sorry.

Yes, I was just going to say a lot of times the customer can be the the barrier to the ramp, so to speak. In other words, you all are ready, willing, and able. They just need to dedicate the people to implement. Kind of what's the body language on their post-transaction ramp? Are they looking for this to be a big contributor in seasonally stronger, Q4 business from what you can tell? You contribute in terms of for 2026, absolutely, yep. So we went live in Q3, we went live last week with them so we are scaling and it's going as planned as far as the integration piece, so. Okay. And then lastly, on the gross margin, Ryan, understanding that the gross margin was, I think we were at 29% for Q2. Is there something that would, I know you talked about kind of mid-20s, I think, is in the press release. the onboarding of partners that's kind of holding that back from expanding. I'm just wondering why we wouldn't be able to push that higher as we're ramping.

the businesses that we signed up in 25? Yes, that's a great question. In terms of the margin, we were at 27% margin on Commerce Media Solutions. That was the return to the mid-20s that we had promised earlier in the year. That was ultimately driven by some strong partnerships, better monetization on a couple of key partnerships, and scale of those partnerships. We've also talked historically about the early term incentives rolling off for some of these larger partners, and we expect that to continue to happen. said we will continue to invest into opportunities just like this one that took us to took up the margin from Q1 to Q2, where we spent a couple quarters trying to get it right and figuring out the monetization and then eventually we got there and it's a huge opportunity for us. So there will be cases like that I think ultimately you know, we do expect to maintain in the mid-20s and then hope to grow it from kind of mid-20s to upper 20s and hopefully at some point, you know, not in 2026, but eventually, you know, at scale we would expect to be in the 30, low 30s.

Got you. Well, congrats again on the breakout quarter. Thank you, Eric. Our next question comes from Bill DeZellum with Tietan Capital Management.

Great, thank you. I have a group of questions. Allow me to start with the in-store, if you would, please, since you spent so much time on this. Would you walk us through operationally how this works for the retailer? Or maybe another way to ask the question is what training is required for the retailer? required for the associate that standing at the register for for the commerce media solution to be executed.

Hey Bill, thanks for the question. So we're not surprising being very deliberate about not getting too far ahead of this. for competitive reasons, so we're not going to go into great detail around this, but you're absolutely right. If you're on online checking out, you're either in front of your laptop or on your app and your credit card's out and you're spending it. experience than if you're checking out of a store if you've been a lot of the new stores as you know a lot of stores that built out either self check out kiosks that are bigger screens, or they'll have bigger screens in the checkout area. And that is sort of allowing us to have a different user experience as someone's checking out that physical store. So the exact consumer experience is not exactly defined, and it will be different by the different audiences, but we expect it to be both in-store instantaneously when you're checking out and also some follow-up afterwards from a CRM perspective in terms of how we continue to engage those physical store customers. consumers. The thing that we did mention is the loyalty play here, Bill. If you are in-store and you're a loyalty member and you're checking out the information that we will have both from our self-proprietary database and our partner's database will be significant on who you are, what's relevant to you and how do we make that a meaningful experience? If you're not known, then it's going to be a different, it'll be a different consumer journey and a different path for you. You've been with us for a long time, Bill. You know Fluent very well. We're very good at building meaningful consumer experiences and making them valuable to them. and that's what we've been doing for 16 years in our core business, and that's why we're so successful on the commerce side, and that's what we're going to bring to this testing and learning phase that we have with built in Q3 and Q4 this year. So we will be rolling out slowly within with these stores, we'll be testing it, we'll be integrating it, and then we'll be we plan on being ready to scale in 2027. And there's a number of new policies partners, new specific in-store partners that will be coming on in 2027 already.

So you have those new in-store partners essentially signing up. cleaned up and they're in the dugout ready to roll. That's right. When you're ready. Yep, that's right. Okay, great, thank you. And then you had mentioned you're owned and operated business both here in response to my question and in your opening remarks, the advantage that that is giving you. Would you please quantify how much more conversion or margin that you provide your customers than competitors do?.

Yes, great question Bill. So we have on our website a case study that's head to head against then against our biggest competitor in the market. And you we will drive 30, you know, close to 30% more revenue to our partners, our supply partners, and we'll will also equally important drive close to the same round, close to 30% improvement on the lifetime value of that consumer. So not only are we signing up, driving more revenue for our partners, but we're also equally important driving better and more valuable consumers to our advertisers, which obviously makes that marketplace spin. We directly, when we look at our ability to drive those results, come from our core first-party data asset, which has been built over 16 years, and all the campaign data that we have with our advertisers that we understand deeply about their audiences and how we build it, and those are the assets that come from that owned and operated business.