Fluent Inc (FLNT) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the IDI second quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Jordyn Kopin, Investor Relations. Please go ahead.

Welcome to IDI's first quarterly earnings conference call. We are happy to take this initiative and inform our shareholders of the exciting progress we've made at IDI. Joining us today from IDI are Derek Dubner, Chief Executive Officer, and Dan MacLachlan, Chief Financial Officer.

Our call today will begin with comments from Derek Dubner and Dan MacLachlan 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.ididata.com.

Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provision of the Private Security Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the Company's business. The Company undertakes no obligation to update the information provided on this call. For a discussion of risks and uncertainties associated with IDI business, I encourage you to review the Company's filings with the Securities and Exchange Commission, including the report Form 10-K for the year end dated December 31, 2015 filed on March 18, 2016 and subsequent SEC filings.

During the call, we may also present certain non-GAAP financial information relating to adjusted EBITDA. Management evaluates the financial performance of our business on a variety of key indicators, including adjusted EBITDA. The definition of adjusted EBITDA and the reconciliation to most directly comparable GAAP financial measure is provided in the earnings press release issued earlier today.

With that, I am pleased to introduce IDI's Chief Executive Officer, Derek Dubner.

Good afternoon, everyone, and thank you for joining us today. I'm pleased to report yet another strong quarter in revenue and adjusted EBITDA. Before getting into quarterly results, let me take this opportunity to explain IDI's vision and roadmap.

Our management team has built several leading companies in the data fusion industry over the past 15 years or so. Data fusion is a subset of big data. We amassed billions of disparate data points and we fuse that data using proprietary algorithms to create real time comprehensive views of individuals, businesses, assets, and their interrelationships.

In the early 2000s, we built a company called Seisint. Seisint had brilliant technology for its time and was ultimately sold to Reed Elsevier's LexisNexis for $775 million in 2004. We next built a company called TLO and that company was sold to TransUnion in 2013 for $154 million. These systems have historically served the risk management industry comprised of financial services, insurance, law enforcement, government, collections, legal, corporate security, and others for the purposes of due diligence, risk assessment, identity verification, legislative compliance, and debt recovery.

It has been our mission to create a next generation data fusion platform that not only serves the risk management industry, but a platform that is industry and data agnostic so that we can bring our core competency of data analytics to the much larger addressable markets of consumer marketing and custom analytics. By custom analytics, we mean layering our technology over not just our data assets, but massive end-user databases of disparate, structured and unstructured data and building intelligent applications so that end users can glean actionable insight from their own data in order to solve those complex problems.

The first quarter of 2016 was the start of a transformative year for the Company following our acquisition of Fluent. Through the second quarter, we continue to be encouraged by our financial performance as we invest in technology, data, people and products to ensure long-term growth and to avail ourselves of the enormous opportunities that lie before us.

Revenue and adjusted EBITDA were $41 million and $3.1 million; a 4% and 30% growth over first quarter 2016, respectively. The acquisitions of Fluent in December and Q Interactive in June of this year accelerated our entrance into the consumer marketing industry and served to expand upon our data assets, our technologies, our customer-base, our product offerings, and thought leadership with demonstrable prior success.

We firmly believe that data-driven, people-based marketing represents the future of advertising and we are now well positioned to better serve the consumer marketing industry through our suite of performance-focused solutions and to continue taking greater share of overall marketing spend. We are encouraged by various metrics, but several key metrics should be highlighted. First, in the marketing side of the business, over 85% of accounts are driven through direct advertiser relationships as opposed to working through advertising agencies. This represents a tremendous opportunity for growth as marketers focused in on performance metrics and demand more accountability from their ad spend.

Second, over 75% of revenue is derived from mobile. This is a key metric that we remain very focused on, as it not only continues to confirm our thesis for acquiring Fluent, but is what all marketing technology companies aspire to accomplish in order to be competitive in today's digital marketing environment and to differentiate the Company's offerings from competitor look-a-like offerings.

Third is scale. Today, we are generating in excess of 700,000 consumer registrations per day. This volume of consumer engagement fuels our insights and enables us to provide a comprehensive suite of products for omnichannel marketing. We are seeing strong trending in various growth verticals, including mobile apps where, for example, we are helping one of the world's largest gaming companies scale their new customer acquisition efforts, jobs on demand where we are supporting one of the world's largest transportation and logistics companies expand their driver-base, and market research where some of the world's largest marketers rely on us to help them gain valuable consumer insights that help form the products and services of the future.

In furtherance of our objectives, we created our cloud-based next generation data fusion platform - Core. Utilizing Core, we released our investigative solution, idiCORE, commercially to the risk management industry in May of 2016. We publicly announced that we quickly on-boarded 2,800 users of this product. We are extremely proud of our performance in releasing our investigative product, idiCORE, to the market. Platforms of this nature has taken upwards of three to four years to build with massive CapEx involved due to the now outdated need to build a large data room, invest in, and maintain significant hardware and build teams of personnel for support.

The time to market of this platform was just 14 months from completing our Seattle technology team build out and cost a fraction of legacy systems due to the platform's cloud-based construct. This is but one example of the differentiation from competitive offerings and will enable us to bring this technology to various markets and industries in a far more cost effective manner.

We know that there is enormous demand for idiCORE from the risk management industry. We hear it everyday from prospects and customers. We hear clear frustration about competitor products, customer service, and price. We are working aggressively to evolve the system in order to expand the applicability to increasing use cases within our target verticals. This is a delicate balance of time and resources so as to focus on the clearest path to revenue and on delivering the right solution in order to become ingrained in the daily workflow of companies and organizations.

Most importantly, the release of the Core platform is a monumental accomplishment as to where we are going as a company. The power and speed of this platform is like none that I have seen in this industry. That, coupled with machine learning, will deliver incredible solutions to our target markets.

In closing, I'm pleased with our progress to-date in transforming the Company for the future. We had yet another strong quarter following Q1; we continue to develop and release our primary technologies and have exciting products in our pipeline and we are expanding upon our data assets, which will further enable the execution of our long-term plan.

At this time I will turn it over to Dan, who will discuss the financials.

Thank you, Derek, and good afternoon. I'm extremely pleased with our strong performance in the second quarter of 2016; accelerated growth, constant innovation, and expanding profitability continue to be key attributes of our business model.

Today, I'm going to walk you through our consolidated results of operations, including segment information and adjusted EBITDA. I will continue with the balance sheet and cash flow statements, I will provide results comparing second quarter 2016 to the second quarter 2015 and to the first quarter of 2016.

Second quarter consolidated revenue was $41 million compared to $1 million for the second quarter 2015. Consolidated revenue grew $1.6 million from the first quarter 2016. Adjusted EBITDA was $3.1 million compared to negative $1.3 million for the second quarter 2015. Adjusted EBITDA grew $0.7 million or 30% from the first quarter. Continuing to the details of our P&L; as mentioned, consolidated revenue was $41 million for the second quarter. Our information services and performance marketing segments contributed $13.4 million and $27.6 million, respectively, for the second quarter 2016 compared to $1 million and $0.00 for the second quarter 2015, as our performance marketing segment did not exist during that period.

Information services revenue grew $2.3 million or 21% from first quarter 2016 with a successful release of our core platform to the risk management industry and the launch of our re-targeting data acquisition product, ReConnect, to the consumer marketing industry. Performance marketing revenue decreased $0.7 million or negative-2.6% from first quarter 2016. Traditionally, there is seasonal retraction within the marketing industry in the second and third calendar year quarters. Leading into second quarter, we experienced some of this expected retraction in our performance marketing segment only, but increased traffic and strong revenue trending in our strategic growth verticals including mobile, jobs on demand, and market research leading out of the second quarter minimized the impact.

Cost of revenues was $29.6 million for the second quarter 2016 compared to $0.4 million for the second quarter 2015. Our cost of revenues increased $1.1 million from the first quarter, a result of increased publisher spend and the acquisition of additional data assets. Gross margin remains consistent at 28% for the second and first quarter 2016.

SG&A was $16.3 million compared to $4.2 million for the second quarter 2015. SG&A decreased $0.2 million from the first quarter. The $16.3 million in SG&A for the second quarter consisted mainly of $7.3 million of non-cash share-base compensation and $2.6 million in other sales and marketing expenses.

Depreciation and amortization was $3 million in the second quarter of 2016, of which $2.8 million is attributable to the intangible assets acquired in the Fluent and Q Interactive acquisition. Depreciation and amortization increased $0.4 million from the first quarter; a result of the amortization of purchase assets related to the Q Interactive acquisition. Second quarter net loss was $7.2 million compared to $45.5 million for the second quarter 2015. Net loss increased $0.4 million for the second quarter 2016 as compared to the first quarter; a result of a one-time non-cash expense related to a warrant exchange and increased amortization expense related to the purchased assets of the Q Interactive acquisition. Second quarter earnings per share was negative-$0.15 cents per share based on a weighted average share count of 48.1 million shares.

Moving on to the balance sheet; cash and cash equivalents were $11.2 million at June 30, 2016, and $13.5 million at December 31, 2015. Total debt, including the current portion of long-term debt, which was used to finance part of the Fluent acquisition, decreased $0.3 million to $50.6 million at June 30, 2016 compared with $50.9 million at December 31, 2015. Current assets were $38.1 million in June 30, 2016, and $37.6 million at December 31, 2015. Current liabilities, exclusive of the current portion of long-term debt, were $20.5 million at June 30, 2016, and $18.8 million at December 31, 2015.

Moving on to the statement of cash flows for the six months ended June 30, 2016, cash provided by operating activities was $1.1 million compared with negative-$4.5 million for the same period 2015. The $1.1 million provided by operating activities was mainly due to a profit of $1.9 million after adjustment of non-cash items totaling $15.9 million. Cash used in investing activities was $6.5 million for the six months ended June 30, 2016 compared with cash provided by investing activities of $1.6 million for the same period in 2015. The $6.5 million in investing activities used for the six months ended June 30, 2016 resulted from a total of $5.9 million in capitalized IP litigation cost and software developed for internal use.

Cash provided by financing activities was $3.2 million for the six months ended June 30, 2016; a result of $4.7 million in net proceeds from a registered direct offering in May 2016, offset by the repayment of $1.1 million in long-term debt.

That concludes our prepared remarks on the 2016 second quarter financial results. I will now turn the call back over to Derek.

Thank you, Dan. As you can see, we put on another solid quarter. We continue to invest in the business while delivering innovative products and solutions to our various markets. And now we will entertain some questions.

(Operator Instructions) Ezra Marbach. After Fluent and Q Interactive, are there any more potential acquisition targets on your radar?

Thank you. As I've stated from time-to-time, we are focused on building this Company organically, and on delivering shareholder value. That said, we are always seeking to identify potential acquisitions that serve to either advance our roadmap in serving our three addressable markets of risk management, consumer marketing, and custom analytics. As well, we'll look to acquisitions if it advances our technology, if it expands upon our products or our customer-base or cross-selling opportunities or if it on-boards talented thought leadership. But again, let me restate, however, we will remain intensely focused on shareholder value.

Thank you. And as a follow up to that, are there any plans to raise additional capital?

So at present, we have no intention of raising capital, but we have been transparent all along that we will continue to invest in the Company for the long-term by investing in, as I have said repeatedly; technology, more data assets, products, and people. We will continue to be mindful, as I've stated, of shareholder value, but we will do what is best for building the Company for the long-term.

Dan, do you have any comments on that question?

Yes. Thank you, Derek. One thing that I want to put in historical perspective in just less than two years, if you back out the capital that was specifically raised for acquisitions and look out how much money we brought into the business outside of acquisitions, we've raised approximately $21 million. If you back out the litigation that we've had that is really non-business related of approximately $6 million, what we have accomplished and what we have built in less than 24 months on $15 million is staggering.

Thank you. And our last question from Ezra. Any updates on the True litigation? If it continues, is it costly? And if IDI loses, what's the impact?

Thank you. So, by the True litigation, I'm assuming that's a question regarding our TransUnion litigation. For those on the call that are unaware of our TransUnion litigation, this is litigation regarding a dispute over ownership of certain intellectual property currently being used by TransUnion to power a competitive product.

The IP in dispute, which we maintained as owned by our Company, IDI, was created by our Chief Science Officer, Ole Poulsen, as a founder of that previous Company of which certain assets were acquired by TransUnion in 2013. This litigation has been ongoing for quite some time and it finally went to trial in June. We are awaiting the Court's ruling. To be clear, our primary focus remains on serving our customers with our newly developed proprietary technology, idiCORE, and we do not foresee any disruption in our ability to serve customers in the event of an adverse ruling. If such adverse ruling, we will explore our options, including an appeal. If we prevail, we will, among other remedies available to us, seek substantial damages. We have, of course, incurred significant legal fees over the course of this litigation, which Dan just referenced. We expect the legal fees post-ruling to be significantly less than those fees leading up to the trial.

Jim Goss with Barrington Research.

Thank you. Derek, I have a couple of questions. First, regarding the mote, if you will, to the CORE IDI product; how many other agents can have access to this type of data that you are able to access and analyze in a sensitive way?

Why don't you help me out, Jim, by the way, nice hearing from you. What do you mean by agents? Do you mean other companies?

Yes. Other competitors - because I think not anyone can go out and get the sort of - access sort of data. I'm sure there are certain hoops you have to jump through. So that would also restrict the number of competitors that would be involved in that area.

Absolutely, thanks Jim. It's one of these situations that there is a very high barrier to entry in this business. First I would add, it's the capital required to get into this business and to acquire the data assets, the technology, and the ability to enter this market. Most importantly, I think at least from my background is you have to demonstrate the infrastructure and the security and the credentialing in place in order to work with any of the data vendors in the industry to companies such as ours.

We have built out a very impressive infrastructure, a Cloud-based infrastructure that is more secure than I've seen in my 15 years and in the two companies previously that I was involved with and competitor companies. You have to forge the relationships that I've had the good fortune of forging with some of the leaders in this industry over the last 15 years and you have to build trust. And with that, you have to demonstrate your ability to house, to maintain and to keep secure these data assets. But once you've done that and once you've accomplished all of those high hurdles, it's not just about getting data in house. Any one single data point isn't very intuitive. It's the proprietary algorithms; it's the ability to fuse that data to provide a comprehensive view of a subject to solve complex problems that differentiate the Company from all of its competitors.

And with Ole as our Chief Science Officer, and the only individual that I'm aware of in data fusion that has built as a primary systems architect the legacy systems, I don't believe it's attainable at least in our space by anybody else. So I think that there is a very small group of competitors, including us in this industry, but I think we bring attributes that permit us to expand and make inroads into other industries with our analytics as we're demonstrating in Fluent in the marketing space and custom analytics that I think we are demonstrating over a very short period of 20 months, why we're different from the competition.

We got a couple of others, too then, and maybe I'll come back later. But one, related to custom analytics, to get the major job that I think is sort of an ultimate end-game; how much time do you think you'll go through to build the infrastructure with the CORE IDI and get to a point where you can get the exceptionally profitable positions?

And secondly, you had a companion announcement with Harry Jordan coming on as COO, and he had been with, I guess he had been involved in buying Seisint originally and he was involved in healthcare it said. And I'm wondering, does that move health care opportunity up the scale and what drove him to want to get back into a smaller startup Company after having been with RELX?

Sure, thanks again for the question. As far as the custom analytics go, we've been very clear that we recognize that the custom analytics are a bit of a longer sale cycle. In building out idiCORE for the risk management industry, it's a space we built. This team has built it in the past, we know it well, and we're fully in it with both feet right now.

We have built the system, we have the analytics, we have the data; we're fusing it and we're releasing it in just one after another. Big data set after another. So that markets easy for us. Now, adding Fluent to our portfolio was an excellent opportunity for us because they already have the relationships with top-tier advertisers, established companies throughout the nation; very credible Fortune 100, Fortune 500 companies.

Fluent has demonstrated and built trust with those organizations to deliver conversion data back to them so that Fluent can run its analytics to identify and segment the best customer for those advertisers. That trust is not easy to establish; it's very hard to get a top-tier advertiser to deliver its most valuable asset, its customer data. So by combining Fluent with us, we bring our core competency of those data analytics and we're running very quickly right now, Jim, to build out those analytics, to layer it over those customer databases and to work with those advertisers to have them deliver greater and greater size of data set so we can run the analytics.

So that was very advantageous to us by acquiring Fluent. As well as far as the custom analytics model in sort of a Palantir fashion, if you are all familiar with the term, of layering our technology over those end-user databases; the technology isn't that much different. Again, we've built our platform to be data and industry agnostic. So it's about layering that technology over those end-user databases.

It's about a team understanding what those complex problems are that the end user would like to solve and about making the connections with those disparate data points of that end user so that they can glean the intelligence via some type of intelligent application that we built. I'm sure you recognize that that is a bit of a longer service cycle than simply accessing an existing platform. So I would like to say that we will be building that out to enter that space probably within two to three quarters, and that's a goal as far as for our roadmap.

As far as Harry joining the team, we are all extremely excited about this addition. We had been spending some time in looking for the right fit for a COO role. We are running fast, we're building an incredibly dynamic Company, and with that, we need incredibly dynamic people. We need talented individuals and we were fortunate enough to make Harry's acquaintance. Harry, as you correctly stated, led the due diligence teams for Reed Elsevier's LexisNexis in acquiring Seisint and as well in acquiring ChoicePoint.

He built out the healthcare vertical, as you mentioned at LexisNexis, as well as Government Solutions, which we were very excited about. And those are verticals that we are jumping in with both feet. Our timing was perfect with Harry; it just completely made sense. We knew it when we met him as we did when we met our Fluent team. And as we continue to explore with Harry, he realized, I believe, and I'll take the liberty of speaking for him as he said in the press release, he realized that this is a very differentiated Company than those in the past. This is a multidimensional data and analytics Company that we're building, and he was as passionate about joining us as we were of him joining us.

Sounds great. Thanks very much.

Thank you.

Jim McIlree with Chardan Capital.

Thanks a lot, nice quarter. Can you talk about how much Q Interactive contributed to revenue this quarter?

Yes Jim, this is Dan. We don't specifically give revenue at an entity level. What I can say is we acquired them on June 8; there was some relationship that was consolidated out in regards to revenue and expenses that were conducted from a business relationship between Q Interactive and Fluent. As a result, that revenue was immaterial to the quarter.

Ok, great. Well, I'll ask anyway, but it sounds like you wouldn't answer a question of ballpark issue; how much you think it can contribute over 12 month time period.

No. We do not give guidance on a forward-looking nature.

Dan, I think you talked about litigation expenses in the second half, or maybe you didn't talk about litigation in the second half. Is there litigation expenses in the second half that would be less than, equal to, or greater than what you spent in the first half?

As Derek mentioned with the case going to trial in the second quarter, the spend around the IP litigation will go down substantially. Obviously once a ruling comes down, we will take a look at what that ruling is and what next steps would be. But based on the fact that the majority of the case and the workload that goes with that has been completed, we would expect that the litigation around that from an expense standpoint would decrease substantially.

And you talked about performance marketing having a seasonal aspect to it, and that you attributed the Q2 decline in performance marketing partly on seasonality. I was little bit confused by your comment on Q3. Were you saying that Q3 is also seasonally down historically from Q2, or you're just saying Q2 and Q3 are historically down from Q1?

So from a calendar year perspective looking at the quarterly calendar year, within the consumer marketing and ad space traditionally the second and third quarter is slower relative to first and fourth quarter. However, as I said, leading out of the second quarter we saw some really good trending on the performance marketing side of the business, and we are very encouraged going into the third quarter.

Ok, great. I'd like to try Jim Goss' question one more time; his initial question about how many others have access to that sensitive information? So to phrase it in another way, if Jim Goss and I were to form a competitive company today and we built up all of that technology and we had the people. Is it just simply a matter of getting a license or getting government approval or getting the FBI's blessing in order to have access to that sensitive data? Is there some special process that somebody has to go through and how many have gone through that process right now?

It's Derek. Here's what I can tell you, Jim, and I don't mean to be repetitive, but the previous companies we've created were acquired by two very large organizations. And those two large organizations have a lot of data and they are very well funded, very profitable companies. And when they desired to gain their entree into this market, they acquired for it. They didn't build it.

Now, you can draw whatever conclusion you want from that. I will reiterate what I've said previously; there is a massive financial hurdle in getting into this market; you have to have the security and the infrastructure to be able to contract for the data, where it's available to be contracted for I might add. You have to know what other sources are out there where it might be public record and available and the significance of that data.

And as time passes, if you think about the early 2000s when a landline was important and today your cell phone is important. And we have proliferation of mobile data and e-commerce data, and all data assets really change in their relevance. You have to have the know-how and the intelligence, the skill sets, to acquire the relevant data and to fuse that data together to create a comprehensive view, again, that's insightful.

Sure, a party can contract for a dataset; there aren't many parties that can contract for the number of datasets that we contract for and that the leading competitors contract for, and there are even less companies that know what to do with that data, assuming of course they have the technology that was built by Ole Poulsen and his teams over the last 15 years. So again, I would state there's a very high level to enter this market.

Ok I got it, great thank you. And just one more if I might. So the middle of last month I think you announced the criminal histories integrated into idiCORE. And my question is, I know that the product is never done, but if we thought of this in phases, are we kind of complete with the first phase or can you just kind of place the development of idiCORE in terms of where it is in its product development?

Sure. What I can say and that is a kind of a difficult question, Jim, but thank you for it. I can say that I guess we're done with the first phase. I say that because we have built an unbelievable platform in 14 months. We are onboarding customers at a frequent pace and we're hearing great things.

We are getting insight from those customers for expressing dissatisfaction in the industry and the willingness to want to stay with us while we develop the product. So if that, in your mind, constitutes satisfying the first phase, then yes, we've done that. But as you astutely stated, this platform will evolve for years in its intelligence. The product, idiCORE, generated off of that platform will evolve for years in the amount of data that we bring in.

I don't want to tip my hand to competitors on the types of those datasets, but I'd love to give you examples, but I just can't. But we have a roadmap of datasets that we believe are just key assets in determining fraud and abuse and insider trading and other anomalies to be detected. So yes, again, to restate I think we're past that first inning, but we have a lot more to go and everyone is very enthusiastic over here to execute.

That's great. Thank you so much, thanks for the answers and congrats on the quarter.

Thank you Jim.

Peter Delgado with Threshold Capital.

Congratulations on an outstanding quarter of results. My question is actually probably very related to the previous gentleman's. Again back in July, you guys announced the integration of the criminal histories very quickly following with the motor vehicle records. I'm curious now that we're, I guess, three months into your rollout of the idiCORE program - without tipping your hand too much Derek, could you just - I'm just curious if you can share some of the feedback from your customers, what they're saying about it, what they like about it? Things like that.

Sure, thanks Peter. Just to say at a very high level because I think it's important from a competitive standpoint. We are hearing customers that are, first, very excited to have a new entrant to the market, even though our story might be recognized, but have for quite some time.

To many customers, we're the new entrant. They're very excited that this team has built the previous companies had been so involved in those companies. They recognize our ability and our willingness to listen to them. We are very vocal with our customers. We want to know what they want to see in the product. We like to comment - or I like to say that together we're going to build a revolutionary product.

What we're hearing a lot of is the speed, the fusion of the data that we have in the system today, the linkages look more intelligent, the design of the interface being that much more user friendly and that's really important in a workflow of a large organization. It's about efficiency. It's about maximizing the time of anyone's job. And so, that efficiency in using our interface and our platform and as we roll more data in and create those linkages, we're very excited that this only gets better.

It does help, as I mentioned, that due to how we built this in the cloud-based construct and the data contracts that we've been building and other datasets we've obtained, that we believe we're going to deliver solutions at a far more cost effective price point than the competitors, and they know that. And I hate to use an expression, but that's music to anyone's ears if you can deliver that better product at a better price point. So we're very focus on that, Peter, and we will continue to be.

Excellent; wonderful. If I can shift a little bit over here to the Fluent side of the business. I remember when you guys first brought them on board, they have their - they have a proprietary database of over 100 million US customers. I'm curious if you could kind of give us a ballpark as to where that number is now present day and where you think you'll be at year-end and why that database is so important to you guys?

Sure. So we haven't put anything out publicly out there, Peter. I guess I will state since this is public that we are probably in excess of 120 million today in the consumer database. And I believe that to be higher; we're running analysis on it now.

That data and the premise for acquiring Fluent as to the data have not changed the premise for that acquisition. That data is a key differentiator to the competition in our markets. As you may know on the traditional risk management, public record, search products and companies out there, it's highly transactional data, public record data such as motor vehicles and bankruptcies, liens and judgments and mortgages and the like.

By individuals conducting their daily activities in commerce, they sort of leave their footprint, and it's highly transactional data. What we're getting on the consumer marketing side of the business is heavy data inflow sort of conversationally with the consumer. The consumer is interacting with our owned media properties; whether that be incentive-based or whatever else, and they're providing information on a regular basis.

Now, there are a few keys to that. It's not just that first visit, but they may be interested 90 days from now in some other type of incentive or something that might be interesting in their life like refinancing a mortgage or an auto. And they will interact again, and for us that's an update to data and that's important on the marketing side of course because Fluent can make the ads more relevant to the consumer.

It's increasing the consumer experience, and it's one thing - it's making the consumer want to engage more in the future. None of us want to be inundated with irrelevant ads. We all know what happens in that business; there's nothing interesting about that over the last decade and a half. Their interactions go away, there's attrition on the datasets. Fluent does not do that. They're doing the opposite. They're making it a relevant and engaging experience and they're driving that data in. Now with that data, we're seeing information that we traditionally wouldn't see on the other side of the business, on the risk side of the business.

Again, let's extract from the risk side of the business for this conversation though, federally regulated data. That data is off on the side. But when we look at those consumers interacting, it's that type of a slice of America where they might be frequent movers, they may be an apartment renter as opposed to an owner; they may have multiple cell phones in household instead of landline. And as I've used that as an example, you may get those 22-year-old millennials who are now so commonly living back in mom and dad's house.

So that's very important data. It's that underserved consumer or that future consumer that has yet not laid any footprint out in the industry. So that's a very valuable data asset.

Very good. Congratulations again; tremendous results.

Thank you Peter.

(Operator Instructions) Sam Schaefer with Global Value Research.

Thank you, guys, for taking my question. I have a few here. The first one, you had mentioned machine learning and that's really interesting. Could you describe what you mean by that and how does idiCORE utilize this technology?

Sure. Well, machine learning is a data science technique under artificial intelligence. And with machine learning, the goal is to identify patterns or anomalies in data to sort of bring to life or bring to the apparent the otherwise unattainable or otherwise unrecognizable data that may be gleaned from that. And that's really on the forefront of all data analytics and a very important key to building any system in today's technology world.

Are any of the current competitors using this technology?

Honestly, I can't speak to what the current competitors are doing as far as the technology goes. We believe we built a different system the way we built it. We believe our system with its linkages will continue to grow upon itself once making connections and adding more connections.

It will continue to be a more intelligent system and a more informative and intuitive system. And by doing so, we are of the belief that other systems out there will essentially be degrading in their design and hopefully we are getting outputs that are far more intelligent.

Ok great and thank you for that. Moving a little bit here, you had mentioned in the release that your average registrations per day grew from 500 to 700,000 a day. And I'm really kind of curious what does this number represents and what really drove this 40% increase?

Sure. So, we don't generally disclose how across different products or media properties or even companies that we drive those registrations. Those registrations, however, just from a high level, are individuals surfing and conducting their daily activities on the internet, being driven down into a funnel, so to speak, if you can picture it, down to our own media properties. And we are engaging with those individuals via incentive-based offers, for example, job postings, financial services, health newsletters, any products of interest. And we are engaging with those individuals to have them provide information to us so we can better serve them. And those are the registrations that we are speaking of.

So, those all come from online registrations?

Correct.

Moving to the new product that you announced, the ReConnect product, I haven't heard of that in the past. Can you provide a little bit more detail on that?

Sure. Just from a high level, ReConnect is a product that we identified consumers that might have visited a client's website and expressed interest at that website. For example, just by viewing it that if we then see them again at one of our owned media properties, we're able to intelligently advise our client that we've seen them. They're in market and they're here. And so, Fluent and our other marketing arm is able to serve them.

Interesting. And then one last question. Absent to stock-based comp, net income would have been able to break-even. I'm curious how much stock-based comp should we expect moving forward?

You shouldn't expect anything but ordinary course of business grants.

Ok great. Thank you guys for taking my questions and good luck in future quarters.

Thank you so much.

Jeff Geygan with Global Value Investment.

Derek, during your prepared comments you indicated the custom analytics market is one of the markets that you participate in. Can you put a little color on the size of that and, if you can, market share and opportunities?

You know Jeff, that's a difficult one to quantify. It's a massive market. There are many large companies doing it very successfully and many will claim that they're doing it successfully. It's a difficult market to define when you look at the Palantirs of the world, when you look at some of the new tech organizations out there like that as well as the traditional SalesForces and Oracles and other organizations. Where do you draw the parameters around the definition of that market? It's billions and billions of dollars.

I'm sure it's probably in the aggregate trillions because of just the size and scale of the entities I just mentioned. And it's about making inroads one brick at a time for us in demonstrating our analytics and entering into those long-term contracts, which are multi-million dollar contracts, where we can continue to run the analytics and serve that organization. So sorry to not be able to dig too deep in detail with you, Jeff, but it's just a big market.

I appreciate the answer. You have two quarters in a row now where you're running round numbers, $40 million. When should we expect to increase in that and what is the trajectory of that slope?

Yes, Jeff this is Dan. So we don't give any forward-looking guidance, but what I can say is based on the remarks and what we've talked about during this, on the performance side traditionally second and third quarter you see some retraction. Coming out of the second quarter, we have seen some great trending on our performance marketing side. Our information service side is really starting to see some strong trending as well. We are looking forward to the second half of the year and are very excited about what we'll be able to do over the next two quarters.

Great. Final question. You talk about your competitors and how you stack up against them with the product, service and price; which of those are most important and why?

Well, for me, Jeff, it's Derek, I'm a product guy. I believe if you build a revolutionary product they'll beat their way to your doorstep. And so we've focused on product first. And with that, it's the technology and the analytics behind it. And then of course what goes with that product is we have to focus on people because the people are the ones that execute upon that for us.

So we're continuously looking for the smartest, the brightest and the best. And I think so far we've built one of the best technology teams that, again, I've seen in my past with the Seattle team and with the infrastructure and IT teams down here, and I can say the same of New York and our other subsidiaries we just added. But I'm a product guy first, and then price will fall into place.

Great, appreciate it. Congratulations and good luck going forward.

Thank you very much Jeff.

Thank you, and that does conclude today's Q&A portion of the call. I'd like to turn the call back over to Derek Dubner for any closing remarks.

Thank you very much. I just wanted to thank everyone for joining us today. We've tried over the past 20 months through press releases and others to tell our story. And so, we were very excited to finally conduct this first earnings call. So thank you again for joining us.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect.