What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 130 added, 65 removed, 155 unchanged (56% of the section changed)

20 unchanged sentences

Since our inception, we have amassed a large, proprietary database of first-party, self-declared user information and preferences.

We have permission to contact the majority of users in our database through multiple channels, such as email, home address, telephone, push notifications and SMS text messaging. We leverage this data in our performance offerings primarily to serve advertisements that we believe will be relevant to users based on the information they provide, and in our lead generation offerings to provide our clients with users' contact information so that our clients may communicate with them directly. We have also begun to leverage our existing database into new revenue streams, including utilization-based models, such as programmatic advertising.

First Quarter Financial Summary

Three months ended March 31, 2021 compared to three months ended March 31, 2020:

Revenue decreased 11% to $70.2 million, from $78.9 million.

We have permission to contact the majority of users in our database through multiple channels, such as email, direct mail, telephone, push notifications and SMS text messaging. We leverage this data in our performance offerings primarily to serve advertisements that we believe will be relevant to users based on the information they provide, and in our lead generation offerings to provide our clients with users' contact information so that our clients may communicate with the users directly. We continue to leverage our existing database into new revenue streams, including utilization-based models, such as programmatic advertising.

Second Quarter Financial Summary

Three months ended June 30, 2021 compared to three months ended June 30, 2020:

Revenue increased 3% to $73.4 million, from $71.5 million.

Net loss was $5.2 million, or $0.06 per share, compared to net income of $0.5 million or $0.01 per share.

Media margin increased 4% to $24.9 million, from $23.9 million, representing 35.4% of revenue.

Media margin decreased 19% to $20.1 million, from $24.8 million, representing 27.4% of revenue.

Adjusted EBITDA decreased 80% to $1.9 million, based on net loss of $5.2 million, from $9.4 million, based on net income of $0.5 million.

Adjusted net income was $0.4 million, or $0.00 per share, compared to adjusted net income of $3.8 million, or $0.05 per share.

Adjusted net loss was $1.9 million, or $0.02 per share, compared to adjusted net income of $4.2 million, or $0.05 per share.

Six months ended June 30, 2021 compared to six months ended June 30, 2020:

Revenue decreased 5% to $143.5 million, from $150.4 million.

Net loss was $11.4 million, or $0.14 per share, compared to net income of $0.9 million or $0.01 per share.

Media margin decreased 8% to $45.0 million, from $48.7 million, representing 31.4% of revenue.

Adjusted EBITDA decreased 64% to $6.6 million, based on net loss of $11.4 million, from $18.4 million, based on net income of $0.9 million.

Adjusted net loss was $1.6 million, or $0.02 per share, compared to adjusted net income of $8.0 million, or $0.10 per share.

Media margin, adjusted EBITDA and adjusted net income are non-GAAP financial measures.

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To further increase our value proposition to clients and to fortify our leadership position in relation to the evolving regulatory landscape of our industry, we commenced a traffic quality initiative (the "Traffic Quality Initiative") in 2020.

We believe that significant value can be created by improving the quality of traffic we source to our media properties, through higher participation rates on our sites, leading to higher conversion rates, resulting in increased monetization and ultimately increasing revenue and profitability.

Through this initiative, we substantially curtailed the volume of lower quality affiliate traffic that we source, particularly during the fourth quarter of 2020 and the first quarter of 2021.

Through this initiative, we substantially curtailed the volume of lower quality affiliate traffic that we source, particularly during the fourth quarter of 2020 and the first quarter of 2021, and continue to make smaller adjustments as appropriate.

See "Results of Operations" below for additional detail on the impact to our revenue during the first quarter of 2021.

To replace this lower quality traffic, we are working to source traffic that meets our quality requirements through new suppliers, channels and media buying strategies.

Consolidation of media sources, changes in search engine, email and text message blocking algorithms and increased competition for available media have made the process of sourcing new traffic challenging during 2021 and may continue to do so in the future. However, we believe the Traffic Quality Initiative will benefit the Company over time, providing the foundation to support sustainable long-term growth and positioning us as an industry leader.

To replace this lower quality traffic, we are testing and scaling various media channels, strategies and partners to generate consumer traffic meeting our quality requirements. Some of these strategies tested in the second quarter of 2021 involved increased media spend with major digital media platforms and revised bidding strategies for affiliate traffic, each of which were expected to yield lower margins, with the intent to optimize spend for improved profitability in future periods.

The mix and profitability of our media channels, strategies and partners is likely to be dynamic and reflect evolving market dynamics and the impact of our Traffic Quality Initiative.

As we test and scale new media channels, strategies and partners, we may determine that certain sources initially able to provide us profitable quality traffic may not be able to maintain our quality standards over time, and we may need to discontinue, or direct a modification of the practices of, such sources, which could reduce profitability. However, we believe the Traffic Quality Initiative will benefit the Company over time, providing the foundation to support sustainable long-term growth and positioning us as an industry leader.

Seasonality and Cyclicality

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The economic uncertainty caused by COVID-19 has had varying degrees of impact on certain of our advertiser clients in certain industry verticals over the course of the pandemic.

For example, industry verticals such as staffing and recruitment and financial products and services exhibited reduced pricing and/or demand following the onset of the pandemic and subsequently recovered to varying degrees since that time.

For example, industry verticals such as staffing and recruitment and financial products and services exhibited reduced pricing and/or demand following the onset of the pandemic and have subsequently recovered to varying degrees since that time.

On the other hand, demand from certain advertisers in other verticals, such as streaming services and mobile gaming, increased during the pandemic and has since remained strong.

There may be additional shifts in pricing and/or demand among our clients, as the trajectory of the pandemic and future economic outlook remain uncertain.

With the proliferation of COVID-19 vaccinations in the U.S.

during the second quarter of 2021, we have seen a substantial recovery in the staffing and recruitment vertical. There may continue to be additional shifts in pricing and/or demand among our clients, as the trajectory of the pandemic and future economic outlook remain uncertain.

We implemented company-wide work-from-home beginning on March 13, 2020.

During the second quarter of 2021, we began to open our headquarters to employees that meet health protocols and voluntarily choose to work in the office.

We expect to implement a more formal policy regarding working from home later in the third quarter.

While we believe we have adapted well to a work-from-home environment, COVID-19 increases the likelihood of certain risks of disruption to our business, such as the incapacity of certain employees or system interruptions, which could lead to diminishment of our regular business operations, technological capacity and cybersecurity capabilities, as well as operational inefficiencies and reputational harm.

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Media margin is also presented as percentage of revenue.

Adjusted EBITDA is defined as net (loss) income excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) Loss on early extinguishment of debt (5) accrued compensation expense for Put/Call Consideration, (6) share-based compensation expense, (7) acquisition-related costs, and (8) certain litigation and other related costs.

Adjusted net income is defined as net (loss) income excluding (1) Loss on early extinguishment of debt (2) accrued compensation expense for Put/Call Consideration, (3) share-based compensation expense, (4) acquisition-related costs, and (5) certain litigation and other related costs.

Adjusted EBITDA is defined as net (loss) income excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) loss on early extinguishment of debt, (6) accrued compensation expense for Put/Call Consideration, (7) goodwill impairment, (8) write-off of intangible assets, (9) acquisition-related costs, (10) restructuring and other severance costs, and (11) certain litigation and other related costs.

Adjusted net income is defined as net (loss) income excluding (1) Share-based compensation expense, (2) loss on early extinguishment of debt, (3) accrued compensation expense for Put/Call Consideration, (4) goodwill impairment, 

(5) write-off of intangible assets, (6) acquisition-related costs, (7) restructuring and other severance costs, and (8) certain litigation and other related costs.

Adjusted net income is also presented on a per share (basic and diluted) basis.

Below is a reconciliation of media margin from net (loss) income, which we believe is the most directly comparable GAAP measure.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net (loss) income

Income tax benefit

Loss on early extinguishment of debt

Interest expense, net

Depreciation and amortization

Loss on early extinguishment of debt

Goodwill impairment

Write-off of intangible assets

General and administrative

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Below is a reconciliation of adjusted EBITDA from net (loss) income, which we believe is the most directly comparable GAAP measure:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net (loss) income

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Depreciation and amortization

Share-based compensation expense

Loss on early extinguishment of debt

Accrued compensation expense for Put/Call Consideration

Share-based compensation expense

Goodwill impairment

Write-off of intangible assets

Acquisition-related costs

Restructuring and other severance costs

Certain litigation and other related costs

1 unchanged sentence

Below is a reconciliation of adjusted net income and adjusted net income per share from net (loss) income, which we believe is the most directly comparable GAAP measure.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except share data)

Net (loss) income

Share-based compensation expense

Loss on early extinguishment of debt

Accrued compensation expense for Put/Call Consideration

Share-based compensation expense

Goodwill impairment

Write-off of intangible assets

Acquisition-related costs

Restructuring and other severance costs

Certain litigation and other related costs

Adjusted net income

Adjusted net income per share:

Adjusted net (loss) income

Adjusted net (loss) income per share:

Weighted average number of shares outstanding:

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Results of Operations

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Revenue decreased $8.8 million, or 11%, to $70.2 million for the three months ended March 31, 2021, from $78.9 million for the three months ended March 31, 2020. The decrease was primarily attributable to reduced traffic volumes, stemming from our Traffic Quality Initiative, which sharply curtailed the volume of lower quality affiliate traffic.

Relatively higher levels of monetization in the first quarter of 2021 were not sufficient to offset reduced traffic volume, resulting in lower revenue compared to the first quarter of 2020, and these trends are currently continuing into the second quarter of 2021. We anticipate higher volumes of traffic in future periods as we seek to replace the loss of lower quality traffic, though the timing of such increases remains uncertain.

We are working to source traffic that meets our quality requirements through new suppliers, channels and media buying strategies.

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Revenue increased $1.9 million, or 3%, to $73.4 million for the three months ended June 30, 2021, from $71.5 million for the three months ended June 30, 2020. The increase was primarily attributable to relatively higher levels of monetization of consumer traffic overall and higher volumes of traffic sourced from major digital media platforms in the second quarter of 2021.

This was somewhat offset by reduced volumes of affiliate traffic, stemming from our Traffic Quality Initiative, which sharply curtailed the volume of lower quality affiliate traffic.

While the relatively higher levels of monetization and increased traffic from major digital media platforms in the second quarter of 2021 were sufficient to offset reduced traffic volume, resulting in higher revenue compared to the second quarter of 2020, these trends may or may not continue into the third quarter of 2021 as we continue to test and scale media spend for profitability.

See discussion below under "Cost of revenue (exclusive of depreciation and amortization)." We ultimately anticipate higher volumes of traffic in future periods as we seek to replace the loss of lower quality affiliate traffic, though the timing of such increases remains uncertain. 

At the onset of the continuing COVID-19 pandemic, certain advertisers in industry verticals such as staffing and recruitment and financial products and services exhibited reduced pricing and/or demand following the onset of the pandemic and subsequently recovered to varying degrees since that time.

On the other hand, demand from certain advertisers in other verticals, such as streaming services and mobile gaming, increased during the pandemic and has since remained strong. While changes in demand and pricing among clients in various industry verticals did not result in a significant disruption to our business, the trajectory of these trends is uncertain.

On the other hand, demand from certain advertisers in other verticals, such as streaming services and mobile gaming, increased during the pandemic and has since remained strong. In the three months ended June 30, 2021, with the proliferation of COVID-19 vaccinations in the U.S.

during the second quarter, we saw a substantial recovery in the staffing and recruitment vertical.

While changes in demand and pricing among clients in various industry verticals did not result in a significant disruption to our business, the trajectory of these trends is uncertain.

Cost of revenue (exclusive of depreciation and amortization) .

Cost of revenue decreased $5.6 million, or 10%, to $51.0 million for the three months ended March 31, 2021, from $56.6 million for the three months ended March 31, 2020.

Cost of revenue increased $7.6 million, or 16%, to $56.6 million for the three months ended June 30, 2021, from $49.0 million for the three months ended June 30, 2020.

Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers and digital media platforms for our owned and operated websites and, historically, on behalf of third-party advertisers, as well as the costs of fulfilling rewards earned by consumers who complete the requisite number of advertiser offers.

The total cost of revenue as a percentage of revenue increased to 73% for the three months ended March 31, 2021, compared to 72% in the corresponding period in 2020.

 Higher reward fulfillment costs were partially offset by increased monetization achieved through improvements to our ad serving and higher responsiveness to promotional campaigns.

We are actively managing our traffic acquisition and reward fulfillment expenditures to reflect evolving market dynamics and the impact of our Traffic Quality Initiative.

As a result, past levels of cost of revenue (exclusive of depreciation and amortization) may not be indicative of future costs, which may increase or decrease as these uncertainties in our business play out.

The total cost of revenue as a percentage of revenue increased to 77% for the three months ended June 30, 2021, compared to 69% in the corresponding period in 2020. In the normal course of executing paid media campaigns to source consumer traffic, we regularly test new channels, strategies and partners, in an effort to identify actionable opportunities which can then be optimized over time. Traffic acquisition costs incurred with the major digital media platforms from which we sourced increased traffic volumes have historically been higher than affiliate traffic sources.

Through our Traffic Quality Initiative, we substantially curtailed the volume of lower quality affiliate traffic that we source. To replace this lower quality traffic, we are testing and scaling various media channels, strategies and partners to generate consumer traffic meeting our quality requirements.

Some of these strategies tested in the second quarter of 2021 involved increased media spend with major digital media platforms and revised bidding strategies for affiliate traffic, each of which were expected to yield lower margins, with the intent is to optimize spend for improved profitability in future periods.

The mix and profitability of our media channels, strategies and partners is likely to be dynamic and reflect evolving market dynamics and the impact of our Traffic Quality Initiative.

However, we believe the Traffic Quality Initiative will benefit the Company over time, providing the foundation to support sustainable long-term growth and positioning us as an industry leader.

Past levels of cost of revenue (exclusive of depreciation and amortization) may therefore not be indicative of future costs, which may increase or decrease as these uncertainties in our business play out.

Sales and marketing.

Sales and marketing expenses increased $0.1 million, or 5%, to $3.0 million for the three months ended March 31, 2021, from $2.8 million for the three months ended March 31, 2020. For the three months ended March 31, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $2.5 million and $2.2 million, respectively, and non-cash share-based compensation expense of $0.2 million in both periods and advertising costs of $0.2 million in both periods.

Sales and marketing expenses increased $0.1 million, or 4%, to $3.0 million for the three months ended June 30, 2021, from $2.9 million for the three months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $2.6 million and $2.4 million, non-cash share-based compensation expense of $0.2 and $0.3 million, and advertising costs of $0.1 and $0.2 million, respectively.

As business travel and in-person meetings and events begin to resume, we anticipate that our sales and marketing expenditures may increase in future periods. As a result, past levels of sales and marketing expenditures may not be indicative of future expenditures, which may increase or decrease as these uncertainties in our business play out.

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Product development increased $0.3, or 10%, to 

$3.4 million for the three months ended March 31, 2021, from $2.7 million for the three months ended March 31, 2020. 

F or the three months ended March 31, 2021 and 2020, the amounts consisted mainly of salaries and benefits of $2.6 million and $2.1 million, non-cash share-based compensation expense of $0.3 million and $0.2 million, and software license and maintenance costs of $0.3 million and $0.1 million, respectively. The increase in product development expenses reflects, in part, the development of new app-based media properties, expanding beyond our traditional focus on web-based media properties.

$3.4 million for the three months ended June 30, 2021, from $3.1 million for the three months ended June 30, 2020. 

F or the three months ended June 30, 2021 and 2020, the amounts consisted mainly of salaries and benefits of $2.4 million and $2.2 million, software license and maintenance costs of $0.3 million and $0.3 million, professional fees of $0.3 million and $0.1 million, and non-cash share-based compensation expense of $0.2 million and $0.3 million, respectively. The increase in product development expenses reflects, in part, the development of new app-based media properties, expanding beyond our traditional focus on web-based media properties.

General and administrative.

General and administrative expenses increased $0.6 million, or 6%, to $11.7 million for the three months ended March 31, 2021, from $11.1 million for the three months ended March 31, 2020.

For the three months ended March 31, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $4.9 million and $4.5 million , professional fees of $1.5  

General and administrative expenses increased $1.5 million, or 15%, to $11.5 million for the three months ended June 30, 2021, from $10.0 million for the three months ended June 30, 2020.

For the three months ended June 30, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $5.0 million and $4.3 million , professional fees of $1.2  

million and $1.2 million, office overhead of $1.1  

million and $1.2 million , software license and maintenance costs of $0.9 million and $0.4 million, accrued compensation expense for Put/Call Consideration from the Winopoly Acquis ition of $0.9 million and $0.5 milli on (see Note 11, 

Business acquisition, in the Notes to Consolidated Financial Statements),  non-cash share-based compensation expense of  $0.8 

million and $0.7  million, acquisition-related costs of $0.5 million and $0.0 million,  and certain litigation and related costs of $0.4 million and $1.1 million , respectively.

The increase was mainly the result of increased employee salaries and benefits, acquisition related costs related to Winopoly, and accrued compensation expense for the Winopoly Put/Call Consideration, partially offset by reduced litigation and related costs. 

Depreciation and amortization.

Depreciation and amortization expenses decreased $0.5 million, or 13%, to $3.4 million for the three months ended June 30, 2021, from $3.9 million for the three months ended June 30, 2020. 

Write-off of intangible assets.

During the three months ended June 30, 2021, we recognized $0.2 million of write-off of intangible assets related to software developed for internal use, with no corresponding charge in the prior period.

Interest expense, net.

Interest expense, net, decreased $0.9 million, or 68%, to $0.4 million for the three months ended June 30, 2021, from $1.3 million for the three months ended June 30, 2020.

The decrease was attributable to a lower interest rate on the New Credit Facility Term Loan as compared to the Refinanced Term Loan. 

(Loss) income before income taxes .

For the three months ended June 30, 2021, net loss before income taxes was $5.2 million, compared to net income before income taxes of $0.5 million for the three months ended June 30, 2020.

The decrease of $5.6 million was primarily due to an increase in cost of revenue of $7.6 million, an increase in general and administrative expense of $1.5 million, an increase in product development of 

$0.3  million, and an increase in sales and marketing of $0.1 million, partially offset by an increase in revenue of $1.9 million, a decrease in interest expense of $0.9 million and a decrease in depreciation and amortization expense of $0.5 million, as discussed above. 

Income taxes.

There was no income tax recorded for the three months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and 2020, we recorded a full valuation allowance against our net deferred tax assets.

We intend to maintain a full valuation allowance against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of this allowance.

Based on various factors, including our history of losses, current income, estimated future taxable income, exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and consideration of available tax planning strategies, we believe there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance may be released.

Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded, however, the exact timing and amount of any valuation allowance release are subject to change, depending on the profitability that we are able to achieve and the net deferred tax assets available.

Net (loss) income .

Net loss of $5.2 million and net income of $0.5 million were recognized for the three months ended June 30, 2021 and 2020, respectively, as a result of the foregoing.

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Revenue decreased $6.9 million, or 5%, to $143.5 million for the six months ended June 30, 2021, from $150.4 million for the six months ended June 30, 2020. The decrease was primarily attributable to reduced volumes of affiliate traffic, stemming from our Traffic Quality Initiative, which sharply curtailed the volume of lower quality affiliate traffic, somewhat offset by higher levels of monetization of consumer traffic overall and higher volumes of traffic sourced from major digital media platforms. Relatively higher levels of monetization and increased traffic from major digital media platforms in the first six months of 2021 were not sufficient to offset reduced affiliate traffic volume, resulting in lower revenue compared to the first six months of 2020.

Cost of revenue (exclusive of depreciation and amortization) .

Cost of revenue increased $2.0 million, or 2%, to $107.6 million for the six months ended June 30, 2021, from $105.6 million for the six months ended June 30, 2020. 

The total cost of revenue as a percentage of revenue increased to 75% for the six months ended June 30, 2021, compared to 70% in the corresponding period in 2020 with the increase due to the traffic acquisition factors discussed above.

Sales and marketing.

Sales and marketing expenses increased $0.2 million, or 4%, to $6.0 million for the six months ended June 30, 2021, from $5.7 million for the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $5.1 million and $4.6 million, non-cash share-based compensation expense of $0.4 and $0.5 million, and advertising costs of $0.3 and $0.4 million, respectively. 

Product development.

Product development increased $1.0, or 17%, to $6.9  million for the six months ended June 30, 2021, from $5.8 million for the six months ended June 30, 2020. 

F or the six months ended June 30, 2021 and 2020, the amounts consisted mainly of salaries and benefits of $5.0 million and $4.4 million, software license and maintenance costs of $0.7 million and $0.4 million, non-cash share-based compensation expense of $0.5 million and $0.5 million, and professional fees of $0.5 million and $0.2 million, respectively. The increase in product development expenses reflects, in part, the development of new app-based media properties, expanding beyond our traditional focus on web-based media properties.

General and administrative.

General and administrative expenses increased $2.1 million, or 10%, to $23.2 million for the six months ended June 30, 2021, from $21.1 million for the six months ended June 30, 2020.

For the six months ended June 30, 2021 and 2020, the amounts consisted mainly of employee salaries and benefits of $9.9 million and $8.8 million , professional fees of $2.7  

million and $2.5 million, accrued compensation expense for Put/Call Consideration from the Winopoly Acquis ition of $2.6 million and $0.5 milli on (see Note 11, 

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million and $2.0 million , non-cash share-based compensation expense of  $1.6 million and 

$1.9  million,  and certain litigation and related costs of $0.7 million and $0.9 million , respectively.

The increase was mainly the result of accrued compensation expense for the Winopoly Put/Call Consideration and increased employee salaries and benefits, partially offset by non-cash share based compensation expense. 

$2.7  million,  IT and website related costs of $1.5 million and $0.7 million, certain litigation and related costs of $1.0 million and $2.0 million , and acquisition-related costs of $0.5 million and $0.1 million, respectively.

The increase was mainly the result of accrued compensation expense for the Winopoly Put/Call Consideration, IT and IT website costs and increased employee salaries and benefits, partially offset by a decline in non-cash share based compensation expense and reduced litigation and other costs. 

Depreciation and amortization.

Depreciation and amortization expenses decreased $0.4 million, or 10%, to $3.4 million for the three months ended March 31, 2021, from $3.7 million for the three months ended March 31, 2020. 

Depreciation and amortization expenses decreased $0.8 million, or 11%, to $6.7 million for the six months ended June 30, 2021, from $7.6 million for the six months ended June 30, 2020. 

Goodwill impairment.

During the six months ended June 30, 2020, we recognized $0.8 million of goodwill impairment related to the All Other reporting unit, with no corresponding impairment charge in the current period.

Write-off of intangible assets.

During the six months ended June 30, 2021, we recognized $0.2 million of a write-off of intangible assets related to software developed for internal use, with no corresponding charge in the prior period.

Interest expense, net.

Interest expense, net, decreased $0.5 million, or 34%, to $1.0 million for the three months ended March 31, 2021, from $1.5 million for the three months ended March 31, 2020.

The decrease was attributable to a lower interest rate environment, as well as lower average debt balance outstanding on the Refinanced Term Loan described below under "Liquidity and Capital Resources." Going forward, we expect our interest expense to be lower than in prior periods as a result of the Refinanced Term Loan.

Interest expense, net, decreased $1.4 million, or 50%, to $1.4 million for the six months ended June 30, 2021, from $2.9 million for the six months ended June 30, 2020.

The decrease was attributable to a lower interest rate on the New Credit Facility Term Loan as compared to the Refinanced Term Loan. 

Loss on early extinguishment of debt.

During the three months ended March 31, 2021, we recognized $3.0 million of loss due to the early extinguishment of debt, described below under "Liquidity and Capital Resources," with no corresponding charge in the prior period. 

During the six months ended June 30, 2021, we recognized $3.0 million of loss due to the early extinguishment of debt, described below under "Liquidity and Capital Resources," with no corresponding charge in the prior period. 

(Loss) income before income taxes .

For the three months ended March 31, 2021, loss before income taxes was $6.3 million, compared to net income before income taxes of $0.4 million for the three months ended March 31, 2020.

The decrease of $6.7 million was primarily due to a decrease in revenue of $8.8 million, the loss on early extinguishment of debt recorded in the first quarter of 2021 of $3.0 million, an increase in product development of 

$0.7  million, an increase in general and administrative expense of $0.6 million and an increase in sales and marketing of $0.1 million, partially offset by a decrease in cost of revenue of $5.6 million, a decrease in interest expense of $0.5 million and a decrease in depreciation and amortization expense of $0.4 million, as discussed above. 

For the six months ended June 30, 2021, loss before income taxes was $11.4 million, compared to net income before income taxes of $0.9 million for the six months ended June 30, 2020.

The decrease of $12.3 million was primarily due to a decrease in revenue of $6.9 million, the loss on early extinguishment of debt recorded in the first quarter of 2021 of $3.0 million, an increase in product development of $1.0 million, an increase in general and administrative expense of $2.1 million and an increase in sales and marketing of $0.2 million, partially offset by a decrease in cost of revenue of $2.0 million, a decrease in interest expense of $1.4 million and a decrease in depreciation and amortization expense of $0.8 million, as discussed above. 

Income taxes.

There was a $1 and $0 income tax benefit for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and 2020, we recorded a full valuation allowance against our net deferred tax assets.

We intend to maintain a full valuation allowance against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of this allowance.

There was a $1 and $0 income tax benefit for the six months ended June 30, 2021 and 2020, respectively.

Net (loss) income .

Net loss of $6.3 million and net income of $0.4 million were recognized for the three months ended March 31, 2021 and 2020, respectively, as a result of the foregoing.

Net loss of $11.4 million and net income of $0.9 million were recognized for the six months ended June 30, 2021 and 2020, respectively, as a result of the foregoing.

Liquidity and Capital Resources

Cash flows provided by (used in) operating activities .

For the three months ended March 31, 2021, net cash provided by operating activities was $5.0 million and for the three months ended March 31, 2020, net cash used in operating activities was and $0.2 million. Net loss in the current period of $6.3 million represents a decrease of $6.7 million, as compared with net income of $0.4 million in the prior period. Adjustments to reconcile net income to net cash provided by operating activities of $8.7 million in the current period increased by $2.0 million, as compared with $6.7 million in the prior period, primarily due to the inclusion of a non-cash loss on early extinguishment of debt and accrual for Put/Call Consideration in the current period, partially offset by reductions in share-based compensation expense, depreciation and provision for bad debt. Changes in assets and liabilities provided a source of cash of $2.6 million in the current period, as compared with consuming cash of $7.3 million in the prior period, primarily due to ordinary-course changes in working capital. 

Cash flows (used in) provided by operating activities .

For the six months ended June 30, 2021, net cash used in operating activities was $0.7 million and for the six months ended June 30, 2020, net cash provided by operating activities was and $9.8 million. Net loss in the current period of $11.4 million represents a decrease of $12.3 million, as compared with net income of $0.9 million in the prior period. Adjustments to reconcile net income to net cash used in operating activities of $14.6 million in the current period increased by $1.2 million, as compared with $13.4 million in the prior period, primarily due to the inclusion of a non-cash loss on early extinguishment of debt and accrual for Put/Call Consideration in the current period, partially offset by reductions in share-based compensation expense, depreciation and provision for bad debt. Changes in assets and liabilities consumed cash of $3.8 million in the current period, as compared with consuming cash of $4.5 million in the prior period, primarily due to ordinary-course changes in working capital. 

Cash flows used in investing activities .

For the three months ended March 31, 2021 and 2020, net cash used in investing activities was $0.8 million and $0.6 million, respectively.

The increase was mainly due to increased capitalized costs included in intangible assets of $0.2 million year over year.

For the six months ended June 30, 2021 and 2020, net cash used in investing activities was $1.6 million and $2.7 million, respectively.

The decrease was mainly due to the Winopoly business acquisition that occurred in the prior year.

Cash flows provided by (used in) financing activities.

Net cash provided by financing activities for the three months ended March 31, 2021 was $7.4 million and net cash used in financing activities was $4.7 million for the prior period.

Net cash provided by financing activities for the six months ended June 30, 2021 was $6.3 million and net cash used in financing activities was $5.6 million for the prior period.

The increase of  $11.9 

million in cash provided by financing activities in the current period was mainly due to the net proceeds from issuance of long-term debt of $49.6 million, the repurchase of stock as part of a stock repurchase program in the prior period of $1.3 million, and the exercise of stock options by a former key executive of $0.9 million, partially offset by an increase in the repayment of long-term debt of $39.1 million, the prepayment penalty on early debt extinguishment of $0.8 million and an increase in statutory taxes paid related to the net share settlement of vested restricted stock units of $0.3 million.

As of March 31, 2021, we had noncancelable operating lease commitments of $10.2 million and long-term debt with $51.3 million principal balance.

For the three months ended March 31, 2021, we funded our operations using available cash.

As of March 31, 2021, we had cash, cash equivalents and restricted cash of approximately $34.1 million, an increase of $11.5 million from $22.6 million as of December 31, 2020.

As of June 30, 2021, we had noncancelable operating lease commitments of $9.6 million and long-term debt with $50.0 million principal balance.

For the six months ended June 30, 2021, we funded our operations using available cash.

As of June 30, 2021, we had cash, cash equivalents and restricted cash of approximately $26.6 million, an increase of $4.0 million from $22.6 million as of December 31, 2020.

We believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond.

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The Credit Agreement provides for a term loan in the aggregate principal amount of $50.0 million funded on the Closing Date (the “Term Loan”), along with an undrawn revolving credit facility of up to $15.0 million (the "Revolving Loans," and together with the Term Loan, the "New Credit Facility").

As of March 31, 2021, the Credit Agreement has an outstanding principal balance of $50.0 million and matures on March 31, 2026.

Principal amortization of the Credit Agreement is $1.3 million per quarter, which will commence with the fiscal quarter ended June 30, 2021.

As of June 30, 2021, the Credit Agreement has an outstanding principal balance of $48.8 million and matures on March 31, 2026.

Principal amortization of the Credit Agreement is $1.3 million per quarter, which commenced with the fiscal quarter ended June 30, 2021.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin, plus, at the Company's option, either a base rate or a London Inter-bank Offered Rate (“LIBOR”) rate (subject to a floor of 0.25%).

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The Credit Agreement is guaranteed by us and our direct and indirect subsidiaries and is secured by substantially all of our assets and those of our direct and indirect subsidiaries, including Fluent, LLC, in each case, on an equal and ratable basis.

The Credit Agreement requires us to maintain and comply with certain financial and other covenants. While we were in compliance with the financial and other covenants at March 31, 2021, we cannot guarantee that we will be able to maintain compliance with such financial or other covenants in future periods.

The Credit Agreement requires us to maintain and comply with certain financial and other covenants. While we were in compliance with the financial and other covenants at June 30, 2021, we cannot guarantee that we will be able to maintain compliance with such financial or other covenants in future periods.

Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would materially adversely affect our financial health if we are unable to access sufficient funds to repay all the outstanding amounts.

Moreover, if we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms, or at all.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis