What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-15 · 238 added, 318 removed, 88 unchanged (86% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects.

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects.

Forward-looking statements are those that do not relate strictly to historical or current matters, but instead relate to anticipated or expected events, activities, trends, or results as of the date they are made.

These forward-looking statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "will," 

These forward-looking statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "will,"

or the negative thereof or other variations thereon or comparable terminology.

1 unchanged sentence

Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements

, including, without limitation, those discussed in Part I, Item 1A of  

the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 15, 2023 (the "2022 Form 10-K"), those

contained in this Quarterly Report on Form 10-Q, and such other factors contained in our 

other filings we make with the Securities and Exchange Commission (the "SEC").

We do not undertake any obligation to update forward-looking statements, except as required by law and intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.

These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance. 

, including, without limitation, those discussed in Part I, Item 1A of

the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on April 2, 2024 (the "2023 Form 10-K"), those

contained in this Quarterly Report on Form 10-Q, and such other factors contained in our

other filings we make with the SEC.

We do not undertake any obligation to update forward-looking statements, except as required by law and intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.

These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

The following discussion should be read in conjunction with the 2023 Form 10-K and the consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

("we," "us," "our," "Fluent," or the "Company"), is an industry leader in data-driven digital marketing services.

("we," "us," "our," "Fluent," or the "Company") is an industry leader in digital marketing services.

We primarily perform customer acquisition services by operating highly scalable digital marketing campaigns, through which we connect our advertiser clients with consumers they are seeking to reach.

We deliver data and performance-based marketing executions to our clients, which include over 500 consumer brands, direct marketers, and agencies across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Wellness, Retail & Consumer, and Staffing & Recruitment.

We attract consumers at scale to our owned digital media properties primarily through promotional offerings where they are rewarded for completing activities within our platforms.

To register on our sites, consumers provide their names, contact information and opt-in permission to present them with relevant offers on behalf of our clients. Approximately 90% of these users engage with our media on their mobile devices or tablets.

Our always-on, real-time capabilities enable users to access our media whenever and wherever they choose.

Once users have registered on our sites, we integrate our proprietary direct marketing technologies to engage them with surveys, polls, and other experiences, through which we gather information about their lifestyles, preferences, purchasing histories and other matters.

We access these consumers through both our owned and operated digital media properties and our auxiliary syndicated performance marketplace products.

In 2023, we delivered data and performance-based customer acquisition services for over 500 consumer brands, direct marketers, and agencies across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment.

We attract consumers at scale to our owned and operated digital media properties primarily through promotional offerings where they are rewarded for completing activities within the platforms.

When registering on our sites, consumers provide their names, contact information, and opt-in permission to present them with relevant offers on behalf of our clients.

Approximately 90% of these users engage with our media on their mobile devices or tablets.

Once users have registered on our sites, we integrate our proprietary direct marketing technologies and analytics to engage them with surveys, polls, and other experiences, through which we learn about their lifestyles, preferences, and purchasing histories, among other matters.

Based on these insights, we serve targeted, relevant offers to them on behalf of our clients.

As new users register and engage on our sites and existing registrants re-engage, the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns.

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

consent to be contacted by us and/or our advertisers via various contact methods including email, telephone, SMS/text and push messaging.

As new users register and engage with our sites and existing registrants re-engage, the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns.

We also operate syndicated performance marketplaces on partner sites where we utilize our proprietary ad-serving technology to identify and acquire additional consumers for our advertiser clients.

Our technology is integrated at key moments in the consumer experience to capitalize on high engagement and improve conversion.

For example, Adflow, our post-sale e-commerce business, connects our advertisers to consumers on e-commerce websites after check-out.

These syndicated solutions generate meaningful income for our partners, while driving additional growth for our advertiser clients.

We typically remunerate our syndication partners on a revenue share or impression basis.

Additionally, the Company operates a call center-supported performance marketplace that provides live-call-based performance campaigns to help clients increase engagement and in some cases sell products and services directly on behalf of our clients.

The call solutions marketplace serves clients across an array of industries but has a heavy focus on the health insurance sector.

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

We solicit our users’ consent to be contacted by us and/or our advertisers via various contact methods including email, telephone, SMS/text, and push messaging.

We then leverage their self-declared data in our performance offerings primarily in two ways:

(1) to serve advertisements that we believe will be relevant to users based on the information they provide when they engage with our sites, and (2) to provide our clients that purchase access to our data with users' contact information so that such clients may communicate with them directly. We may also leverage our existing technology and database to drive new revenue streams, including syndication models, ( e.g.

, Adflow), and other revenue streams, including utilization-based models ( e.g.

(1) to serve advertisements that we believe will be relevant to users based on the information they provide when they engage on our sites or other partner sites through our syndicated performance marketplaces and (2) to provide our clients with users' contact information so that such clients may communicate with them directly.

We may also leverage our existing technology and database to drive new revenue streams, including utilization-based models ( e.g.

, programmatic advertising).

We generate revenue by delivering measurable online marketing results to our clients.

We differentiate ourselves from other marketing alternatives by our abilities to provide clients with a cost-effective and measurable return on advertising spend ("ROAS"), a measure of profitability of sales compared to the money spent on ads, to manage highly targeted and highly fragmented online media sources and to provide access to our owned digital media properties and technology platforms.

We are predominantly paid on a negotiated or market-driven "per click," "per lead," or other "per action" basis that aligns with the customer acquisition cost targets of our clients.

We bear the costs of sourcing traffic from publishers for our owned digital media properties that ultimately generate qualified clicks, leads, calls, app downloads or customers for our clients.

Through AdParlor, LLC, we conduct our non-core business which offers clients various social media strategies through the planning and buying of media on different platforms.

Third Quarter Financial Summary

Three months ended September 30, 2023, compared to three months ended September 30, 2022:

Revenue decreased 26% to $66.2 million, compared to $89.0 million

Net loss was $33.6 million, or $0.41 per share, compared to net income of $3.1 million or $0.04 per share

Gross profit (exclusive of depreciation and amortization) was $16.1 million, a decrease of 32% as compared to the three months ended September 30, 2022, and representing 24% of revenue for the three months ended September 30, 2023

Media margin decreased  

31% to $19.3 million, compared to $28.1 million, representing 29.2% of revenue for the three months ended September 30, 2023

Adjusted EBITDA decreased to negative $1.7 million, representing (2.6%) of revenue, based on net loss of $33.6 million, compared to positive $5.9 million, based on net income of $3.1 million

Adjusted net loss was $4.1 million, or $0.05 per share, compared to adjusted net income of $5.0 million, or $0.06 per share

Nine months ended September 30, 2023, compared to nine months ended September 30, 2022:

Revenue decreased 18% to $225.6 million, compared to $276.5 million

Net loss was $61.3 million, or $0.74 per share, compared to net loss of $55.8 million or $0.69 per share

Gross profit (exclusive of depreciation and amortization) was $57.7 million, a decrease of 22% as compared to nine months ended September 30, 2022, and representing 26% of revenue for the nine months ended September 30, 2023

Media margin decreased 22%  

to $67.2 million, compared to $86.3 million, representing 29.8% of revenue for the nine months ended September 30, 2023

Adjusted EBITDA decreased to $4.3 million, representing 1.9% of revenue, based on net loss of $61.3 million, compared to $20.1 million, based on net loss of $55.8 million

Adjusted net lo ss was $6.8 million, or $0.08 per share, compared to adjusted net income of $6.6 million, or $0.08 per share

Media margin, adjusted EBITDA, and adjusted net income (loss) are non-GAAP financial measures. See "Definitions, Reconciliations and Uses of Non-GAAP Financial Measures" below.

We generate revenue by delivering measurable marketing results to our clients.

We differentiate ourselves from other marketing alternatives by our abilities to provide clients with a cost-effective and measurable return on advertising spend ("ROAS"), a measure of profitability of sales compared to the money spent on ads, and to manage highly targeted and highly fragmented online media sources.

We are predominantly paid on a negotiated or market-driven "per click," "per lead," or other "per action" basis that aligns with the customer acquisition cost targets of our clients.

We bear the costs of acquiring traffic from publishers' performance marketplaces that ultimately generate qualified clicks, leads, calls, app downloads, or customers for our clients.

Through AdParlor, LLC ("AdParlor"), we conduct our non-core business which offers clients various social media strategies through the planning and buying of media on different platforms.

Reverse stock split

Effective at 6:00 p.m.

Eastern Time on April 11, 2024, the Company effected a 1-for-6 (the "Reverse Stock Split Ratio") reverse split of the issued shares of the Company’s common stock (the "Reverse Stock Split") pursuant to a certificate of amendment to the Company's Certificate of Incorporation, as amended, filed with the Secretary of State of the State of Delaware on April 11, 2024.

As a result of the Reverse Stock Split, every six shares of common stock issued and outstanding or held by the Company in treasury stock were combined and reclassified into one share of common stock.

No fractional shares were issued as a result of the Reverse Stock Split.

Stockholders who were otherwise entitled to receive a fractional share received an additional fraction of a share of common stock to round up to the next whole share.

The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage ownership interest or any stockholder’s proportionate voting power, except for immaterial adjustments that resulted from the treatment of fractional shares.

The Reverse Stock Split did not change the number of authorized shares of common stock or the par value per share of the common stock.

The Reverse Stock Split reduced the number of issued and outstanding shares of common stock from approximately 81.6 million shares to approximately 13.6 million shares and reduced the issued shares of common stock held by the Company in treasury stock from approximately 4.6 million shares to approximately 0.8 million shares.

The common stock began trading on a reverse split-adjusted basis at the opening of trading on The Nasdaq Capital Market on April 12, 2024 under the same symbol (FLNT) with a new CUSIP number (34380C 201).

As of the effective time of the Reverse Stock Split, the number of shares available for issuance under the Company’s equity incentive plans and the number of shares issuable pursuant to each outstanding equity award immediately prior to the Reverse Stock Split were reduced proportionately at the Reverse Stock Split Ratio, and the exercise price for each outstanding stock option was increased in inverse proportion to the Reverse Stock Split Ratio.

First Quarter Financial Summary

Three months ended March 31, 2024, compared to three months ended March 31, 2023:

Revenue decreased 15% to $66.0 million, compared to $77.3 million

Net loss was $6.3 million, or $0.45 per share, compared to net loss of $31.9 million or $2.34 per share

Gross profit (exclusive of depreciation and amortization) decreased 2% to $18.6 million, representing 28% of revenue for the three months ended March 31, 2024, from $19.0 million, representing 25% of revenue for the three months ended March 31, 2023

Media margin increased 1% to $22.1 million, representing 33.6% of revenue for the three months ended March 31, 2024, from $22.0 million, representing 28.4% of revenue for the three months ended March 31, 2023

Adjusted EBITDA increased 48% to $0.7 million, based on net loss of $6.3 million, from $0.4 million, based on net loss of $31.9 million

Adjusted net loss was $4.2 million, or $0.30 per share, compared to adjusted net loss of $2.7 million, or $0.20 per share

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

See "Definitions, Reconciliations and Uses of Non-GAAP Financial Measures" below.

Recent Developments

On May 13, 2024, we entered into securities purchase agreements with certain accredited investors, including three individuals who are our officers and/or directors and a principal stockholder of our Company to sell pre-funded warrants to purchase up to 2,955,084 shares of our common stock for an aggregate of $10.0 million in gross proceeds before deducting offering expenses payable by us (the "Private Placement") (see Note 12, Subsequent Events, in the Notes to the Consolidated Financial Statements).

The pre-funded warrants are exercisable for $0.0005 per share and will expire when exercised in full.

The exercise of the pre-funded warrants is subject to stockholder approval expected in July.

No underwriting discounts or commissions were paid with respect to the Private Placement.

The issuance of the pre-funded warrants was made in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.

Trends Affecting our Business

Development, Acquisition and Retention of High-Quality Targeted Media Traffic

Our business depends on identifying and accessing media sources that are of high quality and on our ability to attract targeted users to our media properties.

As our business has grown, we have attracted larger and more sophisticated clients to our platform.

Generating high quality traffic will remain a focus moving forward, and it is now part of a broader initiative to improve the consumer experience.

Starting in 2022, we increased our spend with major digital media platforms, revised our bidding strategies for affiliate traffic, and developed partnerships to expand traffic from social media platforms, including the growing influencer sector.

We also pursued strategic initiatives that enable us to grow revenue with existing user traffic volume, while attracting users to our media properties via email and SMS messages.

These efforts have continued in 2023, as we continue to focus on improved monetization of consumer traffic through improved customer relationship management and internal capabilities that allow us to re-engage consumers who have registered on our owned media properties.

Our business depends on identifying and accessing media sources that are of high quality and on our ability to attract targeted users to our owned and operated media properties.

As our business has grown, we have attracted larger and more sophisticated clients to our marketplaces.

To further increase our value proposition to clients and to fortify our leadership position in the evolving regulatory landscape of our industry, we implemented a Traffic Quality Initiative in 2020 and established new syndicated performance marketplaces in 2023 to access more higher value consumers.

Sourcing high quality traffic will remain a focus and part of a broader initiative to improve customer acquisition for our clients.

Starting in 2022, we increased our spend with major digital media platforms, revised our bidding strategies for affiliate traffic, and developed partnerships to expand traffic from social media platforms, including the growing influencer sector.

We also pursued strategic initiatives that enable us to grow revenue with existing user traffic volume by attracting users to our media properties via email and SMS messages.

In addition, we have focused on improved monetization of consumer traffic through improved customer relationship management and internal capabilities that allow us to re-engage consumers who have registered on our owned media properties.

Through these initiatives, our business has become less dependent on the volume of users to generate revenue growth.

We believe that significant value has been, and will continue to be, created by improving the quality of traffic sourced to our media properties, through increased user participation rates on our sites, leading to higher conversion rates, resulting in increased monetization, and ultimately increasing revenue and media margin. Media margin, a non-GAAP measure, is the portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue.

Since 2022, we have experienced challenges growing our traffic volume because of several factors including the volatility of affiliate supply sources, changes in search engine algorithms, email and text message blocking algorithms, and increased competition for available media.

In response to these challenges, we invested in strategic internal efforts to secure additional traffic from social media, including the growing influencer sector and Adflow, our e-commerce post-sales solution.

We believe that significant value has been, and will continue to be, created by improving the quality of traffic and value of consumers sourced to our media properties and syndicated performance marketplaces, through increased user participation rates, leading to higher conversion rates, resulting in increased monetization, and ultimately increasing revenue and media margin.

Media margin, a non-GAAP measure, is the portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue.

Since 2022, we have experienced challenges growing our traffic volume to our owned and operated properties due to several factors including the volatility of affiliate supply sources, changes in search engine algorithms, email and text message blocking algorithms, tightened compliance standards for available media, and increased competition that often does not follow our compliance standards.

In response to these challenges, we invested in strategic and internal efforts to secure additional traffic from the growing influencer sector and expanding our ad network beyond our owned and operated marketplace to new syndicated performance marketplaces.

The mix and profitability of our media channels, strategies, and partners is likely to continue to be dynamic and reflect evolving market trends and the regulatory environment.

Advertiser Trends & Seasonality

We deliver data and performance-based marketing executions to our clients across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Wellness, Retail & Consumer, and Staffing & Recruitment.

Both data and performance-based spend continued to be challenged in 2023 by general economic uncertainty. We experienced slowdowns in the first nine-months of 2023 in certain sectors of the Media & Entertainment, Staffing & Recruitment, and Financial Products & Services industries. Additionally, in the third quarter of 2023 our largest client in the gaming sector pulled back pricing and spend as they refocused on ROAS rather than growth.

Although the Company is addressing this pullback by scaling other clients in the marketplace from the gaming sector and other sectors of the Media & Entertainment industry, the gap was not fully absorbed by other bidders.

To offset these challenges, we continue to work with a select group of advertisers to define high performing consumer segments and strategically price paid conversions to help clients drive higher ROAS.

This initiative has driven increased budgets from clients in the Media & Entertainment industry, which, collectively, represents a large component of our revenue mix.

Additionally, our results are subject to fluctuations as a result of seasonality and cyclicality in our clients’

Specifically, Adflow and our businesses that benefit from Medicare and ACA open enrollment benefit from strong fourth quarters.

We deliver data and performance-based marketing executions to our clients across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment.

Both data and performance-based spend continued to be challenged in 2024 by general economic uncertainty.

In 2023, we experienced slowdowns in certain sectors of the Media & Entertainment, Staffing & Recruitment, and Financial Products & Services industries.

Specifically, in the third quarter of 2023, our largest client in the gaming sector pulled back pricing and spend as they refocused on ROAS rather than growth.

Although the Company addressed this pullback by scaling other clients in the marketplace from the gaming sector and other sectors of the Media & Entertainment industry, the gap was not fully absorbed by other bidders.

In the first quarter of 2024 revenue declined due to media supply challenges in our owned and operated marketplaces.

Those challenges have continued into the second quarter causing further sequential revenue retractions.

To offset the advertiser pull back challenges, we continue to work with a select group of advertisers to define high performing consumer segments and strategically price paid conversions to help clients drive higher ROAS.

This initiative has driven increased budgets from clients across the Media & Entertainment industry, which represents a large component of our revenue mix.

Additionally, our performance is subject to fluctuations as a result of seasonality and cyclicality in our clients' businesses and fluctuations in media sources.

Specifically, Adflow and our performance marketplaces that benefit from Medicare and Affordable Care Act open enrollment experience increased volume in the fourth quarters.

Other factors affecting our business may include macroeconomic conditions that impact the digital advertising industry, the various client verticals we serve, and general market conditions.

We believe the second quarter of 2024 will continue to be characterized by slowed economic conditions and media supply uncertainty.

To confront these headwinds, we will continue to diversify our client base and intend to further develop our "ROAS program" across additional segments of advertisers in an effort to gain additional budget allocations and further improve our user monetization.

Business Practices & Compliance

During the current fiscal year, we continued to be impacted by slowing economic conditions and uncertainty. Additionally, as a result of the FTC Consent Order described in Part II, Item 1 –

Legal Proceedings, below, we made additional changes to our employment opportunities marketplace and programmatic advertising businesses and have implemented industry-leading compliance measures across the entire business, which have had negative impacts on our revenues and media margin in the third quarter of 2023. In the medium term, although there can be no assurance, we expect that the increased industry-wide regulatory scrutiny will eliminate the competitive advantage that less compliance-focused competitors currently enjoy as a result of the changes we have implemented, and that our industry-leading compliance will be a competitive advantage enabling us to recapture market share from our competitors.

Additionally, our legal fees related to the FTC Consent Order have continued to decrease, and we received an insurance reimbursement for prior legal fees incurred. In response to the regulatory requirements, we will continue to refocus investment into businesses unaffected by the FTC Consent Order, such as the Rewards and Adflow businesses.

During 2023 and into 2024, we continued to be affected by slowed economic conditions and the impacts of the FTC Consent Order described in Note 10, Contingencies , to the Consolidated Financial Statements (the "FTC Consent Order"), on our owned and operated marketplaces and programmatic advertising business.

The industry-leading compliance measures implemented on the owned and operated marketplace, continue to put negative competitive impacts on our revenues and media margin.

Although we have not yet experienced it, we continue to believe that the increased regulatory scrutiny on the broader industry will eventually eliminate the advantage that less compliance-focused competitors currently benefit from, enabling us to recapture market share.

Current Economic Conditions

We are subject to risks and uncertainties caused by events with significant macroeconomic impacts.

Inflation, rising interest rates and reduced consumer confidence have caused our clients and their customers to be cautious in their spending.

Inflation, rising interest rates, and reduced consumer confidence have caused our clients and their customers to be cautious in their spending.

The full impact of these macroeconomic events and the extent to which these macro factors may impact our business, financial condition, and results of operations in the future remains uncertain.

In light of the challenging macro-economic environment, we have reviewed our strategic investments for 2023 and paused or eliminated lower priority projects while also streamlining our organization through targeted workforce reductions.

Please see 

Risk Factors in the 2022 Form 10-K , for more information or further discussion of the possible impact of unfavorable conditions on our business.

In light of the challenging macro-economic environment, we continue to prioritize strategic investments that have near-term benefits to revenue while also streamlining our organization through targeted workforce reductions.

Please see Item 1A.

Risk Factors in the 2023 Form 10-K —"Economic or political instability could adversely affect our business, financial condition, and results of operations," and "We are exposed to credit risks from our clients, and we may not be able to collect on amounts owed to us.", for further discussion of the possible impact of unfavorable conditions on our business.

Definitions, Reconciliations and Uses of Non-GAAP Financial Measures

We report the following non-GAAP measures:

Media margin is defined as that portion of gross profit (exclusive of depreciation and amortization) reflecting the variable costs paid for media and related expenses and excluding non-media cost of revenue.

Media margin is defined as that portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue.

Gross profit (exclusive of depreciation and amortization) represents revenue minus cost of revenue (exclusive of depreciation and amortization).

Media margin is also presented as percentage of revenue.

Adjusted EBITDA is defined as net income (loss) excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) goodwill impairment, (6) write-off of intangible assets,  

(7) loss (gain) on disposal of property and equipment, (8) acquisition-related costs, (9) restructuring and other severance costs, and (10) certain litigation and other related costs.

Adjusted net income (loss) is defined as net income (loss) excluding (1) share-based compensation expense, (2) goodwill impairment, (3) write-off of intangible assets,  

(4) loss (gain) on disposal of property and equipment (5) acquisition-related costs, (6) restructuring and other severance costs, and (7) certain litigation and other related costs.

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

Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three and nine months ended September 30, 2023 and 2022, respectively, which we believe is the most directly comparable GAAP measure:

Three Months Ended September 30,

Nine Months Ended September 30,

Media margin is also presented as a percentage of revenue.

Adjusted EBITDA is defined as net income (loss), 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) loss (gain) on disposal of property and equipment, (10) acquisition-related costs, (11) restructuring and other severance costs, and (12) certain litigation and other related costs.

Adjusted net income (loss) is defined as net income (loss), 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) loss (gain) on disposal of property and equipment, (7) acquisition-related costs, (8) restructuring and other severance costs, and (9) certain litigation and other related costs.

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

Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended March 31,

Cost of revenue (exclusive of depreciation and amortization)

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Represents the portion of cost of revenue (exclusive of depreciation and amortization) not attributable to variable costs paid for media and related expenses.

Below is a reconciliation of adjusted EBITDA from net income (loss) for the three and nine months ended September 30, 2023 and 2022, respectively, which we believe is the most directly comparable GAAP measure:

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

Below is a reconciliation of adjusted EBITDA from net loss for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended March 31,

Income tax expense

3 unchanged sentences

Goodwill impairment

Write-off of intangible assets

Loss (gain) on disposal of property and equipment

Acquisition-related costs (1)

2 unchanged sentences

Adjusted EBITDA

Balance includes compensation expense related to non-competition agreements entered into as a result of certain acquisitions.

Balance includes earn-out expense of ($21) and $89 for the three and nine months ended September 30, 2023, respectively, as a result of certain acquisitions.

Below is a reconciliation of adjusted net income (loss) and adjusted net income (loss) per share from net income (loss) for the three and nine months ended September 30, 2023 and 2022, respectively, which we believe is the most directly comparable GAAP measure.

Three Months Ended September 30,

Nine Months Ended September 30,

Balance includes compensation expense related to non-competition agreements and earn-out expense incurred as a result of business combinations (see Note 11, Variable Interest Entity , in the Notes to the Consolidated Financial Statements).

The earn-out expense was $151 and $85 for the three months ended March 31, 2024 and 2023, respectively.

Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure.

Three Months Ended March 31,

(In thousands, except share and per share data)

Net income (loss)

Share-based compensation expense

Goodwill impairment

Write-off of intangible assets

Loss (gain) on disposal of property and equipment

Acquisition-related costs (1)

1 unchanged sentence

Certain litigation and other related costs

Adjusted net income (loss)

Adjusted net income (loss) per share:

Adjusted net loss

Adjusted net loss per share:

Weighted average number of shares outstanding:

Balance includes compensation expense related to non-competition agreements entered into as a result of certain acquisitions.

Balance includes earn-out expense of ($21) and $89 for the three and 

nine months ended September 30, 2023, respectively, as a result of certain acquisitions.

We present media margin, media margin as a percentage of revenue, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share as supplemental measures of our financial and operating performance because we believe they provide useful information to investors.

The earn-out expense was $151 and $85 for the three months ended March 31, 2024 and 2023, respectively.

We present media margin, media margin as a percentage of revenue, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share as supplemental measures of our financial and operating performance because we believe they provide useful information to investors.

More specifically:

Media margin, as defined above, is a measure of the efficiency of the Company’s operating model.

We use media margin and the related measure of media margin as a percentage of revenue as primary metrics to measure the financial return on our media and related costs, specifically to measure the degree by which the revenue generated from our digital marketing services exceeds the cost to attract the consumers to whom offers are made through our services.

Media margin is used extensively to manage our operating performance, including evaluating operational performance against budgeted media margin and understanding the efficiency of our media and related expenditures.

Media margin is used extensively by our management to manage our operating performance, including evaluating operational performance against budgeted media margin and understanding the efficiency of our media and related expenditures.

We also use media margin for performance evaluations and compensation decisions regarding certain personnel.

Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated.

The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain litigation and other related costs associated with legal matters outside the ordinary course of business, including costs and accruals related to matters as described below (See Part II, Item 1 —

Legal Proceedings).

The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under U.S.

GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

These adjustments include certain litigation and other related costs associated with legal matters outside the ordinary course of business, including costs and accruals related to matters as described below (See Part II, Item 1 — Legal Proceedings).

We consider items one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules.

There were no adjustments for one-time items in the periods presented by this Quarterly Report on Form 10-Q.

Adjusted net income (loss), as defined above, and the related measure of adjusted net  

income (loss)  

per share exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

We believe adjusted net income (loss) affords investors a different view of the overall financial performance as compared to adjusted EBITDA and the GAAP measure of net income (loss).

Media margin, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share are non-GAAP financial measures with certain limitations regarding their usefulness.

They do not reflect our financial results in accordance with GAAP, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations.

There were no adjustments for one-time items in the periods presented in this Quarterly Report on Form 10-Q.

Adjusted net income (loss), as defined above, and the related measure of adjusted net income (loss) per share exclude certain items that are recognized and recorded under U.S.

GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

We believe adjusted net income (loss) affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the U.S.

GAAP measure of net income (loss).

Media margin, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share are non-GAAP financial measures with certain limitations regarding their usefulness.

They do not reflect our financial results in accordance with U.S.

GAAP, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations.

Accordingly, these metrics are not indicative of our overall results or indicators of past or future financial performance.

Further, they are not financial measures of profitability and are neither intended to be used as a proxy for the profitability of our business nor to imply profitability. The way we measure media margin, adjusted EBITDA, and adjusted net income (loss) may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements.

Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Three Months Ended September 30,

Nine Months Ended September 30,

Further, they are not financial measures of profitability and are neither intended to be used as a proxy for the profitability of our business nor to imply profitability.

The way we measure media margin, adjusted EBITDA, and adjusted net income (loss) may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements.

Comparison of Our Results of Operations for the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31,

(In thousands)

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Revenue for the three months ended September 30, 2023 decreased $22.8 million, or 26%, to $66.2 million, compared to $89.0 million for the three months ended September 30, 2022. The decrease was largely attributable to declines in the US Rewards business due to a reduction in client spend.

In addition, revenue from the employment opportunities marketplace declined due to the changes in business practices that reflect the recently imposed regulatory requirements in connection with the FTC Consent Order described in Part II, Item 1 –

Legal Proceedings, below. 

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Revenue for the nine months ended September 30, 2023 decreased $50.8 million, or 18%, to $225.6 million, compared to $276.5 million for the nine months ended September 30, 2022. The decrease was largely attributable to declines in the US Rewards business due to a reduction in client spend.

In addition, revenue from the employment opportunities marketplace declined due to decreased demand related to the slowing labor market and changes in business practices that reflect the recently imposed regulatory requirements in connection with the FTC Consent Order described in Part II, Item 1 –

Legal Proceedings, below.

The revenue decline was partially offset by growth in our Influencer based platform and new initiatives. 

The decrease in revenue was primarily attributable to contraction of our owned and operated marketplaces due to a challenging macro-economic environment and media supply challenges related to changes in business practices to reflect regulatory requirements in connection with the FTC Consent Order, which influenced reductions in spend by key clients in the Media & Entertainment, Retail & Consumer, and Staffing & Recruitment sectors.

These challenges in the owned and operated marketplaces have continued into the second quarter causing further revenue retraction.

The decreases have been partially offset by growth of our new syndicated performance marketplaces.

Cost of revenue (exclusive of depreciation and amortization)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Cost of revenue (exclusive of depreciation and amortization)

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Cost of revenue for the three months ended September 30, 2023 (exclusive of depreciation and amortization) decreased $15.1 million, or 23%, to $50.1 million, compared to $65.3 million for the three months ended September 30, 2022.

The decrease was attributable to the same factors causing the decline in revenue for the quarter over quarter period.

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.

The decrease in cost of revenue (exclusive of depreciation and amortization) was largely attributable to the same factors causing the decline in revenue for the period.

Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers, digital media platforms, and influencers for our owned and operated websites and purchasing media from syndicated publisher partners.

The costs also include enablement costs associated with our call centers and tracking costs related to our consumer data.

In addition, there are indirect costs which include fulfillment costs related to rewards earned by consumers who complete the requisite number of advertiser offers, along with call center software and hosting costs.

The total cost of revenue for the three months ended September 30, 2023 (exclusive of depreciation and amortization) as a percentage of revenue increased to 76% compared to 73% for the three months ended September 30, 2022. The increase was largely attributable to the increase in the cost of media as a percentage of revenue.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Cost of revenue for the nine months ended September 30, 2023 (exclusive of depreciation and amortization) decreased $34.9 million, or 17% to $168.0 million, compared to $202.9 million for the nine months ended September 30, 2022.

The decrease was primarily attributable to the same factors causing the decline in revenue for the year over year period. The total cost of revenue for the nine months ended September 30, 2023(exclusive of depreciation and amortization) as a percentage of revenue increased to 74% compared to 73% for the nine months ended September 30, 2022. The increase was largely attributable to the increase in the cost of media as a percentage of revenue.

In the normal course of executing paid media campaigns to source consumer traffic, we regularly evaluate new channels, strategies, and partners, in an effort to identify actionable opportunities which can then be optimized over time.

In addition, there are indirect costs which include fulfillment costs related to rewards earned by consumers who complete the requisite number of advertiser offers, along with call center software and hosting costs.

For the three months ended March 31, 2024 the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue decreased to 72% compared to 75% for the three months ended March 31, 2023.

In the normal course of executing paid media campaigns to source consumer traffic, we regularly evaluate new channels, strategies, and partners.

Traffic acquisition costs incurred with the major digital media platforms have historically been higher than affiliate traffic sources.

For the nine months ended September 30, 2023, digital media spend continued to be driven by strategic test and learn initiatives that began in the second quarter of 2022. The mix and profitability of our media channels, strategies, and partners will likely reflect evolving market dynamics and the impact of our Traffic Quality Initiative and the increased compliance obligations as a result of the FTC Consent Order.

As we evaluate 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.

The improved traffic quality being sourced is the foundation to support sustainable long-term growth and positioning us as an industry leader.

For the three months ended March 31, 2024, digital media spend continued to be driven by strategic test and learn initiatives that began in the second quarter of 2022.

The mix and profitability of our media channels, strategies, and partners reflect evolving market dynamics, the impact of our Traffic Quality Initiative, and the increased compliance obligations from the FTC Consent Order.

As we evaluate 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.

The improved traffic quality being sourced is the foundation to support sustainable long-term growth and positioning us as an industry leader.

For the three months ended March 31, 2024, decreased spend for our owned and operated websites from social media platforms was the largest driver of the decline.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Sales and marketing

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Sales and marketing expenses for the three months ended September 30, 2023 increased $0.2 million, or 4%, to $4.4 million, compared to $4.3 million for the three months ended September 30, 2022. For the three months ended September 30, 2023 and 2022, sales and marketing expense consisted mainly of employee salaries and benefits of $3.9 million and $3.6 million, advertising costs of $0.1 and $0.3 million, and non-cash share-based compensation expenses of $0.1 and $0.1 million, respectively. The increase was primarily due to salary increases partially offset by lower marketing costs incurred.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Sales and marketing expenses for the nine months ended September 30, 2023 increased $0.9 million, or 7%, to $13.5 million, compared to $12.6 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, sales and marketing expense consisted mainly of employee salaries and benefits of $11.4 million and $10.7 million, advertising costs of $0.7 and $0.8 million, non-cash share-based compensation expenses of $0.4 and $0.4 million, and travel and entertainment of $0.3 and $0.3 million, respectively. The increase was primarily due to salary increases partially offset by reductions in advertising costs.

For the three months ended March 31, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $4.1 million and $3.8 million, restructuring and severance costs of $0.2 and $0.1 million, professional fees of $0.2 and $0.1 million, travel and entertainment of $0.1 and $0.1 million, and advertising costs of $0.0 and $0.3 million, respectively.

The immaterial decrease was primarily due to the decline of third party referral fees largely offset by annual salary increases.

Product development

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Product development

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Product development expense 

for the three months ended September 30, 2023  decreased $0.1 million, or 2%, to 

$4.5 million , compared to $4.6 million for the three months ended September 30, 2022. For the three months ended September 30, 2023 and 2022, product and development expense consisted mainly of salaries and benefits of $3.4 million and $3.3 million, software license and maintenance costs of $0.5 million and $0.4 million, professional fees of $0.3 million and $0.6 million, and non-cash share-based compensation expense of $0.2 million and $0.1 million, respectively. The decrease in product development expense is primarily due to lower consulting fees.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Product development expense 

for the nine months ended September 30, 2023  increased  

$0.1 million, or 1% , to $14.1 million, compared to $14.0 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, product and development expense consisted mainly of salaries and benefits of $10.3 million and $10.1 million, software license and maintenance costs of $1.4 million and $1.2 million, professional fees of $1.3 million and $2.0 million, and non-cash share-based compensation expense of $0.5 million and $0.4 million, respectively. The slight increase in product development expenses reflects an increase in software license and maintenance costs and other operating costs, mainly offset by the decline in consulting fees.

For the three months ended March 31, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $3.2 million and $3.5 million, software license and maintenance costs of $0.5 million and $0.5 million, professional fees of $0.4 million and $0.5 million, and restructuring and severance costs of $0.4 and $0.1 million, respectively.

The decrease in product development expense was primarily due to lower salaries and other employee related costs due in part to lower headcount, which was partially offset by an increase in restructuring costs due to the current period reduction in workforce.

General and administrative

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

General and administrative

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

General and administrative expenses for the three months ended September 30, 2023 decreased $2.2 million, or 20%, to $8.7 million, compared to $10.9 million for the three months ended September 30, 2022.

For the three months ended September 30, 2023 and 2022, general and administrative expense consisted mainly of employee salaries and benefits of $4.4 million and $5.1 million, professional fees of $2.1 million and $1.6 million, office overhead of $1.0 million and $1.1 million, non-cash share-based compensation expense of $0.7 million and $0.6 million, software license and maintenance costs of $0.7 million and $0.6 million, acquisition-related costs of $0.5 million and $0.5 million, and certain litigation and related costs of 

($1.6)million and $0.5 million, respectively. The decrease was mainly the result of a decrease in litigation related costs due to insurance reimbursements of previously incurred legal fees related to the FTC Consent Order and lower salaries due to a decline of headcount and certain employee salary reductions, partially offset by increased consulting fees.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

General and administrative expenses for the nine months ended September 30, 2023 decreased $8.9 million, or 26%, to $25.0 million, compared to $33.9 million for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023 and 2022, general and administrative expense consisted mainly of employee salaries and benefits of $13.9 million and $16.0 million, professional fees of $5.0 million and $4.3 million, office overhead of $3.2 million and $3.4 million, non-cash share-based compensation expense of $2.1 million and $1.8 million, software license and maintenance costs of $1.9 million and $1.8 million, acquisition-related costs of $1.7 million and $1.7 million, and certain litigation and related costs of  ($6.0) million and $2.5 million, respectively. The decrease was mainly the result of a decline in litigation related costs due to the lower-than-expected regulatory settlement reached in the second quarter of 2023, even as legal fees had increased to reach the settlement, along with insurance reimbursements for previously incurred legal fees related to the FTC Consent Order and lower salary costs due to restructuring in the first quarter of 2023 and fourth quarter of 2022.

These increases were partially offset by increased consulting fees and strategic employee training expenses. 

During the first quarter of 2023, the Company implemented reductions in the workforce that resulted in the termination of approximately 20 employees.

These reductions in workforce were implemented following management’s determination to reduce headcount and decrease the Company's overhead to more effectively align resources to the Company's core business operations.

In connection with these reductions in workforce, the Company incurred $0.5 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by March 31, 2024. 

For the three months ended March 31, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $4.7 million and $4.9 million, professional fees of $1.7 million and $1.6 million, office overhead of $1.0 million and $1.1 million, acquisition-related costs of $0.8 million and $0.6 million, software license and maintenance costs of $0.7 million and $0.6 million, non-cash share-based compensation expense of $0.5 million and $0.8 million, and certain litigation and related costs of $0.0 million and $1.4 million, respectively.

The decrease in general and administrative expenses is primarily due to the decline in litigation and related costs which was mainly the result of legal fees in the prior period related to the FTC Consent Order that was settled as of the second quarter of 2023.

During the first quarter of 2023 and the first quarter of 2024, the Company implemented reductions in the workforce that resulted in the termination of 20 and 20 employees, respectively.

These reductions in workforce were implemented following management’s determination to decrease the Company's overhead to more effectively align resources to the Company's strategic initiatives.

In connection with the first quarter 2023 reductions in workforce, the Company incurred $0.5 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, fully settled in cash by March 31, 2024.

In connection with the first quarter 2024 reductions in workforce, the Company incurred $0.7 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by September 30, 2024.

Apart from these exit-related restructuring costs, these reductions in workforce are expected to result in corresponding reductions in future salary and benefits within sales and marketing, product development, and general and administrative expenses.

Depreciation and amortization

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Depreciation and amortization

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Depreciation and amortization expenses for the three months ended September 30, 2023 decreased $0.7 million, or 22%, to $2.7 million, compared to $3.4 million for the three months ended September 30, 2022.

This decrease was mainly due to certain intangible assets that fully amortized as compared to the three months ended September 30, 2022, partly offset by the amortization of the acquired intangibles related to TAPP Influencers Corp ("TAPP").

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Depreciation and amortization expenses for the nine months ended September 30, 2023 decreased $1.9 million, or 19%, to $8.1 million, compared to $10.0 million for the nine months ended September 30, 2022.

This decrease was mainly due to certain intangible assets that had fully amortized as compared to the nine months ended September 30, 2022, partly offset by the amortization of the acquired intangibles related to TAPP.

Goodwill impairment

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Goodwill impairment

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

For the three months ended September 30, 2023, the Company recognized $29.7 of goodwill impairment related to both the Fluent and All Other Reporting Unit, compared to none for the three months ended September 30, 2022.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

For the nine months ended September 30, 2023, the Company recognized a $55.4 million impairment loss related to goodwill related to both the Fluent and All Other Reporting Unit, compared to $55.4 million related to the Fluent reporting unit for the nine months ended September 30, 2022.

Write-off of intangible assets

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Write-off of intangible assets

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

For the three months ended September 30, 2023 and 2022, the Company did not recognize write-offs of intangible assets.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

For the nine months ended September 30, 2023, the Company did not recognize write-offs of intangible assets, compared to $0.1 million for the write-offs of intangible assets related to software developed for internal use for the nine months ended September 30, 2022.

Loss (gain) on disposal of property and equipment

Three Months Ended September 30,

Nine Months Ended September 30,

The increase in depreciation and amortization costs was mainly due to an increase in software developed for internal use and the amortization of the intangibles related to the consolidation of TAPP Influencers Corp ("TAPP") as compared to the three months ended March 31, 2023, partly offset by certain intangible assets that fully amortized as compared to the prior period.

Goodwill impairment and write-off of intangible assets

Three Months Ended March 31,

(In thousands)

Loss (gain) on disposal of property and equipment

Three months ended September 30, 2023

 compared to the three months ended September 30, 2022

The Company recognized no gain or loss on disposal of property and equipment for the three months ended September 30, 2023, compared to de minimis gain on disposal for the three months ended September 30, 2022.

Nine months ended September 30, 2023

 compared to the nine months ended September 30, 2022

The Company recognized no gain or loss on disposal of property and equipment for the 

nine months ended September 30, 2023, compared to de minimis loss on disposal for the 

nine months ended September 30, 2022.

Goodwill impairment and write-off of intangible assets

The Company did not recognize an impairment loss related to goodwill or a write-off of intangible assets during the three months ended March 31, 2024, compared to the goodwill impairment of $25.7 million for the Fluent Reporting Unit for the three months ended March 31, 2023.

Interest expense, net

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Interest expense, net

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Interest expense, net, for the three months ended September 30, 2023 increased $0.4 million, compared to the three months ended September 30, 2022, which was driven by a higher average interest rate on the Term Loan described below under "Liquidity and Capital Resources" below.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Interest expense, net, for the nine months ended September 30, 2023 increased  

$1.1 million, compared to the nine months ended September 30, 2022 , which was driven by a higher average interest rate on the Term Loan described below under "Liquidity and Capital Resources."

Income (loss) before income taxes

Three Months Ended September 30,

Nine Months Ended September 30,

The increase in interest expense was driven by a higher average interest rate on the Citizens Bank term loan described below under "Liquidity and Capital Resources" below along with increased loan amortization.

Loss before income taxes

Three Months Ended March 31,

(In thousands)

Income (loss) before income taxes

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Loss before income taxes for the three months ended September 30, 2023 was $34.9 million, compared to income before income taxes of $0.1 million for the three months ended September 30, 2022.

The change in income (loss) before income taxes of $35.0 million was primarily due to a decline in revenues of $22.8 million and goodwill impairment of $29.7 million that occurred in the current period, partially offset by a decline in cost of revenue of $15.1 million and an overall decrease in operating expenses of $2.1 million driven in part by the contra-expense related to the insurance reimbursement for prior legal fees.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Loss before income taxes for the nine months ended September 30, 2023 was $60.8 million, compared to loss before income taxes of $53.7 million for the nine months ended September 30, 2022.

The increase in loss before income taxes of $7.0 million was primarily due to a decline in revenues of $50.8, partially offset by a decline in cost of revenue of $34.9 million and a decrease in operating expenses of $7.9 million driven in part by the contra-expense related to the insurance reimbursement for prior legal fees.

Income tax (expense) benefit

Three Months Ended September 30,

Nine Months Ended September 30,

Loss before income taxes

The decrease in loss before income taxes of $26.5 million was primarily due to a decrease of goodwill impairment of $25.7 million that occurred in the prior period, a decline in cost of revenue of $10.9 million, and an overall decrease in operating expenses of $2.3 million driven in part by the increase in prior period legal fees, partially offset by decline in revenue of $11.3 million.

Income tax expense

Three Months Ended March 31,

(In thousands)

Income tax (expense) benefit

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Income tax benefit for the three months ended September 30, 2023, was $1.2 compared to $3.0 for the three months ended September 30, 2022, primarily driven by the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses offset by the benefit of federal research and development credits.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Income tax expense for the nine months ended September 30, 2023 was $0.6 million, compared to $2.1 for the nine months ended September 30, 2022, primarily driven by the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses offset by the benefit of federal research and development credits.

As of September 30, 2023 and 2022, 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 such allowances. 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 upon the level of profitability that we are able to achieve and the net deferred tax assets available.

Net income (loss)

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax expense

For the three months ended March 31, 2024 and 2023, the effective tax rate of 16.9% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense, offset by the benefit of federal research and development credit.

For the three months ended March 31, 2023, the Company's effective income tax expense rate of 0.3% primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 2023 after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits on expected federal cash tax expense.

As of March 31, 2024 and 2023, the Company recorded full valuation allowances against its net deferred tax assets.

The Company intends to maintain full valuation allowances against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of such allowances.

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 upon the level of profitability that the Company is able to achieve and the net deferred tax assets available.

Three Months Ended March 31,

(In thousands)

Net income (loss)

Three months ended September 30, 2023  compared to the three months ended September 30, 2022

Net loss for the three months ended September 30, 2023 was $33.6 million compared to net income of $3.1 million for the three months ended September 30, 2022 due to a decline in revenues and a goodwill impairment  that occurred in the current period, partly offset by declines in cost of revenue and operating expenses as discussed above.

Nine months ended September 30, 2023  compared to the nine months ended September 30, 2022

Net loss for the nine months ended September 30, 2023 was $61.3 million compared to net loss of $55.8 million for the nine months ended September 30, 2022, due to a decline in revenues, partially offset by a decline in cost of revenue and a decrease in operating expenses as discussed above.

For the three months ended March 31, 2024 and 2023, net loss was $6.3 million and $31.9 million, respectively, as a result of the foregoing.

Liquidity and Capital Resources

Cash provided by operating activities .

For the nine months ended September 30, 2023, net cash provided by operating activities was $9.7 million, compared to net cash provided by operating activities of $7.1 million for the nine months ended September 30, 2022. Net loss in the current period of $61.3 million represents a decrease of $5.5 million, as compared with net loss of $55.8 million in the prior period. Adjustments to reconcile net loss to net cash provided by operating activities of $66.8 million in the current period decreased by $1.9 million, as compared with $68.7 million in the prior period, primarily due to a lower depreciation and amortization in the current period as compared to the prior period.

Changes in assets and liabilities sourcing cash of $4.3 million in the current period, as compared with consuming cash of $5.7 million in the prior period, primarily due to ordinary-course changes in working capital, largely involving the timing of receipt of amounts owing from clients and disbursements of amounts payable to vendors. 

Cash used in investing activities .

For the nine months ended September 30, 2023 and 2022, net cash used in investing activities was $5.4 million and $4.3 million, respectively.

The increase was mainly due to the increase in investment in capitalized software along with the impact of the TAPP consolidation that occurred in the current period ended September 30, 2023, compared to the True North Loyalty, LLC acquisition that occurred in the prior period ended September 30, 2022. 

Cash (used in) provided by operating activities .

For the three months ended March 31, 2024, net cash used in operating activities was $0.1 million, compared to net cash provided by operating activities of $4.9 million for the three months ended March 31, 2023.

Net loss in the current period of $6.3 million represents a decrease of $25.7 million, as compared with net loss of $31.9 million in the prior period.

Adjustments to reconcile net loss to net cash used in operating activities of $4.0 million in the current period decreased by $25.1 million, as compared with $29.1 million in the prior period, primarily due to no goodwill impairment in the current period as compared to the goodwill impairment of $25.7 million in the prior period.

There were changes in assets and liabilities sourcing cash of $2.2 million in the current period, as compared with $7.7 million in the prior period, primarily due to ordinary-course changes in working capital, largely involving the timing of receipt of amounts owing from clients and disbursements of amounts payable to vendors.

Cash used in investing activities .

For the three months ended March 31, 2024 and 2023, net cash used in investing activities was $1.8 million and $2.4 million, respectively.

The decrease was mainly due to the increase in investment in capitalized software, compared to the impact of the TAPP consolidation that occurred in 2023.

Cash used in financing activities.

Net cash used in financing activities for the nine months ended September 30, 2023 and 2022 was $9.4 million and $4.2 million, respectively.

The change was due to the $5.0 million prepayment made on the debt along with the fees paid related to the debt modification, slightly offset by the decline in taxes paid related to share settlements of vesting of restricted stock units.

As of September 30, 2023, we had noncancelable operating lease commitments of $4.8 million and long-term debt with a $32.5 million principal balance.

For the nine months ended September 30, 2023, we funded our operations using available cash.

As of September 30, 2023, we had cash and cash equivalents of $20.5 million, a decrease of $5.0 million from $25.5 million as of December 31, 2022.

Assuming maturity dates under the Credit Agreement are not accelerated, as noted below, we believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond regardless of our inability to access the Revolving Loans described below.

As of September 30, 2023, we were in compliance with our financial covenants except for the total leverage ratio covenant under the Credit Agreement.

See below for details related to the Temporary Waiver Under Credit Agreement (the “Waiver”) entered into related to such non-compliance.

We have projected a continued decline in our operating results, driven primarily by the continued economic slowdown and uncertainty, as well as the impacts of the recently imposed regulatory requirements.

Therefore, we do not expect be in compliance with certain of our financial covenants for the next twelve months.

If we are not in compliance with financial covenants, it will be an event of default that would give the lenders the right to accelerate maturities.

We had cash and cash equivalents of $20.5 million as of September 30, 2023, and had positive cash flow from operations in the prior two fiscal years and for the nine months ended September 30, 2023.

In addition, we plan to reduce costs and focus resources on new growth opportunities.

However, even with that, we may need to obtain additional liquidity if the debt were to become accelerated or we do not meet our 2024 budget, raising substantial doubt about the ability to continue as a going concern.

The Waiver requires that the Borrower provide a 2024 budget to Citizens Bank, that has been reviewed by the business consultant retained by counsel to Citizens Bank. 

We intend for that budget to inform modified financial covenant levels and other provisions, as needed, for the quarters ending December 31, 2023 through December 31, 2024, which would be accomplished with an amendment to the Credit Agreement.

We and Citizens Bank have previously entered into amendments to the Credit Agreement as needed, and we expect to be able to enter into a new amendment prior to the Termination Date (defined below).

While we believe our plans will alleviate the conditions or events that raise substantial doubt about our ability to continue as a going concern, successfully entering into a new amendment to the Credit Agreement with financial covenant levels we can satisfy is not entirely within our control.

In addition, there is no guarantee that the planned cost reductions or growth opportunities will be successfully executed or have the expected benefits.

As there can be no assurance that we will be able to effectively implement our plans within one year after the date of issuance of the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, management concluded that there is substantial doubt about our ability to continue as a going concern through such one-year period.

Net cash used in financing activities for the three months ended March 31, 2024 and 2023 was $2.2 million and $1.5 million, respectively.

The decrease was mainly due to the $2.0 million issuance of a junior secured promissory note in the current period offset by debt financing costs, as compared to the prior period taxes paid related to share settlements of vesting of restricted stock units.

As of March 31, 2024, we had noncancelable operating lease commitments of $3.6 million and long-term debt with a $30.0 million principal balance.

For the three months ended March 31, 2024, we funded our operations using available cash.

As of March 31, 2024, we had cash and cash equivalents of $11.7 million, a decrease of $4.1 million from $15.8 million as of December 31, 2023.

If we are not in compliance with our covenants or unable to draw on the SLR Revolver (as defined herein), both as described below, we would not have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond, raising substantial doubt about our ability to continue as a going concern.

As of March 31, 2024, we were in compliance with our covenants under the SLR Credit Agreement (as defined herein) and had excess access to the SLR Revolver.

As a result of economic downward trends as described above in "Advertiser Trends & Seasonality", we updated our projections to reflect the continued decline in our operating results.

Based on our projections, we do not expect to be in compliance for each of the quarters in the next twelve months.

Such non-compliance, in turn, would constitute an event of default that would give SLR (as defined herein) the right to accelerate the maturities under the SLR Credit Agreement.

Furthermore, the decline in operating results could lead to declines in the borrowing base under the SLR Revolver, which could lead to the Company's inability to draw on the SLR Revolver in order to fund its operations as well as, potentially, require repayment of a portion of its current borrowings under the SLR Credit Facility.

As a result, on May 13, 2024, we entered into the Private Placement discussed in Recent Developments above.

In addition, management initiated discussions with SLR about remedies if we are unable to meet our future covenants in the next twelve months or our borrowing base declines.

As a result of such discussions, on May 15, 2024 we entered into the first amendment to the SLR Credit Agreement pursuant to which SLR, among other things, waived any required repayments on the SLR Revolver from the proceeds from the Private Placement (See Note 5, Long-term debt, net in the Notes to the Consolidated Financial Statements).

Furthermore, given the continued challenges we have faced achieving our financial targets, we plan to implement additional cost reductions and focus resources on opportunities that will enable us to meet our projected budget and cash flow requirements.

These initial plans have included divesting a business unit that has not met our needs (see Note 12, Subsequent Events, in the Notes to the Consolidated Financial Statements) and reviewing divesting other business units to determine the impact of potential divestments.

While we believe the proceeds from the Private Placement and other steps as noted above will be adequate enough to cover a decline in the borrowing base under the SLR Revolver (as defined below) as well as fund our current operations, there is no guarantee that our plans will be successfully executed or have the expected benefits.

Furthermore, if an event of default under the SLR Credit Agreement (as defined below) were to occur and the maturity date accelerated, we likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver.

While management believes they will be able to work through their plans to mitigate any event of default with SLR, obtaining a waiver of an event of default or entering into an amendment to mitigate an event of default is not entirely within our control.

As there can be no assurance that we will be able to effectively implement our plans within one year after the date of this report, based on the factors above, management concluded that there is substantial doubt about our ability to continue as a going concern through such one - year period.

We may explore the possible acquisition of businesses, products and/or technologies that are complementary to our existing business.

We continue to identify and prioritize additional technologies, which we may wish to develop internally or through licensing or acquisition from third parties.

While we may engage from time to time in discussions with respect to potential acquisitions, there can be no assurance that any such acquisitions will be made or that we will be able to successfully integrate any acquired business with our then current business or realize anticipated cost synergies. In order to finance such acquisitions and working capital, it may be necessary for us to raise additional funds through public or private financings.

In order to finance such acquisitions and working capital, it may be necessary for us to raise additional funds through public or private financings.

Any equity or debt financings, if available at all, may be on terms which are not favorable to us and, in the case of equity financings, may result in dilution to shareholders.

On March 31, 2021, Fluent, LLC (the "Borrower"), entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the "Credit Agreement") with certain subsidiaries of the Borrower as guarantors, the lenders thereto, and Citizens Bank, N.A.

On March 31, 2021, Fluent, LLC (the "Borrower") entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the "Citizens Credit Agreement") with certain subsidiaries of Fluent, LLC as guarantors, the lenders thereto, and Citizens Bank, N.A.

("Citizens Bank") as administrative agent, lead arranger and bookrunner.

The original Credit Agreement provided for a term loan in the aggregate principal amount of $50,000 funded on the closing date (the "Term Loan"), along with an undrawn revolving credit facility of up to $15,000 (the "Revolving Loans," and together with the Term Loan, the "Credit Facility"). 

On May 15, 2023, the Borrower and Citizens Bank entered into a third amendment to the Credit Agreement, which amended certain provisions by adding an additional tier of applicable margin to the selected rates and providing for additional notice of certain material events and, for the remaining fiscal quarters of 2023, established the following, in each case pursuant to the terms and conditions under the Credit Agreement, (i) adjustments to the pricing floor and certain EBITDA add-backs;

(ii) monthly financial reporting requirements;

(iii) additional financial covenant testing conditions on Fluent’s ability to draw on the Revolving Loans; (iv) additional tiers to certain financial covenants and added a minimum cash liquidity financial covenant;

(v) additional restrictions on the ability to (a) make loans and advances to officers, directors and employees;

(b) invest in certain subsidiaries and joint ventures;

and (c) make additional loans, investments or permitted acquisitions;

and (vi) additional unrestricted cash requirements before the Company is permitted to pay dividends, make distributions or redeem or repurchase equity interests. 

Additionally, on August 21, 2023, the Borrower and Citizens Bank entered into a fourth amendment to the Credit Agreement , which (i) adjusted certain financial covenants for the remaining fiscal quarters of 2023, including prohibiting the Company from drawing on the Revolving Loans until the issuance of the December 31, 2023 annual financial statements, (ii) temporarily adjusted interest rates, (iii) permitted the Citizens Bank to retain a business consultant at the Borrower's expense to advise on the credit parties’

financial and operating performance;

(iv) required weekly liquidity reports to Citizens Bank, and (v) required a $5 million prepayment of the Term Loan and a $5 million reduction to the maximum availability of the Revolving Loans to $10 million.

The $5 million prepayment amount was paid as of September 30, 2023.

On November 15, 2023, the Borrower and Citizens Bank entered into a Waiver to the Credit Agreement, pursuant to which Citizens Bank agreed to waive through the earlier of January 15, 2024 or an occurrence of any other event of default (the “Termination date”) its rights and remedies arising from the Company’s breach of the total leverage covenant during the quarter ending September 30, 2023. 

The Waiver added new reporting requirements, temporarily increased the applicable margin, and extended the term of the business consultant through January 15, 2024. The Borrower must also provide a 2024 budget that has been reviewed by the business consultant retained by counsel to Citizens Bank. 

We intend for that to inform modified financial covenant levels and other provisions, as needed, for the quarters ending December 31, 2023 through December 31, 2024, which would be accomplished with an amendment to the Credit Agreement.

All obligations under the Credit Agreement currently mature on March 31, 2026, and interest is payable monthly.

Scheduled principal amortization of the Term Loan is $1,250 per quarter, which commenced with the fiscal quarter ended June 30, 2021. At September 30, 2023, the Company was in compliance with all of the financial covenants under the Credit Agreement except for the total leverage ratio covenant.

As discussed above, this covenant breach was waived through the Termination date by the Waiver.

However, based on projections, we do not expect to be in compliance with certain financial covenants during certain quarters in the next twelve months.

If the Company is not in compliance with financial covenants, it will be an event of default that would give the lenders the right to accelerate maturity. 

Accordingly, all borrowings under the Credit Agreement have been classified as current as of September 30, 2023.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the benchmark selected by the Borrower, which may be based on the Alternative Base Rate, (as defined in the Credit Agreement), LIBOR (as defined in the Credit Agreement) rate (subject to a floor of 0.25%) prior to the election as of December 31, 2022 or Term SOFR (as defined in the Credit Agreement) (subject to a floor of 0.00%) subsequent to the election, plus a margin applicable to the selected benchmark.

The applicable margin is between 0.75% and 2.25% for borrowings based on the Alternative Base Rate and 1.75% and 3.25% for borrowings based on Term SOFR, depending upon the Borrower's total leverage ratio.

The opening interest rate of the Credit Facility was 2.50% (LIBOR + 2.25%), which increased to 8.92% (Term SOFR + 0.1% + 3.50%) as of

September 30, 2023.

The Credit Agreement also contains certain customary conditions applicable to extensions of credit, including that representations and warranties made in the Credit Agreement be materially true and correct at the time of such extension (once such extensions are no longer prohibited by the Fourth Amendment or a later amendment). 

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The original Citizens Credit Agreement provided for a term loan in the aggregate principal amount of $50.0 million funded on the closing date, along with an undrawn revolving credit facility of up to $15.0 million (together with the term loan, the "Citizens Credit Facility").

On January 26, 2024, the Borrower and Citizens Bank entered into a Third Temporary Waiver and Amendment to Credit Agreement (the "Third Waiver"), pursuant to which Citizens Bank agreed to waive through the earlier of April 30, 2024, an occurrence of any other event of default, or failure to comply with requirements of the Third Waiver and its rights and remedies arising from the Company’s breach of the total leverage covenant and fixed charge ratio during the quarters ending December 31, 2023 and March 31, 2024.

Among other things, the Third Waiver required the Borrower to, by March 31, 2024, deliver one or more Transaction Commitments, defined as:

(i) a third-party commitment to provide additional capital in exchange for equity or subordinated debt, (ii) a purchase agreement for the sale of a divested business, or (iii) a third-party commitment to refinance the Credit Agreement.

One condition of the Transaction Commitments was that the Borrower provide for net proceeds, in the aggregate, to Fluent of not less than $10.0 million.

On April 2, 2024, Fluent, LLC, as Borrower, entered into a credit agreement (the "SLR Credit Agreement") with Fluent, Inc.

and certain subsidiaries of the Borrower as guarantors, Crystal Financial LLC D/B/A SLR Credit Solutions, as administrative agent, lead arranger and bookrunner ("SLR"), and the lenders from time to time party thereto.

The SLR Credit Agreement provides for a $20.0 million term loan (the "SLR Term Loan") and a revolving credit facility of up to $30.0 million (the "SLR Revolver" and, together with the SLR Term Loan, the "SLR Credit Facility").

As of April 2, 2024, the SLR Credit Facility has an outstanding principal balance of $32.7 million and will mature on April 2, 2029 (the "Maturity Date").

We used a portion of the net proceeds of the SLR Credit Facility to repay our outstanding obligations under the Citizens Credit Agreement dated March 31, 2021.

We may voluntarily prepay the SLR Term Loan, in whole or in part, at any time, subject to a premium payable on the aggregate principal amount of any such voluntary prepayments within the first three years following the closing date.

There is no principal amortization prior to maturity under the SLR Credit Agreement, except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case, subject to certain reinvestment rights, thresholds and other exceptions.

Unfunded commitments under the SLR Revolver will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50% per annum.

All amounts owed under the Credit Facilities will be due and payable on the Maturity Date, or earlier following a change in control or other event of default, unless otherwise extended in accordance with the terms of the SLR Credit Agreement.

Borrowings under the SLR Credit Agreement bear interest at a rate per annum equal to a 3-month term SOFR plus 0.26161%, subject to a 1.50% floor, plus 5.25% (the "Applicable Margin").

The Applicable Margin will be reduced to 5.0% when our fixed charge coverage ratio is greater than 1.10 to 1.

The opening interest rate of the SLR Credit Facility was 10.81% (SOFR + CSA + 5.25%).

On May 15, 2024, the Borrower and SLR entered into the first amendment to SLR Credit Agreement, pursuant to which SLR (1) waived any required prepayments on the SLR Revolver from the proceeds from the Private Placement;

(2) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor, (3) increased the minimum excess availability covenant following the Private Placement;

(4) amended the definition of borrowing base (as defined in the SLR Credit Agreement);

and (5) amended certain post-closing obligations.

The SLR Credit Facility is guaranteed by us and certain of our direct and indirect subsidiaries and is secured by substantially all of our assets and those of certain of our direct and indirect subsidiaries, including Fluent, LLC.

The SLR Credit Agreement contains restrictive covenants which impose limitations on the way we conduct our business, including, but not limited to, limitations on the amount of additional debt we are able to incur and our ability to make certain investments or to pay dividends or other restricted payments.

The SLR Credit Agreement also contains certain affirmative covenants and customary events of default provisions, including, subject to grace periods, among others, payment default, covenant default and judgment default.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We periodically evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation, income taxes, and contingencies.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation, income taxes, and contingencies.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions. All amounts below are presented in thousands.

As disclosed in Note 4, Goodwill, the Company engaged a third party to assist in conducting an interim test of the fair value of its goodwill for potential impairment for the three months ended March 31, 2023.

The Company considered a combination of income and market approaches to determine the fair value of the Fluent reporting unit. The Company determined that a market-based approach, due to the decline in value of its publicly traded stock, provided the best indication of fair value of the Fluent reporting unit.

The market approach considers the Company’s implied market multiple applied to management’s forecast and further adjusted for a control premium. If we were to experience an additional decline in market capitalization or assumptions in management's forecast, there would be an increased risk of impairment of goodwill. Based on the results of this market-based approach as of March 31, 2023, the Company concluded that its carrying value exceeded its estimated fair value by 20%. As such, the Company concluded that its goodwill of $51,614 for the Fluent reporting unit was impaired and recorded a non-cash impairment charge of $25,700 for the first quarter of 2023. 

Additionally, the Company engaged a third party to assist in conducting an interim test of the fair value of its goodwill for potential impairment for the three months ended June 30, 2023.

The Company determined that a combination of income approach and the market approach provided the best indication of fair value of the Fluent reporting unit.

The income approach and market approach utilize accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions.

The critical assumptions in the income approach include forecasted revenues and profitability, long-term growth rates, and discount rates.

The market approach considers the Company’s implied market multiple applied to management's forecasted profitability and is further adjusted for control premium.

Management exercises judgment in developing these assumptions.

If we were to experience sales declines, a significant change in operating margins which may impact our cash flows, an increase in our discount rates, a decline in the Company’s market capitalization, and/or a decrease in our projected long-term growth rates, there would be an increased risk of impairment of goodwill and/or other assets.

Based on the results of this approach as of June 30, 2023, the Company concluded that its fair value exceeded its estimated carrying value by 5%. As such the Company concluded that its goodwill of $27,469 for the Fluent reporting unit was not impaired. If there is a reduction in operating results or a decline in the market value of the Company's publicly-traded stock, this could result in future impairment charges, which could affect the financial results.

Further, the Company engaged a third party to assist in conducting an interim test of the fair value of its goodwill for potential impairment for the three months ended September 30, 2023. The Company determined that a combination of income approach and the market approach provided the best indication of fair value of the Fluent reporting unit and All Other.

The critical assumptions in the income approach include forecasted revenues and profitability, long-term growth rates, and discount rates.

The market approach for the Fluent reporting unit considers the Company’s implied market multiple applied to management's forecasted profitability and is further adjusted for control premium.

The market approach for All Other considers the enterprise values of comparable companies applied to management's forecasted profitability and is further adjusted for control premium.

Management exercises judgment in developing these assumptions.

The results of this approach indicated that the Fluent reporting unit’s carrying value and All Others carrying value exceeded its fair value by 32% and 29%, respectively. The Company therefore concluded that the Fluent reporting unit’s goodwill was impaired and recorded a non-cash impairment for the remainder of the goodwill balance of $27,469.

In addition, the All Other goodwill of $3,497 was also concluded to be impaired and the Company recorded a non-cash impairment charge of $2,236.

For additional information, please refer to our 2022 Form 10-K.

There have been no additional material changes to Critical Accounting Policies and Estimates disclosed in the 2022 Form 10-K.

Actual results may differ from these estimates under different assumptions or conditions.

Further details of the Company's accounting policies are available in Item 1, Financial Statements, Note 1, Summary of significant accounting policies , to Consolidated Financial Statements.

For additional information, please refer to our 2023 Form 10-K.

There have been no additional material changes to Critical Accounting Estimates disclosed in the 2023 Form 10-K.

Recently issued accounting and adopted standards

See Note 1(b), " Recently issued and adopted accounting standards," in the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

See Note 1(c), " Recently issued and adopted accounting standards," in the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures About Market Risk.

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Item 2. Management’s Discussion and Analysis