Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS.
FLUENT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(unaudited)
March 31, 2024
December 31, 2023
ASSETS:
Cash and cash equivalents
$ 11,658 $ 15,804
Accounts receivable, net of allowance for doubtful accounts of $ 247 and $ 231 , respectively
53,421 56,531
Prepaid expenses and other current assets
6,337 6,071
Total current assets
71,416 78,406
Property and equipment, net
502 591
Operating lease right-of-use assets
2,952 3,395
Intangible assets, net
26,141 26,809
Goodwill
1,261
1,261
Other non-current assets
1,305 1,405
Total assets
$ 103,577 $ 111,867
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable
$ 8,829 $ 10,954
Accrued expenses and other current liabilities
30,878 30,534
Deferred revenue
561 430
Current portion of long-term debt
30,981 5,000
Current portion of operating lease liability
2,279 2,296
Total current liabilities
73,528 49,214
Long-term debt, net
— 25,488
Operating lease liability, net
1,188 1,699
Other non-current liabilities
115 1,062
Total liabilities
74,831 77,463
Contingencies (Note 10)
Shareholders' equity:
Preferred stock — $ 0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods
— —
Common stock — $ 0.0005 par value, 200,000,000 Shares authorized; Shares issued — 14,429,193 and 14,384,936 , respectively; and Shares outstanding — 13,660,598 and 13,616,341 , respectively (Note 7)
43 43
Treasury stock, at cost — 768,595 and 768,595 Shares, respectively (Note 7)
( 11,407 ) ( 11,407 )
Additional paid-in capital
427,904 427,286
Accumulated deficit
( 387,794 ) ( 381,518 )
Total shareholders' equity
28,746 34,404
Total liabilities and shareholders' equity
$ 103,577 $ 111,867
See notes to consolidated financial statements
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FLUENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(unaudited)
Three Months Ended March 31,
2024
2023
Revenue
$ 65,983 $ 77,254
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization)
47,348 58,272
Sales and marketing
4,812 4,813
Product development
4,840 4,938
General and administrative
10,365 12,325
Depreciation and amortization
2,571 2,359
Goodwill impairment and write-off of intangible assets
— 25,700
Total costs and expenses
69,936 108,407
Loss from operations
( 3,953 ) ( 31,153 )
Interest expense, net
( 1,415 ) ( 689 )
Loss before income taxes
( 5,368 ) ( 31,842 )
Income tax expense
( 908 ) ( 101 )
Net loss
( 6,276 ) ( 31,943 )
Basic and diluted loss per share:
Basic
$ ( 0.45 ) $ ( 2.34 )
Diluted
$ ( 0.45 ) $ ( 2.34 )
Weighted average number of shares outstanding:
Basic
13,902,165 13,651,152
Diluted
13,902,165 13,651,152
See notes to consolidated financial statements
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FLUENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands, except share and per share data)
(unaudited)
Common stock
Treasury stock
Additional paid-in
Accumulated
Total shareholders'
Shares
Amount
Shares
Amount
capital
deficit
equity
Balance at December 31, 2023
14,384,936 $ 43 768,595 $ ( 11,407 ) $ 427,286 $ ( 381,518 ) $ 34,404
Vesting of restricted stock units and issuance of stock under incentive plans
44,257 — — — — — —
Share-based compensation
— — — — 618 — 618
Net loss
— — — — — ( 6,276 ) ( 6,276 )
Balance at March 31, 2024
14,429,193 $ 43 768,595 $ ( 11,407 ) $ 427,904 $ ( 387,794 ) $ 28,746
Common stock
Treasury stock
Additional paid-in
Accumulated
Total shareholders'
Shares
Amount
Shares
Amount
capital
deficit
equity
Balance at December 31, 2022
14,129,530 $ 42 716,692 $ ( 11,171 ) $ 423,384 $ ( 318,300 ) $ 93,955
Vesting of restricted stock units and issuance of stock under incentive plans
193,323 1 — — ( 1 ) — —
Increase in treasury stock resulting from shares withheld to cover statutory taxes
— — 51,903 ( 236 ) — — ( 236 )
Share-based compensation
— — — — 1,148 — 1,148
Net loss
— — — — — ( 31,943 ) ( 31,943 )
Balance at March 31, 2023
14,322,853 $ 43 768,595 $ ( 11,407 ) $ 424,531 $ ( 350,243 ) $ 62,924
See notes to consolidated financial statements
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FLUENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
Three Months Ended March 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$ ( 6,276 ) $ ( 31,943 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
2,571 2,359
Non-cash loan amortization expense
711 61
Share-based compensation expense
600 1,061
Goodwill impairment
— 25,700
Allowance for credit losses
82 ( 55 )
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable
3,028 6,460
Prepaid expenses and other current assets
( 266 ) ( 2,082 )
Other non-current assets
100 82
Operating lease assets and liabilities, net
( 85 ) ( 82 )
Accounts payable
( 2,125 ) 6,739
Accrued expenses and other current liabilities
2,344 ( 3,362 )
Deferred revenue
131 ( 9 )
Other
( 947 ) ( 39 )
Net cash (used in) provided by operating activities
( 132 ) 4,890
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized costs included in intangible assets
( 1,796 ) ( 1,134 )
Business acquisitions, net of cash acquired
— ( 1,250 )
Net cash used in investing activities
( 1,796 ) ( 2,384 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt
( 1,250 ) ( 1,250 )
Debt financing costs
( 968 ) —
Taxes paid related to net share settlement of vesting of restricted stock units
— ( 236 )
Net cash used in financing activities
( 2,218 ) ( 1,486 )
Net increase (decrease) in cash and cash equivalents
( 4,146 ) 1,020
Cash and cash equivalents at beginning of period
15,804 25,547
Cash and cash equivalents at end of period
$ 11,658 $ 26,567
SUPPLEMENTAL DISCLOSURE INFORMATION
Cash paid for interest
$ 759 664
Cash paid for income taxes
$ 31 55
Share-based compensation capitalized in intangible assets
$ 18 27
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Contingent payments in connection with TAPP consolidation
$ — $ 2,693
Long-term debt issuance
$ 2,000 $ —
See notes to consolidated financial statements
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(unaudited)
1. Summary of significant accounting policies
(a) Basis of preparation
The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("GAAP" or "U.S. GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods ended March 31, 2024 and 2023 , respectively, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2024 .
From time to time, the Company may enter into relationships or investments with other entities, and, in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity ("VIE"). The Company consolidates a VIE in its financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE.
The information included in this Quarterly Report on Form 10 -Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2023 (" 2023 Form 10 -K") filed with the SEC on April 2, 2024 . The consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date and included in the 2023 Form 10 -K.
Going concern
In accordance with Accounting Standards Codification (“ASC”) 205 - 4 0, Presentation of Financial Statements – Going Concern, management must evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date these accompanying unaudited consolidated financial statements are issued (the “issuance date”). As part of this evaluation, management may consider the potential mitigating impact of its plans that have not been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date.
The Company has experienced a decline in its operating results, driven primarily by the continued impact of the imposed regulatory requirements on its owned and operated digital media properties (see Note 10 , Contingencies) . As a result, the Company had pre-emptively received a waiver for not being in compliance with the total leverage and fixed charge ratio covenants under the Citizens Credit Agreement as of March 31, 2024 (as defined in Note 5 ) (see Note 5 , Long-term debt, net ) and such event of default continued until that debt was extinguished with proceeds from the SLR Credit Agreement (as defined in Note 5 ) entered into on April 2, 2024. The SLR Credit Agreement requires the Company to maintain and comply with certain financial covenants. Moreover, the borrowings under the SLR Revolver (as defined in Note 5 ) under the SLR Credit Agreement are limited to a borrowing base described in Note 5 . The borrowing base fluctuates as regularly as weekly based on our eligible accounts receivable. As a result of a decline in financial performance of the Company's owned and operated digital media properties in April 2024, the Company's accounts receivable were expected to be insufficient to support the borrowing base needed to fund operations through the end of the second quarter of 2024. The Company therefore raised equity capital in the private placement described below and updated its projections to reflect the continued decline in its operating results. The revised projections indicate that the Company will not be in compliance with all financial covenants under the SLR Credit Agreement for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10 -Q. Such non-compliance, in turn, would constitute an event of default that would give SLR (as defined in Note 5 ) the right to accelerate maturities under the SLR Credit Agreement. Furthermore, the decline in operating results could lead to declines in the borrowing base, which could lead to the Company's inability to draw on the SLR Revolver Facility in order to fund its operations as well as, potentially, require repayment of a portion of its current borrowings under the SLR Credit Facility. While the Company had cash and cash equivalents of $ 11,658 as of March 31, 2024 and raised an additional $ 10,000 in gross proceeds from the private placement on May 13, 2024 ( as described in Note 12 , Subsequent Events), management does not expect the Company’s cash resources will be adequate to meet its obligations as they become due within the one -year period after the issuance date if maturities under the SLR Credit Agreement are accelerated or the SLR Revolver cannot be drawn on due to a decline in the borrowing base if the Company did not meet is projections. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.
On May 15, 2024, the Company and SLR entered into the first amendment to the SLR Credit Agreement pursuant to which, among other things, SLR waived any required prepayments on the SLR Revolver from the proceeds from the Private Placement (see Note 5 , Long-term debt, net ). Additionally, the Company has initiated discussions with SLR about remedies if the Company is unable to meet its covenants in the next twelve months.
Given the continued challenges the Company has faced achieving its financial targets, the Company plans to consider further cost reduction measures and focus resources on opportunities that will enable the Company to meet its projected budget and cash flow requirements. These initial plans include divesting a business unit (see Note 12 , Subsequent Events ) and reviewing divesting other business units to determine the impact of potential divestments.
While management believes the proceeds from the Private Placement and the other steps noted above will be adequate to cover a decline in the borrowing base under the SLR Revolver and fund its current operations, there is no guarantee that the Company's plans will be successfully executed or have the expected benefits. Furthermore, if an event of default under the SLR Credit Agreement were to occur and the maturity date accelerated, the Company likely would not have sufficient funds to repay the Term Loan (as defined in Note 5 ) and the SLR Revolver. While management believes the Company will be able to work through its 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 the Company’s control. As there can be no assurance that the Company will be able to effectively implement its plans within one year after the issuance date, based on the factors above, management concluded that there is substantial doubt about the Company's ability to continue as a going concern through such one - year period.
The accompanying unaudited financial statements do not include any adjustments relating to the possible future effects on the recoverability and classification of recorded assets and classification of liabilities that might result should the Company be unable to continue as a going concern.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.
(b) Reverse stock split
On April 11, 2024, the Company effected a 1 -for- 6 reverse split of the issued shares (the "Reverse Stock Split") of the Company’s common stock. All historical share amounts disclosed in this Quarterly Report on Form 10 -Q have been retroactively restated to reflect the Reverse Stock Split. No fractional shares were issued as a result of the Reverse Stock Split, as fractional shares of Common Stock were rounded up to the nearest whole share. See Note 7, Common stock and treasury stock for additional information.
(c) Recently issued and adopted accounting standards
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the Company's consolidated financial statements.
In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023 - 06, D isclosure Improvements: Codification Amendments in Response to the SEC ’ s Disclosure Update and Simplification Initiatives , which incorporates updates to the Codification to align with SEC disclosure requirements in response to the August 2018 SEC Release No. 33 - 10532. The amendment updates and simplifies certain SEC disclosure requirements that were duplicative, overlapping, or outdated due to changes in other SEC requirements and in U.S. GAAP, International Financial Reporting Standards (“IFRS”), or the overall financial reporting environment. The new guidance is effective for each amendment only if the SEC removes the related disclosure of presentation requirements from its existing regulations by June 30, 2027. The guidance is to be applied prospectively, with early adoption prohibited. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements and disclosures.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
In November 2023, the FASB issued ASU No. 2023 - 07, Segment Reporting (Topic 2 80 ): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and an explanation of any additional measures the CODM uses in deciding how to allocate resources. The new guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The guidance is to be applied on a retrospective basis, with such disclosures to be made in regard to all prior periods presented in the financial statements. The Company is currently completing its assessment and expects this update to have no material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023 - 09, Income Taxes (Topic 470 ): Improvements to Income Tax Disclosures , which are designed to increase the transparency and decision-usefulness of income tax disclosures for financial statement users. The ASU follows investors' indication and request for enhanced tax disclosures in order to better assess an entity’s operations, related tax risks, jurisdictional tax exposures, and increase transparency regarding tax information through improvements to tax disclosures, specifically rate reconciliation, income taxes paid, and unrecognized tax benefits and certain temporary differences. The new guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, and early adoption is permitted. The guidance is to be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
(d) Revenue recognition
Data and performance-based marketing
Revenue is generated when control of goods or services is transferred to customers, in the amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's performance obligation is typically to (a) deliver data records based on predefined qualifying characteristics specified by the customer, (b) generate conversions based on predefined user actions (for example, a click, a registration, or the installation of an app) and subject to certain qualifying characteristics specified by the customer, (c) verify user interest or transfer calls to advertiser clients as a part of the contact center operation, or (d) deliver media spend as a part of the business of AdParlor, LLC ("AdParlor"), a wholly-owned subsidiary of the Company.
The Company applies the practical expedient related to the review of a portfolio of contracts in reviewing the terms of customer contracts as one collective group, rather than by individual contract. Based on historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company concluded that the financial statement effects are not materially different than accounting for revenue on a contract-by-contract basis.
Revenue is recognized upon satisfaction of associated performance obligations. The Company's customers simultaneously receive and consume the benefits provided, which satisfies the Company's performance obligations. Furthermore, the Company elected the "right to invoice" practical expedient available within ASC 606 - 10 - 55 - 18 as the measure for revenue to be recognized, as it corresponds directly with the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's revenue arrangements do not contain significant financing components. The Company has further concluded that revenue does not require disaggregation.
For each identified performance obligation in a contract with a customer, the Company assesses whether it or the third -party supplier is the principal or agent. In arrangements where Fluent has substantive control of the specified goods and services, is primarily responsible for the integration of products and services into the final deliverable to the customer, and has inventory risk and discretion in establishing pricing, Fluent is considered to have acted as the principal. For performance obligations in which Fluent acts as principal, the Company records the gross amount billed to the customer within revenue and the related incremental direct costs incurred as cost of revenue. If the third -party supplier, rather than Fluent, is primarily responsible for the performance and deliverable to the customer, and Fluent solely arranges for the third -party supplier to provide services to the customer, Fluent is considered to have acted as the agent. For performance obligations in which Fluent acts as the agent, the net fees on such transactions are recorded as revenue, with no associated costs of revenue for the Company.
If a customer pays consideration before the Company's performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets. As of
March 31, 2024 and
December 31, 2023 , the balance of deferred revenue was
$ 561 and
$ 430 , respectively. The majority of the deferred revenue balance as of
December 31, 2023 was recognized as revenue during the
first quarter of
2024 .
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
When there is a delay between the period in which revenue is recognized and when a customer invoice is issued, revenue is recognized, and the related amounts are recorded as unbilled revenue within accounts receivable on the consolidated balance sheets. As of March 31, 2024 and December 31, 2023 , unbilled revenue included in accounts receivable was $ 18,623 and $ 21,488 , respectively. In line with industry practice, the unbilled revenue balance is recorded based on the Company's internally tracked conversions, net of estimated variances between this amount and the amount tracked and subsequently confirmed by customers. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have not differed materially from actual invoiced revenue.
Sales commissions are recorded at the time revenue is recognized and recorded in sales and marketing in the consolidated statements of operations. The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.
In addition, the Company elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.
Commission revenue
The Company, acting as the agent, recognizes commission revenue that it expects to receive from the insurance provider from the sale of certain of its health insurance policies, which includes the assumed automatic renewals of such policies once its performance obligation is satisfied. The Company considers its performance obligation related to commissions for both the initial policy sale and future renewals of the policy to be satisfied upon submission by the Company of the initial policy application.
The Company applies the practical expedient to estimate the commission revenue for each insurance policy by applying the use of the portfolio approach to policies grouped together by product type and period submitted for effectuation.
The commission revenue is variable based on a policy's estimated lifetime value ("LTV"), which is based on the time the Company expects the policy will remain effective due to past trends, industry data, expectations as to future retention rates, and commission rates. Further, the Company considers the application of constraints to the LTV and only recognizes the amount of variable consideration believed probable to be received that will not be subject to a significant revenue reversal in the future. Based on this, the commission revenue is recorded upon satisfaction of the performance obligation, which is typically paid monthly by the insurance provider as the consumer renews and pays the insurance provider for the policy over the duration the consumer remains on the policy.
The Company reassesses the estimated LTV for the health insurance policies on a quarterly or as-needed basis. Adjustments to the LTV may result in an increase or decrease in revenue and the corresponding asset in the period the change is made.
(e) Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company’s management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the allowance for credit losses, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, the portion of revenue subject to estimates for variances between internally-tracked conversions and those confirmed by the customer, the variable commission revenue based on the estimated LTV, purchase accounting, consolidation of variable interest entity and income tax provision. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
(f) Fair value
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820, Fair Value Measurements and Disclosure describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
●
Level 1 — defined as observable inputs, such as quoted prices in active markets;
●
Level 2— defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
● Level 3 — defined as unobservable inputs, for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
The fair value of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.
As of March 31, 2024 , the Company regards the fair value of its long-term debt to approximate its carrying value. The fair value assessment represents a Level 2 measurement. See Note 5 , Long-term debt, net .
The fair value of certain long-lived non-financial assets and liabilities may be required to be measured on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. As of March 31, 2024 , certain non-financial assets have been measured at fair value subsequent to their initial recognition. The Company determined the estimated fair value to be a Level 3 measurement, as certain inputs used to determine fair value are unobservable.
2. Loss per share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, in addition to restricted stock units ("RSUs") that are vested but not delivered. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock. Stock equivalent shares are excluded from the calculation in loss periods, as their effects would be anti-dilutive.
For the three months ended March 31, 2024 and 2023 , basic and diluted loss per share were as follows:
Three Months Ended March 31,
2024
2023
Numerator:
Net loss
$ ( 6,276 ) $ ( 31,943 )
Denominator:
Weighted average shares outstanding
13,572,224 13,368,380
Weighted average restricted shares vested not delivered
329,941 282,772
Total basic weighted average shares outstanding
13,902,165 13,651,152
Dilutive effect of assumed conversion of restricted stock units
— —
Total diluted weighted average shares outstanding
13,902,165 13,651,152
Basic and diluted loss per share:
Basic
$ ( 0.45 ) $ ( 2.34 )
Diluted
$ ( 0.45 ) $ ( 2.34 )
Based on exercise prices compared to the average stock prices for the three months ended March 31, 2024 and 2023 , certain stock equivalents, including restricted stock units and stock options, have been excluded from the diluted weighted average share calculations due to their anti-dilutive nature.
Three Months Ended March 31,
2024
2023
Restricted stock units
449,673 878,349
Stock options
302,330 356,500
Total anti-dilutive securities
752,003 1,234,849
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
3. Intangible assets, net
Intangible assets, net, other than goodwill, consist of the following:
Amortization period (in years) March 31, 2024
December 31, 2023
Gross amount:
Software developed for internal use
3 $ 21,990 20,175
Acquired proprietary technology
3 - 5 16,972 16,972
Customer relationships
5 - 10 39,168 39,168
Trade names
4 - 20 16,657 16,657
Domain names
20 195 195
Databases
5 - 10 31,292 31,292
Non-competition agreements
2 - 5 1,768 1,768
128,042 126,227
Total gross amount
Accumulated amortization:
Software developed for internal use
( 13,353 ) ( 12,142 )
Acquired proprietary technology
( 15,285 ) ( 15,132 )
Customer relationships
( 37,497 ) ( 37,249 )
Trade names
( 7,098 ) ( 6,893 )
Domain names
( 80 ) ( 77 )
Databases
( 26,820 ) ( 26,157 )
Non-competition agreements
( 1,768 ) ( 1,768 )
Total accumulated amortization
( 101,901 ) ( 99,418 )
Net intangible assets:
Software developed for internal use
8,637 8,033
Acquired proprietary technology
1,687 1,840
Customer relationships
1,671 1,919
Trade names
9,559 9,764
Domain names
115 118
Databases
4,472 5,135
Total intangible assets, net
$ 26,141 $ 26,809
The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software. The amounts relating to acquired proprietary technology, customer relationships, trade names, domain names, databases, and non-competition agreements primarily represent the fair values of intangible assets acquired as a result of the acquisition of Fluent, LLC, effective December 8, 2015; the acquisition of Q Interactive, LLC, effecti ve June 8, 2016; the acquisition of substantially all the assets of AdParlor Holdings, Inc. and certain of its affiliates, effective July 1, 2019 ( the "AdParlor Acquisition"); the acquisition of a 50 % interest in Winopoly, LLC, effective April 1, 2020; the acquisition of a 100 % interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022, and the consolidation of TAPP Influencers Corp. ("TAPP") effective January 9, 2023 ( see Note 11 , Variable Interest Entity).
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
Amortization expenses of $ 2,483 and $ 2,256 for the three months ended March 31, 2024 and 2023 , respectively, are included in depreciation and amortization expenses in the consolidated statements of operations. As of March 31, 2024 , intangible assets with a carrying amount of $ 688 , included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.
As of March 31, 2024 , estimated amortization expenses related to the Company's intangible assets for the remainder of 2024 and through 2029 and thereafter are as follows:
Year
March 31, 2024
Remainder of 2024
$ 5,252
2025
7,963
2026
4,365
2027
1,991
2028
828
2029 and thereafter
5,742
Total
$ 26,141
4. Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for by the acquisition method of accounting. As of March 31, 2024 , the total balance of goodwill was $ 1,261 , which represented no change from the balance as of December 31, 2023 . The remaining balance relates to the AdParlor Acquisition.
In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is assessed at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. The measurement date of the Company's annual goodwill impairment test is set to October 1.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
5. Long-term debt, net
Long-term debt, net of unamortized discount and financing costs, related to the Credit Facility (as defined herein) consisted of the following:
March 31, 2024
December 31, 2023
Credit Facility due 2025 (less unamortized discount and financing costs of $ 1,019 and $ 762 , respectively)
$ 28,981 $ 30,488
Note Payable due 2026
2,000 —
Long-term debt, net
30,981 30,488
Less: Current portion of long-term debt
( 30,981 ) ( 5,000 )
Long-term debt, net (non-current)
$ — $ 25,488
Citizens Credit Facility
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 the Borrower as guarantors, the lenders thereto, and Citizens Bank, N.A. ("Citizens Bank") as administrative agent, lead arranger and bookrunner. The original Citizens 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 Citizens 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 certain terms and conditions under the Citizens Credit Agreement.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
On August 21, 2023, the Borrower and Citizens Bank entered into a fourth amendment to the Citizens Credit Agreement (the "Fourth Amendment"), which adjusted certain financial covenants for the re maining fiscal quarters of 2023, required updated reporting requirements, including a business consultant to be retained at the Borrower's expense and required a $ 5,000 prepayment of the Term Loan and a reduction in the maximum amount of the Revolving Loans by the same amount to $ 10,000 . The $ 5,000 prepayment amount was paid as of September 30, 2023, and in evaluating the amendments under ASC 470 - 50, Debt- Modifications and Extinguishments , the Company determined that the amendment should be treated as a debt modification with no gain or loss recognize d.
On November 15, 2023, the Borrower and Citizens Bank entered into a Temporary Waiver under Credit Agreement (the "Initial Waiver"), pursuant to which Citizens Bank agreed to waive, through the termination date, its rights and remedies arising from the Company’s breach of the total leverage ratio covenant during the quarter ending September 30, 2023. On January 17, 2024, the Initial Waiver termination date was extended until January 26, 2024.
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 $ 10,000 .
All obligations under the Citizens Credit Agreement were accelerated from the initial March 30, 2026 deadline to September 30, 2025, and interest was payable monthly. Scheduled principal amortization of the Term Loan was $ 1,250 per quarter, which commenced with the fiscal quarter ended June 30, 2021. At March 31, 2024 , the Company was in compliance with all of the financial covenants under the Citizens Credit Agreement, except for the total leverage ratio and fixed charge ratio covenants. As discussed above, these covenant breaches were waived through the termination date by the Third Waiver.
Borrowings under the Citizens Credit Agreement bore interest at a rate per annum equal to the benchmark selected by the Borrower, which was based on the Alternative Base Rate (as defined in the Citizens Credit Agreement), LIBOR (as defined in the Citizens 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 Citizens Credit Agreement) (subject to a floor of 0.00 %) subsequent to the election, plus a margin applicable to the selected benchmark. The applicable margin was 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 9.43 % (Term SOFR + 0.1 % + 4.00 %) as of March 31, 2024 .
The Citizens 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).
On April 2, 2024, the Company repaid the $ 30,000 aggregate principal amount of the Term Loan, prior to maturity, resulting in a debt extinguishment loss of approximately $ 1,000 , which will be recognized in the second quarter of 2024.
New Credit Facility
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 each other lender from time to time party thereto.
The SLR Credit Agreement provides for a $ 20,000 term loan (the "SLR Term Loan") and a revolving credit facility of up to $ 30,000 (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 $ 32,700 and matures on April 2, 2029.
The Company used a portion of the net proceeds of the SLR Credit Facility to repay its outstanding Term Loan under the Citizens Credit Agreement, dated March 31, 2021.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
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 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 Facility are due and payable on the five -year anniversary of the closing date (the "Maturity Date"), or earlier following a change in control or an 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%].
The Borrower's ability to draw on the SLR Revolver depends on its weekly borrowing base, which is calculated by adding specified percentages established by SLR of the Borrower's eligible accounts receivable and cash less reserves, subject to certain limitations.
On May 15, 2024, the Borrower and SLR entered into a First Amendment to Credit Agreement, pursuant to which, among other things, SLR ( 1 ) waived any required prepayments on the SLR Revolver from the proceeds from the Company’s 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 Agreement contains restrictive covenants which impose limitations on the way the Company conducts business, including limitations on the amount of additional debt the Company is able to incur and its ability to make certain investments or other restricted payments. The SLR Credit Agreement is guaranteed by the Company and certain of its direct and indirect subsidiaries and is secured by substantially all of the Company's assets and those of its direct and indirect subsidiaries, including Fluent, LLC.
Note Payable
On March 17, 2024, Fluent, LLC entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC in the principal amount of $ 2,000 in connection with the Berman Settlement Agreement (see Note 10, Contingencies ). The Note Payable bears interest at a rate per annum equal to one -month CME Term SOFR (defined as the rate published by the CME Group Benchmark Administration Limited) plus 11.0 %. The opening interest rate of the Note Payable is 16.32 % [SOFR + 11%].
A maximum of $ 1,000 of the borrowings under the Note Payable are secured by substantially all of the assets of Fluent, LLC. This security interest is subordinate to the security interest under the SLR Credit Agreement.
The Note Payable matures on March 31, 2026 and interest is payable quarterly. Scheduled principal amortization of the Note Payable is $ 250 per quarter, which will commence with the fiscal quarter ended June 30, 2024.
Maturities
As of March 31, 2024 , scheduled future maturities of the Citizens Credit Agreement and Note Payable are as follows, not reflective of the debt being accelerated as noted in Note 1 :
Year
March 31, 2024
Remainder of 2024
$ 4,500
2025
27,250
2026
250
Total maturities
32,000
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
6. Income taxes
The Company is subject to federal and state income taxes in the United States. The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate ("AETR"). The Company updates its estimated AETR on a quarterly basis and, if the estimate changes, a cumulative adjustment is made.
As of March 31, 2024 and December 31, 2023 , the Company recorded a full valuation allowance against net deferred tax assets and intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or a portion of these 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.
For the three months ended March 31, 2024 , the Company's effective income tax expense 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.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances, and information available as of the reporting dates. For those tax positions where it is more-likely-than- not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than- not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.
As of March 31, 2024 and December 31, 2023 , the balance of unrecognized tax benefits was $ 1,480 . If the Company’s tax positions are ultimately sustained, the Company’s liability would be reduced by $1,480, all of which would impact the Company’s tax provision. As of March 31, 2024 , the Company has not accrued any interest or penalties with respect to its uncertain tax positions.
The Company is reasonably certain that all of its uncertain tax positions will reverse within the next twelve months due to the closing of the statute of limitations.
7. Common stock and treasury stock
Common stock
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 81,571,864 shares to 13,660,598 shares and reduced the issued shares of common stock held by the Company in treasury stock from 4,611,569 shares to 768,595 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.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
As of March 31, 2024 and December 31, 2023 , the number of issued shares of common stock was 14,429,193 and 14,384,936 , respectively, which included shares of treasury stock of 768,595 and 768,595 , respectively.
For the three months ended March 31, 2024 , the change in the number of issued shares of common stock was the result of an aggregate 44,257 shares of common stock issued upon vesting of RSUs, in which no shares of common stock were withheld to cover statutory taxes upon such vesting.
Treasury stock
As of March 31, 2024 and December 31, 2023 , the Company held shares of treasury stock of 768,595 and 768,595 , respectively, with a cost of $ 11,407 and $ 11,407 , respectively.
The Company's share-based incentive plans allow employees the option to either make cash payment or forfeit shares of common stock upon vesting to satisfy federal and state statutory tax withholding obligations associated with equity awards. The forfeited shares of common stock may be taken into treasury stock by the Company or sold on the open market. For the three months ended March 31, 2024 , no shares of common stock were withheld to cover statutory taxes owed by certain employees for this purpose, all of which were taken into treasury stock. See Note 8 , Share-based compensation.
8. Share-based compensation
On June 8, 2022, the stockholders of the Company approved the Fluent, Inc. 2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 2,570,421 shares of the Company's common stock. As of March 31, 2024 , the Company had 1,173,248 shares of common stock available for grants pursuant to the 2022 Plan, which includes 1,286,607 shares of common stock previously available for issuance under the 2018 Stock Incentive Plan.
The primary purpose of the 2022 Plan and prior plans is to attract, retain, reward, and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company. In October 2022, the Company issued to certain of its senior officers and employees, RSUs (time-based vesting), long-term incentive grants (performance and time-based vesting RSUs), or performance share units ("PSUs") (achievement of performance targets settled in cash) under the 2022 Plan.
Stock options
The Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019, March 1, 2020, and March 1, 2021. Subject to continuing service, 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 125.00 %, 133.33 %, 133.33 % and 133.33 %, respectively, of the exercise price for 20 consecutive trading days, and the remaining 50 % of the shares subject to these stock options will vest if the Company's stock price remains above 156.25 %, 177.78 %, 177.78 % and 177.78 %, respectively, of the exercise price for 20 consecutive trading days; provided, that no shares will vest prior to the first anniversary of the grant date. As of March 31, 2024 , the first condition for the stock options issued on February 1, 2019, December 20, 2019 and March 1, 2020 had been met and the second condition for the stock options issued on December 20, 2019 and March 1, 2020 had been met. Any shares that remain unvested as of the fifth anniversary of the grant date will vest in full on such date. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:
Issuance Date
February 1, 2019
December 20, 2019
March 1, 2020
March 1, 2021
Fair value lower range
$ 16.86 $ 9.48 $ 8.76 $ 26.04
Fair value higher range
$ 17.16 $ 9.66 $ 8.94 $ 26.58
Exercise price
$ 28.32 $ 15.36 $ 13.98 $ 37.98
Expected term (in years)
1.0 - 1.3 1.0 - 1.6 1.0 - 1.5 1.0 - 1.3
Expected volatility
65 % 70 % 70 % 80 %
Dividend yield
— % — % — % — %
Risk-free rate
2.61 % 1.85 % 1.05 % 1.18 %
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
For the three months ended March 31, 2024 , details of stock option activity were as follows:
Number of options
Weighted average exercise price per share
Weighted average remaining contractual term (in years)
Aggregate intrinsic value
Outstanding as of December 31, 2023
302,333 $ 25.68 5.4 $ —
Granted
— — — —
Exercised
— — — —
Forfeited
— — — —
Outstanding as of March 31, 2024
302,333 $ 25.68 5.2
$ —
Options exercisable as of March 31, 2024
284,333 $ 24.91 5.1
$ —
The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.
For the three months ended March 31, 2024 , the unvested balance of stock options was as follows:
Number of stock options
Weighted average exercise price per share
Weighted average remaining contractual term (in years)
Unvested as of December 31, 2023
123,833 $ 29.72 5.4
Granted
— — —
Forfeited
— — —
Vested
( 105,833 ) — —
Unvested as of March 31, 2024
18,000 $ 37.98 6.9
Compensation expense recognized for stock options of $ 0 and $ 0 for the three months ended March 31, 2024 and 2023 , respectively, was recorded in sales and marketing, product development, and general and administrative expenses in the consolidated statements of operations. As of March 31, 2024 , there was $ 0 of unrecognized share-based compensation with respect to outstanding stock options.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
Restricted stock units and restricted stock
For the three months ended March 31, 2024 , details of unvested RSU activity were as follows:
Number of units
Weighted average grant-date fair value
Unvested as of December 31, 2023
731,538 $ 25.95
Granted
— —
Vested and delivered
( 44,257 ) 22.57
Withheld as treasury stock (1)
— —
Vested not delivered (2)
( 211,505 ) 10.57
Forfeited
( 26,104 ) 7.98
Unvested as of March 31, 2024
449,673 34.50
( 1 )
As discussed in Note 7 , Common stock and treasury stock, the treasury stock was related to shares withheld to cover statutory withholding taxes upon the delivery of shares following the vesting of RSUs. As of March 31, 2024 , there were 768,595 outstanding shares of treasury stock.
( 2 )
Vested not delivered represents vested RSUs with delivery deferred to a future time. For the three months ended March 31, 2024 , there was a net increase in the vested not delivered balance as a result of 214,770 shares that were deferred due to timing of delivery of certain shares, slightly offset by 3,265 deferred shares that were delivered. As of March 31, 2024 , 501,437 outstanding RSUs were vested not delivered.
Compensation expense recognized for RSUs of $ 618 and $ 1,148 for the three months ended March 31, 2024 and 2023 , respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets, net in the consolidated balance sheets. The fair value of the RSUs and restricted stock was estimated using the closing prices of the Company's common stock on the dates of grant.
As of March 31, 2024 , unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $ 2,223 , which is expected to be recognized over a weighted average period of 1.1 years.
For the three months ended March 31, 2024 and 2023 , share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:
Three Months Ended March 31,
2024
2023
Sales and marketing
$ 84 $ 167
Product development
45 191
General and administrative
471 763
Share-based compensation expense
600 1,121
Capitalized in intangible assets
18 27
Total share-based compensation
$ 618 $ 1,148
As of March 31, 2024 and December 31, 2023 , the Company recorded a liability of $ 22 and $ 22 , respectively, related to PSUs that are to be settled in cash.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
9. Segment information
The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, in making decisions regarding resource allocation and performance assessment. The profitability measure employed by CODM is earnings before interest, taxes, depreciation, and amortization ("EBITDA"). As of March 31, 2024 , the Company had two operating segments and two corresponding reporting units, "Fluent" and "All Other," and one reportable segment. "Fluent," for the purposes of segment reporting, represents the consolidated operating results of the Company excluding "All Other." "All Other" represents the operating results of AdParlor, LLC and is included for purposes of reconciliation of the respective balances below to the consolidated financial statements.
Summarized financial information concerning the Company's segments for the three months ended March 31, 2024 and 2023 are shown in the following tables below:
Three Months Ended March 31,
2024
2023
Fluent segment revenue (1) :
United States
$ 40,316 $ 42,908
International
22,862 32,330
Fluent segment revenue
$ 63,178 $ 75,238
All Other segment revenue (1 ):
United States
$ 2,805 $ 2,016
International
— —
All Other segment revenue
$ 2,805 $ 2,016
Segment EBITDA
Fluent segment EBITDA
$ ( 1,849 ) $ ( 28,579 )
All Other segment EBITDA
467 ( 215 )
Total EBITDA
( 1,382 ) ( 28,794 )
Depreciation and amortization
2,571 2,359
Total loss from operations
$ ( 3,953 ) $ ( 31,153 )
( 1 ) Revenue aggregation is based upon location of the customer.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
March 31,
December 31,
2024 2023
Total assets:
Fluent
$ 87,782 $ 97,629
All Other
15,795 14,238
Total assets
$ 103,577 $ 111,867
As of March 31, 2024 , long-lived assets are all located in the United States.
For the three months ended March 31, 2024 , the Company identified an international customer within the Fluent segment with revenue in the amount of $ 6,669 which represents 10 % of consolidated revenue. In addition, 23 % of the Company’s revenue is earned from customers located in Israel.
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FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share and per share data)
(unaudited)
10. Contingencies
In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.
On January 28, 2020, Fluent received a Civil Investigative Demand from the Federal Trade Commission ("FTC") regarding compliance with the FTC Act and the Telemarketing Sales Rule. On October 18, 2022, the FTC staff sent the Company a draft complaint and proposed consent order seeking injunctive relief and a civil monetary penalty. On January 12, 2023, the Company made an initial proposal of $ 5,000 for the civil monetary penalty contingent on successful negotiation of the remaining outstanding terms. The Company accrued the same amount for the year ending December 31, 2022. On May 26, 2023, Fluent agreed to the terms of a Stipulated Order for Permanent Injunction, Monetary Judgment, Civil Penalty Judgment, and Other Relief (the "FTC Consent Order"). The FTC Consent Order imposed a civil penalty of $ 2,500 , required additional changes to the Company’s employment opportunities marketplace and programmatic advertising business, and resulted in the implementation of compliance measures across the business. On July 17, 2023, the FTC filed its Complaint for Civil Penalties, Permanent Injunction, Monetary Relief, and Other Relief and, together with Fluent, filed a Joint Motion for Entry of Proposed Stipulated Order in the United States District Court for the Southern District of Florida. The FTC Consent Order was entered by the Court on August 11, 2023, and the escrow funds were released on August 15, 2023. The Company maintains insurance policies that cover certain legal costs, which include those incurred related to the FTC investigation.
On October 6, 2020, the Company received notice from the Pennsylvania Office of the Attorney General ("PAAG") that it was reviewing the Company’s business practices relating to telemarketing. After the Company and the PAAG were unable to reach agreement on a proposed Assurance of Voluntary Compliance, the Commonwealth of Pennsylvania filed a complaint for permanent injunction, civil penalties, and other relief in the United States District Court for the Western District of Pennsylvania on November 2, 2022. On May 18, 2023, the parties entered into a settlement and jointly filed a Consent Petition of Final Decree, wherein the Company agreed to injunctive relief and to pay the PAAG $ 250 for investigatory costs, all of which was paid as of June 30, 2023.
The Company had been involved in a Telephone Consumer Protection Act class action, Daniel Berman v. Freedom Financial Network , which was originally filed in 2018. On May 31, 2023, the p arties entered into an Amended Class Action Settlement Agreement (the "Berman Settlement Agreement"), which included injunctive provisions and payment to plaintiffs of $ 9,750 for legal fees and a consumer redress fund, of which the Company was responsible for $ 3,100 due upon final approval of the settlement. That amount had been accrued as of December 31, 2022. On July 28, 2023, the Court preliminarily approved the Berman Settlement Agreement. The final approval of the Berman Settlement Agreement was filed on February 23, 2024. The Company made a cash payment of $ 1,100 on March 15, 2024 and entered into a $ 2,000 interest-bearing note provided by co-defendant, Freedom Financial Network, as discussed in Note 5 , Long-term debt, net, to satisfy its obligations under the Berman Settlement Agreement.
11. Variable Interest Entity
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. The Company assesses whether it is the primary beneficiary of a VIE at the inception of the arrangement and as of the reporting date.
On January 9, 2023, the Company entered into employment agreements with certain key employees of TAPP, an influencer-based business that uses as an application to utilize its relationship with influencers to bring consumers to advertising clients. The Company is also a customer of TAPP and accounts for the majority of TAPP’s revenues. By virtue of TAPP’s key employees being employed by the Company and the significance of the Company to TAPP’s financial performance, the Company determined that TAPP qualified as a VIE in which the Company has a variable interest and that the Company is the primary beneficiary as a result of its significant influence and control over certain activities that most significantly impact its economic performance. As a result, the Company consolidates the TAPP operations. As the Company does not have an equity interest in TAPP, 100 % of the net assets and results of the operations of TAPP are attributable to non-controlling interests.
As the Company gained control of TAPP, in accordance with ASC 805, Business Combinations, it was then determined that TAPP constituted a business. The deemed fair value of the consideration was $ 4,165 , which consisted of $ 1,250 of initial cash and $ 2,915 which was contingent based upon achievement of specified revenue and media margin targets over three years. The fair value of assets acquired, which excluded the immaterial net-working capital, were determined to be the publisher contracts of $ 1,100 , which were valued using the 'with or without' method, a variation of the income approach, to be amortized over a period of one year and industry-based trade secrets of $ 1,510 , which were valued using the excess earnings method, a variation of the income approach, to be amortized over a period of four years. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $ 1,555 and primarily represents workforce and expected cash flow generation for the TAPP business that does not qualify for separate recognition as intangible assets included within the Fluent operating segment. For tax purposes, the value of the acquisition payments is treated as ordinary compensation for services rendered, deductible when paid and included in the employees’ wages.
12. Subsequent Events
Divestiture
On May 1, 2024, the Company and Caspian Ventures, LLC (“Caspian”) entered into a membership interest purchase agreement pursuant to which the Company conveyed 100 % of the membership interests of True North Loyalty, LLC and its direct and indirect subsidiaries (collectively, "True North") to Caspian. True North is a subscription-based business that utilizes call center operations and other media channels to market third -party recurring revenue services to consumers. The deemed fair value of the consideration to be received was approximately $ 1,100 , which consisted of (i) the forgiveness of a $ 500 deferred payment owed by the Company in connection with the True North Acquisition on January 1, 2022, ( ii) a share of the True North contribution margin after the closing until the Company has received an amount equal to the closing net working capital of approximately $ 130 , and (iii) a continued share of the True North contribution margin of an additional amount of approximately $ 500 . The True North founder who entered into an employment agreement in connection with the True North Acquisition will remain an employee of the Company after the closing. As of March 31, 2024 , the Company determined that the True North sale did not meet the criteria of a discontinued operation under ASC 205 - 20, Discontinued operations nor was it considered held for sale under the guidance, and as a result, it was properly reflected in the results. The Company is in the process of evaluating any additional financial impacts of this transaction.
Private Placement
On May 13, 2024, the Company entered into a Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors (the "Purchasers") to sell pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 2,955,084 shares of the Company's common stock, at a purchase price of $3.384 per Pre-Funded Warrant. The Pre-Funded Warrants will have an exercise price of $ 0.005 per share of common stock, will be immediately exercisable after stockholder approval of the Private Placement and will terminate when exercised in full. The aggregate gross proceeds for the Private Placement are to total $ 10,000 , before deducting offering expenses payable by the Company. The exercise of the Pre-Funded Warrants is subject to stockholder approval expected in July. The Company will be obligated to use its reasonable best efforts to obtain stockholder approval of the exercise of the Pre-Funded Warrants in accordance with the rules of the Nasdaq Stock Market at a special meeting of the Company's’ stockholders. The Purchasers included, among others, three individuals who are officers and/or directors of the Company and a principal stockholder of the Company. 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.
Support Agreements
In connection with the Private Placement, the Company entered into Support Agreements with certain principal stockholders of the Company on May 13, 2024 ( the "Support Agreements"). Pursuant to the Support Agreements, the stockholders party thereto agreed to vote shares of the Company’s common stock beneficially owned by them in favor of certain actions subject to Stockholder Approval (as defined in the Purchase Agreements) at any meeting of stockholders of the Company and to vote against or decline to consent to any proposal or any other corporate action or agreement that would result in a breach by the Company of the Purchase Agreements or impede, delay or otherwise adversely affect the consummation of the transactions contemplated by the Purchase Agreements or any similar agreements entered into by the Company and the party stockholders in connection with the consummation of the transactions contemplated by the Purchase Agreements. Each of the parties to the Support Agreements is also a purchaser in the Private Placement.
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