What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-15 compared with 2024-08-19 · 212 added, 187 removed, 215 unchanged (65% of the section changed)

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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 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 access these consumers through both our owned and operated digital media properties and Commerce Media Solutions marketplace.

Since the beginning of 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.

When registering on our sites, consumers provide their name, 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.

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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.

We also operate our Commerce Media Solutions platform on partner sites where we embed 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.

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

These syndicated Commerce Media Solutions generate meaningful income for our media partners, while driving high-quality customer acquisition for our advertiser clients.

In contrast to the media agreements we enter into to attract users to our owned and operated websites, which can be paused or cancelled on short notice, we sign agreements with media partners for our Commerce Media Solutions platform with terms of at least one year and up to five years.

We typically remunerate our media partners on a revenue share and/or impression basis.

Additionally, we operate 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 had a heavy focus on the health insurance sector.

However, due to the increased unauthorized activity by third parties impacting our commission revenue related to the sale of certain health insurance policies, we have paused our participation in this sector as we re-evaluate its profitability for our business, even as we expect regulatory changes made by the government subsequent to the quarter close to mitigate further attrition.

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:

We then leverage their self-declared data in our array of 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 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.

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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.

Second Quarter Financial Summary

Three months ended June 30, 2024, compared to three months ended June 30, 2023:

Third Quarter Financial Summary

Three months ended September 30, 2024, compared to three months ended September 30, 2023:

Revenue decreased 3% to $64.5 million, compared to $66.2 million

Net loss was $11.6 million, or $0.75 per share, compared to net income of $4.3 million or $0.31 per share

Gross profit (exclusive of depreciation and amortization) decreased 44% to $12.6 million, representing 21% of revenue for the three months ended June 30, 2024, from $22.6 million, representing 28% of revenue for the three months ended June 30, 2023

Media margin decreased 40% to $15.7 million, representing 26.7% of revenue for the three months ended June 30, 2024, from $25.9 million, representing 31.5% of revenue for the three months ended June 30, 2023

Adjusted EBITDA was negative $4.5 million, compared to $5.6 million

Adjusted net loss was $7.3 million, or $0.47 per share, compared to adjusted net income of $0.0 million, or $0.00 per share

Six months ended June 30, 2024, compared to six months ended June 30, 2023:

Net loss was $7.9 million, or $0.48 per share, compared to net loss of $33.6 million or $2.43 per share

Gross profit (exclusive of depreciation and amortization) decreased 3% to $15.7 million, representing 24% of revenue for the three months ended September 30, 2024, from $16.1 million, representing 24% of revenue for the three months ended September 30, 2023

Media margin decreased 6% to $18.2 million, representing 28.1% of revenue for the three months ended September 30, 2024, from $19.3 million, representing 29.2% of revenue for the three months ended September 30, 2023

Adjusted EBITDA was negative $0.1 million, compared to negative $1.7 million

Adjusted net loss was $3.7 million, or $0.22 per share, compared to adjusted net loss of $4.1 million, or $0.30 per share

Nine months ended September 30, 2024, compared to nine months ended September 30, 2023:

Revenue decreased 16% to $189.2 million, compared to $225.6 million

Net loss was $25.8 million, or $1.75 per share, compared to $61.3 million or $4.46 per share

Gross profit (exclusive of depreciation and amortization) decreased 25% to $31.2 million, representing 25% of revenue for the six months ended June 30, 2024, from $41.6 million, representing 26% of revenue for the six months ended June 30, 2023

Media margin decreased 21% to $37.8 million, representing 30.3% of revenue for the six months ended June 30, 2024, from $47.9 million, representing 30.0% of revenue for the six months ended June 30, 2023

Adjusted EBITDA was negative $3.8 million, based on net loss of $17.9 million, compared to $6.0 million

Adjusted net loss was $11.5 million, or $0.72 per share, compared to adjusted net loss of $2.7 million, or $0.20 per share

Gross profit (exclusive of depreciation and amortization) decreased 19% to $46.9 million, representing 25% of revenue for the nine months ended September 30, 2024, from $57.7 million, representing 26% of revenue for the nine months ended September 30, 2023

Media margin decreased 17% to $56.0 million, representing 29.6% of revenue for the nine months ended September 30, 2024, from $67.2 million, representing 29.8% of revenue for the nine months ended September 30, 2023

Adjusted EBITDA was negative $3.9 million, compared to positive $4.3 million

Adjusted net loss was $15.2 million, or $1.03 per share, compared to $6.8 million, or $0.49 per share

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

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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 owned media properties via email and SMS messages.

We have pursued strategic initiatives that enable us to grow revenue with existing user traffic volume by attracting users to our owned 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 and value of consumers sourced to our media properties and syndicated performance marketplaces.

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 commerce media marketplace.

Increased user participation rates lead to higher conversion rates, resulting in increased monetization, and ultimately increased 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 traffic volume to our owned and operated properties, primarily due to the FTC investigation and subsequent FTC Consent Order that tightened our standards for media sourcing and put us at a competitive disadvantage versus the market.

Since 2022, however, we have experienced challenges growing traffic volume to our owned and operated properties, primarily due to the FTC inquiry and subsequent FTC Consent Order that tightened our standards for media sourcing and put us at a competitive disadvantage versus the market.

Other factors that affected our traffic volume have included the volatility of affiliate supply sources, changes in search engine algorithms, and email and text message blocking algorithms.

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

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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 we 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.

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

In the first half of 2024 revenue declined due to media supply challenges in our owned and operated marketplaces and regulatory pressure on the insurance sector in our call solutions marketplace.

The regulatory challenges in the insurance sector have continued into the third quarter of 2024, but we expect that they will be outweighed by the recovery of our owned and operated marketplaces and growth of our syndicated performance marketplaces.

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

In the first nine months of 2024 revenue declined due to media supply challenges in our owned and operated marketplaces and regulatory pressure on the insurance sector in our call solutions marketplace.

In the fourth quarter of 2024, we expect that growth of our Commerce Media Solutions business will partially or completely offset the year over year revenue decline related to media supply challenges in our owned and operated marketplaces and within our AdParlor unit.

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

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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 periods experience increased volume in the fourth quarters.

Specifically, our retail specific media partners in our commerce media marketplace and our call solutions business that benefits from Medicare open enrollment period 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 half of 2024 will continue to be characterized by tepid economic conditions and potential media supply uncertainty in the owned and operated marketplaces.

To confront these headwinds, we will continue to source additional media for our syndicated performance marketplaces and diversify our client base.

We believe the fourth quarter of 2024 will continue to be characterized by tepid economic conditions and potential media supply uncertainty in the owned and operated marketplaces.

To confront these headwinds, we are continuing to invest into securing additional media partners for our commerce media marketplace and diversify our client base.

We also continue to develop our "ROAS program" across additional segments of advertisers in an effort to gain additional budget allocations and further improve our user monetization.

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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) impairment 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) impairment 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 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) impairment of intangible assets, (9) loss (gain) on disposal of property and equipment, (10) fair value adjustment of Convertible Notes, (11) acquisition-related costs, (12) restructuring and other severance costs, and (13) 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) impairment of intangible assets, (6) loss (gain) on disposal of property and equipment, (7) fair value adjustment of Convertible Notes, (8) acquisition-related costs, (9) restructuring and other severance costs, and (10) 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 six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended June 30,

Six Months Ended June 30,

Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three and nine months ended September 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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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 loss for the three and six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended June 30,

Six Months Ended June 30,

Below is a reconciliation of adjusted EBITDA from net loss for the three and nine months ended September 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Net income (loss)

Income tax expense (benefit)

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Impairment of intangible assets

Fair value adjustment of Convertible Notes, with related parties

Acquisition-related costs (1)

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Balance includes compensation expense related to non-competition agreements and earn-out expense incurred as a result of business combinations (see Note 12, Variable Interest Entity , in the Notes to the consolidated financial statements).

The earn-out expense was ($14) and $24 for the three months ended June 30, 2024 and 2023, respectively, and $137 and $110 for the six months ended June 30, 2024 and 2023, respectively.

Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three and six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure.

Three Months Ended June 30,

Six Months Ended June 30,

The earn-out expense was $30 and ($21) for the three months ended September 30, 2024 and 2023, respectively, and $167 and $89 for the nine months ended September 30, 2024 and 2023, respectively.

Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three and nine months ended September 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure.

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except share and per share data)

Net income (loss)

Share-based compensation expense

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Impairment of intangible assets

Fair value adjustment of Convertible Notes, with related parties

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:

The earn-out expense was ($14) and $24 for the three months ended June 30, 2024 and 2023, respectively, and $137 and $110 for the six months ended June 30, 2024 and 2023, respectively.

The earn-out expense was $30 and ($21) for the three months ended September 30, 2024 and 2023, respectively, and $167 and $89 for the nine months ended September 30, 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.

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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 Six Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

Six Months Ended June 30,

Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

The decrease in revenue was primarily attributable to the contraction of our owned and operated marketplaces.

A challenging macro-economic environment and a decrease in media supply resulting from changes in our business practices to comply with the FTC Consent Order, which in effect drove a reduction in spend from key clients in the Media & Entertainment, Financial Products & Services, and Staffing & Recruitment sectors, including our largest client in the gaming sector which pulled back pricing and spend as it refocused on ROAS starting in the third quarter of 2023.

Further, there was minimal revenue related to the sale of certain health insurance policies that began in the fourth quarter of 2023 due to a write-off of accounts receivable and associated adjustment to revenue of $3.1 million for the three months ended June 30, 2024 due to unauthorized changes made to submitted policies by unrelated third parties.

The challenges were partially offset by the revenue growth from our new syndicated performance marketplaces.

We have seen recovery in the owned and operated media supply and further growth of the syndicated performance marketplaces after June 30, 2024.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

The decrease in revenue was primarily attributable to the contraction of our owned and operated marketplaces and changes related to our commission revenue as described above.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended September 30, 2024 and 2023, revenue was comprised of owned and operated marketplaces $43.5 million and $53.1 million, Commerce Media Solutions $10.4 million and $2.3 million, and other streams $10.6 million and $10.8 million, respectively.

The decrease in owned and operated revenue was primarily attributable to a challenging macro-economic environment and a decrease in media supply resulting from changes in our business practices to comply with the FTC Consent Order, which in effect drove a reduction in spend from key clients in the Media & Entertainment and Staffing & Recruitment sectors.

It was further negatively impacted by the enormous social media advertising spend driven by the US Presidential election, which started in late August and impacted our ability to buy media at acceptable margins for our demand.

Partially offsetting that decline, our Commerce Media Solutions business added long-term contracts with new media partners which drove revenue up in the Retail & Consumer sector.

Within our other streams, our call solutions business also grew based on increased demand from the healthcare sector, offset by a decrease related to the True North business we exited in the second quarter of 2024.

Although we have seen stabilization in owned and operated media supply, we expect year-over-year declines in that marketplace to continue;

however, we expect such declines to be offset by the continued growth of Commerce Media Solutions.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, revenue was comprised of owned and operated marketplaces $130.2 million and $185.8 million, Commerce Media Solutions $24.0 million and $3.5 million, and other streams $35.0 million and $36.3 million, respectively.

The decrease in owned and operated revenue and increase in Commerce Media Solutions were mainly attributable to the items noted above.

The decrease in other streams was related an increase in AdParlor offset by the decrease related to the True North business we exited in the second quarter of 2024.

Cost of revenue (exclusive of depreciation and amortization)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Cost of revenue (exclusive of depreciation and amortization)

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

The decrease in cost of revenue (exclusive of depreciation and amortization) was largely attributable to the same factors causing the decline in owned and operated revenue for the period offset by growth of our syndicated performance marketplaces.

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.

For the three months ended June 30, 2024 the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue increased to 79% compared to 72% for the three months ended June 30, 2023.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024, the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue decreased to 75% compared to 74% for the six months ended June 30, 2023.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended three months ended September 30, 2024 and 2023, cost of revenue (exclusive of depreciation and amortization) consisted mainly of owned and operated media and fulfillment costs of $34.0 million and $40.3 million, Commerce Media Solutions media cost of $6.9 million and $2.1 million, media and enablement costs related to our other revenue streams of $6.9 million and $6.8 million, and indirect costs of revenue of $1.1 and $0.9 million, respectively.

Our owned and operated 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 fulfillment costs related to rewards earned by consumers.

The decrease in owned and operated media cost was largely attributable to the challenges in acquiring media due to changes in our business practices to comply with the FTC Consent Order.

Our Commerce Media Solutions cost of revenue consists of fees and revenue share payments made to media partners for revenue generated on their properties.

The increase in cost of revenue in the Commerce Media Solutions was driven by increased media from new media partners added over the period.

The increase in cost of revenue for other revenue streams, which includes, in addition to media costs, enablement costs and tracking costs related to our consumer data associated with our call centers, was attributable to these added costs needed to support the increased demand from the healthcare sector offset by a decrease related to our exit from the True North business in the second quarter of 2024.

Indirect costs of revenue increased as a result of escalated hosting costs.

For the three months ended September 30, 2024 the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue remained consistent at 76% compared to 76% for the three months ended September 30, 2023.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, cost of revenue (exclusive of depreciation and amortization) consisted mainly of owned and operated media and fulfillment costs of $100.6 million, and $137.1 million, Commerce Media Solutions media cost of $16.5 million and $4.0 million, media and enablement costs related to other revenue streams of $22.0 million and $24.0 million, and indirect costs of $3.2 million and $2.9 million, respectively.

The decrease in owned and operated costs and increase in Commerce Media Solutions costs were attributable to the items noted above.

The decrease in all other streams was related to the True North business we exited in the second quarter of 2024, partly offset by an increase associated with our call centers, as noted above.

The increase in indirect costs was also due to the reason noted above.

For the nine months ended September 30, 2024, the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue increased minimally to 75% compared to 74% for the nine months ended September 30, 2023.

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

For the six months ended June 30, 2024, digital media spend continued to be a mix of affiliate traffic, paid media from major digital platforms, influencer activations, and inventory from strategic media partners.

For the three and nine months ended September 30, 2024, owned and operated digital media spend continued to be a mix of affiliate traffic, paid media from major digital platforms, influencer activations, and inventory from strategic media partners.

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

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We believe improved traffic quality is the foundation to support sustainable long-term growth and position us as an industry leader.

For the three and six months ended June 30, 2024, decreased spend for our owned and operated websites from social media platforms was the largest driver of the decline in revenue compared to the comparable 2023 periods.

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

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

Sales and marketing

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Sales and marketing

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

For the three months ended June 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $3.8 million and $3.6 million, advertising costs of $0.2 and $0.3 million, restructuring and severance costs of $0.2 and $0.0 million, professional fees of $0.1 and $0.1 million, and travel and entertainment of $0.1 and $0.1 million, respectively.

The increase in salaries and benefits was primarily due to annual salary increases, and the increase in restructuring costs was due to the current year period reduction in workforce described below offset by the decline of third party referral fees.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $8.0 million and $7.4 million, restructuring and severance costs of $0.4 and $0.1 million, professional fees of $0.3 and $0.1 million, travel and entertainment of $0.3 and $0.2 million, and advertising costs of $0.2 and $0.6 million, respectively.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended September 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $3.3 million and $3.9 million, restructuring and severance costs of $0.2 million and $0.0 million, advertising costs of $0.2 million and $0.1 million, professional fees of $0.1 million and $0.1 million, and non-cash share-based compensation expense of $0.0 million and $0.1 million, respectively.

The decrease in salaries and benefits was primarily due to lower salaries and other employee related costs driven by lower headcount, partly offset by an increase in restructuring costs due to the current year period reductions in workforce, as described below.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $11.3 million and $11.4 million, restructuring and severance costs of $0.6 million and $0.1 million, professional fees of $0.4 million and $0.3 million, advertising costs of $0.4 million and $0.7 million, travel and entertainment of $0.3 million and $0.3 million, and non-cash share-based compensation expense of $0.2 million and $0.4 million, respectively.

The relatively consistent sales and marketing was primarily due to the decline of third-party referral fees and lower non-cash share-based compensation due to lower grants and performance, mainly offset by the increase in restructuring costs due to the current year period reductions in workforce, as described below, and higher professional fees related to consulting.

Product development

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Product development

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

For the three months ended June 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $3.5 million and $3.4 million, professional fees of $0.5 million and $0.4 million, software license and maintenance costs of $0.4 million and $0.5 million, and restructuring and severance costs of $0.2 and $0.0 million, respectively.

The restructuring and severance costs in the current year period were due to the reduction in workforce described below.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $6.7 million and $6.9 million, professional fees of $1.0 million and $1.0 million, software license and maintenance costs of $0.9 million and $0.9 million, and restructuring and severance costs of $0.5 and $0.1 million, respectively.

The immaterial increase in product development expense was primarily due to an increase in restructuring costs due to the current year period reduction in workforce described below mainly offset by lower salaries and other employee related costs due in part to lower headcount and decline in share-based compensation.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended September 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $3.1 million and $3.4 million, professional fees of $0.4 million and $0.3 million, software license and maintenance costs of $0.3 million and $0.5 million, restructuring and severance costs of $0.1 million and $0.0 million, and non-cash share-based compensation expense of $0.1 million and $0.2 million, respectively.

The decrease in salaries and benefits was primarily due to lower salaries and other employee related costs due in part to lower headcount and spend on IT-related vendors, partly offset by an increase in restructuring and severance costs in the current year period due to the reductions in workforce, as described below.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $9.8 million and $10.3 million, professional fees of $1.4 million and $1.3 million, software license and maintenance costs of $1.2 million and $1.4 million, restructuring and severance costs of $0.7 million and $0.1 million, and non-cash share-based compensation expense of $0.2 million and $0.5 million, respectively.

The decrease in product development expense was primarily due to changes as described above.

General and administrative

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

General and administrative

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

For the three ended June 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $4.2 million and $4.6 million, professional fees of $1.7 million and $1.3 million, office overhead of $1.0 million and $1.0 million, software license and maintenance costs of $0.7 million and $0.7 million, non-cash share-based compensation expense of $0.3 million and $0.7 million, acquisition-related costs of $0.0 million and $0.6 million, and certain litigation and related costs of $0.0 million and a credit related to insurance reimbursements and lower than expected regulatory settlement for previously incurred legal fees received in the prior period of ($5.7) million, respectively.

The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs, which was partially offset by a reduction in salaries and benefits due to lower headcount, a decline in share based compensation expense and a decrease in acquisition related costs mainly due to the divestiture of True North Loyalty, LLC and its direct and indirect subsidiaries ("True North").

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $8.9 million and $9.5 million, professional fees of $3.4 million and $2.9 million, office overhead of $2.0 million and $2.2 million, software license and maintenance costs of $1.5 million and $1.2 million, acquisition-related costs of $0.8 million and $1.2 million, non-cash share-based compensation expense of $0.8 million and $1.4 million, and certain litigation and related costs of $0.0 million and a credit of ($4.4) million, respectively.

The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs, which was partially offset by a reduction in salaries and benefits due to lower headcount, a decline in share-based compensation expense, a decrease in acquisition related costs mainly due to the divestiture of True North.

During the first quarter of 2023 and 2024 and the second quarter of 2024, the Company implemented reductions in the workforce that resulted in the termination of 20, 20, and 19 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 reductions in workforce during the first quarter of 2023, 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 reductions in workforce during the first quarter of 2024, 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.

In connection with the second quarter 2024 reductions in workforce, the Company incurred $0.6 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by December 31, 2024.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three ended September 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $3.9 million and $4.4 million, professional fees of $1.5 million and $2.1 million, office overhead of $1.1 million and $1.0 million, software license and maintenance costs of $0.8 million and $0.7 million, acquisition-related costs of $0.4 million and $0.5 million, non-cash share-based compensation expense of $0.4 million and $0.7 million, and certain litigation and related costs of $0.0 million and a credit of ($1.6) million, respectively.

The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs due to insurance reimbursements for previously incurred legal fees and lower than expected regulatory settlement and an increase in restructuring or severance costs.

This was partially offset by a reduction in salaries and benefits due to lower headcount, a decrease in professional fees, and a decline in share-based compensation expense.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $12.8 million and $13.9 million, professional fees of $4.9 million and $5.0 million, office overhead of $3.1 million and $3.2 million, software license and maintenance costs of $2.3 million and $1.9 million, acquisition-related costs of $1.2 million and $1.7 million, non-cash share-based compensation expense of $1.1 million and $2.1 million, and certain litigation and related costs of $0.0 million and a credit of ($6.0) million, respectively.

The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs, which was partially offset by a reduction in salaries and benefits due to lower headcount, a decline in share-based compensation expense, and a decrease in acquisition related costs mainly due to the conveyance of True North, LLC and its direct and indirect subsidiaries.

During the first quarter of 2023 and the first, second, and third quarters of 2024, the Company implemented reductions in the workforce that resulted in the termination of 20, 20, 19, and 29 employees, respectively, following management's determination to more effectively align resources with the Company's strategic initiatives.

In connection with the first quarter 2023 reductions, 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, the Company incurred $0.7 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, fully settled in cash by September 30, 2024.

In connection with the second quarter 2024 reductions, the Company incurred $0.6 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by December 31, 2024.

In connection with the third quarter 2024 reductions, 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, 2025.

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.

Subsequent to the second quarter of 2024, the Company implemented an additional reduction in workforce that resulted in the termination of another 9 employees.

Depreciation and amortization

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Depreciation and amortization

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

The decrease in depreciation and amortization costs was mainly due to certain intangible assets that fully amortized as compared to the three months ended June 30, 2023.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

The decrease in depreciation and amortization costs was driven by the same factors discussed above as compared to the six months ended June 30, 2023.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The decrease in depreciation and amortization costs was mainly due to the full amortization of certain intangible assets as compared to the three months ended September 30, 2023.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The decrease in depreciation and amortization costs was driven by the same factors discussed above as compared to the nine months ended September 30, 2023.

Goodwill impairment and write-off of intangible assets

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Goodwill impairment and impairment of intangible assets

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

The Company recognized a $1.3 million goodwill impairment in the current year period related to the All Other reporting unit and a $1.0 million impairment on its software developed for internal use related to the Fluent reporting unit and customer relationships related to the All Other reporting unit as of June 30, 2024, compared to no goodwill impairment loss or write-off of intangible assets for the prior period.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

The Company recognized a $1.3 million goodwill impairment in the current year period and a $1.0 million impairment as described above, compared to the goodwill impairment of $25.7 million for the Fluent reporting unit for the six months ended June 30, 2023.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The Company recognized no goodwill impairment in the current year period, compared to $29.7 million goodwill impairment loss related to both the Fluent and All Other Reporting Unit for the prior period.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The Company recognized a $1.3 million goodwill impairment in the current year period related to the All Other reporting unit and a $1.0 million impairment on its software developed for internal use related to the Fluent reporting unit and customer relationships related to the All Other reporting unit in the current year period, compared to the goodwill impairment of $55.4 million for the Fluent and All Other Reporting Unit for the nine months ended September 30, 2023.

Interest expense, net

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Interest expense, net

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The increase in interest expense was driven by a higher average interest rate on the SLR (as defined herein) term loan in the current year period as compared to the prior period's Citizens Bank, N.A.

term loan described below under "Liquidity and Capital Resources" below along with increased loan amortization.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The increase in interest expense was driven by the same factors discussed above.

Income (loss) before income taxes

Three Months Ended June 30,

Six Months Ended June 30,

Fair value adjustment of Convertible Notes with related parties

Three Months Ended September 30,

As of the Three Months Ended September 30, 2023

(In thousands)

Income (loss) before income taxes

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

The decrease in income (loss) before income taxes of $18.3 million was primarily driven by the decline in revenue of $23.4 million and an increase in operating expenses of $5.4 million driven in part by the prior year period legal fee reimbursement related to previously incurred legal fees and lower than expected regulatory settlement of a legal case and legal fees, partly offset by a decline in cost of revenue of $13.4 million.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

The decrease in loss before income taxes of $8.1 million was primarily due to the decline in revenue of $34.7 million and an increase in operating expenses of $3.3 million driven mainly by the prior year period legal fee reimbursement and settlement of the FTC case for lower than expected, partly offset by a decrease in goodwill impairment of $23.5 and a decline in cost of revenue of $24.4 million.

Fair value adjustment of Convertible Notes, with related parties

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The Company recognized $2.8 million of an unrealized loss related to the fair value of Convertible Notes entered into in the current period and therefore none in the prior period.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The Company recognized $2.8 million of an unrealized loss related to the fair value of Convertible Notes, as described above.

Loss on early extinguishment of debt

Three Months Ended September 30,

As of the Nine Months Ended September 30, 2023

(In thousands)

Loss on early extinguishment of debt

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The Company recognized no loss on early extinguishment of debt in the current year period or prior period.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The Company recognized a $1.0 million loss on early extinguishment of debt related to the Citizens Credit Agreement due on September 30, 2025, as compared to no loss on debt extinguishment in the prior period.

Loss before income taxes

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Loss before income taxes

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

The decline in loss before income taxes of $26.9 million was primarily driven by the decrease in goodwill impairment of $29.7 over the prior year period, a decline in cost of revenue of $1.3 million, and a decrease in operating expenses of $0.5 million driven mainly by the lower reductions in workforce, described above, partly offset by the $2.8 million unrealized loss for the fair value adjustment of the convertible notes and the decrease in revenue of $1.7 million.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

The decline in loss before income taxes of $35.0 million was primarily due to a decrease in goodwill impairment of $54.1 over the prior year period and a decline in cost of revenue of $25.6 million, partly offset by a decline in revenue of $36.4 million, an increase in operating expenses of $2.9 million driven mainly by the prior year period legal fee reimbursement and settlement of the FTC inquiry for less than expected, along with the impact of the unrealized loss related to the fair value adjustment of the convertible notes and loss on the early extinguishment of debt.

Income tax (expense) benefit

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Income tax (expense) benefit

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

For the three months ended June 30, 2024, the effective tax rate of 6.5% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

For the three months ended June 30, 2023, the Company's effective income tax expense rate of 29.2% primarily 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.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024, the effective tax rate of 0.8% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

For the six months ended June 30, 2023, the Company's effective income tax expense rate of 6.9% primarily 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 June 30, 2024 and 2023, the Company recorded full valuation allowances against its net deferred tax assets.

Three months ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended September 30, 2024, the effective income tax rate of 0.4% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

For the three months ended September 30, 2023, the Company's effective income tax rate of 3.6% 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, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024, the effective income tax rate of 0.4% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

For the nine months ended September 30, 2023, the Company's effective income tax rate of 0.9% 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, 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.

Net income (loss)

Three Months Ended June 30,

Six Months Ended June 30,

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 September 30,

Nine Months Ended September 30,

(In thousands)

Net income (loss)

T hree m onths ended June 30, 2024 compared to the three months ended June 30, 2023

T hree m onths ended September 30, 2024 compared to the three months ended September 30, 2023

For the three months ended

June 30, 2024 and 2023,

$11.6 million and net income was

September 30, 2024 and 2023,

$7.9 million and

$33.6 million, respectively, as a result of the foregoing.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

For the six months ended June 30, 2024 and 2023, net loss was $17.9 million and $27.7 million, respectively, as a result of the foregoing.

Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

For the nine months ended September 30, 2024 and 2023, net loss was $25.8 million and $61.3 million, respectively, as a result of the foregoing.

Liquidity and Capital Resources

Cash (used in) provided by operating activities .

For the six months ended June 30, 2024, net cash used in operating activities was $13.2 million, compared to net cash provided by operating activities of $2.1 million for the six months ended June 30, 2023.

For the nine months ended September 30, 2024, net cash used in operating activities was $12.0 million, compared to net cash provided by operating activities of $9.7 million for the nine months ended September 30, 2023.

Net loss in the current year period of $25.8 million represents a decrease of $35.5 million, as compared with net loss of $61.3 million in the prior period.

Adjustments to reconcile net loss to net cash used in operating activities of $10.1 million in the current year period decreased by $23.1 million, as compared with $33.2 million in the prior period, primarily due to a goodwill impairment of $1.3 million and intangible impairment of $1.0 million in the current year period as compared to the goodwill impairment of $25.7 million in the prior period, partly offset by the current year period loss on early extinguishment of debt of $1.0 million.

There were changes in assets and liabilities consuming cash of $5.4 million in the current year period, as compared with $3.4 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.

Adjustments to reconcile net loss to net cash provided by operating activities of $16.4 million in the current year period decreased by $50.4 million, as compared with $66.8 million in the prior period, primarily due to a goodwill impairment of $1.3 million and intangible impairment of $1.0 million in the current year period as compared to the goodwill impairment of $55.4 million in the prior period, partly offset by the current year period loss on the fair value adjustment of Convertible Notes of $2.8, loss on early extinguishment of debt of $1.0 million, and an increase in amortization of debt.

There were changes in assets and liabilities consuming cash of $2.5 million in the current year period, as compared with sourcing of cash of $4.3 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 six months ended June 30, 2024 and 2023, net cash used in investing activities was $3.5 million and $3.6 million, respectively.

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

For the nine months ended September 30, 2024 and 2023, net cash used in investing activities was $4.7 million and $5.4 million, respectively.

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

Cash (used in) provided by financing activities.

For the six months ended June 30, 2024, net cash provided by financing activities was $7.4 million, compared to net cash used in financing activities of $3.0 million for the six months ended June 30, 2023.

The increase was mainly due to the sale of warrants and the net proceeds received from the issuance of the new debt partly offset by repayment of the prior debt and repayments on the new debt revolver as well as debt financing costs.

As of June 30, 2024, we had noncancelable operating lease commitments of $2.9 million and long-term debt with a $34.3 million principal balance.

For the six months ended June 30, 2024, we funded our operations using available cash.

As of June 30, 2024, we had cash, cash equivalents, and restricted cash of $6.4 million, a decrease of $9.4 million from $15.8 million as of December 31, 2023.

As of June 30, 2024, we were not in compliance with our financial covenants under our credit facility.

For the nine months ended September 30, 2024, net cash provided by financing activities was $8.7 million, compared to net cash used in financing activities of $9.4 million for the nine months ended September 30, 2023.

The increase was mainly due to the sale of warrants, the net proceeds received from the issuance of the new debt, and the Convertible Notes, which was partly offset by repayment of the prior debt and repayments on the new debt revolver as well as debt financing costs.

As of September 30, 2024, we had noncancelable operating lease commitments of $2.3 million and long-term debt with a $34.2 million principal balance.

For the nine months ended September 30, 2024, we funded our operations using available cash.

As of September 30, 2024, we had cash, cash equivalents, and restricted cash of $7.8 million, a decrease of $8.0 million from $15.8 million as of December 31, 2023.

As of September 30, 2024, w e were not in compliance with our financial covenants under our credit facility.

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

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, prior to its maturity.

As of June 30, 2024, the SLR Credit Facility had an outstanding principal balance of $32.3 million (of which $12.3 million relates to the SLR Revolver) and matures on April 2, 2029 (the "Maturity Date").

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

As of September 30, 2024 , the SLR Credit Facility had an outstanding principal balance of $32.5 million (of which $12.5 million relates to the SLR Revolver) and matures on April 2, 2029 (the "Maturity Date").

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

1 unchanged sentence

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.

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;

On May 15, 2024, we entered into the First Amendment to the 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 to assist in preparing the Company's projections, (3) increased the minimum excess availability covenant following the Private Placement;

1 unchanged sentence

and (5) amended certain post-closing obligations.

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

We entered into two letter agreements with SLR, pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024, and the related notice of event of default, to August 21, 2024.(See Note 5, Long-term debt, net in the Notes to the consolidated financial statements).

On August 19, 2024, the Borrower and SLR entered into the Second Amendment to the SLR Credit Agreement, which, among other things, required that the we raise $2.0 million in additional capital.

To raise the capital, we entered into convertible subordinated notes (See Note 12 , Subsequent Events in the Notes to the consolidated financial statements) raising an aggregate of $2.1 million.

In addition, among other things, the Second Amendment waived non-compliance with the financial covenant as of June 30, 2024 , modified the financial covenant through December 31, 2025, ended a requirement to engage a financial advisor, and increased the interest rate margin from 5.25% to 5.75%.

We entered into two letter agreements with SLR, one on July 31, 2024, and another on August 14, 2024, pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024 , and the related notice of event of default, to August 21, 2024.

On August 19, 2024, we entered into the Second Amendment to the SLR Credit Agreement, which, among other things, required that we raise $2.0 million in additional capital.

To raise the capital, we entered into convertible subordinated notes (See Note 5 , Long-term debt, net in the Notes to the consolidated financial statements) raising an aggregate of $2.1 million.

In addition, the Second Amendment (1) waived non-compliance with the financial covenants as of June 30, 2024, (2) modified the financial covenants through December 31, 2025, (3) ended a requirement to engage a financial advisor, (4) increased the interest rate margin from 5.25% to 5.75%, and (5) and waived any required prepayments from the proceeds from the convertible subordinated notes financing.

As a result of our economic downward trends as described above in "Advertiser Trends & Seasonality", we updated our projections in the fourth quarter of 2024 to reflect the continued pressure on our operating results.

On October 30, 2024, we entered into a letter agreement with SLR, pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended September 30, 2024 , and the related notice of event of default, to November 19, 2 024.

On November 15, 2024, we entered into the Third Amendment to the SLR Credit agreement, which, among other things, required that we raise at least $7.5 million of additional capital by November 29, 2024.

In addition, the Third Amendment waived non-compliance with the financial covenants as of September 30, 2024, extended the duration of the call protection applicable to the loans, and modified the cash dominion provisions to remain in effect on an indefinite basis.

(See Note 5 , Long-term debt, net in the Notes to the consolidated financial statements).

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.

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All amounts owed under the SLR Credit Facility 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").

Borrowings under the SLR Credit Agreement currently bear interest at a rate per annum equal to a 3-month term SOFR plus 0.26161%, subject to a 1.50% floor, plus 5.75% (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%), which increased to 10.86% (SOFR + CSA+5.25%) as of June 30, 2024.

Given the continued challenges we have faced achieving profitability, we made reductions in workforce during the first half of 2024 and continue to further consider cost reduction measures and focus resources on opportunities that will enable us to meet our projected budget and cash flow requirements.

Initial measures included divesting a non-core business unit (see Note 11, Variable Interest Entity, in the Notes to the consolidated financial statements), transferring another business unit (see Note 3, Intangible assets, net in the Notes to the consolidated financial statements), and reviewing other business units to determine the impact of potential divestments.

The opening interest rate of the SLR Credit Facility was 10.81% (SOFR + CSA + 5.25%), which increased to 11.03% (SOFR + CSA+5.75%) as of September 30, 2024 .

Given the continued challenges we have faced achieving profitability, we made reductions in workforce throughout 2024 and continue to further consider cost reduction measures and focus resources on opportunities that will enable us to meet our projected budget and cash flow requirements.

We had divested a non-core business unit (see Note 12 , Variable Interest Entity, in the Notes to the consolidated financial statements), transferred another business unit (see Note 3 , Intangible assets, net in the Notes to the consolidated financial statements), and are reviewing other business units to determine the impact of potential divestments.

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

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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.

While based on current projections, we expect to be in compliance with the new financial covenants for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10-Q, if during any fiscal quarter, we do not comply with any of its financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

In such case, the Company likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver (as described above).

In addition, while we believe the proceeds from the sale of the Convertible Notes (as defined in Note 12, Subsequent Events, in the Notes to the consolidated financial statements) will provide sufficient liquidity for any anticipated cash needs, there is no assurance that our available cash plus borrowing base will be sufficient to fund operations over the next twelve months.

Further, if needed, we will consider implementing other cost saving measures, but there is no guarantee that the plans will be successfully executed or have the expected benefits.

Based on current projections, we expect to be in compliance with the new financial covenants for each of the quarters in the twelve months following the issuance date of this Quarterly Report on Form 10-Q.

However, we have not met our projections for certain recent quarters, so there can be no assurance that we will meet our projections in the future.

I f during any fiscal quarter, we do not comply with any of our financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities.

Additionally, if we fail to raise capital in at least the amount required under the Third Amendment by November 29, 2024, such failure would also result in an event of default that would give SLR the right to accelerate maturities.

In such case, we would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver (as described above).

In addition, even if we are able to raise capital as required by the Third Amendment, there is no assurance that such capital plus borrowing base on the SLR Revolver will be sufficient to fund operations over the next twelve months.

If needed, we will consider implementing other cost saving measures, but there is no guarantee that such plans would be successfully executed or have the expected benefits.

As a result, management concluded that there is substantial doubt about our ability to continue as a going concern for one year after the date of this Quarterly Report on Form 10-Q.

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As such, we concluded that its goodwill of $1,261 for the All Other reporting unit was impaired and recorded a non-cash impairment charge of its remaining balance in the second quarter of 2024.

As disclosed in Note 5, Long-term debt, net, we evaluated the terms of our convertible notes to determine whether the debt instrument contained an embedded derivative, and therefore a hybrid instrument, in which then the fair value option can be elected.

The determination is based on judgment when considering the terms of the agreement.

To then determine the fair value of the convertible notes, we considered the length of the term until conversion and then applied a discount rate based on that.

We then applied the Black Scholes methodology to determine the conversion date stock price based on assumptions for volatility, risk free-rate, the current stock price, and term, noting that if any were to change driven by macro-economic factors as well as Company specific results, the impact to the fair value may be significant.

As such, we concluded that its fair value was $4,860 as of the third quarter of 2024.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis