Fluent, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects. Forward-looking statements are those that do not relate strictly to historical or current matters, but instead relate to anticipated or expected events, activities, trends, or results as of the date they are made. These forward-looking statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "will," or the negative thereof or other variations thereon or comparable terminology. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements , including, without limitation, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the "SEC") on March 31, 2026, as amended on April 30, 2026 (as amended the "2025 Form 10-K"), those contained in our Quarterly Reports on Form 10-Q (including this one), and such other factors contained in our other filings we make with the SEC. We do not undertake any obligation to update forward-looking statements, except as required by law and intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance. The following discussion should be read in conjunction with the 2025 Form 10-K and the consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Overview Fluent, Inc. ("we," "us," "our," "Fluent," or the "Company") is a commerce media solutions provider connecting top-tier brands with highly engaged consumers. Leveraging diverse ad inventory, robust first-party data, and proprietary machine learning, we unlock additional revenue streams for partners and empower advertisers to acquire their most valuable customers at scale. We primarily perform customer acquisition services by operating highly scalable digital marketing campaigns, through which we connect our advertiser clients with targeted consumers. We access these consumers through both our commerce media marketplace ("Commerce Media Solutions"), which delivers targeted advertising within e-commerce and digital media transaction flows on partner sites and mobile apps, and our owned and operated digital media properties ("O&O Sites"). Over the last twelve months, we provided data and performance-based customer acquisition services for over 300 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 operate our Commerce Media Solutions on partner sites and mobile apps where we embed our proprietary ad-serving technology to identify and acquire 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, our post-transaction solution connects our advertisers to consumers on e-commerce websites and apps after a purchase or similar transaction. Commerce Media Solutions generates meaningful revenue for our media partners, while driving high-quality customer acquisition for our advertiser clients. We enter into exclusive agreements with our media partners with one to five year terms, typically remunerating them on a revenue share and/or impression basis. We also attract consumers at scale to our O&O Sites primarily through promotional offerings, through which consumers are rewarded for completing activities on our sites. Upon registration, consumers provide their name, contact information, and opt-in consent for telemarketing and email marketing. Over 90% of these users engage with our media on their mobile devices or tablets. Once users have registered, they are engaged through our proprietary direct marketing technologies and analytics with surveys, polls, and other experiences, through which we capture information about their lifestyles, preferences, and purchasing histories, among other attributes. Based on these insights, we serve users targeted, relevant offers on behalf of our clients. As new users register and existing registrants re-engage, our database is enriched and improves the effectiveness of our performance-based campaigns, thus expanding our addressable advertiser client base. 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 channels including email, telephone, SMS/text, and push messaging. We leverage their self-declared data primarily in two ways: (1) to serve advertisements we believe will be relevant to users based on the information they provide on our O&O Sites and our Commerce Media Solutions and (2) to provide our clients with users' contact information for direct outreach. We may also leverage our technology and database to drive non-core revenue streams, including utilization-based models ( e.g. , programmatic advertising). 25 Table of Contents Additionally, we operated a call center-supported performance marketplace ("Call Solutions") that provided live, call-based performance campaigns to help clients increase engagement, which was divested through the sale of Winopoly, LLC on January 31, 2026. Our Call Solutions business served clients across an array of industries but had a heavy focus on the health insurance sector. Across our business, we generate revenue by delivering measurable marketing results to our clients. We differentiate ourselves from other marketing alternatives by our ability to provide clients with a cost-effective and measurable return on advertising spend ("ROAS"), a measure of profitability of sales compared to the money spent on ads, and to manage highly targeted and fragmented online media sources. We are predominantly compensated on a negotiated or market-driven "per click," "per lead," or other "per action" basis that aligns with the customer acquisition cost targets of our clients. For our O&O Sites and our prior Call Solutions business, we bear the responsibility and cost of acquiring consumers from media partners that ultimately generate qualified clicks, leads, calls, app downloads, or customers for our clients. Our Commerce Media Solutions business operates under exclusive long-term contracts with media partners that generally remunerate the partner on a revenue share basis. Notwithstanding occasional minimum guarantees, the business does not take significant media inventory risk. Through AdParlor, LLC ("AdParlor"), our wholly owned subsidiary, we conduct our non-core business, which offers advertiser clients a managed service for creator marketing and media buying on different social platforms. Recent Developments On March 17, 2024, Fluent, LLC, our wholly-owned subsidiary, entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC ("FDR") in the principal amount of $2,000,000 in connection with the Amended Class Action Settlement Agreement dated May 31, 2023 by and between the parties to that certain Telephone Consumer Protection Act class action, Daniel Berman v. Freedom Financial Network, originally filed in the Northern District of California in 2018. The Note Payable accrued interest equal to one-month CME Term SOFR (defined as the rate published by the CME Group Benchmark Administration Limited) plus 11.0% per annum, compounded quarterly. The opening interest rate of the Note Payable was 16.32% (SOFR + 11%), which changed and was 14.68% (SOFR + 11%) as of March 31, 2026. The Note Payable was to mature on March 31, 2026 and interest was payable quarterly. Scheduled principal amortization of the Note Payable was $250 per quarter. On April 8, 2026, the final payment was made on the Note Payable. First Quarter Financial Summary Three months ended March 31, 2026, compared to three months ended March 31, 2025: • Revenue decreased 19% to $44.9 million, compared to $55.2 million • Net loss was $5.4 million, or $0.17 per share, compared to net loss of $8.3 million or $0.39 per share • Gross profit (exclusive of depreciation and amortization) decreased 12% to $10.0 million, representing 22% of revenue for the three months ended March 31, 2026, from $11.4 million, representing 21% of revenue for the three months ended March 31, 2025 • Media margin increased 2% to $14.0 million, representing 31.2% of revenue for the three months ended March 31, 2026, from $13.7 million, representing 24.9% of revenue for the three months ended March 31, 2025 • Adjusted EBITDA was negative $3.6 million, compared to negative $3.1 million • Adjusted net loss was $5.9 million, or $0.19 per share, compared to $6.7 million, or $0.31 per share Media margin, adjusted EBITDA, and adjusted net loss are non-GAAP financial measures. See "Definitions, Reconciliations and Uses of Non-GAAP Financial Measures" below. Trends Affecting our Business The commerce media sector has experienced significant growth in recent years, driven by the expansion of e-commerce, increasing demand for privacy-compliant first-party data solutions, and the ability of media owners to generate incremental revenue from their existing consumer traffic. According to McKinsey & Company, the commerce media market is expected to grow at a CAGR of 21% from 2023 to 2027 and reach a total market value of $100 billion by 2027. These industry tailwinds, combined with the media supply challenges affecting our owned and operated business were the basis for the strategic shift to Commerce Media. 26 Table of Contents We launched Commerce Media Solutions in the first quarter of 2023 to access high-value consumers for our advertiser clients and help media owners and e-commerce businesses monetize their existing consumer traffic. Commerce Media Solutions embeds proprietary ad-serving technology in the post-action and post-transaction inventory on partner sites and mobile apps across a range of industries, including retail, ticketing and quick service restaurants. In 2025, we served ads to over 200 million consumers in the post-action and post-transaction moment for top-tier media owners and brands. These consumers are among the highest-intent consumers in digital advertising and have driven significantly higher ROAS for our advertiser clients compared to other channels. Because Commerce Media Solutions operates on media partner-owned inventory under exclusive long-term contracts, the business typically does not require us to source consumer traffic directly, resulting in a more predictable cost structure and reduced exposure to the media supply challenges that have affected our O&O Sites. Since its launch, Commerce Media Solutions has delivered year-over-year revenue growth in every quarter. For the quarter ended March 31, 2026, Commerce Media Solutions represented approximately 58% of consolidated revenue, compared to approximately 23% for the prior year period. Based on current performance trends, we expect Commerce Media Solutions to represent a majority of consolidated revenue for the remainder of 2026 and continue to grow as we onboard additional media partners and expand into new verticals.   The mix and profitability of Commerce Media Solutions will be influenced by the pace of new partner onboarding, the terms of revenue share arrangements with media partners, and advertiser demand across the verticals we serve. For the first quarter of 2026, we saw gross margin at a lower level for Commerce Media Solutions as we built up placements with new media partners, however, we expect gross margin to improve the remainder of 2026.   Our primary revenue channel has historically been our O&O Sites. This business depends on our ability to identify and access high-quality media sources and attract targeted users to our offers. As the business grew, we attracted larger and more sophisticated advertiser clients to our marketplaces. In response to evolving client expectations, to increase our value proposition, and strengthen our compliance posture within the evolving regulatory landscape, we implemented various initiatives to improve traffic quality.   In recent years, however, we experienced challenges maintaining traffic volume to our O&O Sites due to changes in our ad serving and media sourcing standards following the Federal Trade Commission ("FTC") inquiry and subsequent  Joint Motion for Entry of Proposed Stipulated Order (the "FTC Consent Order") filed by the FTC and the Company in the United States District Court for the Southern District of Florida on July 17, 2023, . In response, we have taken steps to diversify our traffic sources and expand our ad network beyond our O&O Sites. In addition, we have made a strategic transition to our Commerce Media Solutions business, which has not yet fully offset the decrease in revenue to our O&O Sites. 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. Revenue from our owned and operated business declined on a year-over-year basis and the Company continues to shift its focus toward scaling Commerce Media Solutions. Consistent with this strategic transition, we are reallocating our resources to support the growth of Commerce Media Solutions and this long-term growth opportunity.  Seasonality Our performance is subject to fluctuations related to seasonality and cyclicality in our clients' businesses and fluctuations in media sources. Specifically, our retail specific media partners in our Commerce Media Solutions marketplace are highly seasonal based on fourth quarter consumer spending which can affect advertiser demand and campaign performance. In addition, advertiser marketing budgets may fluctuate throughout the year based on seasonal spending patterns, economic conditions, and other factors, which can impact the timing and volume of advertising spend across our platform. Other factors affecting our business may include macroeconomic conditions that impact the digital advertising industry, the various advertiser client verticals we serve, and general market conditions. Business Practices & Compliance We have continued to be affected by uncertain economic conditions and the impacts of the FTC Consent Order, as previously disclosed. In response to the FTC Consent Order in 2023, we enhanced our compliance standards and processes across our O&O Sites and programmatic advertising business. These changes have affected our ability to source traffic at historical levels and have contributed to declines in revenue and gross profit in these channels. 27 Table of Contents Current Economic Conditions We are subject to risks and uncertainties caused by events with significant macroeconomic impacts. Inflation, rising interest rates, uncertainty regarding tariff policy, global hostilities, and reduced consumer confidence have caused our clients and their customers to be cautious in their spending. The full impact of these macroeconomic events and the extent to which these macro factors may impact our business, financial condition, and results of operations in the future remains uncertain. Considering the uncertain macroeconomic environment, we continue to prioritize strategic investments that have near-term benefits to revenue while also streamlining our organization through cost saving initiatives. Please see Item 1A. Risk Factors in the 2025 Form 10-K —"Economic or political instability could adversely affect our business, financial condition, and results of operations," and "We are exposed to credit risk from our clients, and we may not be able to collect on amounts owed to us" for further discussion of the possible impact of unfavorable conditions on our business. Definitions, Reconciliations and Uses of Non-GAAP Financial Measures We report the following non-GAAP measures: Media margin is defined as that portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue and one-time items. Gross profit (exclusive of depreciation and amortization) represents revenue minus cost of revenue (exclusive of depreciation and amortization). 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) loss on disposal of assets, (7) goodwill impairment, (8) impairment of intangible assets, (9) fair value adjustment of Convertible Notes with related parties (see Note 4, Debt, net ), (10) acquisition-related costs, (11) restructuring and other severance costs, (12) certain litigation and other related costs, and (13) other one-time items. Adjusted net income (loss) is defined as net income (loss), excluding (1) share-based compensation expense, (2) loss on early extinguishment of debt, (3) loss on disposal of assets, (4) goodwill impairment, (5) impairment of intangible assets, (6) fair value adjustment of Convertible Notes with related parties (see Note 4, Debt, net ), (7) acquisition-related costs, (8) restructuring and other severance costs, (9) certain litigation and other related costs, and (10) other one-time items. Adjusted net income (loss) is also presented on a per share (basic and diluted) basis. We consider items one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three months ended March 31, 2026 and 2025, which we believe is the most directly comparable U.S. GAAP measure: Three Months Ended March 31, (In thousands, except percentages) 2026 2025 Revenue $ 44,852 $ 55,210 Less: Cost of revenue (exclusive of depreciation and amortization) 34,813 43,775 Gross profit (exclusive of depreciation and amortization) $ 10,039 $ 11,435 Gross profit (exclusive of depreciation and amortization) % of revenue 22 % 21 % Non-media cost of revenue (1) 3,961 2,296 Media margin $ 14,000 $ 13,731 Media margin % of revenue 31.2 % 24.9 % (1) Represents the portion of cost of revenue (exclusive of depreciation and amortization) not attributable to variable costs paid for media and related expenses. 28 Table of Contents Below is a reconciliation of adjusted EBITDA from net loss for the three months ended March 31, 2026 and 2025, which we believe is the most directly comparable U.S. GAAP measure: Three Months Ended March 31, (In thousands) 2026 2025 Net loss $ (5,354 ) $ (8,269 ) Income tax expense 3 233 Interest expense, net 605 880 Depreciation and amortization 1,681 2,461 Share-based compensation expense 954 335 Loss on disposal of assets 14 — Fair value adjustment of Convertible Notes with related parties 837 80 Acquisition-related costs (1) (2,352 ) (119 ) Restructuring and other severance costs 51 1,315 Adjusted EBITDA $ (3,561 ) $ (3,084 ) (1) Balance includes gain on the conveyance of the membership interest of Winopoly in January 2026 of $2,352 (refer to Note 12, Divestiture in the notes to our consolidated financial statements included in this Form 10-Q). Balance also includes compensation expense related to non-compete agreements and earn-out expense incurred as a result of business combinations; earn-out expenses were in the amount of $0 and ($119) for the three months ended March 31, 2026 and 2025, respectively, while non-compete agreements were in the amount of $0 and $0 for the three months ended March 31, 2026 and 2025, respectively. Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three months ended March 31, 2026 and 2025, which we believe is the most directly comparable U.S. GAAP measure. Three Months Ended March 31, (In thousands, except share and per share data) 2026 2025 Net loss $ (5,354 ) $ (8,269 ) Share-based compensation expense 954 335 Loss on disposal of assets 14 — Fair value adjustment of Convertible Notes with related parties 837 80 Acquisition-related costs (1) (2,352 ) (119 ) Restructuring and other severance costs 51 1,315 Adjusted net loss $ (5,850 ) $ (6,658 ) Adjusted net loss per share: Basic $ (0.19 ) $ (0.31 ) Diluted $ (0.19 ) $ (0.31 ) Weighted average number of shares outstanding: Basic 31,332,710 21,211,439 Diluted 31,332,710 21,211,439 (1) Balance includes gain on the conveyance of the membership interest of Winopoly in January 2026 of $2,352 (refer to Note 12, Divestiture in the notes to our consolidated financial statements included in this Form 10-Q). Balance also includes compensation expense related to non-compete agreements and earn-out expense incurred as a result of business combinations; earn-out expenses were in the amount of $0 and ($119) for the three months ended March 31, 2026 and 2025, respectively, while non-compete agreements were in the amount of $0 and $0 for the three months ended March 31, 2026 and 2025, respectively. 29 Table of Contents We present media margin, media margin as a percentage of revenue, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share as supplemental measures of our financial and operating performance because we believe they provide useful information to investors. More specifically: Media margin, as defined above, is a measure of the efficiency of the Company's operating model. We use media margin and the related measure of media margin as a percentage of revenue as primary metrics to measure the financial return on our media and related costs, specifically to measure the degree by which the revenue generated from our digital marketing services exceeds the cost to attract the consumers to whom offers are made through our services. Media margin is used extensively by our management to manage our operating performance, including evaluating operational performance against budgeted media margin and understanding the efficiency of our media and related expenditures. We also use media margin for performance evaluations and compensation decisions regarding certain personnel. Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated. The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under U.S. GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain litigation and other related costs associated with legal matters outside the ordinary course of business, including costs and accruals related to matters as described below (see Note 10, Contingencies , in the notes to the consolidated financial statements). Adjusted net income (loss), as defined above, and the related measure of adjusted net income (loss) per share exclude certain items that are recognized and recorded under U.S. GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. We believe adjusted net income (loss) affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the U.S. GAAP measure of net income (loss). Media margin, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share are non-GAAP financial measures with certain limitations regarding their usefulness. They do not reflect our financial results in accordance with U.S. GAAP, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Accordingly, these metrics are not indicative of our overall results or indicators of past or future financial performance. Further, they are not financial measures of profitability and are neither intended to be used as a proxy for the profitability of our business nor to imply profitability. The way we measure media margin, adjusted EBITDA, and adjusted net income (loss) may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements. Comparison of Our Results of Operations for the Three Months Ended March 31, 2026 and 2025 Revenue Three Months Ended March 31, (In thousands) 2026 2025 % Change Revenue $ 44,852 $ 55,210 (19 %) 30 Table of Contents Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, revenue was comprised of owned and operated of $15.7 million and $31.1 million, Commerce Media Solutions of $25.9 million and $12.7 million, and other streams of $3.3 million and $11.4 million, respectively. The decrease in owned and operated marketplaces revenue was primarily driven by the ongoing strategic transition of our business, as we continue to reallocate resources and advertiser demand to scaling Commerce Media Solutions. Consistent with this transition, our Commerce Media Solutions business added long-term contracts with new media partners which drove up revenue from advertiser clients in the Media & Entertainment and Retail & Consumer sectors aligned with our continued focus on growing this revenue stream. Within our other streams, the decrease was related to the divestiture of our Call Solutions business as of January 31, 2026. Cost of revenue (exclusive of depreciation and amortization) Three Months Ended March 31, (In thousands) 2026 2025 % Change Cost of revenue (exclusive of depreciation and amortization) $ 34,813 $ 43,775 (20 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, cost of revenue (exclusive of depreciation and amortization) consisted mainly of O&O Sites media and related costs of $12.5 million and $24.8 million, Commerce Media Solutions media and related costs of $20.9 million and $9.8 million, and media enablement and other indirect costs related to our other revenue streams of $1.4 million and $9.2 million, respectively. Our O&O Sites cost of revenue (exclusive of depreciation and amortization) primarily consists of media and related costs associated with acquiring traffic from third-party publishers, digital media platforms, influencers for our O&O Sites, fulfillment costs related to rewards earned by consumers, and web hosting costs. The decrease in O&O Sites media cost was largely attributable to the challenges in acquiring media related to business practices following the FTC Consent Order. Such costs remained consistent as a percentage of revenue. Commerce Media Solutions cost of revenue consists of fees and revenue share payments made to media partners for ad inventory on their digital properties, web hosting costs, and fulfillment costs related to incentives earned by consumers. The increase in cost of revenue (exclusive of depreciation and amortization) in Commerce Media Solutions was driven by increased revenue share payments generated from impressions from new media partners added over the period. Cost of revenue (exclusive of depreciation and amortization) for Commerce Media Solutions increased as a percentage of revenue, due to the growth of certain lower margin commerce media placements and the increased prevalence of consumer incentives to drive engagement. The decrease in cost of revenue (exclusive of depreciation and amortization) for other revenue streams, which includes media costs, enablement costs and tracking costs related to our consumer data associated with our call centers, was attributable to the decreased cost of media related to the Call Solutions that was divested on January 31, 2026. Cost of revenue (exclusive of depreciation and amortization) for other revenue streams decreased materially as a percentage of revenue largely related to the divestiture of Call Solutions. For the three months ended March 31, 2026, the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue decreased to 78% compared to 79% for the three months ended March 31, 2025. The change was primarily driven by the aforementioned reasons and shifts in revenue mix. 31 Table of Contents In the normal course of executing paid media campaigns to source consumer traffic for our O&O Sites, we regularly evaluate new channels, strategies, and partners. As we perform that evaluation, we may determine that certain sources initially able to provide us profitable quality traffic may not be able to maintain our quality standards over time, and we may need to discontinue, or modify the practices of, such sources, which could reduce profitability further. Sales and marketing Three Months Ended March 31, (In thousands) 2026 2025 % Change Sales and marketing $ 3,724 $ 4,070 (9 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, sales and marketing expenses consisted mainly of employee salaries and benefits of $2.6 million and $3.1 million, advertising costs of $0.5 million and $0.3 million, professional fees of $0.2 million and $0.1 million, and severance costs of $0.1 million and $0.4 million, respectively. The decrease was primarily due to lower salaries and other employee-related costs driven by a decline in headcount and a decline in restructuring and severance costs in the current year period, partly offset by the increase in advertising costs driven by the increase in fees to attend conferences and seminars to grow Commerce Media Solutions. Product development Three Months Ended March 31, (In thousands) 2026 2025 % Change Product development $ 2,821 $ 3,398 (17 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, product development expenses consisted mainly of salaries and benefits of $1.9 million and $2.3 million, software license and maintenance costs of $0.3 million and $0.4 million, and professional fees of $0.2 million and $0.5 million, respectively. The decrease was primarily due to a decline in salaries driven by lower headcount and lower spend on IT-related vendors. 32 Table of Contents General and administrative Three Months Ended March 31, (In thousands) 2026 2025 % Change General and administrative $ 5,708 $ 8,582 (33 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, general and administrative expenses consisted mainly of employee salaries and benefits of $3.8 million and $3.5 million, professional fees of $1.3 million and $1.6 million, office overhead of $0.8 million and $1.0 million, software license and maintenance costs of $0.8 million and $0.9 million, restructuring and severance costs of $0.1 million and $0.8 million, non-cash share-based compensation expense of $0.5 million and $0.3 million, and acquisition-related costs of ($2.4) million and ($0.1) million, respectively. General and administrative expenses decreased primarily due to the non-cash gain on the divestiture of Call Solutions in the current year period, along with lower professional fees and restructuring and severance costs, partially offset by an increase in headcount and related share-based compensation expense. In each of the first and fourth quarters of 2025, we reduced our workforce by 24 and 9 employees, respectively, to better align resources with our strategic initiatives. In connection with the reductions in the first quarter of 2025, we incurred $1.3 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, which were fully settled in cash by March 31, 2026. In connection with the reductions in the fourth quarter of 2025, we incurred $0.1 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs which were fully settled in cash by December 31, 2025. Apart from these exit-related restructuring costs, these reductions in workforce have resulted in corresponding reductions in future salary and benefits within sales and marketing, product development, and general and administrative expenses. Depreciation and amortization Three Months Ended March 31, (In thousands) 2026 2025 % Change Depreciation and amortization $ 1,681 $ 2,461 (32 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 The decrease in depreciation and amortization costs was due to the overall decline in intangibles due to cessation or sales of businesses, along with full amortization on certain intangibles since the prior period. Loss on disposal of assets Three Months Ended March 31, (In thousands) 2026 2025 % Change Loss on disposal of assets $ 14 $ — 100 % Three months ended March 31, 2026 compared to the three months ended March 31, 2025 The change in the loss of disposal of assets was due to minimal activity in the current year, with no activity in the prior year. Interest expense, net Three Months Ended March 31, (In thousands) 2026 2025 % Change Interest expense, net $ 605 $ 880 (31 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 The decrease in interest expense was driven by lower average outstanding balances in our debt as well as lower amortization fees associated with the Financing Agreement (as defined herein). Fair value adjustment of Convertible Notes with related parties Three Months Ended March 31, (In thousands) 2026 2025 % Change Fair value adjustment of Convertible Notes with related parties $ (837 ) $ (80 ) (946 %) Three months ended March 31, 2026 compared to the three months ended March 31, 2025 The change in the fair value adjustment of Convertible Notes with related parties was driven by the fair value calculation inputs, including discount rate and stock price. 33 Table of Contents Loss before income taxes Three Months Ended March 31, (In thousands) 2026 2025 % Change Loss before income taxes $ (5,351 ) $ (8,036 ) 33 % Three months ended March 31, 2026 compared to the three months ended March 31, 2025 The decrease in loss before income taxes of $2.7 million was a result of the foregoing. Income tax benefit (expense) Three Months Ended March 31, (In thousands) 2026 2025 % Change Income tax expense $ (3 ) $ (233 ) 99 % Three months ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026, the effective income tax rate of 0.0% 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 March 31, 2025, the Company's effective income tax rate of 2.9% 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. As of March 31, 2026 and 2025, we recorded full valuation allowances against our U.S. net deferred tax assets. We intend to continue maintaining a full valuation allowance on our U.S. net deferred tax assets until there is sufficient evidence to support the release of all or some portion of the allowance. 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 loss Three Months Ended March 31, (In thousands) 2026 2025 % Change Net loss $ (5,354 ) $ (8,269 ) 35 % 34 Table of Contents T hree m onths ended March 31, 2026 compared to the three months ended March 31, 2025 For the three months ended March 31, 2026 and 2025, net loss was $5.4 million and $8.3 million, respectively, as a result of the foregoing. Liquidity and Capital Resources Cash provided by operating activities . For the three months ended March 31, 2026, net cash provided by operating activities was $5.1 million, compared to net cash provided by operating activities of $2.1 million for the three months ended March 31, 2025. Net loss in the current year period of $5.4 million represents an improvement of $2.9 million, compared with net loss of $8.3 million in the prior period. Adjustments to reconcile net loss to net cash provided by operating activities of $1.2 million in the current year period decreased by $1.8 million, compared with net cash provided by operating activities of $3.0 million in the prior period. The decrease was primarily due to a $2.4 million non-cash gain on divestiture and lower depreciation and amortization, partly offset by the change in fair value adjustment of Convertible Notes with related parties of $0.8 million and increased share-based compensation expense. Changes in assets and liabilities generated cash of $9.3 million in the current year period, compared with generated cash of $7.3 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 three months ended March 31, 2026 and 2025, net cash used in investing activities was $1.5 million and $1.6 million, respectively. The change was primarily due to payments received on the note receivable related to the Winopoly divestiture in the current year period. Cash used in financing activities. For the three months ended March 31, 2026, net cash used in financing activities was $6.3 million, compared to $5.2 million for the three months ended March 31, 2025. This was mainly due to the net repayments of $6.3 million on the Financing Agreement in the current year, compared to the net repayments of $10.0 million on the term loan and revolving credit facility entered into on April 2, 2024 with Crystal Financial LLC d/b/a SLR Credit Solutions, as administrative agent (the "SLR Credit Facility"), partly offset by proceeds received in the prior year period from the issuance of pre-funded warrants. As of March 31, 2026, we had noncancelable operating lease commitments of $3.4 million and debt with a $26.8 million principal balance. As of March 31, 2026, we had cash, cash equivalents, and restricted cash of $11.0 million, a decrease of $2.6 million from $13.6 million as of December 31, 2025. Going concern With the continuing difficulties in sourcing traffic for our O&O Sites, we have shifted our strategic focus toward scaling our Commerce Media Solutions business. While Commerce Media Solutions has demonstrated growth and operates under a different economic model that reduces exposure to certain media sourcing risks, it represents a relatively new and evolving component of our business. Further, the success of the Commerce Media Solutions transition depends on our ability to continue to onboard and retain media partners, achieve favorable economics under long-term agreements, and maintain advertiser demand, and there can be no assurance that this strategy will be successful. Since entering into the Financing Agreement (as defined and discussed below), we have continued to receive advances, as needed, on our eligible account receivables. However, the facility remains uncommitted, with the advances typically due within 120-days, leading to its classification as short-term. Although Bay View (as defined herein) has indicated in writing its intention, absent an event of default, to continue purchasing eligible receivables in the ordinary course, and has made advances since the facility was entered into, such funding remains subject to the discretion of Bay View and the terms and conditions of the Financing Agreement. If availability under the facility were reduced or if Bay View were to cease advances, we could have insufficient funds to support our operations and meet our obligations as they come due unless we found another lender or purchaser of our receivables. Based upon the foregoing, management concluded that there is substantial doubt about our ability to continue as a going concern. Based on our forecast, management expects to have sufficient liquidity over the next twelve months from the date of filing. However, we have a history of not meeting our forecast and any substantial deviations from such forecasts could adversely affect our liquidity and ability to access funding. In addition, we completed our procedures as it relates to the At-The-Market Issuance Sales Agreement (the “ATM Agreement”), which will allow us to offer and sell up to $11.2 million shares of our common stock. Our ability to raise capital under this program, or through other financing sources, is subject to market conditions and other factors and may be limited or unavailable at acceptable terms, if at all. Although management believes its current plans will be sufficient and we will maintain access to the Bay View facility, there is no guarantee such plans will be successful or have the expected benefit. As such, management has concluded that there is substantial doubt about our ability to continue as a going concern for one year after the date of issuance of this Quarterly Report on Form 10-Q. Capital resources and cash requirements Our sources of capital include cash on hand, cash from operations to the extent available and borrowings from the Financing Agreement (as defined below) to the extent available. We have no other committed sources of capital. Our material cash requirements from known contractual and other obligations consist of our term loan and obligations under operating leases for office space. For more information regarding our Financing Agreement, refer to Note 4, Debt, net , in the notes to our consolidated financial statements included in this Form 10-Q. Our future cash requirements will depend on many factors, including employee-related expenditures from expansion of our headcount, costs to support the growth in our client and partner accounts and continued client expansion, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, features, and functionality, and litigation. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. In order to finance such acquisitions or investments, it may be necessary for us to raise additional funds through public or private financings or draw upon our facility. In the past, we have been able to secure funding from our officers, directors and the largest stockholder of our Company and have entered into an At-the-Market Issuance Sales Agreement to offer and sell our shares of common stock. However, if we do not meet the conditions to draw on the facility, or additional financing is not accessible from outside sources, we may not be able to raise additional capital on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 35 Table of Contents   Financing Agreement On November 25, 2025, the Company, and its affiliates Fluent, LLC, Fluent Media Labs, LLC and AdParlor, LLC, each a wholly owned subsidiary of the Company (together with the Company, the "Borrower"), entered into an Accounts Receivable Finance Agreement (the "Financing Agreement") with CSNK Working Capital Finance Corp. d/b/a Bay View Funding ("Bay View").   Under the Financing Agreement, Bay View may extend financing to the Company based on eligible domestic and foreign accounts receivable, provided that the amount of advances thereon shall not exceed the lesser of  a maximum credit of $30 Million (the “Maximum Credit”) or an amount equal to the sum of all advances less any funds received by Bay View pursuant to the Financing Agreement over the collection amounts adjusted for fees that is maintained in a reserve account. All collections of the financed receivables go directly to Bay View and are applied to the Company’s obligations.  The transfer of the receivables was recorded as secured borrowings in accordance with ASC 860, Transfers and Servicing (“ASC 860”), with the receivables remaining on the balance sheet as a current asset.  As of March 31, 2026, the Financing Agreement had a balance of $24,053, which was recorded within current liabilities as the underlying receivables are typically due within 120-days and Bay View may require repayment of amounts outstanding beyond that period. In addition, the Company had $506 in its reserve accounts with Bay View as of March 31, 2026, which was recorded within prepaids and other current assets. The net unused advance as of March 31, 2026 was $6,453.           The Financing Agreement has an initial term of 36 months (the "Initial Term") and renews automatically for additional 12-month periods unless terminated in accordance with its terms. The Company is required to pay a facility fee in the amount of 0.50% of the Maximum Credit as of November 25, 2025 and then annually a 0.33% of the Maximum Credit as well as a finance charge based on prime plus 2.0% based on the average balance outstanding during the month. In addition, the Company will be required to pay certain administrative fees. The finance rate shall increase or decrease monthly but not be less than 8.75% for the first year from the initial funding date, 8.50% for the second year of the Initial Term and 8.25% for the third year of the Initial Term. As of March 31, 2026, the finance charge rate was 9.0%.  The total cost of the Financing Agreement for the three months ended March 31, 2026 was $604, and was included in interest expense on the consolidated statements of operations. In addition, amortization of the debt discount for the year ended March 31, 2026 was $79, and was included in interest expense on the consolidated statements of operations.    The Company’s obligations under the Financing Agreement are secured by a security interest in substantially all of the Company’s assets.   The Financing Agreement contains customary representations, warranties, covenants and events of default, including repurchase obligations with respect to certain receivables. Critical Accounting Estimates Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, recoverability of the carrying amounts of intangible assets, fair value of Convertible Notes, share-based compensation, income taxes, and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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. 36 Table of Contents For additional information, please refer to our 2025 Form 10-K. There have been no additional material changes to Critical Accounting Estimates disclosed in the 2025 Form 10-K. Recently issued and adopted accounting standards See Note 1(b), " Recently issued and adopted accounting standards," in the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, the Company is not required to provide the information required by this Item.