Unless otherwise indicated or required by the context, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," "Fluent," or the "Company," refer to Fluent, Inc. and its consolidated subsidiaries.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. 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. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of the date they are made. 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. These factors include those contained in this Quarterly Report on Form 10-Q, as well as the disclosures made in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 13, 2020 ("2019 Form 10-K"), and other filings we make with the Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to update forward-looking statements, except as required by law. We intend that all forward-looking statements be subject to the safe harbor provisions of 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.
Overview
Fluent, Inc. ("we," "us," "our," "Fluent," or the "Company"), is an industry leader in data-driven digital marketing services. We primarily perform customer acquisition services by operating highly scalable digital marketing campaigns, through which we connect our advertiser clients with consumers they are seeking to reach. We deliver data and performance-based marketing executions to our clients, which in 2019 included over 500 consumer brands, direct marketers and agencies across a wide range of industries, including Financial Products & Services, Retail & Consumer, Media & Entertainment, Staffing & Recruitment and Marketing Services.
We attract consumers at scale to our owned digital media properties primarily through promotional offerings and employment opportunities. On average, our websites receive over 900,000 first-party user registrations daily, which include users’ names, contact information and opt-in permission to present them with offers on behalf of our clients. According to comScore, we reach 13% of the U.S. digital population on a monthly basis through our owned media properties. Nearly 90% of these users engage with our media on their mobile devices or tablets. Our always-on, real-time capabilities enable users to access our media whenever and wherever they choose.
Once users have registered with our sites, we integrate proprietary direct marketing technologies to engage them with surveys, polls and other experiences, through which we learn about their lifestyles, preferences and purchasing histories. Based on these insights, we serve targeted, relevant offers to them on behalf of our clients. As new users register and engage with our sites and existing registrants re-engage, we believe the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns.
Since our inception, we have amassed a large, proprietary database of first-party, self-declared user information and preferences. We have permission to contact the majority of users in our database through multiple channels, such as email, home address, telephone, push notifications and SMS text messaging. We leverage our data primarily to serve advertisements that we believe will be relevant to users based on the information they have provided. We have also begun to leverage our existing database into new revenue streams, including utilization-based models, such as programmatic advertising, as well as services-based models, such as marketing research and insights.
First Quarter Financial Summary
Three months ended March 31, 2020 compared to March 31, 2019:
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•
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Net income was $0.4 million, or $0.01 per share, compared to $1.0 million or $0.01 per share.
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|
•
|
Media margin increased 4% to $23.9 million, from $23.1 million, representing 30.3% of revenue.
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|
•
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Adjusted EBITDA decreased 1% to $9.0 million, based on net income of $0.4 million, from $9.1 million, based on a net income of $1.0 million.
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|
•
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Adjusted net income was $3.8 million, or $ 0.05 per share, compared to $4.1 million, or $ 0.05 per share.
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Media margin, adjusted EBITDA and adjusted net income are non-GAAP financial measures.
COVID-19 Update
On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. At this time, our operations have not been significantly impacted by the global economic impact of COVID-19, and we have taken appropriate measures to ensure that we are able to conduct our business remotely without significant disruptions.The economic uncertainty caused by COVID-19 has had an impact on certain of our advertiser clients in industry verticals such as staffing and recruitment and financial products and services, who have reduced their pricing and/or demand during the portion of the quarter impacted by the COVID-19 pandemic, resulting in lower overall margin for our services. We anticipate this effect to continue, and perhaps accelerate, for so long as the businesses of our advertiser clients in these verticals are adversely affected by the pandemic. Please see "Results of Operations" and Item 1A. Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.
Definitions, Reconciliations and Uses of Non-GAAP Financial Measures
We report the following non-GAAP measures:
Media margin is defined as revenue minus cost of revenue (exclusive of depreciation and amortization) attributable to variable costs paid for media and related expenses. Media margin is also presented as percentage of revenue.
Adjusted EBITDA is defined as net income excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) acquisition-related costs (6) restructuring and certain severance costs, (7) certain litigation and other related costs, and (8) one-time items.
Adjusted net income is defined as net income excluding (1) share-based compensation expense, (2) acquisition-related costs, (3) restructuring and certain severance costs, (4) certain litigation and other related costs, and (5) one-time items. Adjusted net income is also presented on a per share (basic and diluted) basis.
Below is a reconciliation of media margin from net income, which we believe is the most directly comparable GAAP measure.
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Three Months Ended March 31,
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2020
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|
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2019
|
|
Net income
|
|
$
|
408
|
|
|
$
|
1,045
|
|
Income tax benefit
|
|
|
—
|
|
|
|
(35
|
)
|
Interest expense, net
|
|
|
1,532
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|
|
|
1,778
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|
Depreciation and amortization
|
|
|
3,733
|
|
|
|
3,317
|
|
General and administrative
|
|
|
11,076
|
|
|
|
10,043
|
|
Product development
|
|
|
2,731
|
|
|
|
2,150
|
|
Sales and marketing
|
|
|
2,830
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|
|
|
3,434
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|
Non-media cost of revenue (1)
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|
|
1,603
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|
|
|
1,361
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|
Media margin
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|
$
|
23,913
|
|
|
$
|
23,093
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|
Revenue
|
|
$
|
78,934
|
|
|
$
|
66,561
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|
Media margin % of revenue
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|
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30.3
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%
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|
|
34.7
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%
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(1)
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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.
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Below is a reconciliation of adjusted EBITDA from net income, which we believe is the most directly comparable GAAP measure:
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Three Months Ended March 31,
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|
|
|
2020
|
|
|
2019
|
|
Net income
|
|
$
|
408
|
|
|
$
|
1,045
|
|
Income tax benefit
|
|
|
—
|
|
|
|
(35
|
)
|
Interest expense, net
|
|
|
1,532
|
|
|
|
1,778
|
|
Depreciation and amortization
|
|
|
3,733
|
|
|
|
3,317
|
|
Share-based compensation expense
|
|
|
2,397
|
|
|
|
2,275
|
|
Acquisition-related costs
|
|
|
47
|
|
|
|
—
|
|
Restructuring and certain severance costs
|
|
|
—
|
|
|
|
110
|
|
Certain litigation and other related costs
|
|
|
907
|
|
|
|
489
|
|
One-time items
|
|
|
—
|
|
|
|
168
|
|
Adjusted EBITDA
|
|
$
|
9,024
|
|
|
$
|
9,147
|
|
Below is a reconciliation of adjusted net income and the related measure of adjusted net income per share from net income, which we believe is the most directly comparable GAAP measure.
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|
Three Months Ended March 31,
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|
(In thousands, except share data)
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|
2020
|
|
|
2019
|
|
Net income
|
|
$
|
408
|
|
|
$
|
1,045
|
|
Share-based compensation expense
|
|
|
2,397
|
|
|
|
2,275
|
|
Acquisition-related costs
|
|
|
47
|
|
|
|
—
|
|
Restructuring and certain severance costs
|
|
|
—
|
|
|
|
110
|
|
Certain litigation and other related costs
|
|
|
907
|
|
|
|
489
|
|
One-time items
|
|
|
—
|
|
|
|
168
|
|
Adjusted net income
|
|
$
|
3,759
|
|
|
$
|
4,087
|
|
Adjusted net income per share:
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|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
78,604,280
|
|
|
|
79,097,426
|
|
Diluted
|
|
|
78,753,770
|
|
|
|
80,063,989
|
|
We present media margin, adjusted EBITDA, adjusted net income and adjusted net income 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 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 severance costs associated with department-specific reorganizations and certain litigation and other related costs associated with legal matters outside the ordinary course of business. Items are considered 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. Adjusted EBITDA for the three months ended March 31, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented.
Adjusted net income, as defined above, and the related measure of adjusted net income per share exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. Adjusted net income for the three months ended March 31, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income.
Media margin, adjusted EBITDA, adjusted net income and adjusted net income per share are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, net income as indicators of operating performance. None of these metrics are presented as measures of liquidity. The way we measure media margin, adjusted EBITDA and adjusted net income 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.
Results of Operations
Three months ended March 31, 2020 compared to three months ended March 31, 2019
Revenue. Revenue increased $12.4 million, or 19%, to $78.9 million for the three months ended March 31, 2020, from $66.6 million for the three months ended March 31, 2019. The increase was primarily attributable to greater availability of consumer traffic to our websites, along with corresponding demand for our performance-based marketing services. We believe that a combination of reduced competition for media early in the year, followed by consumers spending more time on their mobile devices during the period of social isolation brought on by the COVID-19 pandemic, yielded a greater supply of consumer traffic. After the initial onset of the COVID-19 pandemic, certain advertisers in industry verticals such as staffing and recruitment and financial products and services began to reduce their spend with us, while certain advertisers in other verticals such as streaming services and mobile gaming have increased their demand. While the combination of these trends did not result in a significant disruption to our business in the quarter ended March 31, 2020, the trajectory of these trends is uncertain.
Cost of revenue (exclusive of depreciation and amortization). Cost of revenue increased $11.8 million, or 26%, to $56.6 million for the three months ended March 31, 2020, from $44.8 million for the three months ended March 31, 2019. Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers and digital media platforms for our owned and operated websites and, historically, on behalf of third-party advertisers.
The total cost of revenue as a percentage of revenue increased to 72% for the three months ended March 31, 2020, compared to 67% in the corresponding period in 2019, as certain advertising client segments, particularly staffing and recruitment and financial products and services, reduced their pricing and demand during the portion of the quarter impacted by the COVID-19 pandemic. In addition, certain initiatives, such as newer media supply channels, consumer media formats and geographic markets, which carry lower margins due their stage of development, represented an increased portion of our overall profitability. These factors resulted in a lower overall margin for our services. We anticipate future profitability will depend upon the interaction of these factors, including the extent of the adverse impact of COVID-19 on the businesses of our advertiser clients, among other factors.
Sales and marketing. Sales and marketing expenses decreased $0.6 million, or 18%, to $2.8 million for the three months ended March 31, 2020, from $3.4 million for the three months ended March 31, 2019. For the three months ended March 31, 2020 and 2019, the amounts consisted mainly of employee salaries and benefits of $2.2 million and $2.3 million, non-cash share-based compensation expense of $0.2 million and $0.4 million, and advertising costs of $0.2 million and $0.4 million, respectively. We have seen favorable shifts in consumer interest in our offers since a majority of the United States mandated work from home for all but essential sectors; at the same time, we experienced uneven demand from our advertiser clients, depending on the impact of COVID-19 on their industries. We are actively managing our sales and marketing expenditures to reflect these rapidly shifting market dynamics. As a result, past levels of sales and marketing expenditures may not be indicative of future expenditures, which may increase or decrease as these uncertainties in our business play out.
Product development. Product development increased $0.6, or 27%, to $2.7 million for the three months ended March 31, 2020, from $2.2 million for the three months ended March 31, 2019. For the three months ended March 31, 2020 and 2019, the amounts consisted mainly of salaries and benefits of $2.1 million and $1.8 million, respectively. We have not implemented any material changes to our product development strategy as a result of the COVID-19 pandemic.
General and administrative. General and administrative expenses increased $1.0 million, or 10%, to $11.1 million for the three months ended March 31, 2020, from $10.0 million for the March 31, 2019. For the three months ended March 31, 2020 and 2019, the amounts consisted mainly of employee salaries and benefits of $4.5 million and $4.1 million, non-cash share-based compensation expense of $1.9 million and $1.7 million, professional fees of $1.3 million and $1.9 million, office overhead of $0.9 million and $1.0 million, and certain litigation and related costs of $0.9 and $0.5, respectively. The increase was, therefore, mainly the result of increased employee-related costs resulting from the expansion of our workforce to support growth, in addition to an increase in certain litigation and related costs year over year, partially offset by a decrease in professional fees. At this time, we do not anticipate material changes to our general and administrative expenditures due to the COVID-19 pandemic. See “Item 1A Risk Factors” below.
Depreciation and amortization. Depreciation and amortization expenses increased $0.4 million, or 13%, to $3.7 million for the three months ended March 31, 2020, from $3.3 million for the March 31, 2019.
Interest expense, net. Interest expense, net, decreased $0.2 million, or 14%, to $1.5 million for the three months ended March 31, 2020, from $1.8 million for the March 31, 2019. The decrease was mainly attributable to a lower average debt balance outstanding on the Refinanced Term Loan described below under "Liquidity and Capital Resources".
Income before income taxes. For the three months ended March 31, 2020, income before income taxes decreased $0.6 million to $0.4 million, compared to $1.0 million for the March 31, 2019. The change was primarily due to an increase in cost of revenue of $11.8 million, general and administrative expense of $1.0 million and depreciation and amortization expense of $0.4 million, partially offset by an increase in revenue of $12.4 million and decrease in sales and marketing of $0.6, discussed above.
Income taxes. Income tax benefit was $0 thousand and $35 thousand for the three months ended March 31, 2020 and 2019, respectively.
As of March 31, 2020 and 2019, we recorded a full valuation allowance against our net deferred tax assets. We intend to maintain a full valuation allowance against the net deferred tax assets until there is sufficient evidence to support the release of all or some portion of this allowance. Based on the our history of losses, current income, estimated future taxable income, exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and consideration of available tax planning strategies, we believe there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance may be released. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded, however, the exact timing and amount of any valuation allowance release are subject to change, depending on the profitability that we are able to achieve and the net deferred tax assets available.
Net income. Net income of $0.4 million and $1.0 million was recognized for the three months ended March 31, 2020 and 2019, respectively, as a result of the foregoing.
Effect of Inflation
The rates of inflation experienced in recent years have had no material impact on our financial statements. We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and the competitive environment within our industry.
Liquidity and Capital Resources
Cash flows (used in) provided by operating activities. Net cash used in operating activities for the three months ended March 31, 2020 was $0.2 million and net cash provided by operating activities for the three months ended March 31, 2019 was $5.2 million, which was mainly the result of net working capital decreasing by $7.1 million compared to $2.3 million during the three months ended March 31, 2020 and 2019, respectively.
Cash flows used in investing activities. For the three months ended March 31, 2020 and 2019, net cash used in investing activities was $0.6 million and $1.7 million, respectively. The decrease in cash used was mainly due to reduced capital expenditures year over year.
Cash flows used in financing activities. Net cash used in financing activities for the three months ended March 31, 2020 and 2019 was $4.7 million and $2.5 million, respectively. The increase in cash used for the three months ended March 31, 2020 was mainly due to repayments of $3.0 million of the Refinanced Term Loan, compared to $0.9 million in 2019, and repurchase of treasury stock as part of a stock repurchase program of $1.3 million, partially offset by a decrease in statutory taxes paid related to the net share settlement of vested restricted stock units of $0.4 million, compared to $1.6 in 2019.
As of March 31, 2020, we had noncancelable operating lease commitments of $12.5 million and long-term debt which had $51.8 million principal balance. For the three months ended March 31, 2020, we funded our operations using available cash.
As of March 31, 2020, we had cash, cash equivalents and restricted cash of approximately $14.6 million, a decrease of $5.6 million from $20.2 million as of December 31, 2019, mainly as a result of cash used in financing activities. We believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond.
We may explore the possible acquisition of businesses, products and/or technologies that are complementary to our existing business. We are continuing to identify and prioritize additional technologies, which we may wish to develop internally or through licensing or acquisition from third parties. While we may engage from time to time in discussions with respect to potential acquisitions, there can be no assurances that any such acquisitions will be made or that we will be able to successfully integrate any acquired business. In order to finance such acquisitions and working capital, it may be necessary for us to raise additional funds through public or private financings. Any equity or debt financings, if available at all, may be on terms which are not favorable to us and, in the case of equity financings, may result in dilution to shareholders. On July 1, 2019, we acquired substantially all of the assets of AdParlor Holdings, Inc. and certain affiliates for $7.3 million in cash, using cash on hand, and a $2.4 million promissory note to the sellers. See Note 11, Business acquisition, in the Notes to Consolidated Financial Statements.
As of March 31, 2020, the Refinanced Term Loan has an outstanding principal balance of $49.3 million and matures on March 26, 2023. The Credit Agreement, along with the related Amendment No. 6 governing the Refinanced Term Loan and subsequent amendments, contain restrictive covenants which impose limitations on the way we conduct our business, including limitations on the amount of additional debt we are able to incur and our ability to make certain investments and other restricted payments. The restrictive covenants and prepayment penalties in the Credit Agreement, as amended, may limit our strategic and financing options and our ability to return capital to our shareholders through dividends or stock buybacks. Furthermore, we may need to incur additional debt to meet future financing needs. The Refinanced Term Loan is guaranteed by us and our direct and indirect subsidiaries and is secured by substantially all of our assets and those of our direct and indirect subsidiaries, including Fluent, LLC, in each case, on an equal and ratable basis. The Refinanced Term Loan accrues interest at the rate of either, at Fluent's option, (a) LIBOR (subject to a floor of 0.50%) plus 7.00% per annum, or (b) base rate (generally equivalent to the U.S. prime rate) plus 6.0% per annum, payable in cash. Principal amortization of the Refinanced Term Loan is $0.9 million per quarter, commencing with the fiscal quarter ended June 30, 2018.
The Credit Agreement, as amended, requires us to maintain and comply with certain financial and other covenants. While we were in compliance with the financial and other covenants at March 31, 2020, we cannot assure that we will be able to maintain compliance with such financial or other covenants. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would materially adversely affect our financial health if we are unable to access sufficient funds to repay all the outstanding amounts. Moreover, if we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms, or at all. In addition, the Credit Agreement includes certain prepayment provisions, including mandatory quarterly prepayments of the Refinanced Term Loan with a portion of our excess cash flow and prepayment penalties if we prepay the Refinanced Term Loan before the fourth anniversary of Amendment No. 6. As long as the Refinanced Term Loan remains outstanding, the restrictive covenants and mandatory quarterly prepayment provisions and prepayment penalties could impair our ability to expand or pursue our business strategies or obtain additional funding.
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
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 accounting principles generally accepted in the United States ("US GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We periodically evaluate our estimates, including those related to revenue recognition, allowance for doubtful receivables, lease commitments, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, share-based compensation and income taxes. 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.
During the three months ended March 31, 2020, we determined that the decline in market value of our publicly traded stock and the macroeconomic conditions arising from the global COVID-19 pandemic constituted an impairment triggering event for our two reporting units, Fluent and All Other. As such, we conducted an interim test of the fair value of our goodwill for potential impairment as of March 31, 2020. Based on the results of this interim impairment test, which used a combination of income and market approaches to determine the fair value of our two reporting units, we concluded that Fluent's goodwill of $159,791 and All Other's goodwill of $4,983, were not impaired since the results of the interim test indicated that the estimated fair values exceeded their carrying value by approximately 18% and 4%, respectively. We believe that the assumptions utilized in our interim impairment testing over our two reporting units, including the determination of an appropriate discount rate of 13.0% for Fluent and 16.5% for All Other, long-term profitability growth projections, and estimated future cash flows, are reasonable. The risk of future impairment of goodwill exists if actual results, such as lower than expected revenue, profitability, cash flows, market multiples, discount rates and control premiums, differ from the assumptions used in our interim impairment test. In addition, a sustained decline in the market value of our publicly traded stock could impact the fair value assessment.
For additional information, please refer to our 2019 Form 10-K. There have been no additional material changes to Critical Accounting Policies and Estimates disclosed in the 2019 Form 10-K.
Recently issued accounting and adopted standards
See Note 1(b), "Recently issued and adopted accounting standards," in the Notes to Consolidated Financial Statements.