0001460329 Fluent, Inc. false --12-31
Q3 2020 334 1,967 0.0001 0.0001 10,000,000 10,000,000 0 0 0 0
0.0005 0.0005 200,000,000 200,000,000 80,260,475 78,642,078
76,323,720 75,873,679 3,936,755 2,768,399 1,480 3.75 6.00 50 50 50
50 5 2 2 1 5 3 6 4 2 Vested not delivered represents vested RSUs
with delivery deferred to a future time. For the nine months ended
September 30, 2020, there was a net decrease of 525,334 shares
included in the vested not delivered balance as a result of the
delivery of 655,333 shares, partially offset by the vesting of
129,999 shares with deferred delivery election. As of September 30,
2020, 2,262,001 outstanding RSUs were vested not delivered. As
discussed in Note 7, Common stock, treasury stock and warrants, the
increase in treasury stock was due to shares withheld to cover
statutory withholding taxes upon the delivery of shares following
vesting of RSUs. As of September 30, 2020, there were 3,936,755
outstanding shares of treasury stock. 36 100
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2020
or
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 001-37893
FLUENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
|
77-0688094
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
300 Vesey Street, 9th Floor
New York, New York 10282
(Address of Principal Executive Offices) (Zip Code)
(646) 669-7272
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class
|
|
Trading
Symbol(s)
|
|
Name of each exchange on which registered
|
Common Stock, $0.0005 par value per share
|
|
FLNT
|
|
The NASDAQ Stock Market, LLC
|
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past
90 days. ☒ Yes
☐ No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). ☒ Yes
☐ No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
|
☐
|
Accelerated filer
|
☒
|
Non-accelerated filer
|
|
☐
|
Smaller reporting company
|
☒
|
Emerging growth company
|
|
☐
|
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act): Yes
☐ No ☒
As of October 28, 2020, the registrant had 76,334,834 shares
of common stock outstanding.
FLUENT, INC.
TABLE OF CONTENTS FOR FORM 10-Q
PART
I - FINANCIAL INFORMATION
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
1. FINANCIAL STATEMENTS.
FLUENT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(unaudited)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
15,394 |
|
|
$ |
18,679 |
|
Accounts receivable, net of allowance for doubtful accounts of
$334 and
$1,967,
respectively
|
|
|
59,411 |
|
|
|
60,915 |
|
Prepaid expenses and other current assets
|
|
|
2,878 |
|
|
|
1,921 |
|
Total current assets
|
|
|
77,683 |
|
|
|
81,515 |
|
Restricted cash
|
|
|
1,480 |
|
|
|
1,480 |
|
Property and equipment, net
|
|
|
2,396 |
|
|
|
2,863 |
|
Operating lease right-of-use assets
|
|
|
8,665 |
|
|
|
9,865 |
|
Intangible assets, net
|
|
|
48,149 |
|
|
|
55,603 |
|
Goodwill
|
|
|
165,088 |
|
|
|
164,774 |
|
Other non-current assets
|
|
|
1,852 |
|
|
|
993 |
|
Total assets
|
|
$ |
305,313 |
|
|
$ |
317,093 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
7,478 |
|
|
$ |
21,574 |
|
Accrued expenses and other current liabilities
|
|
|
26,229 |
|
|
|
20,358 |
|
Deferred revenue
|
|
|
2,440 |
|
|
|
1,140 |
|
Current portion of long-term debt
|
|
|
4,750 |
|
|
|
6,873 |
|
Current portion of operating lease liability
|
|
|
2,283 |
|
|
|
2,282 |
|
Total current liabilities
|
|
|
43,180 |
|
|
|
52,227 |
|
Long-term debt, net
|
|
|
36,388 |
|
|
|
44,098 |
|
Operating lease liability
|
|
|
7,736 |
|
|
|
9,056 |
|
Other non-current liabilities
|
|
|
1,865 |
|
|
|
775 |
|
Total liabilities
|
|
|
89,169 |
|
|
|
106,156 |
|
Contingencies (Note 10) |
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock — $0.0001 par value,
10,000,000 Shares
authorized; Shares outstanding — 0 shares for
both periods
|
|
|
— |
|
|
|
— |
|
Common stock — $0.0005 par value,
200,000,000 Shares
authorized; Shares issued — 80,260,475 and 78,642,078, respectively; and
Shares outstanding — 76,323,720 and 75,873,679, respectively
|
|
|
40 |
|
|
|
39 |
|
Treasury stock, at cost — 3,936,755 and 2,768,399 shares,
respectively
|
|
|
(9,974 |
) |
|
|
(8,184 |
) |
Additional paid-in capital
|
|
|
411,165 |
|
|
|
406,198 |
|
Accumulated deficit
|
|
|
(185,087 |
) |
|
|
(187,116 |
) |
Total shareholders' equity
|
|
|
216,144 |
|
|
|
210,937 |
|
Total liabilities and shareholders' equity
|
|
$ |
305,313 |
|
|
$ |
317,093 |
|
See notes to consolidated financial statements
FLUENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(unaudited)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue |
|
$ |
78,280 |
|
|
$ |
64,552 |
|
|
$ |
228,723 |
|
|
$ |
201,673 |
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (exclusive of depreciation and amortization) |
|
|
52,771 |
|
|
|
44,568 |
|
|
|
158,402 |
|
|
|
138,530 |
|
Sales and marketing |
|
|
2,925 |
|
|
|
2,717 |
|
|
|
8,643 |
|
|
|
9,209 |
|
Product development |
|
|
3,355 |
|
|
|
2,040 |
|
|
|
9,201 |
|
|
|
6,485 |
|
General and administrative |
|
|
12,772 |
|
|
|
14,049 |
|
|
|
33,892 |
|
|
|
34,378 |
|
Depreciation and amortization |
|
|
3,906 |
|
|
|
3,642 |
|
|
|
11,492 |
|
|
|
10,265 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
817 |
|
|
|
— |
|
Write-off of long-lived assets |
|
|
— |
|
|
|
280 |
|
|
|
— |
|
|
|
280 |
|
Total costs and expenses |
|
|
75,729 |
|
|
|
67,296 |
|
|
|
222,447 |
|
|
|
199,147 |
|
Income (loss) from operations
|
|
|
2,551 |
|
|
|
(2,744 |
) |
|
|
6,276 |
|
|
|
2,526 |
|
Interest expense, net |
|
|
(1,317 |
) |
|
|
(1,719 |
) |
|
|
(4,182 |
) |
|
|
(5,264 |
) |
Income (loss) before income taxes
|
|
|
1,234 |
|
|
|
(4,463 |
) |
|
|
2,094 |
|
|
|
(2,738 |
) |
Income tax (expense) benefit |
|
|
(65 |
) |
|
|
— |
|
|
|
(65 |
) |
|
|
35 |
|
Net income (loss)
|
|
|
1,169 |
|
|
|
(4,463 |
) |
|
|
2,029 |
|
|
|
(2,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
Diluted |
|
$ |
0.01 |
|
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
78,577,974 |
|
|
|
79,569,210 |
|
|
|
78,564,262 |
|
|
|
79,389,131 |
|
Diluted |
|
|
79,172,578 |
|
|
|
79,569,210 |
|
|
|
79,214,619 |
|
|
|
79,389,131 |
|
See notes to consolidated financial statements
FLUENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(Amounts in thousands, except share data)
(unaudited)
|
|
Common
stock
|
|
|
Treasury
stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
Total shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at June 30, 2020
|
|
|
79,908,985 |
|
|
$ |
40 |
|
|
|
3,616,398 |
|
|
$ |
(9,930 |
) |
|
$ |
409,961 |
|
|
$ |
(186,256 |
) |
|
$ |
213,815 |
|
Vesting of restricted stock units and issuance of restricted
stock
|
|
|
51,490 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Increase in treasury stock resulting from shares withheld to cover
statutory taxes
|
|
|
— |
|
|
|
— |
|
|
|
20,357 |
|
|
|
(44 |
) |
|
|
— |
|
|
|
— |
|
|
|
(44 |
) |
Exercise of warrants by certain warrant holders (see note 7) |
|
|
300,000 |
|
|
|
— |
|
|
|
300,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,204 |
|
|
|
— |
|
|
|
1,204 |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,169 |
|
|
|
1,169 |
|
Balance at September 30, 2020
|
|
|
80,260,475 |
|
|
$ |
40 |
|
|
|
3,936,755 |
|
|
$ |
(9,974 |
) |
|
$ |
411,165 |
|
|
$ |
(185,087 |
) |
|
$ |
216,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
78,642,078 |
|
|
$ |
39 |
|
|
|
2,768,399 |
|
|
$ |
(8,184 |
) |
|
$ |
406,198 |
|
|
$ |
(187,116 |
) |
|
$ |
210,937 |
|
Vesting of restricted stock units and issuance of restricted
stock
|
|
|
1,618,397 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
Increase in treasury stock resulting from shares withheld to cover
statutory taxes
|
|
|
— |
|
|
|
— |
|
|
|
210,683 |
|
|
|
(490 |
) |
|
|
— |
|
|
|
— |
|
|
|
(490 |
) |
Repurchase of shares into treasury stock
|
|
|
— |
|
|
|
— |
|
|
|
657,673 |
|
|
|
(1,300 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,300 |
) |
Exercise of warrants by certain warrant holders (see note 7)
|
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,968 |
|
|
|
— |
|
|
|
4,968 |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,029 |
|
|
|
2,029 |
|
Balance at September 30, 2020
|
|
|
80,260,475 |
|
|
$ |
40 |
|
|
|
3,936,755 |
|
|
$ |
(9,974 |
) |
|
$ |
411,165 |
|
|
$ |
(185,087 |
) |
|
$ |
216,144 |
|
|
|
Common
stock
|
|
|
Treasury
stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
Total shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance at June 30, 2019 |
|
|
78,534,774 |
|
|
$ |
39 |
|
|
|
1,785,489 |
|
|
$ |
(6,351 |
) |
|
$ |
402,192 |
|
|
$ |
(183,609 |
) |
|
$ |
212,271 |
|
Vesting of restricted stock units and issuance of restricted
stock |
|
|
39,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Increase in treasury stock resulting from shares withheld to
cover statutory taxes |
|
|
|
|
|
|
|
|
|
|
5,697 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Reclassification of exercisable warrants from liability to
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,150 |
) |
|
|
|
|
|
|
(1,150 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,812 |
|
|
|
|
|
|
|
2,812 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,463 |
) |
|
|
(4,463 |
) |
Balance at September 30, 2019
|
|
|
78,574,482 |
|
|
$ |
39 |
|
|
|
1,791,186 |
|
|
$ |
(6,368 |
) |
|
$ |
403,854 |
|
|
$ |
(188,072 |
) |
|
$ |
209,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
|
76,525,581 |
|
|
$ |
38 |
|
|
|
1,233,198 |
|
|
$ |
(3,272 |
) |
|
$ |
395,769 |
|
|
$ |
(185,369 |
) |
|
$ |
207,166 |
|
Vesting of restricted stock units and issuance of restricted
stock |
|
|
2,048,901 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
— |
|
Increase in treasury stock resulting from shares withheld to
cover statutory taxes |
|
|
|
|
|
|
|
|
|
|
557,988 |
|
|
|
(3,096 |
) |
|
|
|
|
|
|
|
|
|
|
(3,096 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,086 |
|
|
|
|
|
|
|
8,086 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,703 |
) |
|
|
(2,703 |
) |
Balance at September 30, 2019
|
|
|
78,574,482 |
|
|
$ |
39 |
|
|
|
1,791,186 |
|
|
$ |
(6,368 |
) |
|
$ |
403,854 |
|
|
$ |
(188,072 |
) |
|
$ |
209,453 |
|
See notes to consolidated financial statements
FLUENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
2,029 |
|
|
$ |
(2,703 |
) |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,492 |
|
|
|
10,265 |
|
Non-cash interest expense
|
|
|
1,092 |
|
|
|
1,016 |
|
Share-based compensation expense
|
|
|
4,848 |
|
|
|
8,019 |
|
Goodwill impairment |
|
|
817 |
|
|
|
— |
|
Write-off of long-lived assets |
|
|
— |
|
|
|
280 |
|
Non-cash accrued compensation expense for Put/Call
Consideration |
|
|
1,184 |
|
|
|
— |
|
Provision for bad debt
|
|
|
174 |
|
|
|
2,082 |
|
Provision for (benefit from) income taxes
|
|
|
65 |
|
|
|
(35 |
) |
Changes in assets and liabilities, net of business
acquisition:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,363 |
|
|
|
8,660 |
|
Prepaid expenses and other current assets
|
|
|
(957 |
) |
|
|
10 |
|
Other non-current assets
|
|
|
(859 |
) |
|
|
(137 |
) |
Operating lease assets and liabilities, net
|
|
|
(119 |
) |
|
|
1,517 |
|
Accounts payable
|
|
|
(14,096 |
) |
|
|
1,850 |
|
Accrued expenses and other current liabilities
|
|
|
4,622 |
|
|
|
(4,915 |
) |
Deferred revenue
|
|
|
1,300 |
|
|
|
701 |
|
Other |
|
|
(94 |
) |
|
|
5 |
|
Net cash provided by operating activities
|
|
|
12,861 |
|
|
|
26,615 |
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Business acquisition, net of cash acquired |
|
|
(1,426 |
) |
|
|
(7,246 |
) |
Capitalized costs included in intangible assets
|
|
|
(1,943 |
) |
|
|
(1,887 |
) |
Acquisition of property and equipment
|
|
|
(62 |
) |
|
|
(2,076 |
) |
Net cash used in investing activities
|
|
|
(3,431 |
) |
|
|
(11,209 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(10,925 |
) |
|
|
(5,851 |
) |
Repurchase of treasury stock |
|
|
(1,300 |
) |
|
|
— |
|
Taxes paid related to net share settlement of vesting of restricted
stock units
|
|
|
(490 |
) |
|
|
(3,096 |
) |
Net cash used in financing activities
|
|
|
(12,715 |
) |
|
|
(8,947 |
) |
Net (decrease) increase in cash, cash equivalents and restricted
cash
|
|
|
(3,285 |
) |
|
|
6,459 |
|
Cash, cash equivalents and restricted cash at beginning of
period
|
|
|
20,159 |
|
|
|
19,249 |
|
Cash, cash equivalents and restricted cash at end of period
|
|
$ |
16,874 |
|
|
$ |
25,708 |
|
SUPPLEMENTAL DISCLOSURE INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
2,978 |
|
|
$ |
4,170 |
|
Cash paid for income taxes
|
|
$ |
300 |
|
|
$ |
— |
|
Share-based compensation capitalized in intangible assets
|
|
$ |
120 |
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share data)
(unaudited)
1. Summary of significant
accounting policies
(a) Basis of preparation
The accompanying unaudited consolidated financial statements have
been prepared by Fluent, Inc., a Delaware corporation (the
"Company" or "Fluent"), in accordance with accounting principles
generally accepted in the United States ("US GAAP") and applicable
rules and regulations of the Securities and Exchange Commission
(the "SEC") regarding interim financial reporting. Certain
information and note disclosures normally included in annual
financial statements prepared in accordance with US GAAP have been
condensed or omitted pursuant to those rules and regulations.
The accompanying unaudited consolidated financial statements
reflect all normal recurring adjustments necessary to present
fairly the financial position, results of operations, and cash
flows for the interim periods, but are not necessarily indicative of the results of
operations to be anticipated for any future interim periods or for
the full year ending December 31,
2020.
From time to time, the Company may
enter into relationships or investments with other entities, and,
in certain instances, the entity in which the Company has a
relationship or investment may
qualify as
a variable interest entity (“VIE”).
The Company consolidates a VIE in its financial statements if the
Company is deemed to be the primary beneficiary of the VIE. The
primary beneficiary is the party that has the power to direct
activities that most significantly impact the operations of the VIE
and has the obligation to absorb losses or the right to benefits
from the VIE that could potentially be significant to the
VIE. As of April 1, 2020, the
Company has included Winopoly, LLC in its consolidated
financial statements as a VIE (as further discussed
in Note 11, Business
acquisitions and Note 12,
Variable interest entity).
The information included in this quarterly report on Form
10-Q should be read in conjunction
with the consolidated financial statements and accompanying notes
included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Form 10-K") filed with the SEC on March 13, 2020. The consolidated balance
sheet as of December 31, 2019
included herein was derived from the audited financial statements
as of that date included in the 2019 Form 10-K.
Principles of
consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries. All significant
transactions among the Company and its subsidiaries have been
eliminated upon consolidation.
(b) Recently issued and adopted accounting
standards
In January 2016, FASB issued ASU
No. 2016-13,
Financial Instruments—Credit Losses, and additional changes,
modifications, clarifications or interpretations thereafter, which
require a reporting entity to estimate credit losses on certain
types of financial instruments, and present assets held at
amortized cost and available-for-sale debt securities at the
amounts expected to be collected. The new guidance is effective for annual
and interim periods beginning after December 15,
2022, and early
adoption is permitted. The Company is currently evaluating
the impact of the new guidance on its consolidated financial
statements.
(c) Revenue recognition
Revenue is recognized when control of goods or services is
transferred to customers, in amounts that reflect the consideration
the Company expects to be entitled to in exchange for those goods
or services. The Company's performance obligation is typically to
(a) deliver data records, based on predefined qualifying
characteristics specified by the customer or (b) generate
conversions, based on predefined user actions (for example, a
click, a registration or the installation of an app) and subject to
certain qualifying characteristics specified by the customer.
If a customer pays consideration before the Company's performance
obligations are satisfied, such amounts are classified as deferred
revenue on the consolidated balance sheets. As of September 30, 2020 and December 31, 2019, the balance of deferred
revenue was $2,440 and $1,140, respectively. The majority of
the deferred revenue balance as of December 31, 2019 was recognized into revenue
during the first quarter of
2020.
When there is a delay between the period in which revenue is
recognized and when a customer invoice is issued, revenue is
recognized and the related amounts are recorded as unbilled revenue
within accounts receivable on the consolidated balance sheets. As
of September 30, 2020 and
December 31, 2019, unbilled revenue
included in accounts receivable was $27,518 and $29,061,
respectively. In line with industry practice, the unbilled revenue
balance is recorded based on the Company's internally tracked
conversions, net of estimated variances between this amount and the
amount tracked and subsequently confirmed by customers.
Substantially all amounts included within the unbilled revenue
balance are invoiced to customers within the month directly
following the period of service. Historical estimates related to
unbilled revenue have not been
materially different from actual revenue billed.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
(d) Use of estimates
The preparation of consolidated financial statements in accordance
with US GAAP requires the Company’s management to make estimates
and assumptions relating to the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenue and expenses during the reporting periods.
Significant items subject to such estimates and assumptions include
the allowance for doubtful accounts, useful lives of intangible
assets, recoverability of the carrying amounts of goodwill and
intangible assets, the portion of revenue subject to estimates for
variances between internally-tracked conversions and those
confirmed by the customer, purchase accounting, put/call
considerations, consolidation of variable interest entity, accruals
for contingencies and income tax provision. These estimates are
often based on complex judgments and assumptions that management
believes to be reasonable, but are inherently uncertain and
unpredictable. Actual results could differ from these
estimates.
Except for the impairment of goodwill related to the Company’s All
Other reporting unit, as discussed in Note 4, Goodwill, results of operations for
the three and nine months ended September 30, 2020 did not include any adjustments to assets or
liabilities due to the impact of COVID-19. While the Company has not incurred significant disruptions to its
business thus far from the COVID-19
pandemic, management is unable to accurately predict the impact
COVID-19 may have on its operations due to numerous
uncertainties, including the severity of the disease, the duration
of the outbreak, actions that may
be taken by governmental authorities, the impact to customers' and
suppliers' businesses and numerous other factors. Management will
continue to evaluate the nature and extent that COVID-19 will impact its business, results of
operations and financial condition.
2. Income (loss) per
share
Basic income (loss) per share is computed by dividing net income by
the weighted average number of common shares outstanding during the
period, in addition to restricted stock units ("RSUs") and
restricted common stock that are vested but not delivered. Diluted income (loss) per
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised
or converted into common stock and is calculated using the
treasury stock method for stock options, restricted stock units,
restricted stock, warrants and deferred common stock. Common
equivalent shares are excluded from the calculation in loss
periods, as their effects would be anti-dilutive.
For the three and nine months ended September 30, 2020 and 2019, basic and diluted income (loss)
per share was as follows:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,169 |
|
|
$ |
(4,463 |
) |
|
$ |
2,029 |
|
|
$ |
(2,703 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
76,315,973 |
|
|
|
76,769,339 |
|
|
|
76,111,405 |
|
|
|
76,296,825 |
|
Weighted average restricted shares vested not delivered |
|
|
2,262,001 |
|
|
|
2,799,871 |
|
|
|
2,452,857 |
|
|
|
3,092,306 |
|
Total basic weighted average shares outstanding |
|
|
78,577,974 |
|
|
|
79,569,210 |
|
|
|
78,564,262 |
|
|
|
79,389,131 |
|
Dilutive effect of assumed conversion of restricted stock
units |
|
|
594,604 |
|
|
|
— |
|
|
|
650,357 |
|
|
|
— |
|
Dilutive effect of assumed conversion of warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive effect of assumed conversion of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total diluted weighted average shares outstanding |
|
|
79,172,578 |
|
|
|
79,569,210 |
|
|
|
79,214,619 |
|
|
|
79,389,131 |
|
Basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
Diluted |
|
$ |
0.01 |
|
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
The following potentially dilutive securities were excluded from
the calculation of diluted income per share, as their effects would
have been anti-dilutive for the periods presented:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Restricted stock units |
|
|
1,589,498 |
|
|
|
3,794,227 |
|
|
|
1,639,561 |
|
|
|
3,794,227 |
|
Stock options |
|
|
2,509,000 |
|
|
|
2,120,000 |
|
|
|
2,509,000 |
|
|
|
2,120,000 |
|
Warrants |
|
|
833,333 |
|
|
|
2,398,776 |
|
|
|
833,333 |
|
|
|
2,398,776 |
|
Total anti-dilutive securities
|
|
|
4,931,831 |
|
|
|
8,313,003 |
|
|
|
4,981,894 |
|
|
|
8,313,003 |
|
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
3. Intangible assets,
net
Intangible assets, net, other than goodwill, consist of the
following:
|
|
Amortization period (in
years)
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Gross amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software developed for internal use
|
|
|
3 |
|
|
$ |
6,656 |
|
|
$ |
4,866 |
|
Acquired proprietary technology
|
|
|
3-5 |
|
|
|
14,735 |
|
|
|
13,661 |
|
Customer relationships
|
|
|
5-10 |
|
|
|
37,886 |
|
|
|
37,286 |
|
Trade names
|
|
|
4-20 |
|
|
|
16,657 |
|
|
|
16,657 |
|
Domain names
|
|
|
20 |
|
|
|
191 |
|
|
|
191 |
|
Databases
|
|
|
5-10 |
|
|
|
31,292 |
|
|
|
31,292 |
|
Non-competition agreements
|
|
|
2-5 |
|
|
|
1,768 |
|
|
|
1,768 |
|
Total gross amount
|
|
|
|
|
|
|
109,185 |
|
|
|
105,721 |
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software developed for internal use
|
|
|
|
|
|
|
(3,181 |
) |
|
|
(1,995 |
) |
Acquired proprietary technology
|
|
|
|
|
|
|
(11,816 |
) |
|
|
(9,516 |
) |
Customer relationships
|
|
|
|
|
|
|
(23,334 |
) |
|
|
(19,396 |
) |
Trade names
|
|
|
|
|
|
|
(4,029 |
) |
|
|
(3,359 |
) |
Domain names
|
|
|
|
|
|
|
(46 |
) |
|
|
(39 |
) |
Databases
|
|
|
|
|
|
|
(16,889 |
) |
|
|
(14,182 |
) |
Non-competition agreements
|
|
|
|
|
|
|
(1,741 |
) |
|
|
(1,631 |
) |
Total accumulated amortization
|
|
|
|
|
|
|
(61,036 |
) |
|
|
(50,118 |
) |
Net intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software developed for internal use
|
|
|
|
|
|
|
3,475 |
|
|
|
2,871 |
|
Acquired proprietary technology
|
|
|
|
|
|
|
2,919 |
|
|
|
4,145 |
|
Customer relationships
|
|
|
|
|
|
|
14,552 |
|
|
|
17,890 |
|
Trade names
|
|
|
|
|
|
|
12,628 |
|
|
|
13,298 |
|
Domain names
|
|
|
|
|
|
|
145 |
|
|
|
152 |
|
Databases
|
|
|
|
|
|
|
14,403 |
|
|
|
17,110 |
|
Non-competition agreements
|
|
|
|
|
|
|
27 |
|
|
|
137 |
|
Total intangible assets, net
|
|
|
|
|
|
$ |
48,149 |
|
|
$ |
55,603 |
|
The amounts relating to acquired proprietary technology, customer
relationships, trade names, domain names, databases and
non-competition agreements primarily represent the fair values of
intangible assets acquired as a result of the acquisition of
Fluent, LLC, effective December 8, 2015
(the "Fluent LLC Acquisition"), the acquisition of Q Interactive, LLC,
effective June 8, 2016 (the "Q
Interactive Acquisition"), the acquisition of substantially
all the assets of AdParlor Holdings, Inc. and certain
of its affiliates, effective
July 1, 2019 (the "AdParlor
Acquisition"), and the acquisition of a 50% interest in Winopoly,
LLC (the "Winopoly Acquisition"), effective April 1, 2020 (see Note 11, Business
acquisitions).
The Company determined that the effects of the macroeconomic
conditions arising during the three
months ended June 30, 2020 from the
global COVID-19 pandemic and
the social unrest throughout the United States, which
changed the media buying patterns of certain customers
directly impacting the All Other reporting unit, constituted
an impairment triggering event. As such, the Company
conducted an interim test of the recoverability of its
long-lived assets as of June 30,
2020. Based on the results of this recoverability test,
which measured the Company's projected undiscounted cash flows as
compared to the carrying value of the asset group, the Company
determined that, as of June 30,
2020, its long-lived assets were not impaired. Management believes that the
assumptions utilized in this interim impairment testing, including
the determination of estimated future cash flows, were
reasonable. The Company completed its quarterly trigger event
assessment for the three months
ended September 30, 2020 and
determined that no triggering event had
occurred requiring further interim impairment assessments for
its long-lived assets.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
Amortization expense of $3,711 and $3,456 for the
three months ended September 30, 2020 and 2019, respectively, and $10,917 and
$9,708, for the nine months
ended September 30, 2020 and
2019, respectively, is included in
depreciation and amortization expenses in the consolidated
statements of operations. As of September 30, 2020, intangible assets with a
carrying amount of $693, included in the gross amount of software
developed for internal use, have not commenced amortization, as they are
not ready for their intended
use.
As of September 30, 2020, estimated
amortization expense related to the Company's intangible
assets for the remainder of 2020 and through 2025 and thereafter are as follows:
Year
|
|
September 30, 2020
|
|
Remainder of 2020 |
|
$ |
3,579 |
|
2021 |
|
|
11,953 |
|
2022 |
|
|
10,492 |
|
2023 |
|
|
5,194 |
|
2024
|
|
|
4,470 |
|
2025 and thereafter
|
|
|
12,461 |
|
Total |
|
$ |
48,149 |
|
4. Goodwill
Goodwill represents the cost
in excess of fair value of net assets acquired in a business
combination. As of September 30,
2020, the total balance
of goodwill was $165,088, and relates to the
acquisition of Interactive Data, LLC, the Fluent LLC
Acquisition, the Q Interactive Acquisition, the AdParlor
Acquisition, and the Winopoly
Acquisition (see Note 11, Business
acquisitions).
In accordance with ASC 350,
Intangibles - Goodwill and Other, goodwill is tested at
least annually for impairment, or when events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable, by assessing qualitative
factors or performing a quantitative analysis in determining
whether it is more likely than not
that its fair value exceeds the carrying value. The measurement
date of the Company's annual goodwill impairment test is October 1.
The Company determined that the effects of the macroeconomic
conditions arising during the three
months ended June 30, 2020 from the
global COVID-19 pandemic and
the social unrest throughout the United States, which
changed the media buying patterns of certain customers
directly impacting the All Other reporting unit, constituted an
impairment triggering event. As such, the Company conducted an
interim test of the fair value of its goodwill for potential
impairment as of June 30,
2020. The results of this interim impairment test, which
used a combination of the income and market approaches to determine
the fair value of the All Other reporting unit, indicated
that its carrying value exceeded its estimated fair
value by 8.9%. The Company thereby concluded that All
Other's goodwill of $4,983 was impaired by $817 at June 30, 2020. The Company believes that
the assumptions utilized in its interim impairment testing,
including the determination of an appropriate discount rate of
16%, long-term profitability growth projections, and estimated
future cash flows, were reasonable. The interim goodwill
impairment test reflected management's best estimate of the
economic impact to its business, end-market conditions and
recovery timelines.
The Company completed its quarterly trigger event assessment for
the three months ended September 30, 2020 and determined
that no triggering event had
occurred requiring further interim impairment assessments for
its remaining goodwill. However, if the ongoing economic
uncertainty proves to be more severe than estimated, or if the
economic recovery takes longer to materialize or does not materialize as strongly as anticipated,
this could result in future impairment charges.
As of September 30, 2020 and
December 31, 2019, the change in
the carrying value of goodwill for the Company's
operating segments are listed below:
|
|
Fluent
|
|
|
All Other
|
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$ |
159,791 |
|
|
$ |
4,983 |
|
|
$ |
164,774 |
|
Winopoly Acquisition
|
|
|
1,131 |
|
|
|
— |
|
|
|
1,131 |
|
Goodwill impairment
|
|
|
— |
|
|
|
(817 |
) |
|
|
(817 |
) |
Balance as of September 30, 2020
|
|
$ |
160,922 |
|
|
$ |
4,166 |
|
|
$ |
165,088 |
|
5. Long-term debt, net
Long-term debt, net, related to the Refinanced Term Loan and Note
Payable (as defined below) consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Refinanced Term Loan due 2023 (less unamortized discount and
financing costs of $2,687 and $3,715, respectively)
|
|
$ |
39,924 |
|
|
$ |
48,571 |
|
Note Payable due 2021 (less unamortized discount of $36 and $100,
respectively)
|
|
|
1,214 |
|
|
|
2,400 |
|
Long-term debt, net
|
|
|
41,138 |
|
|
|
50,971 |
|
Less: Current portion of long-term debt
|
|
|
(4,750 |
) |
|
|
(6,873 |
) |
Long-term debt, net (non-current)
|
|
$ |
36,388 |
|
|
$ |
44,098 |
|
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
Refinanced Term Loan
On March 26, 2018, Fluent, LLC
refinanced and fully repaid its existing term loans and certain
promissory notes, which had been entered into on December 8, 2015, with a new term loan in the
amount of $70.0 million ("Refinanced Term Loan"), pursuant to a
Limited Consent and Amendment No.
6 ("Amendment No. 6") to
its Credit Agreement (the "Credit Agreement"). The Refinanced Term
Loan is guaranteed by the Company and its direct and indirect
subsidiaries, and is secured by substantially all of the assets of
the Company and its 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) the base rate (generally equivalent to the U.S.
prime rate) plus 6.0% per annum, payable in cash.
The Refinanced Term Loan matures on March 26, 2023 and
interest is payable monthly. Scheduled principal amortization of
the Refinanced Term Loan is $875 per quarter, which
commenced with the fiscal quarter ended June 30, 2018. The Credit Agreement, as
amended, requires the Company to maintain and comply with certain
financial and other covenants and includes certain prepayment
provisions, including mandatory quarterly principal
prepayments with a portion of the Company's excess cash flow.
For the three months ended
September 30, 2020, there was
no quarterly prepayment resulting
from excess cash flow. At September 30,
2020, the Company was in compliance with all of
the financial and other covenants under the Credit
Agreement.
Note Payable
On July 1, 2019, in connection with the AdParlor
Acquisition (as defined in Note 11, Business acquisitions), the Company issued a
promissory note (the "Note Payable") in the principal amount
of $2,350, net of discount of $150 from imputing interest on the
non-interest bearing note using a 4.28% rate. The promissory
note is guaranteed by the Company's subsidiary, Fluent,
LLC, does not accrue
interest except in the case of default, is payable in two equal installments on the first and second anniversaries of the date of closing
of the acquisition and is subject to setoff in respect of
certain indemnity and other matters. The first installment payment of $1,250 was made
on July 1, 2020, using cash on
hand.
Maturities
As of September 30, 2020, scheduled
future maturities of the Refinanced Term Loan and Note
Payable are as follows:
Year |
|
|
September 30, 2020 |
|
Remainder of 2020
|
|
$ |
875 |
|
2021
|
|
|
4,750 |
|
2022
|
|
|
3,500 |
|
2023
|
|
|
34,736 |
|
2024
|
|
|
— |
|
Total maturities
|
|
$ |
43,861 |
|
Fair value
As of September 30, 2020, the fair
value of long-term debt is considered to approximate its carrying
value. The fair value assessment represents a Level 2 measurement.
6. Income taxes
The Company is subject to federal and state income taxes in the
United States. The tax provision for interim periods is determined
using an estimate of the Company's annual effective tax rate. The
Company updates its estimated annual effective tax rate on a
quarterly basis and, if the estimate changes, makes a cumulative
adjustment.
As of September 30, 2020 and
December 31, 2019, the Company has
recorded a full valuation allowance against net deferred tax
assets, and intends to continue maintaining a full valuation
allowance on these net deferred tax assets until there is
sufficient evidence to support the release of all or a portion of
these allowances. Based on current income and anticipated
future earnings, the Company believes there is a reasonable
possibility that within the next twelve months sufficient positive evidence
may become available to allow a
conclusion to be reached that a significant portion, if not all, of the valuation allowance will 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 upon the level of profitability the
Company is able to achieve and the net deferred tax assets
available.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
For the nine months ended
September 30, 2020 and 2019, the Company's effective income tax rate
of 3% and income tax benefit rate of 1%, respectively,
differed from the statutory federal income tax rate of 21%, with
such differences resulting primarily from the application of the
full valuation allowance against the Company's deferred tax
assets.
The Company assesses its income tax positions and records tax
benefits for all years subject to examination based upon its
evaluation of the facts, circumstances and information available as
of the reporting dates. For those tax positions where it is
more-likely-than-not that a tax
benefit will be sustained, the Company has recorded the largest
amount of tax benefit with a greater than 50% likelihood of being realized upon
ultimate settlement with a taxing authority that has full knowledge
of all relevant information. For those income tax positions where
it is not
more-likely-than-not that a tax
benefit will be sustained, no tax
benefit has been recognized in the Company's financial
statements.
As of September 30, 2020 and
December 31, 2019, the balance of
unrecognized tax benefits was $1,480. The unrecognized tax
benefits, if recognized, would result in an increase to net
operating losses that would be subject to a valuation allowance
and, accordingly, result in no
impact to the Company’s annual effective tax rate. As of September 30, 2020, the Company has
not accrued any interest or
penalties with respect to its uncertain tax positions.
The Company does not anticipate a
significant increase or reduction in unrecognized tax benefits
within the next twelve months.
On March 27, 2020, the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) was
enacted and signed into law. The CARES Act includes several
provisions for corporations, including increasing the amount of
deductible interest, allowing companies to carryback certain Net
Operating Losses (“NOLs”) and increasing the amount of NOLs that
corporations can use to offset income. Management is currently
assessing the future implications of these provisions pursuant
to the CARES Act, but does not
anticipate the impact to be material to the Company's consolidated
financial statements.
7. Common stock, treasury stock
and warrants
Common stock
As of September 30, 2020 and
December 31, 2019, the number of
issued shares of common stock was 80,260,475 and 78,642,078,
respectively, which included shares of treasury stock
of 3,936,755 and 2,768,399, respectively.
For the nine months ended
September 30, 2020, the change in
the number of issued shares of common stock was the result of
an aggregate 1,618,397 shares of common stock issued upon
vesting of RSUs, including 210,683 shares of common stock
withheld to cover statutory taxes upon such vesting, which are
reflected in treasury stock, as discussed below. Additionally,
as discussed and defined below, the holders of the Amended
Whitehorse Warrants exercised the Put Right to require
the Company to purchase from the warrant holders the 300,000
Warrant Shares for an aggregate of $1,150. The Company funded
such purchase with cash on hand.
Treasury stock
As of September 30, 2020 and
December 31, 2019, the Company held
shares of treasury stock of 3,936,755 and 2,768,399, with a
cost of $9,974 and $8,184, respectively.
The Company's share-based incentive plans allow employees the
option to either make cash payment or forfeit shares of common
stock upon vesting to satisfy federal and state statutory tax
withholding obligations associated with equity awards. The
forfeited shares of common stock may be taken into treasury stock by the
Company or sold on the open market. For the nine months ended September 30, 2020, 210,683 shares of
common stock were withheld to cover statutory taxes owed by certain
employees for this purpose, all of which were taken into treasury
stock. See Note 8,
Share-based compensation. During the nine months ended September 30, 2020, the Company
repurchased 657,673 of its own shares as part of a stock
repurchase program authorized by the Company's Board of
Directors on November 19, 2019, and
300,000 shares of common stock upon exercise of the Put Right (see
Warrants, below).
Warrants
As of September 30, 2020 and
December 31, 2019, warrants to
purchase an aggregate of 833,333 and 2,398,776 shares,
respectively, of common stock were outstanding with exercise prices
ranging from $3.75 to $6.00 per share.
On July 9, 2018 the Company entered
into First Amendments (the "First Amendments") to the Amendments
to Warrants and Agreements to Exercise
("Amended Whitehorse Warrants") with (i)
H.I.G. Whitehorse SMA ABF, L.P.
regarding 46,667 warrants to purchase common stock
of the Company, par value $0.0005 per share, at an
exercise price of $3.00 per share; (ii) H.I.G. Whitehorse
SMA Holdings I, LLC regarding 66,666 warrants to
purchase common stock of the Company at an exercise price
of $3.00 per share; and
(iii) Whitehorse Finance, Inc.
regarding 186,667 warrants to purchase common stock
of the Company at an exercise price of $3.00 per share. In
November 2017, the
Amended Whitehorse Warrants were exercised and the
Company issued an aggregate of 300,000 shares of common stock of
the Company (the "Warrant Shares") to the warrant holders. Pursuant
to the First Amendments, the warrant holders had the right, but
not the obligation, to require the
Company to purchase from these warrant holders the 300,000 Warrant Shares at $3.8334 per share
(the "Put Right"), which could be exercised during the period
commencing January 1, 2019 and
ending December 15, 2019. On
December 6, 2019, the Company
entered into the Second Amendments to the Amended Whitehorse
Warrants, pursuant to which the expiration of the Put Right was
extended from December 15, 2019 to
January 31, 2020. On January 31, 2020, the holders of the Amended
Whitehorse Warrants exercised the Put Right, requiring the Company
to purchase from the warrant holders the 300,000 Warrant
Shares for an aggregate of $1,150. The Company funded such purchase
with cash on hand.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
8. Share-based
compensation
As of September 30, 2020, the
Company maintains two share-based
incentive plans: the Cogint, Inc. 2015 Stock Incentive Plan (the "2015 Plan") and the Fluent, Inc. 2018 Stock Incentive Plan (the
"2018 Plan") which, combined,
authorize the issuance of 21,132,372 shares of common stock.
As of September 30, 2020, there
were 1,868,050 shares of common stock reserved for issuance
under the 2018 Plan. The
primary purpose of the plans is to attract, retain, reward and
motivate certain individuals by providing them with opportunities
to acquire or increase their ownership interests in the
Company.
Stock options
The Compensation Committee of the Company's Board of Directors
approved the grant of stock options to certain Company officers,
which were issued on February 1,
2019, December 20, 2019 and
March 1, 2020, respectively, under
the 2018 Plan. Subject to
continuing service, 50% of the shares subject to these stock
options will vest if the Company's stock price remains above
125.00%, 133.33% and 133.33%, respectively, of the exercise
price for twenty consecutive
trading days, and the remaining 50% of the shares subject to these
stock options will vest if the Company's stock price remains above
156.25%, 177.78% and 177.78%, respectively, of the exercise
price for twenty consecutive
trading days; provided, that no
shares will vest prior to the first
anniversary of the grant date. As of September 30, 2020, the first condition for the stock options issued
on February 1,
2019 has been met; therefore, 50% of the shares subject to these stock
options vested on February 1, 2020.
Any shares that remain unvested as of the fifth anniversary of the grant
date will vest in full on such date. The fair value of the stock
options granted was estimated at the trading day before the date
of grant using a Monte Carlo simulation model. The key
assumptions utilized to calculate the grant-date fair values for
these awards are summarized below:
Issuance Date
|
|
February 1, 2019
|
|
|
December 20, 2019
|
|
|
March 1, 2020
|
|
Fair value lower range
|
|
$ |
2.81 |
|
|
$ |
1.58 |
|
|
$ |
1.46 |
|
Fair value higher range
|
|
$ |
2.86 |
|
|
$ |
1.61 |
|
|
$ |
1.49 |
|
Exercise price
|
|
$ |
4.72 |
|
|
$ |
2.56 |
|
|
$ |
2.33 |
|
Expected term (in years)
|
|
|
1.0 - 1.3 |
|
|
|
1.0 - 1.6 |
|
|
|
1.0 - 1.5 |
|
Expected volatility
|
|
|
65 |
% |
|
|
70 |
% |
|
|
70 |
% |
Dividend yield
|
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Risk-free rate
|
|
|
2.61 |
% |
|
|
1.85 |
% |
|
|
1.05 |
% |
For the nine months ended
September 30, 2020, details of
stock option activity were as follows:
|
|
Number of options
|
|
|
Weighted average exercise price per
share
|
|
|
Weighted average remaining
contractual term (in years)
|
|
|
Aggregate intrinsic
value
|
|
Outstanding as of December 31, 2019
|
|
|
2,120,000 |
|
|
$ |
5.21 |
|
|
|
8.7 |
|
|
$ |
— |
|
Granted
|
|
|
478,000 |
|
|
$ |
2.48 |
|
|
|
9.3 |
|
|
|
|
|
Forfeited |
|
|
(59,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
(30,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2020
|
|
|
2,509,000 |
|
|
$ |
4.38 |
|
|
|
8.3 |
|
|
$ |
19 |
|
Options exercisable as of September 30, 2020
|
|
|
1,086,000 |
|
|
$ |
4.82 |
|
|
|
7.8 |
|
|
$ |
— |
|
The aggregate intrinsic value amounts in the table above represent
the difference between the closing price of the Company's common
stock at the end of the reporting period and the corresponding
exercise prices, multiplied by the number of in-the-money stock
options as of the same date.
For the nine months ended
September 30, 2020, the unvested
balance of options was as follows:
|
|
Number of options
|
|
|
Weighted average exercise price per
share
|
|
|
Weighted average remaining
contractual term (in years)
|
|
Unvested as of December 31, 2019
|
|
|
2,008,000 |
|
|
$ |
4.72 |
|
|
|
9.1 |
|
Granted
|
|
|
478,000 |
|
|
$ |
2.48 |
|
|
|
9.3 |
|
Forfeited |
|
|
(59,000 |
) |
|
|
|
|
|
|
|
|
Vested
|
|
|
(1,004,000 |
) |
|
$ |
4.72 |
|
|
|
8.3 |
|
Unvested as of September 30, 2020
|
|
|
1,423,000 |
|
|
$ |
4.04 |
|
|
|
8.6 |
|
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
Compensation expense recognized for stock options of $73
and $1,250 for the three months ended September 30, 2020 and 2019, respectively,
and $1,424 and $3,353 for the nine months ended September 30, 2020 and 2019, respectively, was recorded in
sales and marketing, product development and general and
administrative expenses in the consolidated statements of
operations. As of September 30,
2020, there was $289 of unrecognized share-based
compensation with respect to outstanding stock options.
Restricted stock units and restricted stock
For the nine months ended
September 30, 2020, details of
unvested RSU and restricted stock activity were as follows:
|
|
Number of units
|
|
|
Weighted average grant-date fair
value
|
|
Unvested as of December 31, 2019
|
|
|
3,394,370 |
|
|
$ |
8.03 |
|
Granted
|
|
|
1,638,532 |
|
|
$ |
2.02 |
|
Vested and delivered
|
|
|
(1,407,714 |
) |
|
$ |
3.61 |
|
Withheld as treasury stock (1)
|
|
|
(210,683 |
) |
|
$ |
4.13 |
|
Vested not delivered (2)
|
|
|
525,334 |
|
|
$ |
2.84 |
|
Forfeited
|
|
|
(334,991 |
) |
|
$ |
2.91 |
|
Unvested as of September 30, 2020
|
|
|
3,604,848 |
|
|
$ |
6.91 |
|
(1)
|
As discussed in Note 7, Common
stock, treasury stock and warrants, the increase in
treasury stock was due to shares withheld to cover statutory
withholding taxes upon the delivery of shares following vesting of
RSUs. As of September 30, 2020,
there were 3,936,755 outstanding shares of treasury
stock.
|
(2)
|
Vested not delivered represents
vested RSUs with delivery deferred to a future time. For the
nine months ended September 30, 2020, there was a net decrease
of 525,334 shares included in the vested not delivered balance as a result of the
delivery of 655,333 shares, partially offset by the vesting of
129,999 shares with deferred delivery election. As of September 30, 2020, 2,262,001
outstanding RSUs were vested not delivered.
|
Compensation expense recognized for RSUs and restricted stock of
$1,131 and $1,562 for the three months ended September 30, 2020 and 2019, respectively,
and $3,544 and $4,733 for the nine months ended September 30, 2020 and 2019, respectively, was recorded
in sales and marketing, product development and general and
administrative in the consolidated statements of operations,
and intangible assets in the consolidated balance sheets. The fair
value of the RSUs and restricted stock was estimated using the
closing prices of the Company's common stock on the dates of
grant.
As of September 30, 2020,
unrecognized share-based compensation expense associated with the
granted RSUs and stock options amounted to $8,770, which is
expected to be recognized over a weighted average period
of 2.5 years.
For the three and nine months ended September 30, 2020 and 2019, share-based compensation for the
Company's stock option, RSU, common stock and restricted stock
awards were allocated to the following accounts in the consolidated
financial statements:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Sales and marketing
|
|
$ |
172 |
|
|
$ |
292 |
|
|
$ |
659 |
|
|
$ |
821 |
|
Product development
|
|
|
291 |
|
|
|
278 |
|
|
|
814 |
|
|
|
800 |
|
General and administrative
|
|
|
707 |
|
|
|
2,220 |
|
|
|
3,375 |
|
|
|
6,398 |
|
Share-based compensation expense
|
|
|
1,170 |
|
|
|
2,790 |
|
|
|
4,848 |
|
|
|
8,019 |
|
Capitalized in intangible assets
|
|
|
34 |
|
|
|
22 |
|
|
|
120 |
|
|
|
67 |
|
Total share-based compensation
|
|
$ |
1,204 |
|
|
$ |
2,812 |
|
|
$ |
4,968 |
|
|
$ |
8,086 |
|
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
9. Segment information
The Company identifies operating segments as components of an
entity for which discrete financial information is available and is
regularly reviewed by the chief operating decision maker (“CODM”)
in making decisions regarding resource allocation and performance
assessment. The profitability measure employed by CODM is segment
income (loss) from operations. As of September 30, 2020, the Company has
two operating
segments and two
corresponding reporting units, “Fluent” and “All Other,” and
one reportable
segment. “All Other” represents the operating results for the
three and nine months ended September 30, 2020 of AdParlor, LLC (see
Note 11, Business
acquisitions), and is included for purposes of
reconciliation of the respective balances below to the consolidated
financial statements. “Fluent,” for the purposes of segment
reporting, represents the consolidated operating results of the
Company excluding “All Other.”
Summarized financial
information concerning the Company's segments is shown in the
following tables below:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Fluent segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
63,894 |
|
|
$ |
54,959 |
|
|
$ |
189,507 |
|
|
$ |
177,080 |
|
International
|
|
|
12,832 |
|
|
|
7,953 |
|
|
|
35,178 |
|
|
|
22,953 |
|
Fluent segment revenue
|
|
$ |
76,726 |
|
|
$ |
62,912 |
|
|
$ |
224,685 |
|
|
$ |
200,033 |
|
All Other segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
1,548 |
|
|
$ |
1,339 |
|
|
$ |
3,745 |
|
|
$ |
1,339 |
|
International
|
|
|
6 |
|
|
|
301 |
|
|
|
293 |
|
|
|
301 |
|
All Other segment revenue
|
|
$ |
1,554 |
|
|
$ |
1,640 |
|
|
$ |
4,038 |
|
|
$ |
1,640 |
|
Segment income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluent
|
|
$ |
4,062 |
|
|
$ |
(2,581 |
) |
|
$ |
8,910 |
|
|
$ |
2,689 |
|
All Other
|
|
|
(1,511 |
) |
|
|
(163 |
) |
|
|
(2,634 |
) |
|
|
(163 |
) |
Total income from operations
|
|
|
2,551 |
|
|
|
(2,744 |
) |
|
|
6,276 |
|
|
|
2,526 |
|
Interest expense, net
|
|
|
(1,317 |
) |
|
|
(1,719 |
) |
|
|
(4,182 |
) |
|
|
(5,264 |
) |
Income (loss) before income taxes
|
|
$ |
1,234 |
|
|
$ |
(4,463 |
) |
|
$ |
2,094 |
|
|
$ |
(2,738 |
) |
|
|
September 30
|
|
|
December 31
|
|
|
|
2020 |
|
|
2019 |
|
Total assets:
|
|
|
|
|
|
|
Fluent
|
|
$ |
290,588 |
|
|
$ |
296,714 |
|
All Other
|
|
|
14,725 |
|
|
|
20,379 |
|
Total assets
|
|
$ |
305,313 |
|
|
$ |
317,093 |
|
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
10. Contingencies
In the ordinary course of business, the Company is subject to loss
contingencies that cover a range of matters. An estimated loss from
a loss contingency, such as a legal proceeding or claim, is accrued
if it is probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. In determining whether a
loss should be accrued, the Company evaluates, among other factors,
the degree of probability and the ability to reasonably estimate
the amount of any such loss.
On October 26, 2018, the Company
received a subpoena from the New York Attorney General’s Office
(“NY AG”) regarding compliance with New York Executive Law
§ 63(12) and New York General Business Law §
349, as they relate to
the collection, use, or disclosure of information from or about
consumers or individuals, as such information was submitted to the
Federal Communication Commission (“FCC”) in connection with the
FCC’s rulemaking proceeding captioned “Restoring Internet Freedom,”
WC Docket No. 17-108. The Company has been fully
cooperating with the NY AG and has been engaged in settlement
discussions with the NY AG concerning the resolution of
this matter. As of September 30,
2020, the Company accrued $1.45 million in connection
with this matter, which the Company believes is the minimum amount
of loss to be incurred. The ultimate amount of this loss may be greater depending on the results of
settlement discussions with the NY AG, including any failure of the
parties to agree on the terms of a settlement, at which point the
matter may proceed to
litigation. The Company is unable to estimate the amount or
range of any additional loss at the current stage of this matter.
In the event of an unfavorable outcome, the actual loss associated
with this matter could have a material adverse effect on the
Company’s business, results of operations or financial
position.
On December 13, 2018, the Company
received a subpoena from the United States Department of Justice
(“DOJ”) regarding the same issue. On March 12, 2020, the Company received a
subpoena from the Office of the Attorney General of the District of
Columbia ("DC AG") regarding the same issue. The Company has been
fully cooperating with the DOJ and the DC AG.
On June 27, 2019, as a part of
two sales and use tax audits
covering the period from December 1,
2010 to November 30, 2019, the
New York State Department of Taxation and Finance (the “Tax
Department”) issued a letter stating its position that revenue
derived from certain of the Company’s customer acquisition and list
management services are subject to sales tax, as a result of
being deemed information services. The Company disputed the Tax
Department's position on several grounds, but on January 14 and 15, 2020, the Tax Department issued Statements of
Proposed Audit Adjustment totaling $8.2 million, including $2.0
million of interest. The Company formally disagreed with the
amount of the Proposed Audit Adjustments and met with the Tax
Department on March 4,
2020. During that meeting, the Company informed the Tax
Department that a majority of the Proposed Audit Adjustments was
attributable to revenue derived from transfers which were either
excluded resales or sourced outside of New York, and renewed its
challenge as to the taxability of its customer acquisition revenue.
On July 22 and 31, 2020, the
Company received notices of determination from the Tax
Department totaling $3.0 million, including $0.7 million of
interest. On October 16, 2020, the
Company filed challenges to the notices of determination. Based on
the foregoing, the Company believes it is probable that a
sales tax liability may result from
this matter, and has estimated the range of any such liability
to be between $0.7 million and $3.0 million. The Company has
accrued a liability associated with these sales and use tax
audits at the low end of this range.
On January 28, 2020, the Company
received a Civil Investigative Demand (“CID”) from the Federal
Trade Commission (“FTC”) regarding compliance with the Federal
Trade Commission Act, 15 U.S.C.
§45 or the Telemarketing Sales
Rule, 16 C.F.R. Part 310, as they relate to the advertising,
marketing, promotion, offering for sale, or sale of rewards and
other products, the transmission of commercial text messages,
and/or consumer privacy or data security. The Company has been
fully cooperating with the FTC and is responding to the
CID. At this time, it is not
possible to predict the ultimate outcome of this matter or the
significance, if any, to the Company’s business, results of
operations or financial position.
11. Business
acquisitions
Winopoly acquisition
On April 1, 2020, the Company
acquired, through a wholly owned subsidiary, a 50% membership
interest in Winopoly, LLC (the "Winopoly Acquisition") for a deemed
purchase price of $2,553, which consisted of $1,553 in cash
and contingent consideration with a fair value
of $1,000 payable based upon the achievement of specified
revenue targets over the eighteen-month period following the
completion of the acquisition. Winopoly, LLC is a contact
center operation, which serves as a marketplace that
matches consumers sourced by Fluent with advertiser
clients. In accordance with ASC
805, the Company determined that
the Winopoly Acquisition constituted the purchase of a
business. For the nine
months ended September 30,
2020, the Company incurred transaction-related expenses
of $126 in connection with the acquisition, which are recorded in
general and administrative expenses in the consolidated statements
of operations. Assets and
revenues of Winopoly, LLC totaled 0.9% and 1.0%, respectively, of the Company's
consolidated financial statements at and for
the nine months ended
September 30, 2020, and are
included in the Fluent operating segment.
The preliminary fair value of the acquired customer
relationships of $600, to be amortized over a period of
five years, was
determined using the excess earnings method, a variation of the
income approach, while the preliminary fair value of the acquired
developed technology of $800, to be amortized over a period of
three
years, was determined using the cost approach. The
amount of the purchase price in excess of the fair value of the net
assets acquired was recorded as goodwill in the amount of $1,131
and primarily relates to intangible assets that do not qualify for separate recognition,
including assembled workforce and synergies. The purchase
accounting process has not yet been
completed, primarily because the valuation of acquired assets and
liabilities assumed has not been
finalized. The Company expects to complete the purchase accounting
as soon as practicable, but no
later than one year from the
acquisition date. The Company does not anticipate material adjustments.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
At any time between the fourth and
sixth anniversary of the Winopoly
Acquisition, the sellers may
exercise a put option whereby the Company is required to acquire
the remaining 50% membership interests in Winopoly, LLC. During
this period, the Company also has the ability to exercise a
call option whereby the sellers must sell the remaining 50% membership interests in Winopoly, LLC to
the Company. The purchase price paid for the remaining 50% membership interests would be
calculated based on a multiple of 4.0 x EBITDA (as such term is defined in the
agreement between the parties), applied to a twelve-month period spanning the five months prior to month of put/call
closing extending through six
months following the month of put/call closing. In connection
with the exercise of the put/call option, certain of the seller
parties must enter into employment agreements with the Company in
order to receive their respective shares of the consideration for
the remaining 50% of the membership
interests (the "Put/Call Consideration").
Although the sellers maintain an equity interest in Winopoly, LLC,
the Company has deemed this equity interest to be non-substantive
in nature, as the sellers will primarily benefit from the Winopoly
Acquisition based on periodic distributions of the earnings of
Winopoly, LLC and the Put/Call Consideration, both of which are
dependent on the sellers' continued service. Without providing
service, the sellers could benefit from their pro rata share of the
proceeds upon a third-party sale or
liquidation of Winopoly, LLC; however, such a liquidity event is
considered unlikely. Therefore, no
non-controlling interest has been recognized. Periodic
distributions for services rendered will be recorded as
compensation expense. In addition, the Company will estimate the
amount of the Put/Call Consideration, which will be accreted over
the six year
estimated service period, consisting of the estimated four years until the put/call can
be exercised and the additional two-year service
requirement. For the three and
nine months ended September 30, 2020, compensation expense
of $654 and $1,184, respectively, related to the Put/Call
Consideration was recorded in general and administrative on the
consolidated statement of operations, with a corresponding
liability in other non-current liabilities on the consolidated
balance sheet.
AdParlor acquisition
On July 1, 2019, two wholly owned subsidiaries of the Company,
AdParlor, LLC (formerly known as AdParlor Acquisition, LLC), a
Delaware limited liability company, and Fluent Media Canada, Inc.,
a British Columbia company (together with AdParlor, LLC, each a
"Buyer" and collectively "Buyers"), completed the acquisition of
substantially all of the assets of AdParlor Holdings, Inc., a
Delaware corporation ("AdParlor Holdings"), AdParlor International,
Inc., a Delaware corporation ("AdParlor International"), AdParlor
Media, Inc., a Delaware corporation ("AdParlor Media US"), and
AdParlor Media ULC, a British Columbia unlimited liability company
(together with AdParlor Holdings, AdParlor International and
AdParlor Media US, each a "Seller" and collectively "Sellers"),
pursuant to an Asset Purchase Agreement (the "Purchase
Agreement") dated June 17, 2019, by
and among Buyers, Sellers and the parent of the Sellers, v2 Ventures Group LLC, a Delaware limited
liability company (the "AdParlor Acquisition"). The purpose of the acquisition was to expand the
Company's performance-based marketing capabilities. In accordance
with ASC 805, the Company
determined that the AdParlor Acquisition constituted the purchase
of a business.
At closing, the Buyers paid to
Sellers cash consideration of $7,302, net of adjustments for
working capital and indebtedness, and issued a promissory note to
Sellers with a present value of $2,350 in exchange for
substantially all of the assets of Sellers. This promissory note is
guaranteed by Fluent, LLC, and will not accrue interest except in the case of
default, is payable in two equal
installments on the first and
second anniversaries of the date of
closing and is subject to setoff in respect of certain indemnity
and other matters. See Note 5,
Long-term debt, net for further detail. For the year ended
December 31, 2019, the Company
incurred transaction-related expenses of $483 in connection with the
AdParlor Acquisition, which it recorded in general and
administrative expenses in the consolidated statements of
operations.
FLUENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except share data)
(unaudited)
The following table summarizes the fair values of the assets
acquired and the liabilities assumed at the closing date:
|
|
July 1, 2019
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
56 |
|
Accounts receivable |
|
|
7,835 |
|
Prepaid expenses and other current assets |
|
|
54 |
|
Property and equipment
|
|
|
138 |
|
Intangible assets
|
|
|
4,700 |
|
Goodwill
|
|
|
4,983 |
|
Other non-current assets
|
|
|
28 |
|
Accounts payable |
|
|
(7,691 |
) |
Accrued expenses and other current liabilities |
|
|
(418 |
) |
Deferred revenue |
|
|
(33 |
) |
Total net assets acquired
|
|
$ |
9,652 |
|
The fair values of the identifiable intangible assets and
goodwill acquired at the closing date are as follows:
|
|
Fair Value
|
|
|
Weighted Average Amortization Period
(Years) |
|
Trade name & trademarks |
|
$ |
300 |
|
|
4 |
|
Developed technology
|
|
|
2,100 |
|
|
4 |
|
Customer relationships
|
|
|
2,300 |
|
|
6 |
|
Goodwill |
|
|
4,983 |
|
|
|
|
Total intangible assets, net
|
|
$ |
9,683 |
|
|
|
|
With the assistance of a third-party valuation firm, the fair value of
the acquired customer relationships was determined using the excess
earnings method, a variation of the income approach, while the fair
values of the acquired developed technology, and trade names &
trademarks were determined using the relief from royalty
method of the income approach. The amount of the purchase price in
excess of the fair value of the net assets acquired was recorded as
goodwill and primarily relates to intangible assets that do
not qualify for separate
recognition, including assembled workforce and synergies. For
tax purposes, the goodwill is
deductible over fifteen
years.
12. Variable Interest
Entity
The Company has determined that Winopoly, LLC (as discussed in
Note 11, Business
acquisitions) qualifies as a VIE, for which the Company is
the primary beneficiary. A VIE is an entity that either (i)
has insufficient equity to permit the entity to finance its
activities without additional subordinated financial support, or
(ii) has equity investors who lack the characteristics of a
controlling financial interest. The primary beneficiary is the
party that has the power to direct activities that most
significantly impact the operations of the VIE and has the
obligation to absorb losses or the right to benefits from the VIE
that could potentially be significant to the VIE. We assess whether
we are the primary beneficiary of a VIE at the inception of
the arrangement and at each reporting date.
Winopoly is a VIE, and the Company is its primary beneficiary,
as contractual arrangements provide the Company with control
over certain activities that most significantly impact its economic
performance. These significant activities
include the compliance practices of Winopoly, LLC and the
Company's provisions of leads that Winopoly, LLC uses to
generate its revenue, which ultimately give the Company its
controlling interest. The Company therefore consolidates Winopoly,
LLC in its consolidated financial statements, inclusive of
deemed compensation expense to the sellers for services
rendered.
13. Related party
transactions
The Company earns revenue and incurs expenses from a client in
which the Company's Chief Executive Officer holds a
significant ownership interest. For the three and nine months ended September 30, 2020, the Company recognized
revenue from this client of $69 and $214,
respectively. For the three
and nine months ended September 30, 2020, the Company
incurred expenses from this client of $0 and $1,
respectively.
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 and our other Quarterly Reports 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.
Third Quarter Financial Summary
Three months ended September 30, 2020 compared to three months
ended September 30, 2019:
|
•
|
Revenue increased 21% to $78.3 million,
from $64.6 million.
|
|
• |
Net income was $1.2 million, or $0.01 per
share, compared to net loss of $4.5 million
or $0.06 per share. |
|
• |
Media margin increased 39% to $29.7 million,
from $21.3 million, representing 37.9% of revenue. |
|
• |
Adjusted EBITDA increased 167% to $11.6 million, based on
net income of $1.2 million, from $4.3 million, based
on a net loss of $4.5 million. |
|
• |
Adjusted net income was $6.3 million,
or $0.08 per share, compared to adjusted net loss
of $1.0 million, or $0.01 per share. |
Nine months ended September 30, 2020 compared to nine months
ended September 30, 2019:
|
•
|
Revenue increased 13% to $228.7 million,
from $201.7 million.
|
|
• |
Net
income was $2.0 million, or $0.03 per share,
compared to net loss of $2.7 million
or $0.03 per share. |
|
• |
Media
margin increased 17% to $78.4 million,
from $67.3 million, representing 34.3% of
revenue. |
|
• |
Adjusted
EBITDA increased $6.9 to $30.0 million, based on net
income of $2.0 million, from $23.2 million, based on
a net loss of $2.7 million. |
|
• |
Adjusted
net income was $14.3 million, or $0.18 per
share, compared to $7.7 million, or $0.10 per
share. |
Media margin, adjusted EBITDA and adjusted net income (loss) 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 varying degrees of impact on
certain of our advertiser clients in certain industry
verticals over the course of the pandemic. For example, the
staffing and recruitment vertical has generally exhibited
reduced pricing and/or demand since the onset of the pandemic,
whereas other verticals, such as financial products
and services, experienced similar dynamics earlier on but have
since recovered. We have taken steps to manage our costs of
acquiring traffic and to match available consumers with those
advertiser clients in the various industries we serve who have
exhibited appropriate demand during different periods, thereby
enabling us to more effectively manage our margins during this
time. We anticipate additional shifts in pricing and/or demand
among affected clients, as the trajectory of the pandemic and
future economic outlook remain uncertain.
We implemented company-wide work-from-home beginning on March 13,
2020. While we believe we have adapted well to a work-from-home
environment, COVID-19 increases the likelihood of certain risks of
disruption to our business, such as the incapacity of certain
employees or system interruptions, which could lead to diminishment
of our regular business operations, technological capacity and
cybersecurity capabilities, as well as
operational inefficiencies and reputational harm.
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 (loss) excluding
(1) income taxes, (2) interest expense, net, (3) depreciation
and amortization, (4) goodwill impairment, (5) write-off of
long-lived assets, (6) accrued compensation expense for Put/Call
Consideration, (7) share-based compensation expense, (8)
acquisition-related costs, (9) restructuring and certain severance
costs, (10) certain litigation and other related costs, and (11)
one-time items.
Adjusted net income (loss) is defined as net income (loss)
excluding (1) goodwill impairment, (2) write-off of long-lived
assets, (3) accrued compensation expense for Put/Call
Consideration, (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 (loss) is also presented on a
per share (basic and diluted) basis.
Below is a reconciliation of media margin from net income (loss),
which we believe is the most directly comparable GAAP measure.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$ |
1,169 |
|
|
$ |
(4,463 |
) |
|
$ |
2,029 |
|
|
$ |
(2,703 |
) |
Income tax expense (benefit)
|
|
|
65 |
|
|
|
— |
|
|
|
65 |
|
|
|
(35 |
) |
Interest expense, net
|
|
|
1,317 |
|
|
|
1,719 |
|
|
|
4,182 |
|
|
|
5,264 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
817 |
|
|
|
— |
|
Write-off of long-lived assets |
|
|
— |
|
|
|
280 |
|
|
|
— |
|
|
|
280 |
|
Depreciation and amortization
|
|
|
3,906 |
|
|
|
3,642 |
|
|
|
11,492 |
|
|
|
10,265 |
|
General and administrative
|
|
|
12,772 |
|
|
|
14,049 |
|
|
|
33,892 |
|
|
|
34,378 |
|
Product development
|
|
|
3,355 |
|
|
|
2,040 |
|
|
|
9,201 |
|
|
|
6,485 |
|
Sales and marketing
|
|
|
2,925 |
|
|
|
2,717 |
|
|
|
8,643 |
|
|
|
9,209 |
|
Non-media cost of revenue (1)
|
|
|
4,173 |
|
|
|
1,323 |
|
|
|
8,088 |
|
|
|
4,159 |
|
Media margin
|
|
$ |
29,682 |
|
|
$ |
21,307 |
|
|
$ |
78,409 |
|
|
$ |
67,302 |
|
Revenue
|
|
$ |
78,280 |
|
|
$ |
64,552 |
|
|
$ |
228,723 |
|
|
$ |
201,673 |
|
Media margin % of revenue |
|
|
37.9 |
% |
|
|
33.0 |
% |
|
|
34.3 |
% |
|
|
33.4 |
% |
(1)
|
Represents the portion of cost of revenue (exclusive of
depreciation and amortization) not attributable to variable costs
paid for media and related expenses.
|
Below is a reconciliation of adjusted EBITDA from net income
(loss), which we believe is the most directly comparable GAAP
measure:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$ |
1,169 |
|
|
$ |
(4,463 |
) |
|
$ |
2,029 |
|
|
$ |
(2,703 |
) |
Income tax expense (benefit)
|
|
|
65 |
|
|
|
— |
|
|
|
65 |
|
|
|
(35 |
) |
Interest expense, net
|
|
|
1,317 |
|
|
|
1,719 |
|
|
|
4,182 |
|
|
|
5,264 |
|
Depreciation and amortization
|
|
|
3,906 |
|
|
|
3,642 |
|
|
|
11,492 |
|
|
|
10,265 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
817 |
|
|
|
— |
|
Write-off of long-lived assets |
|
|
— |
|
|
|
280 |
|
|
|
— |
|
|
|
280 |
|
Accrued compensation expense for Put/Call Consideration |
|
|
654 |
|
|
|
— |
|
|
|
1,184 |
|
|
|
— |
|
Share-based compensation expense
|
|
|
1,170 |
|
|
|
2,790 |
|
|
|
4,848 |
|
|
|
8,019 |
|
Acquisition-related costs |
|
|
89 |
|
|
|
— |
|
|
|
151 |
|
|
|
448 |
|
Restructuring and certain severance costs
|
|
|
565 |
|
|
|
— |
|
|
|
565 |
|
|
|
360 |
|
Certain litigation and other related costs
|
|
|
2,671 |
|
|
|
375 |
|
|
|
4,693 |
|
|
|
1,091 |
|
One-time items
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
Adjusted EBITDA
|
|
$ |
11,606 |
|
|
$ |
4,343 |
|
|
$ |
30,026 |
|
|
$ |
23,157 |
|
Below is a reconciliation of adjusted net income (loss)
and adjusted net income (loss) per share from
net income (loss), which we believe is the most directly
comparable GAAP measure.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands, except share data)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$ |
1,169 |
|
|
$ |
(4,463 |
) |
|
$ |
2,029 |
|
|
$ |
(2,703 |
) |
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
817 |
|
|
|
— |
|
Write-off of long-lived assets |
|
|
— |
|
|
|
280 |
|
|
|
— |
|
|
|
280 |
|
Accrued compensation expense for Put/Call Consideration |
|
|
654 |
|
|
|
— |
|
|
|
1,184 |
|
|
|
— |
|
Share-based compensation expense
|
|
|
1,170 |
|
|
|
2,790 |
|
|
|
4,848 |
|
|
|
8,019 |
|
Acquisition-related costs |
|
|
89 |
|
|
|
— |
|
|
|
151 |
|
|
|
448 |
|
Restructuring and certain severance costs
|
|
|
565 |
|
|
|
— |
|
|
|
565 |
|
|
|
360 |
|
Certain litigation and other related costs
|
|
|
2,671 |
|
|
|
375 |
|
|
|
4,693 |
|
|
|
1,091 |
|
One-time items
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
Adjusted net income (loss)
|
|
$ |
6,318 |
|
|
$ |
(1,018 |
) |
|
$ |
14,287 |
|
|
$ |
7,663 |
|
Adjusted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.08 |
|
|
$ |
(0.01 |
) |
|
$ |
0.18 |
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.08 |
|
|
$ |
(0.01 |
) |
|
$ |
0.18 |
|
|
$ |
0.10 |
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
78,577,974 |
|
|
|
79,569,210 |
|
|
|
78,564,262 |
|
|
|
79,389,131 |
|
Diluted |
|
|
79,172,578 |
|
|
|
79,569,210 |
|
|
|
79,214,619 |
|
|
|
79,389,131 |
|
We present media margin, 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 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 nine months
ended September 30,
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
(loss), as defined
above, and the related measure of adjusted net
income (loss) per share exclude certain items that are
recognized and recorded under GAAP in particular periods but might
be viewed as not necessarily coinciding with the underlying
business operations for the periods in which they are so recognized
and recorded. Adjusted net income for the nine months ended
September 30, 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 (loss) affords investors a
different view of the overall financial performance of the Company
than adjusted EBITDA and the GAAP measure of net income
(loss).
Media margin, adjusted EBITDA, adjusted net income (loss) and
adjusted net income (loss) per share are not intended to be
performance measures that should be regarded as an alternative to,
or more meaningful than, net income (loss) 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 (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.
Results of Operations
Three months ended September 30, 2020 compared to three
months ended September 30, 2019
Revenue. Revenue increased $13.7 million,
or 21%, to $78.3 million for the three months ended
September 30, 2020, from $64.6 million for the three
months ended September 30, 2019. The increase was primarily
attributable to higher monetization of the consumer traffic to our
websites through improved matching of offers with consumers
and an increase in consumers’ completing offers
presented. The increase also reflected more effective
re-engagement of consumers after their initial experience on our
websites, through SMS text messaging and push
notifications. As the trajectory of the pandemic and
governmental, business and individual responses to the same remain
dynamic and unpredictable, we are unable to assess the availability
of consumer traffic to our websites in future quarters. At the
onset of the continuing COVID-19 pandemic, certain advertisers
in industry verticals such as staffing
and recruitment and financial products and services
reduced their spend with us, while certain advertisers in other
verticals such as streaming services and mobile gaming
increased their demand. In the third quarter, we experienced
an improvement in spend from clients in our financial products and
services vertical, though not fully to pre-COVID levels. While
changes in demand and pricing among clients in various industry
verticals did not result in a significant disruption to our
business in the quarter ended September 30, 2020, the trajectory of
these trends is uncertain.
Cost of revenue (exclusive of depreciation and
amortization). Cost of revenue increased $8.2 million,
or 18%, to $52.8 million for the three months ended
September 30, 2020, from $44.6 million for the three
months ended September 30, 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, as well as the costs of fulfilling
rewards earned by consumers who complete the requisite number of
advertiser offers.
The total cost of revenue as a percentage of revenue decreased
to 67% for the three months ended September 30, 2020, compared
to 69% in the corresponding period in
2019, attributable to lower growth in our cost of media as
compared with growth in revenues, partly offset by increased reward
fulfillment expense. Certain new promotional campaigns yielded
higher reward fulfillment costs during the
quarter, generating relatively higher monetization
that more than offset the incremental fulfillment
costs.
Sales and marketing. Sales and marketing expenses
increased $0.2 million, or 8%, to $2.9 million for
the three months ended September 30, 2020,
from $2.7 million for the three months ended September
30, 2019. For the three months ended September 30, 2020 and
2019, the amounts consisted mainly of employee salaries and
benefits of $2.5 million and $1.9 million,
non-cash share-based compensation expense of $0.2 million and
$0.3 million, and advertising costs of $0.2 million and
$0.3 million, respectively. We are actively managing our sales
and marketing expenditures to reflect the rapidly shifting market
dynamics associated with the impact of COVID-19 on our and our
advertiser clients’ businesses. 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 $1.3, or
64%, to $3.4 million for the three months ended
September 30, 2020, from $2.0 million for the three
months ended September 30, 2019. For the three months ended
September 30, 2020 and 2019, the amounts consisted mainly of
salaries and benefits of $2.5 million
and $1.8 million, non-cash share-based compensation
expense of $0.3 million in both periods, and software license
and maintenance costs of $0.3 million and
$0.0 million, respectively. The increase in product
development expenses reflects, in part, the development of
new media properties. 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 decreased $1.3 million, or 9%, to
$12.8 million for the three months ended September 30, 2020,
from $14.0 million for the three months ended September
30, 2019. For the three months ended September 30, 2020 and 2019,
the amounts consisted mainly of employee salaries and benefits of
$4.3 million and $5.6 million, certain litigation and related costs of
$2.7 million and $0.4 million, professional fees
of $1.4 million in both periods, office overhead
of $1.0 million in both periods, non-cash share-based compensation
expense of $0.7 million and $2.2 million, accrued compensation
expense for Put/Call Consideration from the Winopoly
Acquisition of $0.7 million and
$0.0 million
(see Note 11, Business acquisitions, in the Notes
to Consolidated Financial Statements), and provision for bad debt
of $0.0 million and $1.9 million, respectively. The
decrease was mainly the result of reduced provision for bad
debt expense, non-cash share-based compensation expense and
salaries and benefits expense, partially offset by an increase
in certain litigation and related costs year over year, as
well as accrued compensation expense for the Put/Call
Consideration. The increase in certain litigation and related costs
reflects an accrual of $1.45 million in connection with the
New York Attorney General matter detailed in Note 10,
Contingencies, as well as legal representation costs in
connection with that and other matters detailed in Note 10. 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 $0.3 million, or 7%,
to $3.9 million for the three months ended September
30, 2020, from $3.6 million for the three months
ended September 30, 2019.
Write-off of long-lived asset. During
the three months ended September 30, 2019, we
recognized $0.3 million of impairment loss related to
software capitalized for internal use, with no
corresponding charge in the current period.
Interest expense, net.
Interest expense, net, decreased $0.4 million,
or 23%, to $1.3 million for the three months
ended September 30, 2020, from $1.7 million for the
three months ended September 30, 2019. The decrease
was attributable to a lower interest rate environment, as well
as lower average debt balance outstanding on the Refinanced Term
Loan described below under "Liquidity and Capital Resources".
Income (loss) before income taxes. For the three
months ended September 30, 2020, income before income taxes
increased $5.7 million to $1.2 million,
compared to net loss before income taxes of $4.5 million for
the three months ended September 30, 2019. The change was
primarily due to an increase in revenue of $13.7 million,
a decrease in general and administrative expense
of $1.3 million, a decrease in interest expense of
$0.4 million and the absence of the write-off of long-lived
assets of $0.3 million from the prior period, partially offset by
an increase in cost of revenue of $8.2 million, an
increase in product development of $1.3 million, an increase in
depreciation and amortization expense of $0.3 million and
an increase in sales and marketing of $0.2 million, discussed
above.
Income taxes. Income tax expense was $65.0
thousand and $0.0 thousand for the three months
ended September 30, 2020 and 2019, respectively.
As of September 30, 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 various factors,
including 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 (loss). Net income
of $1.2 million and net loss of $4.5 million
were recognized for the three months ended September 30, 2020
and 2019, respectively, as a result of the foregoing.
Nine months ended September 30, 2020 compared to
nine months ended September 30, 2019
Revenue. Revenue increased $27.1 million,
or 13%, to $228.7 million for the nine months ended
September 30, 2020, from $201.7 million for the
nine months ended September 30, 2019. The increase in
revenue was primarily attributable to higher monetization
of traffic to our websites, supported by advertiser
demand for our performance-based marketing services and increased
consumer traffic to our websites. At the onset of the COVID-19
pandemic, certain advertisers in industry verticals such as
staffing and recruitment and financial products and
services reduced their spend with us, while certain advertisers in
other verticals such as streaming services and mobile
gaming increased their demand. In the third quarter, we
experienced an improvement in spend from clients in our financial
products and services vertical, though not fully to pre-COVID
levels. Trends in advertiser verticals, in aggregate, did not
result in a significant disruption to our business in the nine
months ended September 30, 2020.
Cost of revenue (exclusive of depreciation and
amortization). Cost of revenue increased $19.9
million, or 14%, to $158.4 million for the nine months
ended September 30, 2020, from $138.5 million for the
nine months ended September 30, 2019. The total cost of revenue as
a percentage of revenue remained flat at 69% for the nine
months ended September 30, 2020. While the cost of media increased
less than the increase in revenue, this was offset by increased
reward fulfillment expense, as we tested certain changes to the
consumer flows and experience during the second quarter and
expanded certain promotional campaigns that yielded higher reward
fulfillment costs in the third quarter.
Sales and marketing. Sales and marketing expenses
decreased $0.6 million, or 6%, to $8.6 million for
the nine months ended September 30, 2020,
from $9.2 million for the nine months ended
September 30, 2019. For the nine months ended September 30,
2020 and 2019, the amounts consisted mainly of employee salaries
and benefits of $7.0 million and $6.6 million,
non-cash share-based compensation expense of $0.7 million
and $0.8 million, and advertising costs
of $0.6 million and $1.1 million, respectively. The
reduction in sales and marketing expenses derived primarily from
reduced advertising costs.
Product development. Product development increased $2.7, or 42%,
to $9.2 million for the nine months ended
September 30, 2020, from $6.5 million for the nine months
ended September 30, 2019, partly owing to the development of new
media properties. For the nine months ended September
30, 2020 and 2019, the amounts consisted mainly of salaries and
benefits of $6.9 million and $5.5 million, non-cash
share-based compensation expense of $0.8 million
and $0.8 million, and software license and
maintenance costs of $0.7 million and $0.0
million, respectively.
General and administrative. General and
administrative expenses decreased $0.5 million, or 1%,
to $33.9 million for the nine months ended September 30, 2020,
from $34.4 million for the nine months ended September
30, 2019. For the nine months ended September 30, 2020 and 2019,
the amounts consisted mainly of employee salaries and benefits of
$13.0 million and $13.5 million, certain litigation and related costs
of $4.7 million and $1.1 million, professional fees
of $3.9 million and $4.5 million, non-cash share-based compensation
expense of $3.4 million
and $6.4 million, office overhead
of $3.0 million and $2.8 million, accrued
compensation expense for Put/Call Consideration from the Winopoly
Acquisition of $1.2 million and
$0.0 million, and
provision for bad debt expense of $0.2 million
and $2.1 million, respectively. The decrease was
mainly the result of lower non-cash share-based compensation expense,
provision for bad debt expense, professional fees and
salaries and benefits expense, partially offset by increases
in certain litigation and related costs year over year and accrued
compensation expense for Put/Call Consideration.
Depreciation and
amortization. Depreciation and amortization
expenses increased $1.2 million, or 12%,
to $11.5 million for the nine months ended September
30, 2020, from $10.3 million for the nine months
ended September 30, 2019, due to the timing of
the AdParlor Acquisition, which was completed on July 1,
2019.
Goodwill impairment. During the second quarter
of 2020, we recognized $0.8 million of goodwill impairment
related to the All Other reporting unit, with no corresponding
impairment charge in the prior period.
Write-off of long-lived asset. During the nine
months ended September 30, 2019, we
recognized $0.3 million of impairment loss related to
software capitalized for internal use, with no
corresponding charge in the current period.
Interest expense, net. Interest expense, net,
decreased $1.1 million, or 21%, to $4.2 million for
the nine months ended September 30, 2020,
from $5.3 million for the nine months
ended September 30, 2019. The decrease was attributable
to a lower interest rate environment and a lower average debt
balance outstanding on the Refinanced Term Loan described below
under "Liquidity and Capital Resources".
Income (loss) before income taxes. For the nine
months ended September 30, 2020, income before income taxes
increased $4.8 million to $2.1 million for the
nine months ended September 30, 2020, from a loss
of $2.7 million for the nine months ended September 30,
2019. The change was primarily due to an increase in revenue
of $27.1 million, decrease in interest expense of
$1.1 million, decrease in sales and marketing of $0.6,
decrease in general and administrative expense
of $0.5 million and the absence of the write-off of
long-lived assets of $0.3 million from prior period, partially
offset by increased cost of revenue
of $19.9 million, increased product development
of $2.7 million,
increased depreciation and amortization expense
of $1.2 million and a goodwill impairment charge of
$0.8 million in the current year, discussed above.
Income taxes. Income tax expense was $65.0
thousand and income tax benefit was $35.0 thousand for the
nine months ended September 30, 2020 and 2019,
respectively.
Net income (loss). Net
income of $2.0 million and net loss of $2.7
million was recognized for the nine months ended September 30, 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 provided by operating activities. For the
nine months ended September 30, 2020 and 2019, net cash provided by
operating activities was $12.9 million
and $26.6 million, respectively. Net income in the
current period of $2.0 million represents an
increase of $4.7 million, as compared with net loss of $2.7
million in the prior period. Adjustments to reconcile net
income to net cash provided by operating activities of
$19.7 million in the current period declined by
$1.9 million, as compared with $21.6 million in the prior
period, primarily due to reductions in share-based compensation
expense and provision for bad debt, partly offset by the inclusion
of an accrual for Put/Call Consideration in the current period,
with no corresponding amount in the prior period. Changes in
assets and liabilities consumed cash of $8.8 million in the
current period, as compared with providing a source of cash of
$7.7 million in the prior period, primarily due to changes in
working capital.
Cash flows used in investing activities. For the nine months
ended September 30, 2020 and 2019, net cash used in investing
activities was $3.4 million and $11.2 million,
respectively. The decline was mainly due to reduced cash paid
for business acquisitions of $5.8 million and reduced capital
expenditures of $2.0 million year over year.
Cash flows used in financing activities. Net cash used
in financing activities for the nine months ended September
30, 2020 and 2019 was $12.7 million and
$8.9 million, respectively. The increase in cash used for
the nine months ended September 30, 2020 was
mainly due to an increase in the repayment of long-term
debt of $5.0 million and the repurchase of treasury stock
as part of a stock repurchase program of $1.3 million in
2020, which was not in effect in the prior period, partially offset
by a $2.6 million decrease in statutory taxes paid
related to the net share settlement of vested restricted stock
units.
As of September 30, 2020, we had noncancelable operating lease
commitments of $11.3 million and long-term debt
with $43.9 million principal balance. For the nine months
ended September 30, 2020, we funded our operations using available
cash.
As of September 30, 2020, we had cash, cash equivalents and
restricted cash of approximately $16.9 million,
a decrease of $3.3 million from $20.2 million
as of December 31, 2019. 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. On April 1, 2020,
we acquired a 50% membership interest in Winopoly, LLC, for a
deemed purchase price of $2.6 million, comprised of $1.6 million in
upfront cash paid to the seller parties and contingent
consideration with a fair value of $1.0 million, payable
based upon the achievement of specified revenue targets over the
eighteen-month period following the completion of the
acquisition. See Note 11, Business acquisitions,
in the Notes to Consolidated Financial Statements.
As of September 30, 2020, the Refinanced Term Loan has an
outstanding principal balance of $42.6 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, which
commenced 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 September 30, 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 September 30, 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 values by
approximately 18% and 4%, respectively. We believe that
the assumptions utilized in the 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.
During the three months ended June 30, 2020, we determined that the
effects of the macroeconomic conditions arising from the global
COVID-19 pandemic and the social unrest throughout the United
States during June 2020, which changed the media buying
patterns of certain customers directly impacting the All Other
reporting unit, constituted an impairment triggering event. As
such, we conducted an interim test of the fair value of its
goodwill for potential impairment as of June 30, 2020. The
results of this interim impairment test, which used a combination
of income and market approaches to determine the fair value of the
All Other reporting unit, indicated that its carrying value
exceeded its estimated fair value by 8.9%. We thereby
concluded that All Other's goodwill of $5.0 million was
impaired by $0.8 million. We believe that the assumptions
utilized in the interim impairment testing, including the
determination of an appropriate discount rate of
16%, long-term profitability growth projections, and estimated
future cash flows, are reasonable. The interim goodwill
impairment test reflected management's best estimate of the
economic impact to its business, end market conditions and
recovery timelines. While no further triggering events were
identified by management as of June 30, 2020, if the ongoing
economic uncertainty proves to be more severe than estimated, or if
the economic recovery takes longer to materialize or does not
materialize as strongly as anticipated, this could result in future
impairment charges.
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.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
Item
4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
September 30, 2020. We maintain disclosure controls and procedures
that are designed to provide reasonable assurance that information
required to be disclosed in our reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure. Our management recognizes that any
controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Based on the evaluation of disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934), the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure
controls and procedures were not effective as of September 30,
2020. As described below and
as previously reported in our 2019 Form 10-K, in connection with management’s
assessment of the effectiveness of our internal control over
financial reporting at the end of our last fiscal year, management
identified a material weakness in our internal control over
financial reporting as of December 31, 2018, which was not
remediated as of December 31, 2019 and which is in the process of
being remediated as of September 30, 2020.
On April 1, 2020, we acquired a 50% membership interest in
Winopoly, LLC which is consolidated in our condensed
consolidated financial statements as a VIE, as described in
Note 11, Business acquisitions, in the Notes to
Consolidated Financial Statements. As permitted by the SEC Staff
interpretive guidance for newly acquired businesses, management's
assessment of our internal control over financial reporting as of
September 30, 2020 did not include an assessment of those
disclosure controls and procedures that are subsumed by internal
control over financial reporting pertaining to the Winopoly
Acquisition. We will continue the process of implementing internal
controls over financial reporting for the Winopoly business. As of
September 30, 2020, assets and revenue excluded from
management's assessment totaled 0.9% and 1.0%,
respectively, of total assets as of September 30,
2020 and revenue for the nine months ended September 30,
2020.
Notwithstanding the identified
material weakness, management believes the consolidated financial
statements included in this Quarterly Report on Form 10-Q fairly
represent in all material respects our financial condition, results
of operations and cash flows at and for the periods presented in
accordance with U.S. GAAP.
Remediation Efforts to
Address Material Weakness
With the oversight of
management and the audit committee of the Company’s board of
directors, we are actively taking appropriate steps towards
the remediation of the underlying causes of the material weakness
described above. During the third quarter of 2019, we commenced
configuration of our new ERP system, NetSuite, with the first phase
of our implementation completed on January 1, 2020, at which point
we transitioned to NetSuite as our general ledger. While the full
integration of our internal revenue tracking platforms with
NetSuite remains ongoing, we believe that once NetSuite is fully
integrated, its automated processes will include controls that will
render unnecessary the manual preventative and detective controls
that were deemed inadequate at December 31, 2019. We will
continue our implementation of NetSuite, including the design of
appropriate automated processes and controls, and continue to
monitor, evaluate and update, as necessary, our processes and
controls during the post-implementation period for an appropriate
period of time before concluding that the material weakness
described above has been effectively remediated.
Changes in Internal Control Over Financial Reporting
Except as noted above, there were no changes to our internal
control over financial reporting during this quarter
ended September 30, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as disclosed below
under "—Certain Legal Matters," the Company is not currently a
party to any legal proceeding, investigation or claim which, in the
opinion of the management, is likely to have a material adverse
effect on the business, financial condition, results of operations
or cash flows. Legal fees associated with legal proceedings are
expensed as incurred. We review legal proceedings and claims on an
ongoing basis and follow appropriate accounting guidance, including
ASC 450, when making accrual and disclosure decisions. We establish
accruals for those contingencies where the incurrence of a loss is
probable and can be reasonably estimated, and we disclose the
amount accrued and the amount of a reasonably possible loss in
excess of the amount accrued, if such disclosure is necessary for
our financial statements to not be misleading. To estimate whether
a loss contingency should be accrued by a charge to income, we
evaluate, among other factors, the probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount
of the loss. We do not record liabilities when the likelihood that
the liability has been incurred is probable, but the amount cannot
be reasonably estimated.
In addition, we may be
involved in litigation from time to time in the ordinary course of
business. We do not believe that the ultimate resolution of any
such matters will have a material adverse effect on our business,
financial condition, results of operations or cash flows. However,
the results of such matters cannot be predicted with certainty and
we cannot assure you that the ultimate resolution of any legal or
administrative proceeding or dispute will not have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
Certain Legal
Matters
On October 26, 2018, the Company received a subpoena from the New
York Attorney General’s Office (“NY AG”) regarding compliance with
New York Executive Law § 63(12) and New York General Business
Law § 349, as they relate to the collection, use, or
disclosure of information from or about consumers or individuals,
as such information was submitted to the Federal Communication
Commission (“FCC”) in connection with the FCC’s rulemaking
proceeding captioned “Restoring Internet Freedom,” WC Docket No.
17-108. The Company has been fully cooperating with the NY AG
and has been engaged in settlement discussions with the
NY AG concerning the resolution of this matter. The proposed
settlement terms include the payment of penalties and
agreements on improved business practices. As of September 30,
2020, the Company accrued $1.45 million in connection with
this matter, which the Company believes is the minimum amount of
loss to be incurred. The ultimate amount of this loss may be
greater depending on the results of settlement discussions with the
NY AG, including any failure of the parties to agree on the terms
of a settlement, at which point the matter may proceed to
litigation. The Company is unable to estimate the amount or
range of any additional loss at the current stage of this matter.
In the event of an unfavorable outcome, the actual loss associated
with this matter could have a material adverse effect on the
Company’s business, results of operations or financial
position.
On December 13, 2018, the Company received a subpoena from the
United States Department of Justice (“DOJ”) regarding the same
issue. On March 12, 2020, the Company received a subpoena from
the Office of the Attorney General of the District of Columbia ("DC
AG") regarding the same issue. The Company has been fully
cooperating with the DOJ and the DC AG.
On June 27, 2019, as a part of two sales and use tax audits
covering the period from December 1, 2010 to November 30, 2019, the
New York State Department of Taxation and Finance (the “Tax
Department”) issued a letter stating its position that revenue
derived from certain of the Company’s customer acquisition and list
management services are subject to sales tax, as a result of
being deemed information services. The Company disputed the Tax
Department's position on several grounds, but on January
14 and 15, 2020, the Tax Department issued Statements of
Proposed Audit Adjustment totaling $8.2 million, including $2.0
million of interest. The Company formally disagreed with the
amount of the Proposed Audit Adjustments and met with the Tax
Department on March 4, 2020. During that meeting, the Company
informed the Tax Department that a majority of the Proposed Audit
Adjustments was attributable to revenue derived from transfers
which were either excluded resales or sourced outside of New
York and renewed its challenge as to the taxability of its
customer acquisition revenue. On July 22 and 31, 2020, the
Company received notices of determination from the Tax
Department totaling $3.0 million, including $0.7 million of
interest. On October 16, 2020, the Company filed challenges to the
notices of determination. Based on the foregoing, the Company
believes it is probable that a sales tax liability may result from
this matter, and has estimated the range of any such liability to
be between $0.7 million and $3.0 million. The Company
has accrued a liability associated with these sales and
use tax audits at the low end of this range.
On January 28, 2020, the
Company received a Civil Investigative Demand
(“CID”) from the
FTC regarding compliance with the FTC Act or the TSR, as they
relate to the advertising, marketing, promotion, offering for sale,
or sale of rewards and other products, the transmission of
commercial text messages, and/or consumer privacy or data
security. The Company has been fully cooperating with the FTC
and is responding to the CID. At this time, it is not possible
to predict the ultimate outcome of this matter or the significance,
if any, to our business, results of operations or financial
position.
Item 1A. Risk
Factors.
Our business, financial condition, results of operations, and cash
flows may be impacted by a number of factors, many of which are
beyond our control, including those set forth in our 2019 Form
10-K, the occurrence of any one of which could have a material
adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our 2019
Form 10-K and Quarterly Report on Form 10-Q for the quarter ended
June, 30, 2020.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon
Senior Securities.
None.
Item 4. Mine Safety
Disclosures.
Not Applicable.
Item 5. Other
Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by
reference into, this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
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Fluent, Inc.
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October 30, 2020
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By:
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/s/ Alexander Mandel
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Alexander Mandel
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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