[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) This section presents the Quarterly Report on Form 10-Q for Fluent, Inc., covering essential company identification and filing details [UNITED STATES SECURITIES AND EXCHANGE COMMISSION](index=1&type=section&id=UNITED%20STATES%20SECURITIES%20AND%20EXCHANGE%20COMMISSION) This section identifies the filing as a Quarterly Report on Form 10-Q for Fluent, Inc., detailing the registrant's basic information, stock exchange listing, and filing status - The document is a Quarterly Report on Form 10-Q for Fluent, Inc. for the period ended March 31, 2023[46](index=46&type=chunk)[53](index=53&type=chunk)[136](index=136&type=chunk) Registrant Information | Field | Value | | :--- | :--- | | Exact name of registrant | FLUENT, INC. | | State or other jurisdiction of incorporation or organization | Delaware | | I.R.S. Employer Identification No. | 77-0688094 | | Address of principal executive offices | 300 Vesey Street, 9th Floor, New York, New York 10282 | | Telephone number | (646) 669-7272 | | Trading Symbol(s) | FLNT | | Name of each exchange on which registered | The NASDAQ Stock Market, LLC | | Common Stock, $0.0005 par value per share outstanding as of May 12, 2023 | 81,037,845 shares | - The registrant is a **non-accelerated filer** and a **smaller reporting company**, having filed all required reports electronically during the preceding 12 months[48](index=48&type=chunk)[79](index=79&type=chunk) [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements and management's discussion and analysis for the first quarter of 2023 [ITEM 1. FINANCIAL STATEMENTS.](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This item provides the Company's unaudited consolidated financial statements for the three months ended March 31, 2023 and 2022, including the balance sheets, statements of operations, changes in shareholders' equity, and cash flows, accompanied by comprehensive notes detailing accounting policies and specific financial accounts [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the Company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheets (Amounts in thousands) | ASSETS | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,567 | $25,547 | | Accounts receivable, net | $56,759 | $63,164 | | Prepaid expenses and other current assets | $5,588 | $3,506 | | **Total current assets** | **$88,914** | **$92,217** | | Property and equipment, net | $861 | $964 | | Operating lease right-of-use assets | $4,743 | $5,202 | | Intangible assets, net | $27,650 | $28,745 | | Goodwill | $33,354 | $55,111 | | Other non-current assets | $1,648 | $1,730 | | **Total assets** | **$157,170** | **$183,969** | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Accounts payable | $12,929 | $6,190 | | Accrued expenses and other current liabilities | $33,189 | $35,626 | | Deferred revenue | $1,005 | $1,014 | | Current portion of long-term debt | $5,000 | $5,000 | | Current portion of operating lease liability | $2,349 | $2,389 | | **Total current liabilities** | **$54,472** | **$50,219** | | Long-term debt, net | $34,404 | $35,594 | | Operating lease liability | $3,242 | $3,743 | | Other non-current liabilities | $2,128 | $458 | | **Total liabilities** | **$94,246** | **$90,014** | | **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 — 85,545,397 and 84,385,458, respectively; and Shares outstanding — 80,933,828 and 80,085,306, respectively | $43 | $42 | | Treasury stock, at cost — 4,611,569 and 4,300,152 Shares, respectively | $(11,407) | $(11,171) | | Additional paid-in capital | $424,531 | $423,384 | | Accumulated deficit | $(350,243) | $(318,300) | | **Total shareholders' equity** | **$62,924** | **$93,955** | | **Total liabilities and shareholders' equity** | **$157,170** | **$183,969** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the Company's financial performance, including revenue, expenses, and net loss for the three months ended March 31, 2023, and 2022 Consolidated Statements of Operations (Amounts in thousands, except share and per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $77,254 | $89,063 | | Cost of revenue (exclusive of depreciation and amortization) | $58,272 | $67,562 | | Sales and marketing | $4,813 | $3,852 | | Product development | $4,938 | $4,556 | | General and administrative | $12,325 | $11,287 | | Depreciation and amortization | $2,359 | $3,307 | | Goodwill impairment and write-off of intangible assets | $25,700 | $128 | | **Total costs and expenses** | **$108,407** | **$90,692** | | Loss from operations | $(31,153) | $(1,629) | | Interest expense, net | $(689) | $(384) | | Loss before income taxes | $(31,842) | $(2,013) | | Income tax expense | $(101) | — | | **Net loss** | **$(31,943)** | **$(2,013)** | | Basic and diluted loss per share | $(0.39) | $(0.02) | | Weighted average number of shares outstanding (Basic & Diluted) | 81,906,913 | 80,889,052 | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section details changes in the Company's shareholders' equity, including common stock, treasury stock, additional paid-in capital, and accumulated deficit Consolidated Statements of Changes in Shareholders' Equity (Amounts in thousands, except share and per share data) | Item | Shares (Dec 31, 2022) | Amount (Dec 31, 2022) | Treasury Shares (Dec 31, 2022) | Treasury Amount (Dec 31, 2022) | Additional Paid-in Capital (Dec 31, 2022) | Accumulated Deficit (Dec 31, 2022) | Total Equity (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2022 | 84,385,458 | $42 | 4,300,152 | $(11,171) | $423,384 | $(318,300) | $93,955 | | Vesting of restricted stock units and issuance of stock under incentive plans | 1,159,939 | $1 | — | — | $(1) | — | — | | Increase in treasury stock resulting from shares withheld to cover statutory taxes | — | — | 311,417 | $(236) | — | — | $(236) | | Share-based compensation | — | — | — | — | $1,148 | — | $1,148 | | Net loss | — | — | — | — | — | $(31,943) | $(31,943) | | **Balance at March 31, 2023** | **85,545,397** | **$43** | **4,611,569** | **$(11,407)** | **$424,531** | **$(350,243)** | **$62,924** | | **Balance at December 31, 2021** | **83,057,083** | **$42** | **4,091,823** | **$(10,723)** | **$419,059** | **$(194,968)** | **$213,410** | | Vesting of restricted stock units and issuance of stock under incentive plans | 926,504 | — | — | — | $211 | — | $211 | | Increase in treasury stock resulting from shares withheld to cover statutory taxes | — | — | 208,329 | $(448) | — | — | $(448) | | Share-based compensation | — | — | — | — | $1,015 | — | $1,015 | | Net loss | — | — | — | — | — | $(2,013) | $(2,013) | | **Balance at March 31, 2022** | **83,983,587** | **$42** | **4,300,152** | **$(11,171)** | **$420,285** | **$(196,981)** | **$212,175** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the Company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Consolidated Statements of Cash Flows (Amounts in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **CASH FLOWS FROM OPERATING ACTIVITIES:** | | | | Net loss | $(31,943) | $(2,013) | | Depreciation and amortization | $2,359 | $3,307 | | Non-cash loan amortization expense | $61 | $68 | | Share-based compensation expense | $1,061 | $988 | | Goodwill impairment | $25,700 | — | | Write-off of intangible assets | — | $128 | | Provision for bad debt | $(55) | $81 | | Accounts receivable change | $6,460 | $5,127 | | Prepaid expenses and other current assets change | $(2,082) | $451 | | Accounts payable change | $6,739 | $(3,348) | | Accrued expenses and other current liabilities change | $(3,362) | $(6,251) | | **Net cash provided by (used in) operating activities** | **$4,890** | **$(1,776)** | | **CASH FLOWS FROM INVESTING ACTIVITIES:** | | | | Capitalized costs included in intangible assets | $(1,134) | $(1,071) | | Business acquisitions, net of cash acquired | $(1,250) | $(971) | | Acquisition of property and equipment | — | $(7) | | **Net cash used in investing activities** | **$(2,384)** | **$(2,049)** | | **CASH FLOWS FROM FINANCING ACTIVITIES:** | | | | Repayments of long-term debt | $(1,250) | $(1,250) | | Taxes paid related to net share settlement of vesting of restricted stock units | $(236) | $(448) | | **Net cash used in financing activities** | **$(1,486)** | **$(1,698)** | | Net increase (decrease) in cash, cash equivalents and restricted cash | $1,020 | $(5,523) | | Cash, cash equivalents and restricted cash at beginning of period | $25,547 | $34,467 | | **Cash, cash equivalents and restricted cash at end of period** | **$26,567** | **$28,944** | | **SUPPLEMENTAL DISCLOSURE INFORMATION** | | | | Cash paid for interest | $664 | $301 | | Cash paid for income taxes | $55 | $34 | | Share-based compensation capitalized in intangible assets | $27 | $27 | | **SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES** | | | | Liability incurred for future contingent payments in connection with TAPP consolidation | $2,693 | — | | Liability incurred for deferred payment in connection with True North acquisition | — | $860 | | Contingent consideration in connection with True North acquisition | — | $250 | | Equity issued in connection with True North acquisition | — | $211 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, estimates, and specific financial accounts presented in the consolidated financial statements [1. Summary of significant accounting policies](index=8&type=section&id=1.%20Summary%20of%20significant%20accounting%20policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition, fair value measurements, and estimates - The financial statements are prepared in accordance with **GAAP** and **SEC interim financial reporting rules**, condensing or omitting certain annual disclosures[93](index=93&type=chunk) - The Company consolidates **Variable Interest Entities (VIEs)** where it is the primary beneficiary, having power to direct significant activities and absorb losses/benefits[94](index=94&type=chunk)[95](index=95&type=chunk) - Revenue is recognized when control of goods or services is transferred to customers, reflecting expected consideration, using the 'right to invoice' practical expedient[69](index=69&type=chunk)[97](index=97&type=chunk) - Significant estimates and assumptions are made for financial reporting, including allowance for doubtful accounts, useful lives of intangible assets, goodwill recoverability, revenue variances, purchase accounting, VIE consolidation, contingencies, and income tax provisions[71](index=71&type=chunk)[98](index=98&type=chunk) - Fair value is defined as the exchange price in an orderly transaction between market participants, categorized into **Level 1 (quoted prices)**, **Level 2 (observable inputs)**, and **Level 3 (unobservable inputs)**[72](index=72&type=chunk)[99](index=99&type=chunk)[115](index=115&type=chunk) - The fair value of long-term debt approximates its carrying value (**Level 2 measurement**), while certain non-financial assets were measured at **Level 3 fair value** due to impairment[73](index=73&type=chunk)[100](index=100&type=chunk) - New accounting guidance on credit losses (**ASC 2016-13**) effective after December 15, 2022, had **no material impact** on the consolidated financial statements[114](index=114&type=chunk) [2. Loss per share](index=11&type=section&id=2.%20Loss%20per%20share) This note details the calculation of basic and diluted loss per share, including the treatment of anti-dilutive securities - Basic loss per share is calculated by dividing net loss by the weighted average common shares outstanding, including vested but undelivered restricted stock units[102](index=102&type=chunk) - Stock equivalent shares (stock options and warrants) were **excluded** from diluted weighted average share calculations in loss periods due to their **anti-dilutive nature**[102](index=102&type=chunk)[128](index=128&type=chunk) Basic and Diluted Loss Per Share (Amounts in thousands, except share and per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(31,943) | $(2,013) | | Weighted average shares outstanding | 80,210,282 | 79,161,367 | | Weighted average restricted shares vested not delivered | 1,696,631 | 1,727,684 | | Total basic weighted average shares outstanding | 81,906,913 | 80,889,052 | | Dilutive effect of assumed conversion of restricted stock units | — | — | | Total diluted weighted average shares outstanding | 81,906,913 | 80,889,052 | | Basic loss per share | $(0.39) | $(0.02) | | Diluted loss per share | $(0.39) | $(0.02) | Anti-Dilutive Securities | Security Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Restricted stock units | 5,270,095 | 1,985,611 | | Stock options | 2,139,000 | 2,139,000 | | Warrants | — | 833,333 | | Total anti-dilutive securities | 7,409,095 | 4,957,944 | [3. Intangible assets, net](index=12&type=section&id=3.%20Intangible%20assets,%20net) This note provides a breakdown of the Company's intangible assets, their amortization periods, and estimated future amortization expenses - Intangible assets include capitalized internally developed software and acquired proprietary technology, customer relationships, trade names, domain names, databases, and non-competition agreements from various acquisitions[105](index=105&type=chunk) Intangible Assets, Net (Amounts in thousands) | Category | Amortization Period (in years) | March 31, 2023 (Net) | December 31, 2022 (Net) | | :--- | :--- | :--- | :--- | | Software developed for internal use | 3 | $6,327 | $5,643 | | Acquired proprietary technology | 3-5 | $1,016 | $1,660 | | Customer relationships | 5-10 | $2,664 | $2,912 | | Trade names | 4-20 | $10,396 | $10,619 | | Domain names | 20 | $125 | $127 | | Databases | 5-10 | $7,122 | $7,784 | | Non-competition agreements | 2-5 | $0 | $0 | | **Total intangible assets, net** | | **$27,650** | **$28,745** | | **Total gross amount** | | **$118,845** | **$117,685** | | **Total accumulated amortization** | | **$(91,195)** | **$(88,940)** | - Amortization expense was **$2,256 thousand** for Q1 2023, a decrease from **$3,141 thousand** in Q1 2022, with **$971 thousand** of assets not yet amortized[106](index=106&type=chunk) Estimated Future Amortization Expenses (Amounts in thousands) | Year | Estimated Amortization Expense | | :--- | :--- | | Remainder of 2023 | $4,734 | | 2024 | $6,816 | | 2025 | $6,370 | | 2026 | $2,332 | | 2027 | $830 | | 2028 and thereafter | $6,568 | | **Total** | **$27,650** | - **No triggering events** for impairment assessments of long-lived assets were identified for the three months ended March 31, 2023[131](index=131&type=chunk) [4. Goodwill](index=13&type=section&id=4.%20Goodwill) This note details the Company's goodwill balance, impairment assessment, and the impact of a significant impairment charge - Goodwill is assessed at least **annually for impairment** (October 1) or when events indicate potential impairment[107](index=107&type=chunk) - As of March 31, 2023, goodwill was **$33,354 thousand**, a **$25,700 thousand decrease** from December 31, 2022, due to a non-cash impairment charge[133](index=133&type=chunk) - A decline in market value triggered an interim impairment test, resulting in a **$25,700 thousand non-cash impairment charge** as carrying value exceeded fair value by **20%**[134](index=134&type=chunk)[234](index=234&type=chunk) - The goodwill balance also includes a preliminary **$3,943 thousand increase** related to the TAPP consolidation[133](index=133&type=chunk) [5. Long-term debt, net](index=14&type=section&id=5.%20Long-term%20debt,%20net) This note describes the Company's Credit Agreement, including its terms, amendments, interest rates, covenants, and scheduled maturities - Fluent, LLC entered a Credit Agreement on March 31, 2021, for a **$50,000 thousand Term Loan** and a **$15,000 thousand undrawn Revolving Credit Facility**, maturing March 31, 2026[36](index=36&type=chunk)[37](index=37&type=chunk)[257](index=257&type=chunk) - The Credit Agreement was amended on December 20, 2022, and May 15, 2023, to modify benchmark settings, add margin tiers, establish pricing floors, adjust EBITDA add-backs, and impose additional reporting and covenant conditions[36](index=36&type=chunk)[257](index=257&type=chunk) - Interest rates are based on Alternative Base Rate or Term SOFR plus a margin, with the opening rate at **2.50%** and increasing to **7.16%** as of March 31, 2023[2](index=2&type=chunk)[230](index=230&type=chunk) - The Credit Agreement contains negative covenants limiting the Borrower's ability to incur debt, grant liens, make investments, engage in fundamental changes, dispose of assets, or make restricted payments[4](index=4&type=chunk) - As of March 31, 2023, the Company was in **compliance with all financial and other covenants** under the Credit Agreement[37](index=37&type=chunk)[231](index=231&type=chunk) - Due to pending litigation with the FTC and PAAG, a representation and warranty concerning the absence of litigation is not true, preventing the Company from drawing on the Revolving Credit Facility as of March 31, 2023[5](index=5&type=chunk)[259](index=259&type=chunk) Long-term Debt, Net (Amounts in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Credit Facility due 2026 (less unamortized discount and financing costs) | $39,404 | $40,594 | | Less: Current portion of long-term debt | $(5,000) | $(5,000) | | **Long-term debt, net (non-current)** | **$34,404** | **$35,594** | Scheduled Future Maturities of Credit Agreement (Amounts in thousands) | Year | March 31, 2023 | | :--- | :--- | | Remainder of 2023 | $3,750 | | 2024 | $5,000 | | 2025 | $5,000 | | 2026 | $26,250 | | **Total maturities** | **$40,000** | [6. Income taxes](index=16&type=section&id=6.%20Income%20taxes) This note discusses the Company's income tax position, including its valuation allowance, effective tax rate, and unrecognized tax benefits - The Company has recorded a **full valuation allowance** against net deferred tax assets and intends to maintain it until sufficient evidence supports its release[40](index=40&type=chunk)[224](index=224&type=chunk) - For Q1 2023, the effective income tax expense rate was **0.3%**, primarily due to projected federal and state cash tax expense after a non-deductible goodwill impairment, offset by R&D credits[41](index=41&type=chunk) - Unrecognized tax benefits were **$1,480 thousand** as of March 31, 2023, which would increase net operating losses subject to a valuation allowance, thus having **no impact on the effective tax rate**[42](index=42&type=chunk) - **No significant increase or reduction** in unrecognized tax benefits is anticipated within the next twelve months[43](index=43&type=chunk) [7. Common stock, treasury stock and warrants](index=16&type=section&id=7.%20Common%20stock,%20treasury%20stock%20and%20warrants) This note details changes in the Company's common stock and treasury stock balances, primarily due to RSU vesting and tax withholding - Issued common stock increased from **84,385,458 shares** at December 31, 2022, to **85,545,397 shares** at March 31, 2023, due to the vesting of **1,159,939 RSUs**[19](index=19&type=chunk)[20](index=20&type=chunk) - Treasury stock increased from **4,300,152 shares** (**$11,171 thousand cost**) at December 31, 2022, to **4,611,569 shares** (**$11,407 thousand cost**) at March 31, 2023[19](index=19&type=chunk)[29](index=29&type=chunk) - The increase in treasury stock was primarily due to **311,417 shares withheld** to cover statutory tax withholding obligations upon RSU vesting[20](index=20&type=chunk)[30](index=30&type=chunk) [8. Share-based compensation](index=17&type=section&id=8.%20Share-based%20compensation) This note describes the Company's equity incentive plans, stock option and RSU activity, and the associated share-based compensation expense - The Fluent, Inc. 2022 Omnibus Equity Incentive Plan authorized **15,422,523 shares**, with **6,091,436 shares available** for grants as of March 31, 2023[31](index=31&type=chunk) - Plans aim to attract, retain, reward, and motivate individuals through time-based vesting RSUs, long-term incentive grants, and cash-settled PSUs[32](index=32&type=chunk) - Stock options granted under the Prior Plan have vesting conditions tied to stock price performance over 20 consecutive trading days, with a full vest on the fifth anniversary if conditions aren't met earlier[34](index=34&type=chunk) Stock Option Activity (Three Months Ended March 31, 2023) | Metric | Number of options | Weighted average exercise price per share | Weighted average remaining contractual term (in years) | | :--- | :--- | :--- | :--- | | Outstanding as of December 31, 2022 | 2,139,000 | $4.37 | 6.3 | | Granted | — | — | — | | Exercised | — | — | — | | Expired | — | — | — | | **Outstanding as of March 31, 2023** | **2,139,000** | **$4.37** | **6.1** | | Options exercisable as of March 31, 2023 | 1,242,000 | $3.98 | 6.1 | Unvested Stock Options (Three Months Ended March 31, 2023) | Metric | Number of stock options | Weighted average exercise price per share | Weighted average remaining contractual term (in years) | | :--- | :--- | :--- | :--- | | Unvested as of December 31, 2022 | 897,000 | $4.91 | 6.3 | | Granted | — | — | — | | Vested | — | — | — | | **Unvested as of March 31, 2023** | **897,000** | **$4.91** | **6.1** | - Compensation expense for stock options was **$0** for Q1 2023, down from **$105 thousand** for Q1 2022, with **$0** unrecognized compensation as of March 31, 2023[12](index=12&type=chunk) Unvested RSU Activity (Three Months Ended March 31, 2023) | Metric | Number of units | Weighted average grant-date fair value | | :--- | :--- | :--- | | Unvested as of December 31, 2022 | 4,223,156 | $5.37 | | Granted | 2,910,185 | $1.43 | | Vested and delivered | (848,522) | $3.42 | | Withheld as treasury stock | (311,417) | $1.82 | | Vested not delivered | (14,416) | $5.50 | | Forfeited | (688,891) | $1.43 | | **Unvested as of March 31, 2023** | **5,270,095** | **$4.24** | - Compensation expense for RSUs was **$1,148 thousand** for Q1 2023, up from **$910 thousand** for Q1 2022, recorded in operating expenses and intangible assets[23](index=23&type=chunk) - Unrecognized share-based compensation expense for RSUs and stock options totaled **$8,397 thousand**, expected to be recognized over a weighted average period of **2.1 years**[24](index=24&type=chunk) Total Share-Based Compensation Expense Allocation (Amounts in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Sales and marketing | $167 | $170 | | Product development | $191 | $160 | | General and administrative | $763 | $658 | | Share-based compensation expense | $1,121 | $988 | | Capitalized in intangible assets | $27 | $27 | | **Total share-based compensation** | **$1,148** | **$1,015** | [9. Segment information](index=20&type=section&id=9.%20Segment%20information) This note provides financial information for the Company's operating segments, 'Fluent' and 'All Other,' including assets, revenue, and EBITDA - The Company has two operating segments, 'Fluent' and 'All Other' (AdParlor, LLC), with 'Fluent' representing the consolidated operating results excluding 'All Other'[15](index=15&type=chunk) Segment Total Assets (Amounts in thousands) | Segment | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Fluent | $140,618 | $168,486 | | All Other | $16,552 | $15,483 | | **Total assets** | **$157,170** | **$183,969** | Segment Revenue and EBITDA (Three Months Ended March 31, 2023 and 2022, Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Fluent segment revenue:** | | | | United States | $42,908 | $60,659 | | International | $32,330 | $25,375 | | **Fluent segment revenue** | **$75,238** | **$86,034** | | **All Other segment revenue:** | | | | United States | $2,016 | $2,989 | | International | — | $40 | | **All Other segment revenue** | **$2,016** | **$3,029** | | **Segment EBITDA:** | | | | Fluent segment EBITDA | $(28,579) | $1,921 | | All Other segment EBITDA | $(215) | $(243) | | **Total EBITDA** | **$(28,794)** | **$1,678** | | Depreciation and amortization | $2,359 | $3,307 | | **Total income (loss) from operations** | **$(31,153)** | **$(1,629)** | - As of March 31, 2023, all long-lived assets are located in the **United States**[117](index=117&type=chunk) - An international customer within the Fluent segment accounted for **$19,125 thousand** in revenue, representing **25% of consolidated revenue** for Q1 2023[117](index=117&type=chunk) [10. Contingencies](index=21&type=section&id=10.%20Contingencies) This note details the Company's legal and regulatory contingencies, including tax audits, FTC and PAAG investigations, and a TCPA class action settlement - The Company accrues estimated losses from contingencies when probable and reasonably estimable, disclosing accrued amounts and reasonably possible losses in excess of accruals[144](index=144&type=chunk)[267](index=267&type=chunk) - A New York sales and use tax audit resulted in a **$1,700 thousand settlement**, paid April 1, 2022, with the Company now collecting and remitting sales tax on certain services[145](index=145&type=chunk)[241](index=241&type=chunk) - Regarding an FTC Civil Investigative Demand, the Company accrued **$5,000 thousand** for a civil monetary penalty as of December 31, 2022, with negotiations ongoing and a meeting scheduled with the Commission on May 16, 2023[146](index=146&type=chunk)[268](index=268&type=chunk) - A settlement in principle was reached with PAAG for **$250 thousand** in investigatory costs, with **$200 thousand accrued** as of March 31, 2023, and telemarketing practices updated[147](index=147&type=chunk)[242](index=242&type=chunk) - In the Daniel Berman v. Freedom Financial Network TCPA class action, a settlement provides for a **$9,750 thousand payment** to plaintiffs, with the Company contributing **$3,100 thousand** (accrued as of December 31, 2022), payable **$1,100 thousand in cash** and **$2,000 thousand via an interest-bearing note**[120](index=120&type=chunk)[279](index=279&type=chunk) [11. Business acquisition](index=22&type=section&id=11.%20Business%20acquisition) This note details the acquisition of True North Loyalty, LLC, including its purchase price, consideration, and preliminary purchase price allocation - On January 1, 2022, the Company acquired **100% of True North Loyalty, LLC** for a deemed purchase price of **$2,321 thousand**, including **$1,000 thousand cash**, **$860 thousand deferred payments**, and **$250 thousand contingent consideration**[121](index=121&type=chunk) - The True North acquisition also involved issuing **100,000 shares of fully-vested common stock** (**$211 thousand**) and entering into employment and non-competition agreements[121](index=121&type=chunk) - True North Loyalty, LLC is a subscription-based business utilizing call center operations and other media channels for recurring revenue services[121](index=121&type=chunk) - The purchase price allocation for True North included amortizing acquired customer relationships (**$170 thousand** over one year, **$1,180 thousand** over five years) and recording **$1,092 thousand in goodwill** for non-separately recognized intangible assets, which is not tax deductible[176](index=176&type=chunk) [12. Variable Interest Entity](index=23&type=section&id=12.%20Variable%20Interest%20Entity) This note explains the consolidation of TAPP, LLC as a Variable Interest Entity (VIE), detailing the rationale and preliminary purchase price allocation - A VIE is an entity with insufficient equity or equity investors lacking controlling financial interest, where the primary beneficiary directs significant activities and absorbs losses/benefits[177](index=177&type=chunk) - On January 9, 2023, TAPP, LLC, an influencer-based business, qualified as a VIE due to the Company's significance to its revenue and control over key activities, leading to consolidation[123](index=123&type=chunk) - The deemed fair value of consideration for TAPP was **$3,943 thousand**, comprising **$1,250 thousand initial cash** and **$2,693 thousand contingent payments**, resulting in **$3,943 thousand in goodwill**[151](index=151&type=chunk) - The purchase price allocation for TAPP is preliminary, with finalization expected within **one year** of the transaction date (January 9, 2023)[151](index=151&type=chunk) - As of March 31, 2023, TAPP's assets and revenues represented a **de minimis percentage** of the Company's total assets and revenue[151](index=151&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on Fluent, Inc.'s financial condition and operational results for the three months ended March 31, 2023, compared to the prior year. It covers the business overview, key financial summaries, trends affecting the business, advertiser trends, seasonality, economic conditions, non-GAAP financial measures, detailed comparison of operational results, liquidity and capital resources, and critical accounting policies [Overview](index=24&type=section&id=Overview) This section provides an overview of Fluent, Inc.'s business model, focusing on data-driven digital marketing, customer acquisition, and revenue generation strategies - Fluent, Inc. is a leader in **data-driven digital marketing services**, primarily performing customer acquisition by operating highly scalable digital marketing campaigns[153](index=153&type=chunk) - The Company attracts consumers to its owned digital media properties through promotional offerings, engaging them with surveys and polls to gather lifestyle and purchasing information[154](index=154&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Revenue is generated by delivering measurable online marketing results, predominantly paid on a negotiated or market-driven **'per click,' 'per lead,' or 'per action' basis**[155](index=155&type=chunk) - Through AdParlor Holdings, Inc., the Company conducts its non-core business, offering clients various social media strategies via media planning and buying on different platforms[182](index=182&type=chunk) [First Quarter Financial Summary](index=26&type=section&id=First%20Quarter%20Financial%20Summary) This section provides a high-level overview of Fluent, Inc.'s financial performance for the first quarter of 2023, highlighting key GAAP and non-GAAP metrics such as revenue, net loss, gross profit, media margin, and adjusted EBITDA, and their changes compared to the prior year First Quarter Financial Summary (Three Months Ended March 31, 2023 vs 2022) | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $77.3 | $89.1 | -13% | | Net loss | $31.9 | $2.0 | +1495% | | Net loss per share | $0.39 | $0.02 | +1850% | | Gross profit (exclusive of D&A) | $19.0 | $21.5 | -12% | | Gross profit % of revenue | 25% | 24% | +1 pp | | Media margin | $22.0 | $26.0 | -15% | | Media margin % of revenue | 28.4% | 29.1% | -0.7 pp | | Adjusted EBITDA | $0.4 | $4.8 | -91.7% | | Adjusted EBITDA % of revenue | 0.6% | 5.4% | -4.8 pp | | Adjusted net loss | $2.7 | Adjusted net income $1.1 | N/A | | Adjusted net loss per share | $0.03 | Adjusted net income $0.01 | N/A | - Media margin, adjusted EBITDA, and adjusted net income (loss) are **non-GAAP financial measures**[158](index=158&type=chunk) [Trends Affecting our Business](index=26&type=section&id=Trends%20Affecting%20our%20Business) This section discusses the key operational and strategic trends influencing Fluent, Inc.'s business, including its focus on high-quality media sources, efforts to improve consumer experience and monetization, and responses to market challenges and economic conditions - Business success depends on identifying and accessing **high-quality media sources** and attracting targeted users, with a focus on improving consumer experience and monetization through increased user participation and conversion rates[184](index=184&type=chunk)[185](index=185&type=chunk) - Efforts in Q1 2023 included increased spend with major digital media platforms, revised bidding strategies for affiliate traffic, and partnerships to expand social media traffic, focusing on improved monetization through customer relationship management[159](index=159&type=chunk) - Challenges from affiliate supply volatility, search engine algorithm changes, and increased media competition continued in Q1 2023, prompting investments in the influencer segment and strategic growth of e-commerce post-sales solutions[160](index=160&type=chunk) - In response to the challenging macro-economic environment, the Company reviewed strategic investments for 2023, pausing or eliminating lower priority projects and streamlining the organization through targeted workforce reductions[160](index=160&type=chunk)[219](index=219&type=chunk) [Advertiser Trends & Seasonality](index=26&type=section&id=Advertiser%20Trends%20%26%20Seasonality) This section analyzes the impact of advertiser spending patterns and seasonal fluctuations on Fluent, Inc.'s business, noting challenges from economic uncertainty and strategic efforts to diversify clients and improve ad spend returns - In 2023, data and performance-based spend continued to be challenged by a slowing economy and general economic uncertainty, with slowdowns in Media & Entertainment, Staffing & Recruitment, and Financial Products & Services sectors[161](index=161&type=chunk) - To offset challenges, the Company works with advertisers to define high-performing consumer segments and strategically price paid conversions, driving additional budgets from the **gaming segment**, a large and growing component of revenue[186](index=186&type=chunk) - Results are subject to seasonality and cyclicality, with historically higher advertiser budgets in Q4, sometimes offset by media challenges, and lower budgets in Q1, impacted by economic uncertainty[162](index=162&type=chunk)[163](index=163&type=chunk)[187](index=187&type=chunk) - To confront slowing economic conditions and uncertainty in Q1 2023, the Company will continue efforts to **diversify its client base** and further develop initiatives to drive higher return on advertising spend across additional segments[188](index=188&type=chunk) [Current Economic Conditions](index=28&type=section&id=Current%20Economic%20Conditions) This section addresses the impact of broader macroeconomic factors on Fluent, Inc.'s business, noting the caution in spending by clients and consumers due to inflation, rising interest rates, and reduced confidence - The Company is subject to risks from macroeconomic impacts, with inflation, rising interest rates, and reduced consumer confidence causing clients and customers to be **cautious in their spending**[189](index=189&type=chunk) - The full impact of these macroeconomic events on the business, financial condition, and results of operations in the future remains **uncertain**[189](index=189&type=chunk) [Definitions, Reconciliations and Uses of Non-GAAP Financial Measures](index=28&type=section&id=Definitions,%20Reconciliations%20and%20Uses%20of%20Non-GAAP%20Financial%20Measures) This section defines and reconciles Fluent, Inc.'s non-GAAP financial measures, including Adjusted EBITDA, Media Margin, and Adjusted Net Income (Loss), explaining their purpose as supplemental performance indicators and acknowledging their limitations compared to GAAP measures - **Adjusted EBITDA** is defined as net income (loss) excluding income taxes, interest expense, depreciation and amortization, share-based compensation, goodwill impairment, write-off of intangible assets, acquisition-related costs, restructuring costs, and certain litigation costs[190](index=190&type=chunk) - **Media margin** is defined as gross profit (exclusive of depreciation and amortization) reflecting variable costs for media and related expenses, used to manage operating performance and evaluate media expenditure efficiency[185](index=185&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk) - **Adjusted net income (loss)** is defined as net income (loss) excluding share-based compensation, goodwill impairment, write-off of intangible assets, acquisition-related costs, restructuring costs, and certain litigation costs[166](index=166&type=chunk) - These non-GAAP measures have limitations, do not reflect GAAP financial results, and are not indicative of overall results or future financial performance, as they exclude certain expenses[216](index=216&type=chunk) Media Margin Reconciliation (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $77,254 | $89,063 | | Less: Cost of revenue (exclusive of depreciation and amortization) | $58,272 | $67,562 | | **Gross profit (exclusive of depreciation and amortization)** | **$18,982** | **$21,501** | | Gross profit (exclusive of depreciation and amortization) % of revenue | 25% | 24% | | Non-media cost of revenue | $2,981 | $4,449 | | **Media margin** | **$21,963** | **$25,950** | | Media margin % of revenue | 28.4% | 29.1% | Adjusted EBITDA Reconciliation (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(31,943) | $(2,013) | | Income tax expense | $101 | — | | Interest expense, net | $689 | $384 | | Depreciation and amortization | $2,359 | $3,307 | | Share-based compensation expense | $1,061 | $988 | | Goodwill impairment | $25,700 | — | | Write-off of intangible assets | — | $128 | | Acquisition-related costs | $623 | $558 | | Restructuring and other severance costs | $480 | — | | Certain litigation and other related costs | $1,378 | $1,402 | | **Adjusted EBITDA** | **$448** | **$4,754** | Adjusted Net Income (Loss) Reconciliation (Amounts in thousands, except share and per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(31,943) | $(2,013) | | Share-based compensation expense | $1,061 | $988 | | Goodwill impairment | $25,700 | — | | Write-off of intangible assets | — | $128 | | Acquisition-related costs | $623 | $558 | | Restructuring and other severance costs | $480 | — | | Certain litigation and other related costs | $1,378 | $1,402 | | **Adjusted net income (loss)** | **$(2,701)** | **$1,063** | | Adjusted net income (loss) per share (Basic) | $(0.03) | $0.01 | | Adjusted net income (loss) per share (Diluted) | $(0.03) | $0.01 | | Weighted average number of shares outstanding (Basic) | 81,906,913 | 80,889,052 | | Weighted average number of shares outstanding (Diluted) | 81,906,913 | 81,021,030 | [Comparison of Our Results of Operations for the Three Months Ended March 31, 2023 and 2022](index=30&type=section&id=Comparison%20of%20Our%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031,%202023%20and%202022) This section provides a detailed comparative analysis of Fluent, Inc.'s operational results for the three months ended March 31, 2023, versus the same period in 2022, covering revenue, cost of revenue, various operating expenses, impairment charges, interest expense, and net loss [Revenue](index=30&type=section&id=Revenue) This section analyzes the Company's revenue performance, highlighting a significant decrease driven by declines in the US Rewards business and employment opportunities marketplace Revenue (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $77,254 | $89,063 | (13%) | - Revenue **decreased by $11.8 million (13%)** due to declines in the US Rewards business and employment opportunities marketplace, driven by reduced client spending, a challenging labor market, and increased regulatory scrutiny[197](index=197&type=chunk) - The decline was partially offset by continued growth in call solutions and international Rewards business, driven by new affiliates, advertisers, campaigns, higher traffic, and accelerated creative testing[197](index=197&type=chunk) [Cost of revenue (exclusive of depreciation and amortization)](index=30&type=section&id=Cost%20of%20revenue%20(exclusive%20of%20depreciation%20and%20amortization)) This section examines the Company's cost of revenue, detailing a decrease primarily due to client pullbacks and changes in business practices Cost of Revenue (exclusive of D&A) (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Cost of revenue (exclusive of depreciation and amortization) | $58,272 | $67,562 | (14%) | - Cost of revenue **decreased by $9.3 million (14%)** due to client pullbacks and reduced spending in the US Rewards business, and changes in business practices reflecting increased regulatory scrutiny[198](index=198&type=chunk) - Costs primarily consist of media and related costs for acquiring traffic, enablement costs for call centers, tracking costs for consumer data, and indirect costs like fulfillment and software/hosting[198](index=198&type=chunk) - Total cost of revenue as a percentage of revenue **decreased to 75%** in Q1 2023 from **76%** in Q1 2022, largely due to a decrease in fulfillment costs as a percentage of revenue[218](index=218&type=chunk) - Digital media spend in Q1 2023 was driven by strategic test and learn initiatives, with dynamic mix and profitability of media channels reflecting market dynamics and the Traffic Quality Initiative[199](index=199&type=chunk) [Sales and marketing](index=31&type=section&id=Sales%20and%20marketing) This section analyzes the Company's sales and marketing expenses, noting an increase primarily driven by headcount and salary adjustments Sales and Marketing Expenses (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Sales and marketing | $4,813 | $3,852 | 25% | - Sales and marketing expenses **increased by $0.9 million (25%)** due to an increase in headcount and annual salary increases[200](index=200&type=chunk) - Expenses mainly consisted of employee salaries and benefits (**$3.8 million** in Q1 2023), advertising costs (**$0.3 million**), and non-cash share-based compensation expenses (**$0.2 million**)[200](index=200&type=chunk) [Product development](index=31&type=section&id=Product%20development) This section reviews the Company's product development expenses, indicating an increase due to salary adjustments and technology investments Product Development Expenses (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Product development | $4,938 | $4,556 | 8% | - Product development expense **increased by $0.4 million (8%)** due to annual salary increases and investments in the technology and analytics platform[201](index=201&type=chunk) - Expenses mainly consisted of salaries and benefits (**$3.5 million** in Q1 2023), professional fees (**$0.5 million**), software license and maintenance costs (**$0.5 million**), and non-cash share-based compensation expense (**$0.2 million**)[201](index=201&type=chunk) [General and administrative](index=32&type=section&id=General%20and%20administrative) This section details the Company's general and administrative expenses, noting an increase primarily from professional fees and strategic training, alongside workforce reductions General and Administrative Expenses (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | General and administrative | $12,325 | $11,287 | 9% | - General and administrative expenses **increased by $1.0 million (9%)** primarily due to increased professional fees and strategic company training expenses[202](index=202&type=chunk) - Expenses mainly consisted of employee salaries and benefits (**$4.9 million**), professional fees (**$1.6 million**), office overhead (**$1.1 million**), certain litigation and related costs (**$1.4 million**), non-cash share-based compensation expense (**$0.8 million**), software license and maintenance costs (**$0.6 million**), and acquisition-related costs (**$0.6 million**)[202](index=202&type=chunk) - Workforce reductions in Q1 2023 resulted in **$0.5 million** in exit-related restructuring costs, primarily one-time termination benefits, expected to be fully settled by March 31, 2024, and lead to future salary and benefit reductions[203](index=203&type=chunk)[219](index=219&type=chunk) [Depreciation and amortization](index=33&type=section&id=Depreciation%20and%20amortization) This section reviews the Company's depreciation and amortization expenses, noting a decrease due to certain intangible assets becoming fully amortized Depreciation and Amortization Expenses (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Depreciation and amortization | $2,359 | $3,307 | (29%) | - Depreciation and amortization expenses **decreased by $0.9 million (29%)** due to certain intangible assets that fully amortized compared to the prior period[204](index=204&type=chunk) [Goodwill impairment](index=33&type=section&id=Goodwill%20impairment) This section reports on the significant goodwill impairment loss recognized by the Company during the first quarter of 2023 Goodwill Impairment (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Goodwill impairment | $(25,700) | — | — | - For Q1 2023, the Company recognized a goodwill impairment loss of **$25.7 million**, with no corresponding charge in the prior period[205](index=205&type=chunk) [Write-off of intangible assets](index=33&type=section&id=Write-off%20of%20intangible%20assets) This section details the write-off of intangible assets, noting a charge in the prior period with no corresponding impact in the current period Write-off of Intangible Assets (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Write-off of intangible assets | — | $128 | (100%) | - For Q1 2022, the Company recognized **$0.1 million** for the write-off of intangible assets related to software developed for internal use, with **no corresponding change** in the current period[221](index=221&type=chunk) [Interest expense, net](index=33&type=section&id=Interest%20expense,%20net) This section analyzes the Company's net interest expense, highlighting an increase driven by a higher average interest rate on the Term Loan Interest Expense, Net (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Interest expense, net | $(689) | $(384) | 79% | - Interest expense, net, for Q1 2023 **increased by $0.3 million** compared to Q1 2022, driven by a **higher average interest rate** on the Term Loan[206](index=206&type=chunk) [Loss before income taxes](index=34&type=section&id=Loss%20before%20income%20taxes) This section reports on the Company's loss before income taxes, noting a substantial increase primarily due to goodwill impairment and revenue decline Loss Before Income Taxes (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Loss before income taxes | $(31,842) | $(2,013) | 1482% | - Loss before income taxes for Q1 2023 was **$31.8 million**, compared to **$2.0 million** in Q1 2022, an increase of **$29.8 million** primarily due to goodwill impairment (**$25.6 million**), revenue decline (**$11.8 million**), and increased operating expenses, partially offset by lower cost of revenue (**$9.3 million**)[207](index=207&type=chunk) [Income tax expense](index=34&type=section&id=Income%20tax%20expense) This section details the Company's income tax expense, noting a charge in the current period and the maintenance of a full valuation allowance Income Tax Expense (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Income tax expense | $(101) | — | — | - Income tax expense for Q1 2023 was **$0.1 million**, with no corresponding impact in Q1 2022, as the Company recorded a **full valuation allowance** against net deferred tax assets[224](index=224&type=chunk)[252](index=252&type=chunk) [Net loss](index=34&type=section&id=Net%20loss) This section reports on the Company's net loss, highlighting a significant increase driven by goodwill impairment, revenue decline, and increased operating expenses Net Loss (Amounts in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net loss | $(31,943) | $(2,013) | 1,486.8% | - Net loss for Q1 2023 was **$31.9 million** compared to net loss of **$2.0 million** for Q1 2022 due to a net increase of goodwill impairment and write-off of intangibles (**$25.6 million**), revenue decline (**$11.8 million**), and increased operating expenses, partially offset by lower cost of revenue (**$9.3 million**)[225](index=225&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Fluent, Inc.'s cash position, cash flow activities, debt obligations, and capital management strategies, including the impact of its Credit Agreement and potential future financing needs - As of March 31, 2023, cash and cash equivalents were approximately **$26.6 million**, a **$1.1 million decrease** from December 31, 2022[255](index=255&type=chunk) - Management believes sufficient cash resources will finance operations and capital expenditures for the next twelve months and beyond, despite inability to access the Credit Facility[255](index=255&type=chunk) - Net cash provided by operating activities was **$4.9 million** in Q1 2023, compared to **$1.8 million used** in Q1 2022, primarily due to a goodwill impairment in Q1 2023 and ordinary-course working capital changes[210](index=210&type=chunk) - Net cash used in investing activities was **$2.4 million** in Q1 2023 and **$2.0 million** in Q1 2022, with the increase mainly due to the TAPP consolidation, partially offset by the True North Acquisition[226](index=226&type=chunk) - Net cash used in financing activities was **$1.5 million** in Q1 2023 and **$1.7 million** in Q1 2022, with the change due to a decline in taxes paid related to share settlements of vesting restricted stock units[254](index=254&type=chunk) - As of March 31, 2023, noncancelable operating lease commitments were **$6.0 million** and long-term debt had a **$40.0 million principal balance**[227](index=227&type=chunk) - The Credit Agreement contains restrictive covenants limiting debt, liens, investments, fundamental changes, asset disposals, and restricted payments, potentially limiting strategic and financing options[258](index=258&type=chunk) - Due to legal matters with the FTC and PAAG, a customary representation and warranty is not true, preventing draws on the Revolving Loans, though this is not expected to have a **material adverse effect on liquidity**[259](index=259&type=chunk) - The Company may explore acquisitions, potentially requiring additional funds through public or private financings, which may not be favorable and could result in shareholder dilution[229](index=229&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights Fluent, Inc.'s critical accounting policies and estimates, emphasizing the judgments and assumptions made in preparing financial statements, particularly regarding goodwill impairment, and confirms no material changes from prior disclosures - Financial statements are prepared in accordance with **GAAP**, requiring estimates and judgments affecting reported amounts of assets, liabilities, revenues, expenses, and contingent disclosures[260](index=260&type=chunk) - Estimates are periodically evaluated, including those related to revenue recognition, allowance for doubtful accounts, useful lives of intangible assets, recoverability of goodwill and intangible assets, share-based compensation, income taxes, and contingencies[260](index=260&type=chunk) - An interim goodwill impairment test for Q1 2023, assisted by a third party, concluded the Fluent reporting unit's carrying value exceeded its fair value by **20%**, resulting in a **$25,700 thousand non-cash impairment charge**[234](index=234&type=chunk) - **No additional material changes** to Critical Accounting Policies and Estimates were disclosed in the 2022 Form 10-K[261](index=261&type=chunk) [Recently issued accounting and adopted standards](index=38&type=section&id=Recently%20issued%20accounting%20and%20adopted%20standards) This section directs readers to the relevant note in the consolidated financial statements for details on recently issued and adopted accounting standards - Refer to **Note 1(b), 'Recently issued and adopted accounting standards,'** in the Notes to Consolidated Financial Statements for additional information[262](index=262&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This item addresses market risk disclosures, noting that as a smaller reporting company, Fluent, Inc. is not required to provide specific quantitative and qualitative information [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, Fluent, Inc. is not required to provide specific quantitative and qualitative disclosures about market risk in this report - As a **smaller reporting company**, we are not required to provide the information required by this Item[263](index=263&type=chunk) [Item 4. Controls and Procedures.](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures.) This item details the evaluation of the Company's disclosure controls and procedures and internal control over financial reporting [Item 4. Controls and Procedures.](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section details the evaluation of Fluent, Inc.'s disclosure controls and procedures and internal control over financial reporting. It confirms the effectiveness of disclosure controls as of March 31, 2023, and reports no material changes to internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms that management, including the CEO and Interim CFO, evaluated and concluded on the effectiveness of the Company's disclosure controls and procedures - Management, with the CEO and Interim CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2023[237](index=237&type=chunk) - Based on the evaluation, the Company's disclosure controls and procedures were **effective** as of March 31, 2023, and consolidated financial statements fairly represent financial condition, results of operations, and cash flows in accordance with **GAAP**[264](index=264&type=chunk) [Changes in Internal Control Over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports that there were no material changes to the Company's internal control over financial reporting during the quarter - **No material changes** to internal control over financial reporting occurred during the quarter ended March 31, 2023[238](index=238&type=chunk) [PART II - OTHER INFORMATION](index=39&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings.](index=39&type=section&id=Item%201.%20Legal%20Proceedings.) This item outlines the Company's involvement in various legal and regulatory matters, including a sales and use tax audit settlement with the New York State Department of Taxation and Finance, ongoing negotiations with the FTC regarding a civil monetary penalty, a settlement in principle with the Pennsylvania Office of the Attorney General concerning telemarketing practices, and a TCPA class action settlement - The Company accrues estimated losses from contingencies when probable and reasonably estimable, disclosing accrued amounts and reasonably possible losses in excess of accruals[267](index=267&type=chunk) - A New York sales and use tax audit resulted in a **$1.7 million settlement**, paid April 1, 2022, with the Company now collecting and remitting sales tax on certain services from March 1, 2022[241](index=241&type=chunk) - Regarding an FTC Civil Investigative Demand, the Company accrued **$5.0 million** for a civil monetary penalty as of December 31, 2022, with negotiations ongoing and a meeting scheduled with the Commission on May 16, 2023[268](index=268&type=chunk) - A settlement in principle was reached with the PAAG on May 8, 2023, to pay **$0.25 million** for investigatory costs, of which **$0.20 million was accrued** as of March 31, 2023, and telemarketing practices updated[242](index=242&type=chunk) - In the Daniel Berman v. Freedom Financial Network TCPA class action, a settlement provides for a **$9.75 million payment** to plaintiffs, with the Company contributing **$3.1 million** (accrued as of December 31, 2022), payable **$1.1 million in cash** and **$2.0 million via an interest-bearing note**[279](index=279&type=chunk) [Item 1A. Risk Factors.](index=41&type=section&id=Item%201A.%20Risk%20Factors.) This item states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 - **No material changes** to the Risk Factors previously disclosed in the 2022 Form 10-K[243](index=243&type=chunk)[270](index=270&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This item reports on the Company's purchases of its own common stock during the first quarter of 2023, specifically detailing shares acquired to cover statutory tax withholding obligations related to restricted stock unit settlements [Issuer Purchase of Equity Securities](index=41&type=section&id=Issuer%20Purchase%20of%20Equity%20Securities) This section details the Company's repurchase of common stock to cover tax withholding obligations from RSU settlements in Q1 2023 Issuer Purchase of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 1-31, 2023 | — | — | | February 1-28, 2023 | — | — | | March 1-31, 2023 | 311,417 | $0.76 | | **Total** | **311,417** | **$0.76** | - During March 2023, **311,417 shares** were purchased to satisfy federal and state withholding obligations of employees upon RSU settlement, in accordance with the equity incentive plan[271](index=271&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This item indicates that there are no defaults upon senior securities to report for the period - **Not Applicable**[246](index=246&type=chunk) [Item 4. Mine Safety Disclosures.](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item states that there are no mine safety disclosures applicable to the Company - **None**[281](index=281&type=chunk) [Item 5. Other Information.](index=41&type=section&id=Item%205.%20Other%20Information.) This item discloses significant events occurring after the reporting period, specifically the third amendment to the Credit Agreement on May 15, 2023, which introduced temporary modifications to financial covenants, margins, reporting requirements, and restrictions on certain corporate actions - On May 15, 2023, the Company entered the **third amendment to the Credit Agreement**, temporarily modifying applicable margin tiers, pricing floors, EBITDA add-backs, monthly financial reporting, revolving loan draw conditions, notice requirements, financial covenants, minimum cash liquidity, and restrictions on loans, investments, acquisitions, dividends, and share repurchases[247](index=247&type=chunk)[283](index=283&type=chunk) - This information is disclosed under Item 5 instead of Form 8-K Items 1.01, 2.03, and 3.03 because this Quarterly Report on Form 10-Q is being filed within **four business days** after the triggering events[273](index=273&type=chunk) [Item 6. Exhibits.](index=43&type=section&id=Item%206.%20Exhibits.) This item provides a comprehensive list of exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q, including organizational documents, common stock forms, and certifications - The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q[276](index=276&type=chunk) Selected Exhibits | Exhibit No. | Exhibit Description | Form | Incorporated File No. | by Reference Exhibit | Filing Date | | :--- | :--- | :--- | :--- | :--- | :--- | | 3.1 | Certificate of Domestication | 8-K | 001-37893 | 3.1 | 3/26/2015 | | 3.2 | Certificate of Incorporation | 8-K | 001-37893 | 3.2 | 3/26/2015 | | 3.3 | Certificate of Amendment to the Certificate of Incorporation | 8-K | 001-37893 | 3.1 | 9/26/2016 | | 3.4 | Certificate of Amendment to the Certificate of Incorporation | 8-K | 001-37893 | 3.1 | 4/16/2018 | | 3.5 | Amended and Restated Bylaws | 8-K | 001-37893 | 3.2 | 2/19/2019 | | 4.1 | Form of Common Stock Certificate | 8-K | 001-37893 | 4.1 | 4/16/2018 | | 4.2 | Form of Additional Warrants | 8-K | 001-37893 | 4.5 | 10/17/2017 | | 4.3 | Description of Securities.* | 10-K | 001-37893 | 4.3 | 3/15/2023 | | 10.1 | Consulting Agreement, by and between Fluent, Inc. and Ryan Perfit, dated January 20, 2023 and effective February 1, 2023. | X | | | | | 31.1 | Certification of Chief Executive Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities and Exchange

Financial Data and Key Metrics Changes - For the full year 2022, the company generated $361.1 million in revenue, reflecting a 10% year-over-year increase, consistent with the overall digital advertising industry growth [1][19] - The full year media margin was $110 million, also a 10% year-over-year growth, maintaining 30.5% of revenue [19][47] - Adjusted EBITDA for the full year was $22.7 million, a 2% decline year-over-year, representing 6.3% of revenue [19][50] - Q4 revenue was $84.7 million, down 15% year-over-year and down 5% sequentially from Q3 [10][30] - Q4 media margin was $23.7 million, representing 28% of revenue, a 24% year-over-year decline [10][47] Business Line Data and Key Metrics Changes - The core rewards business experienced double-digit revenue growth, driven by strategic initiatives in consumer engagement and CRM [9][20] - The jobs business faced challenges due to market conditions and a technology platform migration, impacting second half demand [1][20] - The majority of business units showed double-digit year-over-year margin improvement, indicating effective management of consumer experiences [20] Market Data and Key Metrics Changes - The digital advertising industry is experiencing unpredictability, with clients shifting focus from growth to return on ad spend [10][41] - The company is expanding its media footprint, particularly in influencer marketing, which is becoming a significant channel for customer acquisition [21][40] Company Strategy and Development Direction - The long-term strategic growth plan focuses on enhancing consumer engagement and improving the quality of the performance marketplace [11][34] - The company is reviewing 2023 strategic investments and operating costs to ensure acceptable medium-term financial performance [13][25] - The management is committed to building higher quality digital experiences and effective customer acquisition solutions [26][60] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains challenging, with expectations of modest revenue growth in 2023, aligned with industry growth rates [14][23] - The company anticipates improving margins as media costs return to historical norms [42][46] - There is a focus on maintaining clear communication with clients regarding budget allocations, which are expected to be flat to slightly up for 2023 [35][36] Other Important Information - The company recorded a non-cash impairment charge to goodwill of $55.7 million in Q4 and $111.1 million for the full year due to market cap decline [49] - Full year GAAP net loss was $123.3 million, with an adjusted net income of $5.7 million or $0.07 per share [50] Q&A Session Summary Question: How are budget conversations with clients developing for 2023? - Clients are confirming that their budgets look to be flat to slightly up, but are focused on return on ad spend rather than growth [35] Question: Can you elaborate on efforts to expand your media footprint? - The company is focusing on influencer marketing, particularly micro-influencers, which have a significant impact on consumer behavior [38][40] Question: What are the expectations for Q1 given the current economic outlook? - Revenue is expected to be down mid-single digits from Q4, with continued focus on consumer engagement and expanded media footprint in the influencer channel [46]

Table of Contents 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________ FORM 10-K __________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSIT ...

Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $89 million, representing a 4% year-over-year growth, consistent with previous guidance [9][29] - Media margin increased to $28.1 million, up 16% year-over-year, accounting for 31.5% of revenue [10][31] - Adjusted EBITDA was $5.9 million, representing 6.6% of revenue, down $0.4 million year-over-year [10][34] - GAAP net income for the quarter was $3.1 million, with adjusted net income at $5 million [35] Business Line Data and Key Metrics Changes - Core rewards business experienced double-digit revenue growth, driven by consumer engagement and CRM initiatives [13] - Jobs business faced challenges due to technology platform migration and tough year-over-year comparisons [13][30] - Majority of business units showed double-digit year-over-year margin improvement [14] Market Data and Key Metrics Changes - The company noted a shift in client spending behavior, with advertisers operating more cautiously and tightening budgets [23][45] - Increased media costs were observed, particularly in the digital advertising industry, affecting overall strategy [24][48] Company Strategy and Development Direction - The company is focused on enhancing consumer engagement and quality experiences within its performance marketplace [15][16] - Strategic investments are being made in technology and analytics to improve consumer interactions and lifetime value [19][54] - The company aims to balance growth and margin initiatives while adapting to macroeconomic uncertainties [39][62] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, believing that current fundamentals will lead to long-term strategic and financial dividends [15][26] - The economic environment is expected to remain volatile, impacting revenue growth and client spending [23][39] - The company anticipates a moderation in growth for Q4 due to cautious client behavior and inflationary pressures [38][39] Other Important Information - The company ended Q3 with $33.1 million in cash and cash equivalents, a 112% increase year-over-year [36] - Working capital increased by 25% year-over-year, totaling $51.8 million [36] - Total debt at the end of the quarter was $41.8 million [36] Q&A Session Summary Question: Feedback on advertiser spending behavior - Management noted that while advertisers are tightening budgets, there is still strong demand in certain verticals like media and entertainment [45] Question: Media footprint diversification efforts - The company is managing media mix to balance between biddable platforms and affiliate partnerships, especially in light of rising media costs [48] Question: Fourth quarter revenue expectations - Management indicated that Q4 revenues are expected to be flattish as they focus more on margin rather than growth [52] Question: Nature of technological investments - Investments are aimed at enhancing real-time consumer interactions and improving CRM capabilities [53][54] Question: Changes in consumer behavior - There is a shift towards lower-cost campaigns, and the company is adapting its offerings to match these changing consumer preferences [60] Question: Long-term capital allocation priorities - The company plans to maintain cash reserves amid economic uncertainty while continuing to invest in technology and analytics [62] Question: Healthcare vertical growth expectations - Management expects significant margin growth in the healthcare vertical, although revenue growth may not be as pronounced [64][66]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 2022 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 | --- | --- | |---------------------------------------------------------------------|--------------- ...

PART I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) For the six months ended June 30, 2022, Fluent, Inc. reported a significant decrease in total assets to $259.1 million from $318.2 million at year-end 2021, primarily due to a $55.4 million goodwill impairment, leading to a net loss of $56.9 million [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $259.1 million as of June 30, 2022, from $318.2 million at December 31, 2021, primarily due to a reduction in goodwill, while total shareholders' equity declined sharply to $156.1 million | Balance Sheet Items (in thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $106,483 | $107,200 | | **Goodwill** | $110,780 | $165,088 | | **Total Assets** | **$259,140** | **$318,182** | | **Total Current Liabilities** | $59,591 | $57,940 | | **Total Liabilities** | $103,022 | $104,772 | | **Total Shareholders' Equity** | **$156,118** | **$213,410** | - The significant decrease in total assets and shareholders' equity was primarily caused by a **$55.4 million** goodwill impairment charge recorded during the second quarter of 2022[50](index=50&type=chunk)[52](index=52&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Revenue for Q2 2022 increased 34% year-over-year to $98.4 million, but a $55.4 million goodwill impairment charge resulted in a net loss of $56.9 million, or ($0.70) per share Three Months Ended June 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $98,361 | $73,378 | +34.0% | | Loss from operations | ($51,392) | ($4,752) | N/A | | Goodwill impairment | $55,400 | $199 | N/A | | Net loss | ($56,944) | ($5,179) | N/A | | Diluted loss per share | ($0.70) | ($0.06) | N/A | Six Months Ended June 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $187,424 | $143,548 | +30.6% | | Loss from operations | ($53,021) | ($7,039) | N/A | | Goodwill impairment | $55,528 | $199 | N/A | | Net loss | ($58,957) | ($11,437) | N/A | | Diluted loss per share | ($0.73) | ($0.14) | N/A | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash used in operating activities was $1.9 million, with overall cash and cash equivalents decreasing by $8.1 million due to cash used across all activities Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,947) | ($665) | | Net cash used in investing activities | ($3,176) | ($1,558) | | Net cash (used in) provided by financing activities | ($2,948) | $6,275 | | **Net (decrease) increase in cash** | **($8,071)** | **$4,052** | | Cash at end of period | $26,396 | $26,619 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies and events, including a significant $55.4 million goodwill impairment charge in Q2 2022, the acquisition of True North Loyalty, LLC, and ongoing legal and regulatory investigations - Due to a decline in its publicly traded stock price, the company conducted an interim goodwill impairment test and recorded a non-cash impairment charge of **$55.4 million** in Q2 2022[50](index=50&type=chunk) - On January 1, 2022, the company acquired 100% of True North Loyalty, LLC for a deemed purchase price of **$2.3 million**, consisting of cash, deferred payments, and contingent consideration[94](index=94&type=chunk) - The company is subject to ongoing investigations by the Department of Justice (DOJ), the District of Columbia Attorney General (DC AG), the Federal Trade Commission (FTC), and the Pennsylvania Office of the Attorney General (PA OAG). The ultimate outcomes cannot be predicted[89](index=89&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported strong revenue growth of 34% in Q2 2022, driven by its Rewards business, but this was overshadowed by a non-cash goodwill impairment charge of $55.4 million, while Adjusted EBITDA increased to $9.4 million [Second Quarter Financial Summary](index=25&type=section&id=Second%20Quarter%20Financial%20Summary) In Q2 2022, revenue increased 34% YoY to $98.4 million, and Adjusted EBITDA rose to $9.4 million, but a significant goodwill impairment led to a net loss of $56.9 million Q2 2022 vs Q2 2021 Financial Highlights | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Revenue | $98.4 million | $73.4 million | | Net Loss | ($56.9 million) | ($5.2 million) | | Net Loss per Share | ($0.70) | ($0.06) | | Media Margin | $32.3 million | $20.1 million | | Adjusted EBITDA | $9.4 million | $1.9 million | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) For Q2 2022, revenue growth of 34% was driven by the Rewards business, but the significant increase in net loss to $56.9 million was almost entirely due to the $55.4 million goodwill impairment - Q2 2022 revenue increased by **$25.0 million (34%)** YoY, attributed to growth in the Rewards business, expanding media footprint, and improved CRM capabilities[140](index=140&type=chunk) - The increase in net loss before taxes for Q2 2022 was primarily due to the non-cash goodwill impairment charge of **$55.4 million**, which offset the **$25.0 million** increase in revenue[151](index=151&type=chunk) - For the six months ended June 30, 2022, revenue increased by **$43.9 million (31%)** YoY, while net loss increased to **$59.0 million** from **$11.4 million**, again driven by the goodwill impairment[155](index=155&type=chunk)[168](index=168&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company had $26.4 million in cash and cash equivalents, a decrease of $8.1 million from year-end 2021, and was in compliance with all debt covenants - Cash and cash equivalents stood at **$26.4 million** as of June 30, 2022[173](index=173&type=chunk) - The company has a term loan with an outstanding principal balance of **$43.8 million** as of June 30, 2022, which matures in March 2026[175](index=175&type=chunk) - The company was in compliance with all financial and other debt covenants as of June 30, 2022[178](index=178&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Fluent, Inc. is not required to provide the information for this item - The company is not required to provide disclosures about market risk as it qualifies as a smaller reporting company[185](index=185&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[188](index=188&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[189](index=189&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to several ongoing legal and regulatory matters, including settled tax audits and ongoing investigations by the DOJ, DC AG, FTC, and PA OAG, whose outcomes are not yet predictable - A sales and use tax audit matter with the New York State Department of Taxation and Finance was settled for **$1.7 million**, which was paid on April 1, 2022[196](index=196&type=chunk) - The company is cooperating with ongoing investigations from the Department of Justice (DOJ), the District of Columbia Attorney General (DC AG), the Federal Trade Commission (FTC), and the Pennsylvania Office of the Attorney General (PA OAG)[195](index=195&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the Risk Factors previously disclosed in the 2021 Form 10-K were reported[201](index=201&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None reported for the period - The company reported no unregistered sales of equity securities or use of proceeds during the quarter[203](index=203&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002 - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[211](index=211&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 March 31, 2022 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 | --- | --- | |-----------------------------------------------------------------------------|----------- ...

Financial Data and Key Metrics - Full-year 2021 revenue was $329.3 million, representing a 6% growth compared to 2020 [7] - Media margin for 2021 was $100.4 million, a decline of 9% year-over-year, representing 31% of revenue [7] - Adjusted EBITDA for 2021 was $23.2 million, a decline of 44% year-over-year, representing 7% of revenue [7] - Q4 2021 revenue hit a quarterly record of $99.8 million, up 22% year-over-year [8] - Q4 2021 media margin was $31.2 million, down 3% year-over-year, representing 31% of revenue [8] - Q4 2021 adjusted EBITDA was $10.2 million, or 10% of revenue [8] Business Line Data and Key Metrics - Fluent Sales Solutions grew to represent roughly 10% of 2021 annual revenue, with Q4 revenue growing six times year-over-year [16] - CRM revenue increased 50% year-over-year in 2021, driven by enhanced capabilities and strong client demand [18] - Mobile apps business is in early stages but represents a significant growth opportunity, with the total available market roughly two times the size of mobile web [15] - Jobs business, AdParlor agency, and international business achieved 50% year-over-year revenue growth in 2021, with Q4 growth accelerating to over 75% year-over-year [14] Market Data and Key Metrics - The mobile app market is estimated at $80 billion, with $30 billion available outside of Google and Facebook, representing a significant opportunity for Fluent [39] - The company is expanding into higher-value verticals such as insurance, financial services, and home services, which are expected to contribute to future growth [45] Company Strategy and Industry Competition - Fluent is focused on building higher-quality digital experiences for consumers and creating sustainable customer acquisition solutions for marketers [6] - The company is investing in traffic quality initiatives (TQI) to enhance consumer engagement and improve ROI for clients [10] - Fluent is differentiating itself by starting with consumer quality and then matching brands to drive meaningful experiences and ROI, rather than focusing solely on volume [46] Management Commentary on Operating Environment and Future Outlook - Management is confident in the company's strategic path and expects to enhance margins as businesses scale over time [9] - The company anticipates revenue growth returning to or above industry growth rates in 2022, with sequential margin improvement [21] - The ongoing crisis in Ukraine has impacted the media business, with constraints expected to affect media margin growth in Q1 2022 [26] Other Important Information - Fluent's new credit facility reduced the effective interest rate by 500 basis points, resulting in a $3.2 million year-over-year reduction in interest expense [30] - The company ended 2021 with $34.5 million in cash and cash equivalents, an increase of $13.4 million year-over-year [31] Q&A Session Summary Question: Sustainability of Q4 growth and feedback from advertising clients [33] - Management highlighted that demand from advertisers has increased, driven by higher-quality traffic and enhanced CRM capabilities, which are expected to sustain growth [34][35][36] Question: Media margin growth and levers for improvement [37] - The company is focused on revenue growth at or above industry standards and managing media margin within a disciplined range, with investments in higher-margin initiatives [38] Question: Mobile app growth initiatives and milestones [39] - Fluent has launched its mobile app rewards product on Android and expects significant growth opportunities in the mobile app market, with contributions to revenue expected later in 2022 [39] Question: Impact of higher customer acquisition costs and profitability [42] - The company is not redoing its financial statements but is expanding its ability to monetize consumers, with a focus on driving revenue growth and maintaining margins [44] Question: Progress on the business model adjustment [47] - Fluent has returned to traditional growth rates, with Q4 2021 revenue growth of 22%, ahead of expectations, though traffic quality initiatives have taken longer than anticipated [48][49]

Table of Contents 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________ FORM 10-K __________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSIT ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS.) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2021, and 2020, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of September 30, 2021, total assets were $309.5 million, a slight decrease from $310.2 million at year-end 2020, while total liabilities increased to $101.2 million from $93.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $94,391 | $86,191 | | **Total Assets** | **$309,543** | **$310,220** | | **Total Current Liabilities** | $52,993 | $50,217 | | **Total Liabilities** | **$101,165** | **$93,335** | | **Total Shareholders' Equity** | **$208,378** | **$216,885** | [Consolidated Statements of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) For Q3 2021, the company reported a net loss of $2.5 million, a decline from $1.2 million net income in Q3 2020, primarily due to higher cost of revenue Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $85,858 | $78,280 | $229,406 | $228,723 | | **Cost of Revenue** | $63,784 | $52,771 | $171,379 | $158,402 | | **(Loss) Income from Operations** | $(2,047) | $2,551 | $(9,086) | $6,276 | | **Net (Loss) Income** | **$(2,452)** | **$1,169** | **$(13,889)** | **$2,029** | | **Diluted (Loss) Income per Share** | **$(0.03)** | **$0.01** | **$(0.17)** | **$0.03** | [Consolidated Statements of Cash Flows](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash used in operating activities for the nine months ended September 30, 2021, was $6.9 million, a reversal from $12.9 million provided in the prior year, while financing activities provided $3.7 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | $(6,932) | $12,861 | | **Net cash used in investing activities** | $(2,263) | $(3,431) | | **Net cash provided by (used in) financing activities** | $3,723 | $(12,715) | | **Net decrease in cash** | $(5,472) | $(3,285) | | **Cash at end of period** | $17,095 | $16,874 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, the acquisition of Winopoly, a new credit facility, ongoing legal contingencies, and segment reporting, with the 'Fluent' segment being the primary revenue driver - On March 31, 2021, the company entered into a new credit agreement for a **$50.0 million** term loan and a **$15.0 million** revolving credit facility, using the proceeds to repay its prior term loan[53](index=53&type=chunk)[54](index=54&type=chunk) - The company is involved in several legal and regulatory matters, including a resolved NY AG inquiry that resulted in a **$3.7 million** penalty, and an ongoing NY State sales tax audit with a potential liability estimated between **$0.8 million** and **$3.0 million**, for which **$0.8 million** has been accrued[88](index=88&type=chunk)[90](index=90&type=chunk) - On September 1, 2021, the company acquired the remaining **50%** interest in Winopoly for **$7.8 million**, making it a wholly-owned subsidiary, following an initial **50%** acquisition on April 1, 2020[93](index=93&type=chunk)[98](index=98&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a **10%** revenue increase to **$85.9 million** in Q3 2021, driven by the Winopoly business and strong demand, but profitability declined due to increased media acquisition costs Q3 2021 Financial Summary vs. Q3 2020 | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Revenue | $85.9M | $78.3M | +10% | | Net (Loss) Income | $(2.5)M | $1.2M | - | | Diluted EPS | $(0.03) | $0.01 | - | | Adjusted EBITDA | $6.4M | $11.6M | -45% | | Media Margin | $24.2M | $29.7M | -19% | - A key business trend is the 'Traffic Quality Initiative,' which involves curtailing lower-quality affiliate traffic and increasing spend with major digital media platforms, expected to improve monetization and long-term value[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The company refinanced its debt in March 2021, securing a new **$50 million** term loan and a **$15 million** revolving credit facility with a lower interest rate, which significantly reduced interest expense[171](index=171&type=chunk)[172](index=172&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of operational results for the three and nine-month periods ending September 30, 2021, and 2020, showing a **10%** Q3 2021 revenue increase but a **21%** rise in cost of revenue, leading to a net loss - Q3 2021 revenue increased by **$7.6 million (10%)** year-over-year, largely due to the expanded scale of the Winopoly business, strong demand in the staffing and recruitment vertical, and a new internally-developed email re-engagement capability[138](index=138&type=chunk) - Cost of revenue for Q3 2021 increased by **$11.0 million (21%)** year-over-year, raising it to **74%** of revenue from **67%** in Q3 2020, driven by higher traffic acquisition costs from major digital media platforms as part of the Traffic Quality Initiative[141](index=141&type=chunk)[142](index=142&type=chunk) - For the nine months ended September 30, 2021, revenue was nearly flat year-over-year at **$229.4 million**, as growth from new initiatives was offset by reduced volumes from the Traffic Quality Initiative[152](index=152&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2021, the company held **$17.1 million** in cash, with net cash used in operations of **$6.9 million** for the first nine months, and believes it has sufficient cash to fund operations for the next twelve months - Cash, cash equivalents, and restricted cash decreased by **$5.5 million** to **$17.1 million** as of September 30, 2021, from **$22.6 million** at year-end 2020[168](index=168&type=chunk) - In March 2021, the company entered into a new credit agreement for a **$50.0 million** term loan and a **$15.0 million** revolving credit facility, which matures in March 2026, with an outstanding principal of **$47.5 million** as of September 30, 2021[172](index=172&type=chunk) - The company acquired the remaining **50%** of Winopoly on September 1, 2021, for consideration of **$7.8 million**, consisting of cash at closing, deferred payments, and **500,000** shares of stock[169](index=169&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company, as a smaller reporting company, is not required to provide the information for this item - As a smaller reporting company, Fluent, Inc. is not required to provide quantitative and qualitative disclosures about market risk[183](index=183&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[186](index=186&type=chunk) - There were no changes to internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[187](index=187&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings.) This section details significant legal matters, including a resolved **$3.7 million** NY AG penalty, an ongoing NY State sales tax dispute with a potential **$3.0 million** liability, and cooperation with FTC and PA OAG investigations - The matter with the New York Attorney General's Office (NY AG) was resolved via an Assurance of Discontinuance, which included a **$3.7 million** penalty, paid in full as of June 30, 2021[192](index=192&type=chunk) - A New York State sales tax audit has resulted in a Notice of Determination totaling **$3.0 million**, which the company disputes, estimating a probable liability range of **$0.8 million** to **$3.0 million** and accruing for the low end of this range[194](index=194&type=chunk) - The company is cooperating with ongoing investigations from the Federal Trade Commission (FTC) and the Pennsylvania Office of the Attorney General (PA OAG) regarding its business practices[195](index=195&type=chunk)[196](index=196&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors.) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the Risk Factors previously disclosed in the company's 2020 Form 10-K[198](index=198&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During Q3 2021, the company purchased **20,948** shares of its common stock to satisfy federal and state tax withholding obligations for employees upon the settlement of restricted stock units Issuer Purchase of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1-31, 2021 | 10,623 | $2.74 | | August 1-31, 2021 | 8,478 | $2.13 | | September 1-30, 2021 | 1,847 | $2.72 | | **Total** | **20,948** | **$2.49** | - The shares were purchased to satisfy employee tax withholding obligations upon the settlement of restricted stock units, not as part of a publicly announced repurchase program[202](index=202&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including an amendment to the credit agreement and certifications by the Chief Executive Officer and Chief Financial Officer - Key exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[209](index=209&type=chunk)[210](index=210&type=chunk)