Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | |--------------------------------------------|-------------------------------------------------------------------------- ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section covers unaudited consolidated financial statements and management's analysis for Q1 2021 [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Fluent, Inc.'s unaudited consolidated financial statements for Q1 2021, including balance sheets, operations, cash flows, and comprehensive notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at March 31, 2021, and December 31, 2020 | ASSETS (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $32,660 | $21,087 | | Accounts receivable, net | $58,004 | $62,669 | | Total current assets | $93,967 | $86,191 | | Total assets | $315,287 | $310,220 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | | | | Accounts payable | $13,484 | $7,692 | | Accrued expenses and other current liabilities | $24,175 | $31,568 | | Total current liabilities | $48,122 | $50,217 | | Total liabilities | $103,078 | $93,335 | | Total shareholders' equity | $212,209 | $216,885 | | Total liabilities and shareholders' equity | $315,287 | $310,220 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2021 and 2020 | (Amounts in thousands, except share and per share data) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $70,170 | $78,934 | | Total costs and expenses | $72,457 | $76,994 | | (Loss) income from operations | $(2,287) | $1,940 | | Interest expense, net | $(1,008) | $(1,532) | | Loss on early extinguishment of debt | $(2,964) | — | | (Loss) income before income taxes | $(6,259) | $408 | | Net (loss) income | $(6,258) | $408 | | Basic and diluted (loss) income per share: | | | | Basic | $(0.08) | $0.01 | | Diluted | $(0.08) | $0.01 | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section outlines changes in shareholders' equity, reflecting net loss, share-based compensation, and stock option exercises - Shareholders' equity decreased from **$216,885 thousand** at December 31, 2020, to **$212,209 thousand** at March 31, 2021, primarily due to a **net loss of $6,258 thousand**, partially offset by share-based compensation and exercise of stock options[17](index=17&type=chunk) [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 | CASH FLOWS (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $4,977 | $(247) | | Net cash used in investing activities | $(836) | $(632) | | Net cash provided by (used in) financing activities | $7,432 | $(4,714) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $11,573 | $(5,593) | | Cash, cash equivalents and restricted cash at end of period | $34,140 | $14,566 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [1. Summary of significant accounting policies](index=8&type=section&id=1.%20Summary%20of%20significant%20accounting%20policies) This section outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with **US GAAP** and **SEC interim reporting rules**, reflecting normal recurring adjustments. The Company consolidates **Variable Interest Entities (VIEs)** where it is the primary beneficiary, including **Winopoly, LLC** since **April 1, 2020**[22](index=22&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - Revenue is recognized when control of goods or services is transferred, typically involving delivery of data records, generation of conversions, verification of user interest, or media spend. Deferred revenue increased to **$1,935 thousand** as of **March 31, 2021**, from **$1,373 thousand** as of **December 31, 2020**[30](index=30&type=chunk)[32](index=32&type=chunk) - The adoption of **ASU 2019-12**, Simplifying the Accounting for Income Taxes, on **January 1, 2021**, did not materially affect the consolidated financial statements. The Company is evaluating the impact of **ASU 2016-13 (Credit Losses)** and **ASU 2020-04 (Reference Rate Reform)**[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [2. (Loss) income per share](index=10&type=section&id=2.%20(Loss)%20income%20per%20share) This section details the calculation of basic and diluted earnings per share for the reported periods Loss (Income) Per Share (in thousands, except per share data) | (Loss) Income Per Share | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net (loss) income | $(6,258) | $408 | | Basic EPS | $(0.08) | $0.01 | | Diluted EPS | $(0.08) | $0.01 | | Total anti-dilutive securities excluded | 6,080,206 | 8,183,592 | - Common equivalent shares were excluded from diluted EPS calculation in loss periods (**Q1 2021**) as their effects would be **anti-dilutive**[36](index=36&type=chunk)[37](index=37&type=chunk) [3. Intangible assets, net](index=11&type=section&id=3.%20Intangible%20assets,%20net) This section provides details on the company's intangible assets, including amortization and impairment testing Intangible Assets, Net (in thousands) | Intangible Assets, Net (in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------- | :---------------- | | Total gross amount | $110,816 | $109,958 | | Total accumulated amortization | $(67,719) | $(64,541) | | Total intangible assets, net | $43,097 | $45,417 | - The Company conducted an interim recoverability test for long-lived assets as of **March 31, 2021**, due to reduced operating results and a decline in stock market value, concluding that assets were **not impaired**[40](index=40&type=chunk) Estimated Amortization Expense (in thousands) | Estimated Amortization Expense (in thousands) | | :-------------------------------------------- | | Remainder of 2021 | $9,226 | | 2022 | $11,542 | | 2023 | $5,319 | | 2024 | $4,549 | | 2025 | $4,024 | | 2026 and thereafter | $8,437 | | Total | $43,097 | [4. Goodwill](index=12&type=section&id=4.%20Goodwill) This section details the goodwill balance and the results of the interim impairment test conducted - Goodwill balance was **$165,088 thousand** as of **March 31, 2021**, primarily from the Fluent LLC, Q Interactive, AdParlor, and Winopoly acquisitions[44](index=44&type=chunk) - An interim impairment test for goodwill was conducted as of **March 31, 2021**, triggered by reduced operating results and a decline in stock market value. The test concluded that goodwill of **$160,922 thousand** was **not impaired**, with estimated fair value exceeding carrying value by approximately **17%**[46](index=46&type=chunk) [5. Long-term debt, net](index=12&type=section&id=5.%20Long-term%20debt,%20net) This section details the company's long-term debt, including refinancing activities and new credit facilities Long-term Debt, Net (in thousands) | Long-term Debt, Net (in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------------------- | :------------- | :---------------- | | Refinanced Term Loan due 2023 | $— | $39,350 | | New Credit Facility Term Loan due 2026 | $48,858 | $— | | Note Payable due 2021 | $1,240 | $1,226 | | Long-term debt, net | $50,098 | $40,576 | | Less: Current portion of long-term debt | $(6,250) | $(7,293) | | Long-term debt, net (non-current) | $43,848 | $33,283 | - On **March 31, 2021**, Fluent, LLC redeemed the Refinanced Term Loan (**$38,318 thousand** principal) early, incurring a **$2,964 thousand** loss on early extinguishment of debt[49](index=49&type=chunk) - A new Credit Agreement was entered into on **March 31, 2021**, providing a **$50.0 million** Term Loan and a **$15.0 million** undrawn revolving credit facility, maturing on **March 31, 2026**. Proceeds were used to repay the Refinanced Term Loan[50](index=50&type=chunk)[51](index=51&type=chunk)[55](index=55&type=chunk) - The new Term Loan bears interest at **LIBOR + 2.25%** (opening rate **2.50%**) and has scheduled quarterly principal amortization of **$1,250 thousand** starting **June 30, 2021**[52](index=52&type=chunk)[55](index=55&type=chunk) [6. Income taxes](index=15&type=section&id=6.%20Income%20taxes) This section discusses the company's income tax position, including valuation allowances and unrecognized tax benefits - The Company recorded a **full valuation allowance** against net deferred tax assets as of **March 31, 2021**, and **December 31, 2020**, resulting in a **0% effective income tax benefit rate** for the three months ended **March 31, 2021** and **2020**[60](index=60&type=chunk)[62](index=62&type=chunk) - Management believes there is a reasonable possibility that a significant portion, if not all, of the valuation allowance may be released within the next **twelve months**, depending on future profitability[60](index=60&type=chunk) - Unrecognized tax benefits were **$1,480 thousand** as of **March 31, 2021**, which, if recognized, would increase net operating losses subject to a valuation allowance, thus having **no impact on the effective tax rate**[64](index=64&type=chunk) [7. Common stock, treasury stock and warrants](index=16&type=section&id=7.%20Common%20stock,%20treasury%20stock%20and%20warrants) This section details changes in common stock, treasury stock holdings, and outstanding warrants - Issued common stock increased to **82,228,823 shares** as of **March 31, 2021**, from **80,295,141 shares** as of **December 31, 2020**, primarily due to RSU vesting and stock option exercises[66](index=66&type=chunk)[67](index=67&type=chunk) - Treasury stock increased to **4,055,011 shares** (cost **$10,623 thousand**) as of **March 31, 2021**, from **3,945,867 shares** (cost **$9,999 thousand**) as of **December 31, 2020**, mainly due to shares withheld for statutory taxes on RSU vesting[68](index=68&type=chunk)[69](index=69&type=chunk) - As of **March 31, 2021**, **833,333 warrants** to purchase common stock were outstanding, with exercise prices ranging from **$3.75 to $6.00 per share**[70](index=70&type=chunk) [8. Share-based compensation](index=18&type=section&id=8.%20Share-based%20compensation) This section details the share-based compensation expense and its allocation across different functions - Total share-based compensation expense decreased to **$1,272 thousand** for **Q1 2021** from **$2,436 thousand** for **Q1 2020**[81](index=81&type=chunk) Share-based Compensation Allocation (in thousands) | Share-based Compensation Allocation (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Sales and marketing | $163 | $218 | | Product development | $268 | $237 | | General and administrative | $800 | $1,942 | | Capitalized in intangible assets | $41 | $39 | | Total share-based compensation | $1,272 | $2,436 | - As of **March 31, 2021**, unrecognized share-based compensation expense was **$11,605 thousand**, expected to be recognized over a weighted average period of **2.5 years**[81](index=81&type=chunk) [9. Segment information](index=21&type=section&id=9.%20Segment%20information) This section provides financial data for the company's operating and reportable segments, with EBITDA as a key measure - The Company operates with two operating segments, 'Fluent' and 'All Other' (AdParlor, LLC), and one reportable segment. **EBITDA** is the primary profitability measure reviewed by the CODM[83](index=83&type=chunk) Segment Financials (in thousands) | Segment Financials (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Fluent segment revenue | $67,542 | $77,562 | | All Other segment revenue | $2,628 | $1,372 | | Fluent segment EBITDA | $1,410 | $5,889 | | All Other segment EBITDA | $(324) | $(216) | | Total EBITDA | $1,086 | $5,673 | | Total (loss) income from operations | $(2,287) | $1,940 | Total Assets (in thousands) | Total Assets (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Fluent | $300,057 | $292,616 | | All Other | $15,230 | $17,604 | | Total assets | $315,287 | $310,220 | [10. Contingencies](index=22&type=section&id=10.%20Contingencies) This section outlines ongoing legal and regulatory matters, including penalties, investigations, and tax audits - The Company resolved a matter with the New York Attorney General's Office (NY AG) on **May 6, 2021**, agreeing to injunctive provisions and a **$3.7 million** penalty, which was in line with the Company's accrual as of **March 31, 2021**[86](index=86&type=chunk) - The Company is cooperating with subpoenas from the **U.S. Department of Justice (DOJ)** and the **D.C. Attorney General (DC AG)** regarding the same issue as the NY AG matter[87](index=87&type=chunk) - The Company is challenging sales and use tax audit determinations from the New York State Department of Taxation and Finance, which total **$3.0 million** (including **$0.7 million** interest). A liability at the low end of the estimated range (**$0.7 million to $3.0 million**) has been accrued[88](index=88&type=chunk) - The Company received a **Civil Investigative Demand (CID)** from the **Federal Trade Commission (FTC)** regarding advertising, marketing, text messages, and consumer privacy/data security, and is fully cooperating[89](index=89&type=chunk) [11. Business acquisition](index=22&type=section&id=11.%20Business%20acquisition) This section details the acquisition of Winopoly, LLC, including purchase price, goodwill, and acquired intangible assets - On **April 1, 2020**, the Company acquired a **50% membership interest** in **Winopoly, LLC** for a deemed purchase price of **$2,553 thousand**, consisting of **$1,553 thousand cash** and **$1,000 thousand contingent consideration**[90](index=90&type=chunk) - The acquisition resulted in **$1,131 thousand** in goodwill, primarily related to intangible assets not qualifying for separate recognition, such as assembled workforce and synergies[92](index=92&type=chunk) - Acquired intangible assets included customer relationships (**$600 thousand**, amortized over **5 years**) and developed technology (**$800 thousand**, amortized over **3 years**)[91](index=91&type=chunk) [12. Variable Interest Entity](index=24&type=section&id=12.%20Variable%20Interest%20Entity) This section explains the identification and consolidation of Winopoly, LLC as a Variable Interest Entity - **Winopoly, LLC** is identified as a **Variable Interest Entity (VIE)**, and the Company is deemed its primary beneficiary due to contractual control over significant activities like compliance practices and provision of leads[96](index=96&type=chunk)[97](index=97&type=chunk) - The Company **consolidates Winopoly** in its financial statements, including deemed compensation expense to sellers for services rendered[97](index=97&type=chunk) [13. Related party transactions](index=24&type=section&id=13.%20Related%20party%20transactions) This section discloses revenue generated from a client with significant ownership interest by the CEO - For the three months ended **March 31, 2021**, the Company recognized **$33 thousand** in revenue from a client in which its CEO holds a significant ownership interest, with no expenses incurred from this client[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Fluent, Inc.'s Q1 2021 financial condition and results, covering business overview, performance, key trends, and non-GAAP measures - Fluent, Inc. is a leader in **data-driven digital marketing**, providing **customer acquisition services** by connecting advertiser clients with consumers through scalable digital marketing campaigns and performance-based marketing executions[100](index=100&type=chunk) - The Company leverages a large, **proprietary database** of **first-party, self-declared user information** and **preferences** to serve **targeted offers** and provide **lead generation**, with permission to contact users through multiple channels[103](index=103&type=chunk) First Quarter Financial Summary (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :--------- | | Revenue | $70.2 | $78.9 | -11% | | Net (Loss) Income | $(6.3) | $0.4 | -1675% | | Basic EPS | $(0.08) | $0.01 | -900% | | Media Margin | $24.9 | $23.9 | +4% | | Media Margin % | 35.4% | 30.3% | +5.1 pp | | Adjusted EBITDA | $4.7 | $9.0 | -48% | | Adjusted Net Income| $0.4 | $3.8 | -89% | [Overview](index=25&type=section&id=Overview) This section describes Fluent, Inc.'s business model as a data-driven digital marketing service provider - Fluent, Inc. specializes in **data-driven digital marketing**, connecting advertiser clients with consumers through scalable campaigns and performance-based lead generation. In **2020**, it served over **500 consumer brands** across various industries[100](index=100&type=chunk) - The Company attracts consumers to its digital media properties via promotional offers and employment opportunities, collecting **first-party, self-declared user information and preferences** to serve targeted advertisements[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) [First Quarter Financial Summary](index=25&type=section&id=First%20Quarter%20Financial%20Summary) This section provides a high-level summary of the company's financial performance for Q1 2021 versus Q1 2020 First Quarter Financial Summary (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (in millions) | Q1 2020 (in millions) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :--------- | | Revenue | $70.2 | $78.9 | -11% | | Net (Loss) Income | $(6.3) | $0.4 | -1675% | | Basic EPS | $(0.08) | $0.01 | -900% | | Media Margin | $24.9 | $23.9 | +4% | | Media Margin % | 35.4% | 30.3% | +5.1 pp | | Adjusted EBITDA | $4.7 | $9.0 | -48% | | Adjusted Net Income| $0.4 | $3.8 | -89% | [Trends Affecting our Business](index=25&type=section&id=Trends%20Affecting%20our%20Business) This section discusses key factors influencing the business, including traffic quality, seasonality, and COVID-19 impacts - The Company initiated a **Traffic Quality Initiative** in **2020**, significantly curtailing lower quality affiliate traffic in **Q4 2020** and **Q1 2021** to improve traffic quality and monetization, which temporarily reduced revenue[107](index=107&type=chunk)[108](index=108&type=chunk) - The business is subject to **seasonality**, with **Q4** typically having higher advertiser budgets and **Q1** experiencing declines, similar to overall industry trends[109](index=109&type=chunk) - **COVID-19** has had varied impacts on advertiser clients; some verticals (staffing, financial products) saw reduced demand then recovery, while others (streaming, mobile gaming) saw increased and sustained demand[111](index=111&type=chunk) [Definitions, Reconciliations and Uses of Non-GAAP Financial Measures](index=27&type=section&id=Definitions,%20Reconciliations%20and%20Uses%20of%20Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures used by management to evaluate performance - The Company reports non-GAAP measures: **Media margin**, **Adjusted EBITDA**, and **Adjusted net income**, which are used by management to evaluate operating performance and compensation decisions[115](index=115&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - **Media margin** is defined as revenue minus variable cost of revenue, measuring the efficiency of the operating model and financial return on media costs[115](index=115&type=chunk)[121](index=121&type=chunk) - **Adjusted EBITDA** and **Adjusted net income** exclude items like income taxes, interest, depreciation, amortization, loss on early debt extinguishment, accrued compensation for Put/Call Consideration, share-based compensation, acquisition-related costs, and certain litigation costs[116](index=116&type=chunk)[117](index=117&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing revenue, expenses, and net loss for the period - Revenue decreased by **$8.8 million (11%)** to **$70.2 million** for **Q1 2021**, primarily due to reduced traffic volumes from the **Traffic Quality Initiative**, which curtailed lower quality affiliate traffic[126](index=126&type=chunk) - Net loss before income taxes was **$6.3 million** for **Q1 2021**, a **$6.7 million** decrease from net income of **$0.4 million** in **Q1 2020**, driven by lower revenue, a **$3.0 million** loss on early debt extinguishment, and increased product development and G&A expenses[136](index=136&type=chunk) Key Operating Expenses (Q1 2021 vs. Q1 2020, in thousands) | Expense Category | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :------------------------------- | :------ | :------ | :--------- | :--------- | | Cost of revenue (excl. D&A) | $51,000 | $56,600 | $(5,600) | -10% | | Sales and marketing | $3,000 | $2,800 | $100 | +5% | | Product development | $3,400 | $2,700 | $700 | +26% | | General and administrative | $11,700 | $11,100 | $600 | +6% | | Depreciation and amortization | $3,400 | $3,700 | $(400) | -10% | | Interest expense, net | $1,000 | $1,500 | $(500) | -34% | | Loss on early extinguishment of debt | $3,000 | $0 | $3,000 | N/A | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to generate and manage cash, including operating, investing, and financing activities - Net cash provided by operating activities was **$5.0 million** for **Q1 2021**, a significant improvement from **$0.2 million cash used** in **Q1 2020**, primarily due to non-cash adjustments and changes in working capital[141](index=141&type=chunk) - Net cash provided by financing activities increased by **$12.1 million** to **$7.4 million** for **Q1 2021**, driven by **$49.6 million** net proceeds from new long-term debt issuance, partially offset by **$41.7 million** debt repayments and a **$0.8 million** prepayment penalty[143](index=143&type=chunk) - Cash, cash equivalents, and restricted cash increased by **$11.5 million** to **$34.1 million** as of **March 31, 2021**. The Company believes it has sufficient cash resources for operations and capital expenditures for the next **twelve months** and beyond[145](index=145&type=chunk) - A new **$50.0 million Term Loan facility** was secured on **March 31, 2021**, maturing in **March 2026**, with proceeds used to repay the prior Refinanced Term Loan. This facility includes restrictive covenants[148](index=148&type=chunk)[150](index=150&type=chunk) [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements as of the reporting date - As of **March 31, 2021**, the Company did not have any off-balance sheet arrangements[153](index=153&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights key accounting policies and estimates requiring significant management judgment - Management's financial statements rely on estimates and judgments for **revenue recognition**, **allowance for doubtful accounts**, **useful lives of intangible assets**, **goodwill recoverability**, **share-based compensation**, and **income taxes**[154](index=154&type=chunk) - An interim impairment test for goodwill was conducted as of **March 31, 2021**, due to reduced operating results and stock market decline, concluding that goodwill was **not impaired**, with fair value exceeding carrying value by approximately **17%**[155](index=155&type=chunk) [Recently issued accounting and adopted standards](index=33&type=section&id=Recently%20issued%20accounting%20and%20adopted%20standards) This section refers to Note 1(b) for details on new and adopted accounting standards - Refer to **Note 1(b)** for details on recently issued and adopted accounting standards[157](index=157&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Fluent, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a **smaller reporting company**[159](index=159&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed **effective** as of **March 31, 2021**, ensuring information required for SEC reports is recorded, processed, summarized, and reported timely[161](index=161&type=chunk)[162](index=162&type=chunk) - There were **no material changes** to the Company's internal control over financial reporting during the quarter ended **March 31, 2021**[163](index=163&type=chunk) [PART II - OTHER INFORMATION](index=34&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal matters, including a resolved NY AG issue, cooperation with DOJ and DC AG, tax audit challenges, and an FTC Civil Investigative Demand - The Company resolved a subpoena from the **New York Attorney General's Office (NY AG)** on **May 6, 2021**, agreeing to a **$3.7 million** penalty and injunctive provisions related to political advocacy campaigns[168](index=168&type=chunk) - The Company is cooperating with subpoenas from the **U.S. Department of Justice (DOJ)** and the **Office of the Attorney General of the District of Columbia (DC AG)** concerning similar issues as the NY AG matter[169](index=169&type=chunk) - Challenges have been filed against the **New York State Department of Taxation and Finance** regarding sales and use tax audit determinations totaling **$3.0 million**, with a liability accrued at the low end of the estimated range[170](index=170&type=chunk) - A **Civil Investigative Demand (CID)** was received from the **Federal Trade Commission (FTC)** concerning advertising, marketing, text messages, and consumer privacy/data security, with the Company fully cooperating[171](index=171&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's 2020 Form 10-K - **No material changes** have occurred to the Risk Factors previously disclosed in the Company's Annual Report on **Form 10-K** for the year ended **December 31, 2020**[173](index=173&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports Q1 2021 common stock purchases, totaling **109,144 shares** at **$5.72** average price, mainly for tax withholding, with the repurchase program expired Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------- | :----------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------- | | January | 2,245 | $5.25 | — | — | | February | 106,899 | $5.73 | — | — | | March | — | — | — | — | | Total | 109,144 | $5.72 | — | — | - The shares purchased were to satisfy federal and state **tax withholding obligations** of employees upon the settlement of restricted stock units[177](index=177&type=chunk) - The stock repurchase program, authorized in **November 2019** for up to **$5.0 million**, expired as of **December 31, 2020**[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - There were **no defaults** upon senior securities during the reported period[179](index=179&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is **not applicable** to Fluent, Inc[181](index=181&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) The Company reported no other information - There is **no other information** to report under this item[183](index=183&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including organizational documents, the new Credit Agreement, and CEO/CFO certifications - Exhibits include the Certificate of Incorporation, Amended and Restated Bylaws, Form of Common Stock Certificate, and the **Credit Agreement dated March 31, 2021**[185](index=185&type=chunk) - Certifications by the **Chief Executive Officer** and **Chief Financial Officer** are filed pursuant to Exchange Act Rules **13a-14(a)** and **15d-14(a)** and **18 U.S.C. Section 1350**[185](index=185&type=chunk)[186](index=186&type=chunk) [Signatures](index=38&type=section&id=Signatures) The report was signed by Alexander Mandel, Chief Financial Officer, on May 10, 2021 - The report was signed by **Alexander Mandel**, **Chief Financial Officer** (Principal Financial and Accounting Officer) on **May 10, 2021**[190](index=190&type=chunk)

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business.) Fluent, Inc. is a data-driven digital marketing company specializing in customer acquisition, leveraging first-party data and proprietary technology for over 500 clients - Fluent provides data and performance-based marketing to over **500 clients** in sectors like Media & Entertainment, Financial Products, Health & Wellness, Retail, and Staffing[17](index=17&type=chunk) - The company attracts consumers to its owned media properties, collecting first-party data with opt-in permission, with approximately **90% of user engagement** occurring on mobile devices[18](index=18&type=chunk) - A key strategic initiative in 2020 was the "Traffic Quality Initiative," which involved curtailing lower-quality affiliate traffic to improve monetization and long-term growth[40](index=40&type=chunk)[41](index=41&type=chunk) - The company is subject to numerous regulations, including the FTC Act, TCPA, CCPA, and GDPR, which govern online advertising, data privacy, and consumer protection[54](index=54&type=chunk)[55](index=55&type=chunk) [Company Overview](index=5&type=section&id=Company%20Overview) Fluent, Inc. is a data-driven digital marketing firm specializing in customer acquisition, connecting advertisers with consumers through scalable campaigns and leveraging proprietary first-party data Financial Performance | Financial Metric | 2020 | 2019 | | :--- | :--- | :--- | | **Revenue** | $310.7 million | $281.7 million | | **Net Income (Loss)** | $2.2 million | ($1.7 million) | | **Adjusted EBITDA** | $41.2 million | $34.7 million | - The company's primary business is customer acquisition through digital marketing campaigns for over **500 consumer brands**, direct marketers, and agencies[17](index=17&type=chunk) - Fluent has built a large proprietary database of first-party, self-declared user data, with permission to contact users through multiple channels like email, phone, and SMS[20](index=20&type=chunk) [Our Offerings and Solutions](index=6&type=section&id=Our%20Offerings%20and%20Solutions) Fluent provides performance-based marketing solutions, including consumer data services and programmatic targeting, expanded by recent acquisitions in social media and telephony - Core offerings include performance campaigns where Fluent is paid for specific consumer actions (e.g., registrations, app installs)[28](index=28&type=chunk) - The company provides consumer data records with self-declared preferences, which it considers a competitive advantage over inferred data[30](index=30&type=chunk)[31](index=31&type=chunk) - Acquisitions have added new service lines: social media strategy and buying through AdParlor (July 2019) and live call transfers via a **50% interest** in Winopoly (April 2020)[34](index=34&type=chunk)[35](index=35&type=chunk) [Our Growth Strategy](index=7&type=section&id=Our%20Growth%20Strategy) Fluent's growth strategy centers on enhancing traffic quality, increasing monetization, and developing new products, notably through its 2020 "Traffic Quality Initiative" - A key strategic pillar is the "Traffic Quality Initiative," which began in 2020 to improve the quality of sourced traffic, leading to higher monetization and long-term growth[40](index=40&type=chunk)[41](index=41&type=chunk) - The company aims to increase monetization by better curating offers to consumer preferences, thereby strengthening advertiser relationships[42](index=42&type=chunk) - Product development efforts are focused on new consumer-facing creative, enhanced site experiences, and developing mobile apps to expand beyond the mobile web[43](index=43&type=chunk) [Human Capital](index=11&type=section&id=Human%20Capital) Fluent had 225 employees as of December 31, 2020, emphasizing employee growth, competitive compensation, DEI initiatives, and community service programs - Employee count grew by **17.2% to 225 employees** as of December 31, 2020, compared to the previous year[59](index=59&type=chunk) - The company has a dedicated Diversity, Equity, and Inclusion (DEI) team with over **45 members**, which organized numerous events and trainings in 2020[64](index=64&type=chunk) - Fluent launched a Business Empowerment Program in October 2020, providing **$50,000 worth** of digital marketing resources to five minority and women-owned businesses[65](index=65&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors.) Fluent faces significant legal, regulatory, business, industry, and financial risks, including evolving data privacy laws, COVID-19 impacts, intense competition, and restrictive credit covenants [Risks Relating to Legal and Regulatory Matters](index=13&type=section&id=Risks%20Relating%20to%20Legal%20and%20Regulatory%20Matters) Fluent is subject to complex and evolving data privacy and marketing regulations, facing costly compliance, ongoing governmental investigations, and potential penalties - The business is subject to numerous laws including the FTC Act, TCPA, CCPA, and GDPR, with non-compliance potentially leading to civil or criminal penalties[70](index=70&type=chunk)[71](index=71&type=chunk) - The company has accrued **$3.7 million** related to an investigation by the New York Attorney General's Office (NY AG) concerning comments submitted to the FCC[82](index=82&type=chunk) - Fluent received a Civil Investigative Demand (CID) from the FTC in January 2020 regarding compliance with the FTC Act and Telemarketing Sales Rule (TSR), the outcome of which is currently unpredictable[83](index=83&type=chunk) - The New York State Department of Taxation and Finance has issued notices of determination totaling **$3.0 million** for sales and use tax, which the company is challenging, accruing a liability at the low end of its estimated range of **$0.7 million to $3.0 million**[112](index=112&type=chunk) [Risks Related to Our Business](index=22&type=section&id=Risks%20Related%20to%20Our%20Business) Fluent's business risks include economic downturns, COVID-19 impacts, dependence on key personnel, challenges in managing growth, and complexities of international expansion - The COVID-19 pandemic poses risks of weakened demand from advertiser clients, though shifts in demand across verticals have not caused significant disruption to date[120](index=120&type=chunk)[121](index=121&type=chunk) - The company depends heavily on key personnel, including CEO Ryan Schulke and President Matthew Conlin, and carries "key man" life insurance policies on them[124](index=124&type=chunk) - Future growth places significant demands on management and infrastructure, and the inability to scale effectively could harm client service and profitability[130](index=130&type=chunk)[131](index=131&type=chunk) - Recent acquisitions of AdParlor and Winopoly require significant management time and resources for integration, and future acquisitions could compound these costs[143](index=143&type=chunk) [Risks Related to Our Industry](index=27&type=section&id=Risks%20Related%20to%20Our%20Industry) The rapidly evolving digital marketing industry poses risks from intense competition, negative public perception, and the challenge of meeting client performance metrics - The digital marketing industry is characterized by rapid changes in technology, evolving standards, and regulatory uncertainty, making business evaluation difficult[147](index=147&type=chunk)[148](index=148&type=chunk) - Negative public perception about the data marketing industry could lead to reduced client demand and increased regulatory scrutiny[149](index=149&type=chunk)[151](index=151&type=chunk) - The company competes with a broad range of entities, including digital ad agencies, internet portals (Google, Facebook), and in-house marketing groups[156](index=156&type=chunk) - In 2020, the top ten advertisers accounted for approximately **34% of revenue**, indicating a concentration risk if a major client is lost[158](index=158&type=chunk) [Risks Related to Financial Matters](index=37&type=section&id=Risks%20Related%20to%20Financial%20Matters) Fluent's financial risks include restrictive credit covenants, potential need for additional capital, and the ongoing management of internal controls over financial reporting - The Credit Agreement imposes significant restrictive covenants, limiting the ability to incur debt, make restricted payments (including dividends), and sell assets[202](index=202&type=chunk) - The Credit Agreement requires compliance with financial covenants, including minimum EBITDA levels, total leverage ratios, and fixed charge coverage ratios[203](index=203&type=chunk) - A material weakness in internal control over financial reporting related to revenue recognition was identified as of Dec 31, 2019, which the company believes was remediated as of Dec 31, 2020, after implementing a new ERP system (NetSuite)[213](index=213&type=chunk)[214](index=214&type=chunk) [Item 2. Properties](index=42&type=section&id=Item%202.%20Properties.) Fluent's headquarters are in New York, NY, with an additional office in Toronto, and the company implemented a work-from-home policy due to COVID-19 - The company's headquarters are at 300 Vesey Street, New York, NY, under an 84-month lease for **42,685 sq. ft.**[231](index=231&type=chunk) - A company-wide work-from-home policy was implemented on March 13, 2020, due to the COVID-19 pandemic[232](index=232&type=chunk) [Item 3. Legal Proceedings](index=43&type=section&id=Item%203.%20Legal%20Proceedings.) Fluent is involved in significant legal and regulatory proceedings, including investigations by the NY AG, DOJ, and FTC, and a challenge to a $3.0 million sales tax determination - The company has accrued **$3.7 million** in connection with a matter involving the New York Attorney General's Office (NY AG) regarding information submitted to the FCC[236](index=236&type=chunk) - The company received related subpoenas from the Department of Justice (DOJ) on December 13, 2018, and the DC Attorney General on March 12, 2020[237](index=237&type=chunk) - The New York State Department of Taxation and Finance issued notices of determination totaling **$3.0 million** for sales and use tax, which the company is challenging and has accrued a liability at the low end of its estimated range of **$0.7 million to $3.0 million**[238](index=238&type=chunk) - On January 28, 2020, the company received a Civil Investigative Demand (CID) from the FTC regarding compliance with the FTC Act and Telemarketing Sales Rule (TSR), with an outcome not yet predictable[239](index=239&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=44&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Fluent's common stock trades on NASDAQ under 'FLNT', with no cash dividends paid in 2020 or 2019, and no plans for future dividends due to credit agreement restrictions - The company's common stock is listed on NASDAQ under the symbol "FLNT"[244](index=244&type=chunk) - The company paid no dividends in 2020 or 2019 and has no plans for future cash dividends, partly due to restrictions in its Credit Agreement[245](index=245&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fluent's 2020 financial performance showed revenue growth and net income, driven by improved traffic monetization, with solid liquidity and key accounting policies including revenue recognition and goodwill impairment [Results of Operations](index=49&type=section&id=Results%20of%20Operations) In 2020, Fluent's revenue increased **10% to $310.7 million**, resulting in a net income of **$2.2 million**, driven by higher traffic monetization despite volume reductions Financial Performance Summary | Metric | 2020 | 2019 | | :--- | :--- | :--- | | **Revenue** | $310.7M | $281.7M | | **Net Income (Loss)** | $2.2M | ($1.7M) | | **Media Margin** | $110.4M | $93.6M | | **Adjusted EBITDA** | $41.2M | $34.7M | | **Adjusted Net Income** | $19.7M | $13.8M | - Revenue increased by **$29.0 million (10%)** in 2020, driven by higher monetization through improved offer matching and re-engagement via SMS, push notifications, and telephony[279](index=279&type=chunk) - The company's "Traffic Quality Initiative" led to a curtailment of lower-quality affiliate traffic, reducing traffic volumes, particularly in Q4 2020[279](index=279&type=chunk) - General and administrative expenses decreased by **$1.3 million**, mainly due to lower share-based compensation and bad debt provisions, despite higher litigation-related costs[286](index=286&type=chunk) - A goodwill impairment charge of **$0.8 million** was recognized in Q2 2020 related to the 'All Other' reporting unit[287](index=287&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) Fluent generated **$20.3 million** in operating cash flow in 2020, ending the year with **$22.6 million** in cash and a **$43.0 million** outstanding term loan Cash Flow Activities | Cash Flow Activity (Year Ended Dec 31) | 2020 | 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $20.3 million | $26.0 million | | **Net cash used in investing activities** | ($4.3 million) | ($12.0 million) | | **Net cash used in financing activities** | ($13.6 million) | ($13.2 million) | - The company ended 2020 with **$22.6 million** in cash, cash equivalents, and restricted cash, an increase of **$2.4 million** from 2019[300](index=300&type=chunk) - As of December 31, 2020, the outstanding principal balance on the Refinanced Term Loan was **$43.0 million**[303](index=303&type=chunk) - On April 1, 2020, the company acquired a **50% interest** in Winopoly, LLC for a deemed purchase price of **$2.6 million**, including **$1.6 million** in upfront cash[302](index=302&type=chunk) [Critical Accounting Policies and Estimates](index=54&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Fluent's critical accounting policies involve significant judgment, particularly in revenue recognition, business combinations, goodwill impairment testing, and income tax valuation allowances - Revenue is recognized when control of services is transferred, applying a practical expedient to review a portfolio of contracts collectively[309](index=309&type=chunk)[310](index=310&type=chunk) - Goodwill is tested for impairment annually, with a Q2 2020 interim test on the 'All Other' reporting unit (AdParlor) resulting in a **$0.8 million** impairment charge due to macroeconomic conditions from COVID-19[322](index=322&type=chunk) - The annual goodwill impairment test as of October 1, 2020, indicated that the fair values of both the 'Fluent' and 'All Other' reporting units exceeded their carrying values by **40.7%** and **6.3%**, respectively[323](index=323&type=chunk) - The company maintains a full valuation allowance against its net deferred tax assets, as it is not more likely than not that they will be realized[333](index=333&type=chunk)[488](index=488&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents Fluent's audited consolidated financial statements for 2020 and 2019, with an unqualified auditor's opinion and identified critical audit matters regarding revenue recognition and goodwill - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020[377](index=377&type=chunk)[378](index=378&type=chunk) - Critical audit matters identified by the auditor were (1) the evaluation of revenue recognition due to the level of effort and subjective judgment required, and (2) the recoverability of the carrying value of goodwill due to significant management estimates[381](index=381&type=chunk)[383](index=383&type=chunk)[388](index=388&type=chunk) Consolidated Balance Sheet Summary | (in thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | $310,220 | $317,093 | | **Total Liabilities** | $93,335 | $106,156 | | **Total Shareholders' Equity** | $216,885 | $210,937 | Consolidated Statement of Operations Summary | (in thousands) | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | **Revenue** | $310,719 | $281,684 | | **Income from Operations** | $8,379 | $5,219 | | **Net Income (Loss)** | $2,207 | ($1,747) | [Item 9A. Controls and Procedures](index=59&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with a previously identified material weakness in revenue recognition remediated - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[343](index=343&type=chunk) - A material weakness in internal control over revenue recognition, identified in 2019, was remediated as of December 31, 2020[346](index=346&type=chunk) - Remediation actions included implementing a new ERP system and strengthening controls for revenue recognition, with testing completed in Q4 2020[347](index=347&type=chunk) PART III [Items 10-14](index=61&type=section&id=Item%2010,%2011,%2012,%2013,%2014) Information for Items 10-14, covering governance, executive compensation, security ownership, related transactions, and accounting fees, is incorporated by reference from the forthcoming 2021 proxy statement - Information regarding directors, executive compensation, security ownership, related transactions, and auditor fees is incorporated by reference from the forthcoming 2021 proxy statement[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=62&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules.) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents and material contracts - This section provides a list of all financial statements, schedules, and exhibits filed with the Form 10-K[363](index=363&type=chunk)[364](index=364&type=chunk) - Key exhibits include the Credit Agreement with Whitehorse Finance, Inc. and its numerous amendments, and employment agreements with key executives[365](index=365&type=chunk)[367](index=367&type=chunk)

Company Overview - Fluent helps brands acquire customers and drive sales through its performance-based marketing platform[3] - The company was founded in 2010 and has over 200 employees[4, 5] - Fluent has 500 clients across multiple industries and offices in NYC, Toronto, South Florida & Kansas City[5] Financial Performance - The company's revenue CAGR from 2016 through 2020P was 14.2%[6] - Media Margin CAGR from 2016 through 2020P was 20.5%[6] - Fluent has spent $1 billion in media to date in 2020[6] - Fluent's platform sees approximately 900,000 daily registrations on its owned and operated (O&O) media properties[6] - In Q3 2020, the Media Margin was $29682 million, representing 37.9% of revenue[21] - Adjusted EBITDA for 2020P is $41 million[14] Market Opportunity and Strategy - The company operates in the digital ad spending market, which is projected to grow at a CAGR of 14.3%[10] - Fluent's business model is 100% performance-based[10] - The company has 25 million active and authenticated consumers per month[11, 16] - Strategic growth pillars include performance marketplace, publisher & media platform partnerships, international expansion, and proprietary technology platform[11]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | --- | |--------------------------------------------|------------|-------------------------------------------------- ...

Financial Data and Key Metrics Changes - Revenue for Q2 2020 increased by 1% year-over-year to $71.5 million, while media margin rose by 8% to $24.8 million, representing 34.7% of revenue [10][22][24] - Adjusted EBITDA decreased by 3% year-over-year to $9.4 million, with a margin of 13.1%, reflecting a reduction of 60 basis points year-over-year but an improvement of 170 basis points quarter-over-quarter [26] - GAAP net income was reported at $452,000, or $0.01 per share, while adjusted net income was $4.2 million, or $0.05 per share [27] Business Line Data and Key Metrics Changes - The media and entertainment sector, particularly streaming services and gaming apps, showed strong performance, helping to offset declines in other verticals due to COVID-19 [12] - The UK business more than doubled its top line year-over-year, with non-U.S. markets exceeding 5% of total revenue for the first time [13][12] Market Data and Key Metrics Changes - The company capitalized on increased consumer engagement during the pandemic, leading to favorable media pricing and strong demand from clients [23] - The international expansion strategy is yielding results, with significant growth in the UK and plans for further expansion into Germany and Canada [16][12] Company Strategy and Development Direction - The company focuses on three strategic growth pillars: Performance Marketplace, Media Footprint, and Platform technology [14][16][17] - The acquisition of a 50% stake in Winopoly is aimed at enhancing consumer engagement and monetization opportunities [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business despite the challenging operating environment due to COVID-19 [9][19] - The company anticipates a return to seasonal revenue patterns experienced in previous years, with a focus on maintaining media margin as a key performance metric [24][43] Other Important Information - The company reported a goodwill impairment related to the AdParlor business due to macroeconomic conditions and social unrest impacting forecasts [39] - The structure of the Winopoly transaction includes a put-call feature, resulting in a non-cash expense that will be accrued over time [40] Q&A Session Summary Question: Is there a meaningful increase in revenues in Q3 versus Q2? - Management clarified that the reference was to media margin dollars and did not specifically comment on revenue [32] Question: What is driving success in the UK market? - Success is attributed to strong relationships with global brands in media and entertainment, with plans for further local partnerships [34][36] Question: Can you explain the goodwill impairment? - The impairment was due to a triggering event related to the AdParlor business, influenced by COVID-19 and social unrest [38][39] Question: What is the put-call structure in the Winopoly transaction? - The put-call structure involves deemed compensation expenses that will be accrued over time, impacting non-GAAP metrics [40]

PART I - FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of financial performance [ITEM 1. FINANCIAL STATEMENTS.](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This section provides the company's unaudited consolidated financial statements and comprehensive explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time | ASSETS (in thousands of USD) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,218 | $18,679 | | Accounts receivable, net | $55,304 | $60,915 | | Total current assets | $77,518 | $81,515 | | Total assets | $308,401 | $317,093 | | **LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands of USD)** | | | | Accounts payable | $11,601 | $21,574 | | Accrued expenses and other current liabilities | $21,027 | $20,358 | | Deferred revenue | $2,468 | $1,140 | | Current portion of long-term debt | $9,677 | $6,873 | | Total current liabilities | $47,052 | $52,227 | | Total liabilities | $94,586 | $106,156 | | Total shareholders' equity | $213,815 | $210,937 | | Total liabilities and shareholders' equity | $308,401 | $317,093 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net income over specific reporting periods | Metric (in thousands of USD, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $71,509 | $70,560 | $150,443 | $137,121 | | Total costs and expenses | $69,724 | $68,078 | $146,718 | $131,851 | | Income from operations | $1,785 | $2,482 | $3,725 | $5,270 | | Interest expense, net | $(1,333) | $(1,767) | $(2,865) | $(3,545) | | Income before income taxes | $452 | $715 | $860 | $1,725 | | Net income | $452 | $715 | $860 | $1,760 | | Basic income per share | $0.01 | $0.01 | $0.01 | $0.02 | | Diluted income per share | $0.01 | $0.01 | $0.01 | $0.02 | [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Outlines changes in equity components, including common stock, treasury stock, and accumulated deficit, over a period | Metric | Balance at December 31, 2019 | Balance at June 30, 2020 | | :--- | :--- | :--- | | Common Stock (Shares) | 78,642,078 | 79,908,985 | | Common Stock (Amount in thousands of USD) | $39 | $40 | | Treasury Stock (Shares) | 2,768,399 | 3,616,398 | | Treasury Stock (Amount in thousands of USD) | $(8,184) | $(9,930) | | Additional Paid-in Capital (in thousands of USD) | $406,198 | $409,961 | | Accumulated Deficit (in thousands of USD) | $(187,116) | $(186,256) | | Total Shareholders' Equity (in thousands of USD) | $210,937 | $213,815 | - For the six months ended June 30, 2020, common stock increased due to vesting of **1.6 million restricted stock units**, while treasury stock increased by **190.3 thousand shares** withheld for statutory taxes and **657.7 thousand shares** repurchased[64](index=64&type=chunk)[66](index=66&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Reports cash inflows and outflows from operating, investing, and financing activities over a period | Cash Flow Activity (in thousands of USD) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,832 | $13,113 | | Net cash used in investing activities | $(2,674) | $(2,872) | | Net cash used in financing activities | $(5,619) | $(6,174) | | Net increase in cash, cash equivalents and restricted cash | $1,539 | $4,067 | | Cash, cash equivalents and restricted cash at end of period | $21,698 | $23,316 | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the consolidated financial statements [1. Summary of significant accounting policies](index=7&type=section&id=1.%20Summary%20of%20significant%20accounting%20policies) Describes the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with US GAAP and SEC interim reporting rules, reflecting normal recurring adjustments. The Company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, including Winopoly, LLC since April 1, 2020[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - Revenue is recognized when control of goods or services is transferred, typically for data records or conversions. Deferred revenue was **$2.5 million** as of June 30, 2020, up from **$1.1 million** at December 31, 2019. Unbilled revenue, included in accounts receivable, was **$23.1 million** as of June 30, 2020, down from **$29.1 million** at December 31, 2019[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - The Company is evaluating the impact of ASU No. 2016-13, 'Financial Instruments—Credit Losses,' effective for periods beginning after December 15, 2022[28](index=28&type=chunk) - Management makes estimates and assumptions for financial reporting, including for doubtful accounts, intangible assets, goodwill, purchase accounting, and income tax provisions. The COVID-19 pandemic led to a goodwill impairment for the 'All Other' reporting unit but no other adjustments to assets or liabilities for the three and six months ended June 30, 2020[34](index=34&type=chunk)[35](index=35&type=chunk) [2. Income per share](index=9&type=section&id=2.%20Income%20per%20share) Presents the calculation of basic and diluted earnings per share for various periods | Metric (in thousands of USD, except per share and share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $452 | $715 | $860 | $1,760 | | Basic weighted average shares outstanding | 78,510,383 | 79,388,383 | 78,557,331 | 79,297,599 | | Diluted weighted average shares outstanding | 78,666,776 | 81,132,304 | 78,905,792 | 80,443,530 | | Basic income per share | $0.01 | $0.01 | $0.01 | $0.02 | | Diluted income per share | $0.01 | $0.01 | $0.01 | $0.02 | - Potentially dilutive securities, including restricted stock units, stock options, and warrants, were excluded from diluted EPS calculations if their effects would have been anti-dilutive[36](index=36&type=chunk)[37](index=37&type=chunk) [3. Intangible assets, net](index=11&type=section&id=3.%20Intangible%20assets%2C%20net) Details the composition and changes in the company's intangible assets, net of amortization | Intangible Asset Type (Net in thousands of USD) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Software developed for internal use | $3,235 | $2,871 | | Acquired proprietary technology | $3,617 | $4,145 | | Customer relationships | $15,875 | $17,890 | | Trade names | $

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | |--------------------------------------------|------------------------------------------------------------------------- ...

Company Overview - Fluent, Inc is a leading digital performance marketplace that delivers measurable results to advertiser clients[4] - The company has over 500 clients across multiple industries in 2019[4] - Fluent has approximately 190 employees and 4 offices[4] - The company acquires around 900,000 daily consumer registrations, with approximately 90% being mobile users[4] Financial Performance - The company's revenue for 2016 was $182.6 million, which increased to $250.3 million in 2017, $280.8 million in 2018, and an estimated $281.8 million in 2019[10] - Media Margin for 2016 was $52.2 million, increasing to $68.9 million in 2017, $92.2 million in 2018, and an estimated $94.0 million in 2019[12] - Adjusted EBITDA for 2017 was $32.5 million and increased to $44.1 million in 2018[14] - The Media Margin as a percentage of revenue was 32.5% in 2016, 36.8% in 2018, and an estimated 33.5% in 2019[22] - Adjusted EBITDA as a percentage of revenue was 15.4% in 2017 and 17.6% in 2018[28] Balance Sheet - As of September 30, 2019, the company had $24.2 million in cash and $38.0 million in other current assets[16] - Goodwill & Intangibles were valued at $223.3 million[16] - Total assets amounted to $310.7 million, which equals the total liabilities and shareholders' equity[16]