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 ...

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 | --- | --- | |---------------------------------------------------------------------|--------------- ...

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 June 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 | --- | --- | |-----------------------------------------------------------------------------|------------ ...

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)

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 | --- | --- | --- | |--------------------------------------------|-------------------------------------------------------------------------- ...

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, 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 [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)