Fluent(US:FLNT)2022-08-08 16:00PART I Item 1. Financial Statements For the six months ended June 30, 2022, Fluent, Inc. reported a significant decrease in total assets to $259.1 million from $318.2 million at year-end 2021, primarily due to a $55.4 million goodwill impairment, leading to a net loss of $56.9 million Consolidated Balance Sheets Total assets decreased to $259.1 million as of June 30, 2022, from $318.2 million at December 31, 2021, primarily due to a reduction in goodwill, while total shareholders' equity declined sharply to $156.1 million | Balance Sheet Items (in thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $106,483 | $107,200 | | Goodwill | $110,780 | $165,088 | | Total Assets | $259,140 | $318,182 | | Total Current Liabilities | $59,591 | $57,940 | | Total Liabilities | $103,022 | $104,772 | | Total Shareholders' Equity | $156,118 | $213,410 | - The significant decrease in total assets and shareholders' equity was primarily caused by a $55.4 million goodwill impairment charge recorded during the second quarter of 20225052 Consolidated Statements of Operations Revenue for Q2 2022 increased 34% year-over-year to $98.4 million, but a $55.4 million goodwill impairment charge resulted in a net loss of $56.9 million, or ($0.70) per share Three Months Ended June 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $98,361 | $73,378 | +34.0% | | Loss from operations | ($51,392) | ($4,752) | N/A | | Goodwill impairment | $55,400 | $199 | N/A | | Net loss | ($56,944) | ($5,179) | N/A | | Diluted loss per share | ($0.70) | ($0.06) | N/A | Six Months Ended June 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $187,424 | $143,548 | +30.6% | | Loss from operations | ($53,021) | ($7,039) | N/A | | Goodwill impairment | $55,528 | $199 | N/A | | Net loss | ($58,957) | ($11,437) | N/A | | Diluted loss per share | ($0.73) | ($0.14) | N/A | Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $1.9 million, with overall cash and cash equivalents decreasing by $8.1 million due to cash used across all activities Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,947) | ($665) | | Net cash used in investing activities | ($3,176) | ($1,558) | | Net cash (used in) provided by financing activities | ($2,948) | $6,275 | | Net (decrease) increase in cash | ($8,071) | $4,052 | | Cash at end of period | $26,396 | $26,619 | Notes to Consolidated Financial Statements The notes detail key accounting policies and events, including a significant $55.4 million goodwill impairment charge in Q2 2022, the acquisition of True North Loyalty, LLC, and ongoing legal and regulatory investigations - Due to a decline in its publicly traded stock price, the company conducted an interim goodwill impairment test and recorded a non-cash impairment charge of $55.4 million in Q2 202250 - On January 1, 2022, the company acquired 100% of True North Loyalty, LLC for a deemed purchase price of $2.3 million, consisting of cash, deferred payments, and contingent consideration94 - The company is subject to ongoing investigations by the Department of Justice (DOJ), the District of Columbia Attorney General (DC AG), the Federal Trade Commission (FTC), and the Pennsylvania Office of the Attorney General (PA OAG). The ultimate outcomes cannot be predicted899193 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong revenue growth of 34% in Q2 2022, driven by its Rewards business, but this was overshadowed by a non-cash goodwill impairment charge of $55.4 million, while Adjusted EBITDA increased to $9.4 million Second Quarter Financial Summary In Q2 2022, revenue increased 34% YoY to $98.4 million, and Adjusted EBITDA rose to $9.4 million, but a significant goodwill impairment led to a net loss of $56.9 million Q2 2022 vs Q2 2021 Financial Highlights | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Revenue | $98.4 million | $73.4 million | | Net Loss | ($56.9 million) | ($5.2 million) | | Net Loss per Share | ($0.70) | ($0.06) | | Media Margin | $32.3 million | $20.1 million | | Adjusted EBITDA | $9.4 million | $1.9 million | Results of Operations For Q2 2022, revenue growth of 34% was driven by the Rewards business, but the significant increase in net loss to $56.9 million was almost entirely due to the $55.4 million goodwill impairment - Q2 2022 revenue increased by $25.0 million (34%) YoY, attributed to growth in the Rewards business, expanding media footprint, and improved CRM capabilities140 - The increase in net loss before taxes for Q2 2022 was primarily due to the non-cash goodwill impairment charge of $55.4 million, which offset the $25.0 million increase in revenue151 - For the six months ended June 30, 2022, revenue increased by $43.9 million (31%) YoY, while net loss increased to $59.0 million from $11.4 million, again driven by the goodwill impairment155168 Liquidity and Capital Resources As of June 30, 2022, the company had $26.4 million in cash and cash equivalents, a decrease of $8.1 million from year-end 2021, and was in compliance with all debt covenants - Cash and cash equivalents stood at $26.4 million as of June 30, 2022173 - The company has a term loan with an outstanding principal balance of $43.8 million as of June 30, 2022, which matures in March 2026175 - The company was in compliance with all financial and other debt covenants as of June 30, 2022178 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Fluent, Inc. is not required to provide the information for this item - The company is not required to provide disclosures about market risk as it qualifies as a smaller reporting company185 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022188 - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls189 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to several ongoing legal and regulatory matters, including settled tax audits and ongoing investigations by the DOJ, DC AG, FTC, and PA OAG, whose outcomes are not yet predictable - A sales and use tax audit matter with the New York State Department of Taxation and Finance was settled for $1.7 million, which was paid on April 1, 2022196 - The company is cooperating with ongoing investigations from the Department of Justice (DOJ), the District of Columbia Attorney General (DC AG), the Federal Trade Commission (FTC), and the Pennsylvania Office of the Attorney General (PA OAG)195197199 Item 1A. Risk Factors There have been no material changes to the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the Risk Factors previously disclosed in the 2021 Form 10-K were reported201 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None reported for the period - The company reported no unregistered sales of equity securities or use of proceeds during the quarter203 Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002 - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002211