Fluent(US:FLNT)2023-08-20 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements reflect decreased total assets due to a significant goodwill impairment, with positive Q2 net income and operating cash flow Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $89,044 | $92,217 | ($3,173) | | Goodwill | $30,966 | $55,111 | ($24,145) | | Total Assets | $155,082 | $183,969 | ($28,887) | | Total Current Liabilities | $53,976 | $50,219 | $3,757 | | Total Liabilities | $86,947 | $90,014 | ($3,067) | | Total Shareholders' Equity | $68,135 | $93,955 | ($25,820) | Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $82,145 | $98,361 | $159,399 | $187,424 | | Income (Loss) from Operations | $6,739 | ($51,392) | ($24,414) | ($53,021) | | Goodwill Impairment | $0 | $55,400 | $25,700 | $55,400 | | Net Income (Loss) | $4,251 | ($56,944) | ($27,692) | ($58,957) | | Diluted EPS | $0.05 | ($0.70) | ($0.34) | ($0.73) | Consolidated Statements of Cash Flows Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,051 | ($1,947) | | Net cash used in investing activities | ($3,642) | ($3,176) | | Net cash used in financing activities | ($2,973) | ($2,948) | | Net decrease in cash and cash equivalents | ($4,564) | ($8,071) | - In Q1 2023, the company recorded a non-cash goodwill impairment charge of $25.7 million, with the fair value exceeding carrying value by only 5% as of June 30, 2023, suggesting future risk5960 - The company settled with the FTC for a $2.5 million civil penalty, with the PAAG for $0.25 million, and contributed $3.1 million to the Berman class action settlement96100101 - Subsequent to the quarter end, the company amended its Credit Agreement to avoid a projected covenant violation, requiring a $5 million prepayment of its term loan109 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 15% revenue decline due to market challenges, a reduced net loss from lower expenses, and a material weakness in internal controls Financial Summary Comparison (in millions) | Metric | Six Months 2023 | Six Months 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $159.4 | $187.4 | -15% | | Media Margin | $47.9 | $58.3 | -18% | | Adjusted EBITDA | $6.0 | $14.2 | -58% | | Net Loss | ($27.7) | ($59.0) | +53% | - Revenue for the first six months of 2023 decreased by $28.0 million (15%) to $159.4 million, primarily due to declines in the US Rewards and employment opportunities businesses150 - General and administrative expenses for Q2 2023 decreased by 66% to $3.9 million, mainly due to lower litigation-related costs and an insurance reimbursement162 - The company recorded a $25.7 million goodwill impairment in H1 2023, with the reporting unit's fair value exceeding its carrying value by only 5%, indicating continued risk167201 - The company was not in compliance with a condition to draw on its Revolving Loans and amended its Credit Agreement to avoid a projected covenant violation194197 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 a smaller reporting company and is not required to provide the information required by this Item204 Item 4. Controls and Procedures Management identified a material weakness in internal controls over financial reporting, rendering disclosure controls ineffective as of June 30, 2023 - A material weakness in internal control over financial reporting was identified, relating to the company's ability to timely account for non-routine or complex financial transactions206 - Due to the material weakness, the CEO and Interim CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023206 - A remediation plan is being developed with Audit Committee oversight to enhance processes for identifying and accounting for such complex transactions207 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company resolved significant legal matters through settlements with the FTC, the PAAG, and in a class action lawsuit - On May 26, 2023, Fluent agreed to a settlement with the FTC, which included a $2.5 million civil penalty and required changes to its business practices217 - The company settled with the Pennsylvania Office of the Attorney General (PAAG) on May 19, 2023, agreeing to pay $0.25 million for investigatory costs218 - In the 'Daniel Berman v. Freedom Financial Network' class action, the company agreed to contribute $3.1 million to a settlement fund219 Item 1A. Risk Factors The company faces material risks from recent legal settlements, potential Nasdaq delisting, restrictive debt covenants, and a material weakness in internal controls - The FTC Consent Order and PAAG settlement will have a negative short-term impact on revenues and media margin223 - The company faces a potential delisting risk from Nasdaq for failing to meet the minimum $1.00 bid price requirement, with a compliance deadline of October 30, 2023228 - Covenants in the Credit Agreement impose significant operational restrictions, and a breach could lead to debt acceleration231234 - Management has identified a material weakness in internal controls, which could adversely affect financial reporting and investor confidence235237 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None241 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None243 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable245 Item 5. Other Information The company amended its Credit Agreement, adjusting financial covenants, requiring a $5 million loan prepayment, and reducing its revolving loan facility - On August 21, 2023, Fluent, LLC entered into a fourth amendment to its Credit Agreement to adjust financial covenants, modify interest rates, and require a $5 million prepayment on its Term Loan247 - The amendment also reduced the Revolving Loans facility by $5 million to a new total of $10 million247 Item 6. Exhibits This section lists exhibits filed with the report, including credit agreement amendments, equity award forms, and officer certifications Signatures The report was duly signed on August 21, 2023, by the Interim Chief Financial Officer