Fluent(FLNT) - 2023 Q4 - Annual Report

PART I Item 1. Business Fluent, Inc. specializes in performance-based digital marketing, leveraging proprietary data and media properties for customer acquisition - Fluent is a digital marketing services leader, focusing on performance-based customer acquisition for over 500 brands across diverse industries[83] - The company operates owned digital media properties and syndicated marketplaces to connect advertisers with consumers[83][84][119] - A key asset is a large, proprietary database of first-party, self-declared user information, used for targeted advertising and lead generation[85][125] - Growth strategies include increasing traffic monetization, enhancing product offerings, expanding syndicated marketplaces, and developing an influencer marketing platform[99][100][149] - A single long-standing advertiser client accounted for 18.1% of consolidated revenue in 2023, down from 22.1% in 2022[153] - The company is subject to numerous laws and regulations regarding digital advertising, telemarketing, and data privacy, having recently settled investigations with the FTC and PAAG[132][133][156] - As of December 31, 2023, the company had 277 employees and operates under a hybrid work model[158] Item 1A. Risk Factors The company faces risks from intense competition, revenue concentration, evolving regulations, financial covenants, and stock volatility - The company operates in an intensely competitive digital marketing industry characterized by rapid technological change and evolving standards[142][191] Revenue Concentration Risk (2023) | Source | Percentage of Revenue | | :--- | :--- | | Gaming Advertisers | 38% | | Single Largest Gaming Client | 18.1% | - The business is subject to numerous and evolving laws and regulations, including TCPA, CAN-SPAM, GDPR, and CCPA, increasing compliance and operational risks[27][62][63] - The company's Credit Agreement contains restrictive covenants that may limit operational and financial flexibility, including incurring additional debt or paying dividends[12][15] - The company faces risks related to its common stock, including non-compliance with Nasdaq's minimum bid price, stock price volatility, and ownership concentration[4][221][223] - There is a risk of impairment for the company's goodwill and intangible assets, with substantially all goodwill from prior acquisitions impaired as of December 31, 2023[1][25] - Limitations on the ability to collect and use user data, such as deprecation of third-party cookies and ad tracking restrictions, could diminish the value of the company's services[178][179][180] Item 1B. Unresolved Staff Comments The company reports that there are no unresolved staff comments - Not applicable; the company has no unresolved staff comments[229][278] Item 1C. Cybersecurity The company's cybersecurity program, based on NIST, is overseen by IT and Legal, with no material incidents in 2023 - The company's cybersecurity program is based on the NIST framework and is reviewed annually[279] - Governance is managed by the IT and Legal teams, with the CTO and General Counsels reporting to the CEO and providing quarterly updates to the Audit Committee[231][250] - The company did not experience a material cybersecurity incident during the year ended December 31, 2023[251] Item 2. Properties The company's headquarters are in New York, NY, with AdParlor operating from a co-working space in Toronto, Canada - The company's headquarters are located at 300 Vesey Street, 9th Floor, New York, NY, under a lease for 42,685 square feet[281] - The AdParlor business operates from a co-working space in Toronto, Ontario, Canada[281] Item 3. Legal Proceedings The company recently settled significant legal matters, including FTC, PAAG, and TCPA class action lawsuits, with millions in penalties - On May 26, 2023, Fluent settled with the FTC, including a $2.5 million civil penalty and required business practice changes[285] - The company settled a telemarketing investigation with the PAAG for $0.25 million[258] - The company contributed $3.1 million to a $9.75 million settlement for the TCPA class action lawsuit, Daniel Berman v. Freedom Financial Network[286] - A sales and use tax audit with the New York State Department of Taxation and Finance was settled for $1.7 million in March 2022[257] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[259][287] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on Nasdaq under "FLNT", with no dividends paid or planned, and no Q4 2023 share repurchases - The company's common stock is listed on The Nasdaq Capital Market under the symbol "FLNT"[262] - The company has not paid dividends and does not intend to in the foreseeable future, partly due to Credit Agreement restrictions[289] - No shares of the company's common stock were purchased by or on behalf of the company during the fourth quarter of 2023[263][290] Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Fluent's revenue decreased 17% to $298.4 million, with a net loss of $63.2 million, impacted by macroeconomic headwinds and FTC settlement Key Financial Performance (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $298.4 | $361.1 | | Net Loss | ($63.2) | ($123.3) | | Adjusted EBITDA | $6.8 | $22.7 | - The 17% revenue decrease in 2023 was driven by a challenging macroeconomic environment, reduced client spending, and FTC Consent Order changes[272][347] - The company implemented a Traffic Quality Initiative and is expanding into new syndicated performance marketplaces to source higher quality media traffic and improve customer acquisition[269][270] - On April 2, 2024, the company entered into a new SLR Credit Agreement, providing a $20.0 million term loan and a $30.0 million revolving credit facility[396][460] - The company recorded a goodwill impairment charge of $55.4 million in 2023, a significant reduction from the $111.1 million impairment in 2022[440] - As of December 31, 2023, cash and cash equivalents were $15.8 million, a decrease of $9.7 million from the prior year-end[454] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This information is not required as the company is a "smaller reporting company" - The Company is not required to provide this information as it qualifies as a "smaller reporting company"[480][621] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including the independent auditor's report and notes - This item includes the Consolidated Financial Statements and Notes, along with the report of the independent registered public accounting firm[481] - The independent auditor, Grant Thornton LLP, issued an opinion that the financial statements present fairly the financial position and results of operations in conformity with U.S. GAAP[529] Notes to Consolidated Financial Statements The notes detail accounting policies, a $55.4 million goodwill impairment, TAPP consolidation, debt refinancing, legal settlements, and deferred tax assets - The company recognized a goodwill impairment charge of $55.4 million in 2023, reducing goodwill to $1.3 million, following a $111.1 million impairment in 2022[402][427] - On April 2, 2024, the company entered into a new credit agreement for a $20 million term loan and a $30 million revolving facility, replacing its previous facility[396] - The company settled legal matters with the FTC for $2.5 million, the PAAG for $0.25 million, and contributed $3.1 million to a TCPA class action settlement during 2023[393][394][395] - The company determined that TAPP, an influencer-based business, qualified as a Variable Interest Entity (VIE) and consolidated its operations starting January 9, 2023[386][387] - As of December 31, 2023, the company maintained a full valuation allowance of $14.6 million against its net deferred tax assets due to uncertainty about their realization[433][434] Segment Revenue (in thousands) | Segment | 2023 Revenue (in thousands) | 2022 Revenue (in thousands) | | :--- | :--- | :--- | | Fluent | $289,083 | $350,789 | | All Other | $9,316 | $10,345 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[483][484] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[486] - Management's assessment, based on the COSO framework, concluded that internal control over financial reporting was effective as of December 31, 2023[487] - A previously disclosed material weakness in internal control regarding non-routine transactions was remediated during the fourth quarter of 2023[489][496] Item 9B. Other Information This item is not applicable to the company - Not applicable[492][499] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[493][500] PART III Item 10. Directors, Executive Officers and Corporate Governance Information for this item will be incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[502] Item 11. Executive Compensation Information for this item will be incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[503] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item will be incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[504] Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item will be incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[505] Item 14. Principal Accounting Fees and Services Information for this item will be incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[506] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including financial statements, schedules, and various exhibits - This item contains a list of all financial statements, schedules, and exhibits filed as part of the Form 10-K[511][512] Item 16. Form 10-K Summary This item is not applicable to the company - Not applicable[516][517]