Fluent(FLNT) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Fluent, Inc.'s unaudited consolidated financial statements for Q1 2024, including a critical going concern disclosure Consolidated Financial Statements Q1 2024 consolidated financial statements show declining assets, increased liabilities, a 15% revenue decrease, and a $6.3 million net loss Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $71,416 | $78,406 | | Total Assets | $103,577 | $111,867 | | Total Current Liabilities | $73,528 | $49,214 | | Total Liabilities | $74,831 | $77,463 | | Total Shareholders' Equity | $28,746 | $34,404 | Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Revenue | $65,983 | $77,254 | | Loss from Operations | $(3,953) | $(31,153) | | Net Loss | $(6,276) | $(31,943) | | Basic and Diluted Loss Per Share | $(0.45) | $(2.34) | Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(132) | $4,890 | | Net cash used in investing activities | $(1,796) | $(2,384) | | Net cash used in financing activities | $(2,218) | $(1,486) | | Net (decrease) increase in cash and cash equivalents | $(4,146) | $1,020 | | Cash and cash equivalents at end of period | $11,658 | $26,567 | Notes to Consolidated Financial Statements The notes disclose substantial doubt about the company's going concern ability, detail a reverse stock split, credit facility refinancing, and subsequent events - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern due to declining operating results, projected non-compliance with financial covenants, and potential inability to draw on its revolver to fund operations[26][27][30] - On April 11, 2024, the Company effected a 1-for-6 reverse stock split, retroactively restating all historical share and per-share amounts[33][93] - Subsequent to quarter end, on April 2, 2024, the Company replaced its Citizens Credit Agreement with a new SLR Credit Agreement, comprising a $20 million term loan and a $30 million revolving credit facility[77][78][79] - On May 1, 2024, the Company divested its subsidiary True North Loyalty, LLC[121] - On May 13, 2024, the Company raised $10 million in gross proceeds through a private placement of pre-funded warrants to certain accredited investors[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses Q1 2024 financial performance, highlighting a 15% revenue decline, narrowed net loss, and elaborates on liquidity challenges and going concern First Quarter Financial Summary and Trends Q1 2024 revenue decreased by 15% to $66.0 million, net loss improved, and Adjusted EBITDA increased, facing media supply and economic challenges Q1 2024 vs Q1 2023 Financial Highlights | Metric | Q1 2024 (million) | Q1 2023 (million) | | :--- | :--- | :--- | | Revenue | $66.0 | $77.3 | | Net Loss | $(6.3) | $(31.9) | | Gross Profit | $18.6 | $19.0 | | Media Margin (Non-GAAP) | $22.1 | $22.0 | | Adjusted EBITDA (Non-GAAP) | $0.7 | $0.4 | - Revenue decline in Q1 2024 was driven by media supply challenges in the company's owned and operated marketplaces, with these challenges continuing into Q2 causing further revenue retraction[147][168] - The business continues to be negatively impacted by slowed economic conditions and compliance measures from the FTC Consent Order, creating a competitive disadvantage[151][152] Results of Operations Revenue decreased 15% due to marketplace contraction, while operating expenses declined significantly due to the absence of a prior-year goodwill impairment - The significant decrease in Loss Before Income Taxes (from $31.8 million to $5.4 million) was primarily due to the non-recurrence of a $25.7 million goodwill impairment charge recorded in Q1 2023[178][180] - General and administrative expenses decreased by 16% to $10.4 million, mainly due to a $1.4 million decline in litigation and related costs associated with the settled FTC Consent Order[175] - The company implemented workforce reductions in both Q1 2024 and Q1 2023, terminating 20 employees in each period and incurring restructuring costs of $0.7 million and $0.5 million, respectively[176] Liquidity and Capital Resources The company's liquidity is under pressure, with cash decreasing by $4.1 million to $11.7 million, leading to substantial doubt about its going concern ability due to projected debt covenant non-compliance - Management has substantial doubt about the company's ability to continue as a going concern due to projected inability to comply with debt covenants over the next twelve months[189][195] - Mitigating plans include a $10 million private placement completed in May 2024, divesting a business unit, and implementing additional cost reductions to meet budget and cash flow requirements[191][193][194] - On April 2, 2024, the company entered into a new credit agreement with SLR Credit Solutions for a $20 million term loan and a $30 million revolving facility, repaying its previous debt[200][201][202] 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 therefore not required to provide quantitative and qualitative disclosures about market risk[213] Item 4. Controls and Procedures Management, including the CEO and Interim CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2024, the Chief Executive Officer and Interim Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[215] - No changes occurred in the company's internal control over financial reporting during Q1 2024 that materially affected, or are reasonably likely to materially affect, these controls[216] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section updates on the Daniel Berman v. Freedom Financial Network class action lawsuit settlement, where the company satisfied its $3.1 million obligation through cash and an interest-bearing note - The Berman class action settlement was finalized on February 23, 2024, with the company satisfying its $3.1 million obligation via a $1.1 million cash payment and a $2.0 million interest-bearing note[220] Item 1A. Risk Factors This section highlights critical risks, including substantial doubt about the company's going concern ability due to declining performance and potential debt covenant breaches, and the risk of Nasdaq delisting - A significant risk factor is the substantial doubt about the company's ability to continue as a going concern, potentially impacting financing, business relationships, and stock price[225][226][227] - The company faces the risk of Nasdaq delisting if its common stock fails to meet minimum listing requirements, such as the $1.00 minimum bid price, harming stock liquidity and access to capital[224] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period covered by this report - There were no unregistered sales of equity securities during the quarter[229] Item 5. Other Information This section details significant corporate actions after Q1 2024, including a $10 million private placement and the new SLR Credit Agreement, which was subsequently amended - On May 13, 2024, the Company raised $10 million in gross proceeds via a private placement of pre-funded warrants to purchase up to 2,955,084 shares of common stock, including from officers and directors[231] - The new SLR Credit Agreement was amended on May 15, 2024, waiving required prepayments from private placement proceeds, requiring a financial advisor, and modifying covenants and definitions[236]