Fluent, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing provides annual results, not standalone fourth-quarter figures. Fluent is a data-driven digital marketing company that acquires consumers and connects them with advertisers through performance campaigns, consumer data, social media services and contact-center sales. It served more than 500 brands, direct marketers and agencies. Fluent completed its acquisition of the remaining 50% of Winopoly in September 2021 and rebranded its contact-center operations Fluent Sales Solutions.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $329.3 million | $310.7 million |
| Gross profit, excluding depreciation and amortization | $85.5 million; 26% of revenue | $95.6 million; 31% of revenue |
| Media margin (non-GAAP) | $100.4 million; 30.5% of revenue | $110.4 million; 35.5% of revenue |
| Operating income (loss) | ($4.7) million | $8.4 million |
| Net income (loss) | ($10.1) million; ($0.13) per share | $2.2 million; $0.03 per share |
| Adjusted EBITDA (non-GAAP) | $23.2 million | $41.2 million |
| Operating cash flow | $12.4 million | $20.3 million |
Revenue grew 6%, but cost of revenue rose 13% to $243.7 million, reflecting more expensive media sources and increased rewards fulfillment costs. Adjusted net income fell to $7.6 million from $19.7 million. The filing cautions that non-GAAP measures are supplemental and are not measures of GAAP profitability.
At December 31, 2021, cash and cash equivalents were $34.5 million, versus $21.1 million a year earlier; restricted cash was zero. Current assets were $107.2 million and current liabilities were $57.9 million. Long-term debt had a $46.3 million principal balance ($45.3 million net of discount and financing costs), including a $5.0 million current portion. The company reported an undrawn revolving facility of up to $15 million and compliance with credit covenants at year-end. Management said it expected available cash to fund operations and expected capital expenditures for the next twelve months and beyond.
Material changes and management commentary
- Growth came primarily from Fluent Sales Solutions, stronger staffing and recruitment demand, and a new email capability to re-engage registered consumers. These initiatives offset lower traffic volumes following the Traffic Quality Initiative, which curtailed lower-quality affiliate traffic.
- Fluent increased spend on major digital platforms and revised affiliate bidding strategies. Profitability improved in the second half versus the second quarter, but remained below historical affiliate-marketing levels. Management said the timing of restoring traffic volumes was uncertain.
- Net loss included a $3.0 million loss on early debt extinguishment and acquisition-related costs; adjusted EBITDA also included add-backs for items such as the Winopoly transaction, litigation and share-based compensation.
- Fluent acquired Winopoly’s remaining 50% interest for consideration of $7.8 million, including cash, deferred payments and 500,000 shares. Acquisition-related net expense included $3.2 million associated with terminating the prior put/call arrangement.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management’s stated strategy is to improve traffic quality, expand monetization and develop products, including app-based properties. Results remain exposed to media availability and pricing, advertiser budgets, seasonality, client concentration and rewards costs. One advertiser represented 11.7% of revenue, and the top ten represented approximately 35%.
Other material risks include evolving privacy and telemarketing regulation, changes to mobile ad tracking and third-party cookies, cybersecurity and service-provider disruptions, competition, employee retention and integration of acquisitions. The company’s floating-rate secured credit agreement has financial covenants and restrictions on debt, acquisitions and certain payments.
Fluent paid a $3.7 million penalty in 2021 to resolve the New York Attorney General matter and agreed to injunctive provisions affecting political advocacy campaigns. New York sales-tax audits remained unresolved; the estimated loss range was $0.8 million to $3.0 million, with $0.8 million accrued. FTC and Pennsylvania Attorney General inquiries were ongoing, and the company said their outcomes could not be predicted. Goodwill was $165.1 million; annual impairment testing found no impairment, but the auditor identified goodwill recoverability as a critical audit matter. Management and the auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and controls.
Key facts investors should verify
- Whether traffic-quality changes and newer acquisition channels can restore growth without further margin erosion.
- Whether customer concentration, rewards fulfillment costs and media prices affect future profitability and cash generation.
- Progress and potential financial exposure from the unresolved New York sales-tax audits and FTC and Pennsylvania inquiries.
- Debt amortization, floating interest costs, covenant headroom and availability of the revolving facility.
- Assumptions supporting the carrying value of goodwill and the recoverability of deferred tax assets; the company maintained a full valuation allowance against net deferred tax assets.