Fluent, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed April 2, 2024. It reports annual results, not standalone fourth-quarter results.
Business context
Fluent provides performance-based digital marketing and customer-acquisition services, using owned media properties, partner marketplaces, consumer data and call solutions. It served more than 500 brands, direct marketers and agencies in 2023. AdParlor provides social-media advertising services.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $298.4 million | $361.1 million | Down 17% |
| Gross profit, excluding depreciation and amortization | $78.5 million; 26.0% of revenue | $93.6 million; 26.0% | Down 16% |
| Media margin (non-GAAP) | $91.3 million; 30.6% of revenue | $110.0 million; 30.5% | Down 17% |
| Operating loss | $60.1 million | $119.6 million | Loss narrowed |
| Net loss | $63.2 million; $0.77 per share | $123.3 million; $1.51 per share | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $6.8 million | $22.7 million | Down 70% |
| Adjusted net income (loss) (non-GAAP) | $(7.2) million; $(0.09) per share | $5.8 million; $0.07 per share | Turned to loss |
| Operating cash flow | $8.1 million | $2.0 million | Improved |
Revenue fell mainly because of weaker client spending and contraction in owned-and-operated marketplaces, including reduced spend by key Media & Entertainment and subscription clients. Regulatory-driven business changes also weighed on revenue and media margin. Higher CRM monetization and new syndicated marketplaces partly offset the declines. Lower goodwill impairment and general and administrative expense helped reduce the GAAP net loss; 2023 included a $55.4 million goodwill impairment, versus $111.1 million in 2022.
Cash used in investing activities was $7.1 million, primarily reflecting capitalized software and business-combination costs. Cash used in financing activities was $10.8 million, including $10.0 million of debt repayments and financing costs. Cash and equivalents declined to $15.8 million from $25.5 million.
Balance sheet, debt and liquidity
At December 31, 2023, total assets were $111.9 million, total liabilities $77.5 million, and shareholders’ equity $34.4 million. Long-term debt had $31.3 million of principal outstanding, including $5.0 million classified as current. The company reported $4.2 million of noncancelable operating lease commitments.
At year-end, Fluent had breached total-leverage and fixed-charge-ratio covenants under its Citizens credit agreement; waivers covered the breaches through the applicable waiver period. On April 2, 2024, after the reporting date, Fluent refinanced that facility with an SLR facility comprising a $20 million term loan and a revolving facility of up to $30 million. Outstanding principal was $32.7 million, with an anticipated opening interest rate of 10.81% and maturity on April 2, 2029. The debt is secured by substantially all company and certain subsidiary assets and has restrictive covenants. The company said it expected available resources to fund operations and expected capital expenditures for the next twelve months and beyond.
Outlook, material developments and risks
- Management expected economic uncertainty and revenue pressures to continue into the first half of 2024, with improvement projected in the second half; it cautioned that improvement was not assured. The company planned to diversify clients, expand its ROAS program and improve monetization.
- One gaming advertiser represented 18.1% of 2023 revenue, down from 22.1% in 2022. Gaming advertisers collectively contributed approximately 38% of revenue. The major client reduced spending in the second half of 2023.
- Fluent settled FTC and Pennsylvania Attorney General matters in 2023. The FTC order required business-practice changes and a $2.5 million civil penalty; the Pennsylvania settlement included $0.25 million of investigative costs. The company said resulting compliance changes adversely affected revenue and media margin. It also disclosed a TCPA class-action settlement requiring a $3.1 million company contribution, with final approval in February 2024 and payment due in March 2024.
- Key risks include regulatory change and litigation, privacy and data-security requirements, dependence on third-party media sources, client and gaming-sector concentration, media-cost volatility, and the ability to maintain campaign performance and collect receivables. The company disclosed that 27% of revenue came from customers located in Israel.
- Nasdaq had granted an extension to April 29, 2024, to regain compliance with its minimum bid-price requirement. Stockholders authorized the board to effect a reverse stock split if needed.
- Goodwill fell to $1.3 million at year-end after impairment charges. Further impairment of remaining intangible assets is a risk if operating results or forecasts deteriorate.
- Management reported effective disclosure controls and internal control over financial reporting at year-end, and said it completed testing of remediation for a previously reported material weakness. The auditor was not required to attest to internal-control effectiveness because Fluent was a non-accelerated filer.
Important facts for investors to verify
- Whether revenue, adjusted EBITDA and media margin stabilize or improve, and whether management’s second-half 2024 outlook is achieved.
- How the SLR refinancing’s high variable interest cost, collateral package, covenants and available revolver affect liquidity and debt-service capacity.
- Whether client concentration—particularly the major gaming advertiser—and exposure to the gaming vertical decline further.
- The continuing financial and operational effects of the FTC order, TCPA settlement and evolving telemarketing, privacy and data-protection rules.
- Nasdaq bid-price compliance and any reverse stock split, as well as potential dilution from equity awards and other share issuances.
Adjusted EBITDA, adjusted net income and media margin are non-GAAP measures; the filing cautions that they are not substitutes for GAAP results or measures of profitability.