Cogint, Inc. Form 10-Q — quarter ended March 31, 2017
Filing identity: The supplied filing is for Cogint, Inc., not Fluent, Inc. Fluent, LLC is described as a wholly owned subsidiary. Confirm the issuer before relying on this summary.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2017, compared with the same 2016 quarter. Cogint provides data, analytics, information services, and performance marketing through its Information Services and Performance Marketing segments. The company integrated Q Interactive into Fluent, LLC during the quarter.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $50.8 million | $39.4 million; up 29% |
| Gross profit and margin | $15.6 million; 30.7% | $10.9 million; 27.7% |
| Operating loss | $10.5 million | $8.2 million |
| Net loss | $12.7 million | $6.8 million |
| Basic and diluted loss per share | $0.24 | $0.25 |
| Adjusted EBITDA (non-GAAP) | $5.0 million | $2.4 million; up 111% |
| Cash from operating activities | $2.2 million | $0.5 million |
Information Services revenue rose 49% to $16.4 million; Performance Marketing revenue rose 21% to $34.3 million. Net loss worsened despite revenue and gross-margin growth, partly because of a $3.6 million long-lived-asset write-off and the absence of the prior-year $3.5 million tax benefit. Adjusted EBITDA is a company-defined non-GAAP measure and is not a substitute for GAAP earnings or operating cash flow.
At March 31, cash and cash equivalents were $22.0 million, current assets $52.4 million, and current liabilities $21.8 million. Net working capital was approximately $30.6 million. Debt carrying value, including current debt and shareholder promissory notes, was approximately $63.0 million; disclosed principal plus accrued PIK interest was approximately $68.0 million. Term loans carry a high variable rate: LIBOR plus 10.5% (with a 0.5% floor), plus 1% payable in cash or in kind. The company reported covenant compliance at quarter-end. Contractual obligations totaled $138.6 million, including $97.9 million of scheduled debt principal and interest and $24.3 million of data-licensing commitments.
Material changes versus the prior comparable period
- Revenue increased by $11.3 million, with growth in both segments; gross margin improved by about 3 percentage points.
- Operating expenses included the $3.6 million asset write-off related to Q Interactive integration and $0.7 million of restructuring costs. The company expects approximately $4.5 million in annualized operating-expense savings beginning in Q2 2017 and expects little or no customer or revenue attrition.
- Operating cash flow increased to $2.2 million from $0.5 million. Cash rose by $11.9 million during the quarter, substantially reflecting $14.0 million of net proceeds from a new incremental term loan.
- Debt and financing costs increased: the company received a $15.0 million incremental term loan in February, net of issuance costs, and quarterly net interest expense rose to $2.2 million from $1.8 million.
- Weighted-average shares outstanding nearly doubled year over year, to 53.8 million from 27.5 million; the reported loss per share was therefore not directly comparable to the change in total net loss.
Outlook, risks, contingencies, and unusual items
- Management expected cash resources, including the incremental loan, to fund operations and expected capital expenditures for the next 12 months, based on projected revenue and operating results. It cautioned that further financing may be needed and could dilute shareholders or be unavailable on acceptable terms.
- Management expected consolidated gross margin to increase over the following 12 months as Information Services scales. No specific revenue, earnings, or cash-flow guidance was provided.
- Risks include continued net losses, debt service and restrictive covenants, variable-rate interest exposure, significant data-licensing commitments, and the need to generate positive operating cash flow. A 10% change in interest rates was estimated to affect next-12-month interest expense by $0.7 million.
- Pending litigation could result in an estimated possible loss of $3 million to $6 million; no litigation accrual was recorded at March 31. A dispute over intellectual-property ownership had resulted in an adverse trial judgment and an order to pay opposing counsel’s fees and costs, with appeals and fee proceedings ongoing. The company also disclosed other ongoing disputes and said adverse rulings could affect liquidity and results.
- The company wrote off $3.6 million of Q Interactive-related assets in Q1. Separately, the filing describes a $10.2 million Q Interactive earn-out expected to be settled in stock in 2017; it is recorded as a non-current liability.
- Management reported effective disclosure controls and procedures and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm whether Cogint, Inc. or Fluent, Inc. is the intended filing issuer and how the entities relate.
- Track post-integration revenue retention, realized cost savings, and any further restructuring or asset impairments.
- Review debt terms, covenant headroom, cash availability at subsidiaries, and the effect of variable interest rates on cash needs.
- Monitor the intellectual-property appeal and attorneys’ fee determination, other litigation, and whether any losses become probable and estimable.
- Assess the quality of reported growth and adjusted EBITDA alongside GAAP losses, operating cash flow, share-based compensation, and dilution from outstanding awards and earn-out shares.