Fluent, Inc. / Cogint, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. The supplied filing is filed by Cogint, Inc.; it describes Fluent as an operating business and subsidiary. Investors should verify the company and security to which this filing relates.
Business context and results
Cogint described itself as a data and analytics company operating through Information Services and Performance Marketing. All financial amounts below are in millions of dollars except per-share data.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $57.2 | $52.2 | $161.0 | $132.6 |
| Gross profit | $19.6 | $12.5 | $51.5 | $34.9 |
| Gross margin | 34% | 24% | 32% | 26% |
| Operating loss | $(11.7) | $(12.4) | $(40.1) | $(28.4) |
| Net loss | $(14.1) | $(9.7) | $(47.2) | $(23.7) |
| Basic and diluted loss per share | $(0.25) | $(0.19) | $(0.86) | $(0.56) |
| Adjusted EBITDA (non-GAAP) | $5.8 | $3.2 | $15.6 | $8.6 |
Q3 Information Services revenue rose 54% to $22.8 million; Performance Marketing revenue fell 8% to $34.4 million. For the first nine months, the segments generated $57.9 million and $103.2 million, respectively. Management attributed higher consolidated gross margin to the growing Information Services mix.
Cash flow, balance sheet and debt
- Cash and cash equivalents were $10.3 million at September 30, 2017, versus $10.1 million at year-end 2016. Total assets were $311.9 million and shareholders’ equity was $210.4 million.
- Nine-month operating cash flow was negative $2.9 million, compared with positive $4.4 million in 2016. Investing cash flow was negative $6.7 million; financing cash flow was positive $9.8 million, mainly reflecting $14.0 million of net proceeds from an incremental term loan.
- Debt carrying value, including shareholder promissory notes and net of issuance costs, was $62.8 million; principal plus accrued PIK interest was approximately $67.1 million. Term loans bear variable interest at LIBOR plus 10.5% (or base rate plus 9.5%), plus an additional 1% payable in cash or in kind, and mature in December 2020. Shareholder notes bear 10% interest and are due six months after the term loans are repaid.
- Current liabilities were $31.2 million, including $15.6 million in accrued expenses and other current liabilities. Contractual obligations totaled $141.6 million, including $92.5 million of scheduled debt principal and interest and $24.3 million of data-licensing commitments.
Material changes, outlook and risks
- Revenue increased 10% in Q3 and 21% for the nine-month period. Gross margin improved, but net loss widened for the nine months. The filing reports no 2017 income tax benefit, compared with benefits of $4.5 million in Q3 2016 and $11.5 million in the first nine months of 2016; it cites a full valuation allowance on deferred tax assets.
- Operating expenses included $11.1 million of share-based compensation in Q3 and $27.7 million for nine months. The nine-month period also included a $7.0 million TRADS litigation settlement expense and a $3.6 million write-off of long-lived assets related to integrating Q Interactive.
- Management expected consolidated gross margin to increase over the following 12 months as Information Services scaled. It said cash resources, including approximately $2.6 million received from warrant exercises in October 2017 and potential financings, should be sufficient for operations and expected capital expenditures over the next 12 months. This outlook was conditional: continued losses, covenant compliance, and access to financing remained risks, and further financing could dilute shareholders.
- The July 2017 TRADS settlement required $7.0 million of payments over one year; $5.0 million remained unpaid at September 30. Management reported no other then-known legal matter expected to have a material adverse effect, while noting litigation outcomes remain uncertain.
- A September 2017 agreement contemplated BlueFocus acquiring 63% of Cogint on a fully diluted basis in exchange for contributed businesses, $100 million in cash, and repayment, assumption, or refinancing of Cogint debt. The plan also included spinning off the IDI data-and-analytics business into Red Violet and distributing a conditional cash dividend. Completion depended on approvals and other closing conditions; the filing does not establish that the transaction would close.
- After quarter-end, warrant exercise-price amendments generated approximately $2.6 million in October proceeds. On November 3, the company issued 2.75 million shares to settle Q Interactive acquisition consideration. The filing also reports a subsequent amendment to debt covenants and Whitehorse warrant amendments.
Important facts for investors to verify
- Confirm the reporting issuer and applicable security: this is a Cogint, Inc. filing, notwithstanding the request’s Fluent, Inc. label.
- Check the status and final terms of the BlueFocus transaction, proposed Red Violet spin-off, cash dividend, and required approvals.
- Review current debt balances, interest costs, covenant requirements and waivers/amendments, including the post-quarter amendments described in the filing.
- Assess cash conversion and working-capital needs: receivables rose to $37.1 million, the doubtful-account allowance increased to $2.4 million, and nine-month operating cash flow was negative.
- Evaluate the scale and potential dilution of share-based compensation, outstanding awards and warrants, and the 2.75 million shares issued after quarter-end.