Filing summary
Entity note: The supplied filing is Cogint, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, not a standalone Fluent, Inc. 10-K. Cogint acquired Fluent in December 2015 and reports it within Performance Marketing. The 2015 comparison includes only a short post-acquisition period for Fluent, so year-over-year growth is not directly comparable.
Business context and reporting period
Cogint provides data analytics and information services through its Information Services segment and digital customer acquisition and performance advertising through Performance Marketing. It also acquired Q Interactive in June 2016. The filing reports full-year 2016 results and unaudited fourth-quarter results.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $186.8 million | $14.1 million |
| Information Services revenue | $55.5 million | $6.4 million |
| Performance Marketing revenue | $131.4 million | $7.7 million |
| Gross profit / gross margin | $53.0 million / 28% | $3.8 million / 27% |
| Operating loss | $34.0 million | $44.4 million |
| Net loss | $29.1 million | $84.5 million |
| Adjusted EBITDA (non-GAAP) | $15.0 million | $(6.6) million |
| Cash from operating activities | $2.1 million | $(10.7) million |
FY 2016 cash used in investing activities was $12.0 million, principally for capitalized software and litigation costs; financing activities provided $6.6 million. Cash and cash equivalents were $10.1 million at year-end, down from $13.5 million. Total assets were $311.9 million and shareholders’ equity was $229.6 million.
At December 31, 2016, debt was approximately $50.0 million net of unamortized issuance costs, including the term loan and shareholder promissory notes. The term loan was variable-rate and secured by substantially all company and subsidiary assets. Current liabilities were $26.2 million and current assets were $43.1 million.
Fourth-quarter results and changes
Q4 2016 revenue was $54.2 million versus $10.8 million in Q4 2015; segment revenue was $16.2 million for Information Services and $38.0 million for Performance Marketing. Gross margin was 33% versus 21%. Net loss narrowed to $5.4 million from $32.6 million, while adjusted EBITDA improved to $6.3 million from a loss of $2.3 million. Compared with Q3 2016, revenue rose from $52.2 million, gross margin increased from 24%, and net loss narrowed from $9.7 million.
The year-over-year revenue increase primarily reflects the Fluent and Q Interactive acquisitions and the longer period of Fluent ownership in 2016, rather than a like-for-like organic comparison. Annual gross margin increased modestly to 28%; management attributed improvement partly to lower data costs relative to revenue and expected further margin improvement as Information Services scales. The company remained loss-making under GAAP.
Outlook, risks, contingencies, and unusual items
- Management expected available cash and the subsequent $15.0 million incremental term loan, funded February 1, 2017, to support operations and expected capital expenditures for the next 12 months. It cautioned that further financing may be needed and that liquidity depends on growth, cash generation, and compliance with debt covenants.
- In January 2017, Cogint approved integrating Q Interactive into Fluent. Management forecast approximately $4.5 million of annualized operating expense savings beginning in Q2 2017, about $0.9 million of 2017 restructuring costs, and a $3.6 million intangible asset impairment in Q1 2017.
- The incremental loan is subject to the existing facility’s security and guarantees, bears cash interest at LIBOR plus 10.5% or base rate plus 9.5%, plus an additional 1% payable in cash or in kind, and matures December 8, 2020. Quarterly principal amortization is approximately $0.7 million. These are high borrowing costs and meaningful fixed obligations.
- A court ruled against the company in a dispute over purchased intellectual property; Cogint wrote off $4.1 million of related intangible assets and capitalized litigation costs. The appeal remained ongoing, and attorneys’ fees and costs were still to be determined. The company disclosed possible losses of $3 million to $6 million across pending litigation, with no contingency accrual recorded at year-end.
- Other material risks include privacy and data-use regulation, cybersecurity and data breaches, reliance on external data providers and publishers, customer and supplier concentration, intense competition, advertising-market volatility, and potential dilution. One customer represented 12% of 2016 revenue. Management reported compliance with debt covenants at year-end.
- Adjusted EBITDA is a non-GAAP measure and excludes, among other items, substantial share-based compensation, interest, and specified unusual costs. FY 2016 share-based payment expense was $29.2 million; the Purchased IP write-off was $4.1 million.
Important facts for investors to verify
- Confirm the filing entity and reporting scope: this is Cogint’s consolidated 10-K, with Fluent included as a subsidiary.
- Assess the acquisitions’ contribution versus organic growth, particularly given the limited 2015 comparison period and Q Interactive’s partial-year inclusion.
- Review cash conversion, capitalized software spending, receivables, and the company’s ability to sustain positive operating cash flow.
- Check the full debt terms, covenant headroom, collateral, subsequent $15.0 million borrowing, and required debt service.
- Monitor the Q Interactive integration, projected savings, restructuring expense, and impairment charge against actual results.
- Track the intellectual-property appeal, fee award, other litigation, and the stated $3–$6 million possible litigation loss.
- Evaluate equity dilution: the filing describes substantial outstanding awards and potential acquisition-related shares. The auditor issued unqualified opinions on the financial statements and internal controls, but the Q Interactive subsidiary—8% of assets and 12% of revenue—was excluded from the internal-control assessment.