flnt20230331

flnt20230331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37893

FLUENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0688094

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

300 Vesey Street, 9th Floor

New York, New York

10282

(Address of principal executive offices)

(Zip Code)

(646) 669-7272

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0005 par value per share

FLNT

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of May 12, 2023, the registrant had 81,037,845 shares of common stock, $0.0005 par value per share outstanding.

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FLUENT, INC.

TABLE OF CONTENTS FOR FORM 10-Q

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	2
	Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022	3
	Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

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PART I - FINANCIAL INFORMATION

Unless otherwise indicated or required by the context, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," "Fluent," or the "Company," refer to Fluent, Inc. and its consolidated subsidiaries.

ITEM 1. FINANCIAL STATEMENTS.

FLUENT, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

(unaudited)

	*March 31, 2023*			*December 31, 2022*
ASSETS:
Cash and cash equivalents	$	26,567		$	25,547
Accounts receivable, net of allowance for doubtful accounts of $317 and $544, respectively		56,759			63,164
Prepaid expenses and other current assets		5,588			3,506
Total current assets		88,914			92,217
Property and equipment, net		861			964
Operating lease right-of-use assets		4,743			5,202
Intangible assets, net		27,650			28,745
Goodwill		33,354			55,111
Other non-current assets		1,648			1,730
Total assets	$	157,170		$	183,969
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable	$	12,929		$	6,190
Accrued expenses and other current liabilities		33,189			35,626
Deferred revenue		1,005			1,014
Current portion of long-term debt		5,000			5,000
Current portion of operating lease liability		2,349			2,389
Total current liabilities		54,472			50,219
Long-term debt, net		34,404			35,594
Operating lease liability		3,242			3,743
Other non-current liabilities		2,128			458
Total liabilities		94,246			90,014
Contingencies (Note 10)
Shareholders' equity:
Preferred stock — $0.0001 par value, 10,000,000 Shares authorized; Shares outstanding — 0 shares for both periods		—			—
Common stock — $0.0005 par value, 200,000,000 Shares authorized; Shares issued — 85,545,397 and 84,385,458, respectively; and Shares outstanding — 80,933,828 and 80,085,306, respectively (Note 7)		43			42
Treasury stock, at cost — 4,611,569 and 4,300,152 Shares, respectively (Note 7)		(11,407	)		(11,171	)
Additional paid-in capital		424,531			423,384
Accumulated deficit		(350,243	)		(318,300	)
Total shareholders' equity		62,924			93,955
Total liabilities and shareholders' equity	$	157,170		$	183,969

See notes to consolidated financial statements

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FLUENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(unaudited)

	*Three Months Ended March 31,*
	*2023*			*2022*
Revenue	$	77,254		$	89,063
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization)		58,272			67,562
Sales and marketing		4,813			3,852
Product development		4,938			4,556
General and administrative		12,325			11,287
Depreciation and amortization		2,359			3,307
Goodwill impairment and write-off of intangible assets		25,700			128
Total costs and expenses		108,407			90,692
Loss from operations		(31,153	)		(1,629	)
Interest expense, net		(689	)		(384	)
Loss before income taxes		(31,842	)		(2,013	)
Income tax expense		(101	)		—
Net loss		(31,943	)		(2,013	)

Basic and diluted loss per share:
Basic	$	(0.39	)	$	(0.02	)
Diluted	$	(0.39	)	$	(0.02	)

Weighted average number of shares outstanding:
Basic		81,906,913			80,889,052
Diluted		81,906,913			80,889,052

See notes to consolidated financial statements

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FLUENT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Amounts in thousands, except share and per share data)

(unaudited)

	*Common stock*				*Treasury stock*					*Additional paid-in*			*Accumulated*			*Total shareholders'*
	*Shares*		*Amount*		*Shares*		*Amount*			*capital*			*deficit*			*equity*
Balance at December 31, 2022		84,385,458	$	42		4,300,152	$	(11,171	)	$	423,384		$	(318,300	)	$	93,955
Vesting of restricted stock units and issuance of stock under incentive plans		1,159,939		1		—		—			(1	)		—			—
Increase in treasury stock resulting from shares withheld to cover statutory taxes		—		—		311,417		(236	)		—			—			(236	)
Share-based compensation		—		—		—		—			1,148			—			1,148
Net loss		—		—		—		—			—			(31,943	)		(31,943	)
Balance at March 31, 2023		85,545,397	$	43		4,611,569	$	(11,407	)	$	424,531		$	(350,243	)	$	62,924

	*Common stock*				*Treasury stock*					*Additional paid-in*		*Accumulated*			*Total shareholders'*
	*Shares*		*Amount*		*Shares*		*Amount*			*capital*		*deficit*			*equity*
Balance at December 31, 2021		83,057,083	$	42		4,091,823	$	(10,723	)	$	419,059	$	(194,968	)	$	213,410
Vesting of restricted stock units and issuance of stock under incentive plans		926,504		—		—		—			211		—			211
Increase in treasury stock resulting from shares withheld to cover statutory taxes		—		—		208,329		(448	)		—		—			(448	)
Share-based compensation		—		—		—		—			1,015		—			1,015
Net loss		—		—		—		—			—		(2,013	)		(2,013	)
Balance at March 31, 2022		83,983,587	$	42		4,300,152	$	(11,171	)	$	420,285	$	(196,981	)	$	212,175

See notes to consolidated financial statements

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FLUENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

	*Three Months Ended March 31,*
	*2023*			*2022*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,943	)	$	(2,013	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,359			3,307
Non-cash loan amortization expense		61			68
Share-based compensation expense		1,061			988
Goodwill impairment		25,700			—
Write-off of intangible assets		—			128
Provision for bad debt		(55	)		81
Deferred income taxes		—			—
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable		6,460			5,127
Prepaid expenses and other current assets		(2,082	)		451
Other non-current assets		82			(13	)
Operating lease assets and liabilities, net		(82	)		(42	)
Accounts payable		6,739			(3,348	)
Accrued expenses and other current liabilities		(3,362	)		(6,251	)
Deferred revenue		(9	)		(174	)
Other		(39	)		(85	)
Net cash provided by (used in) operating activities		4,890			(1,776	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized costs included in intangible assets		(1,134	)		(1,071	)
Business acquisitions, net of cash acquired		(1,250	)		(971	)
Acquisition of property and equipment		—			(7	)
Net cash used in investing activities		(2,384	)		(2,049	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(1,250	)		(1,250	)
Taxes paid related to net share settlement of vesting of restricted stock units		(236	)		(448	)
Net cash used in financing activities		(1,486	)		(1,698	)
Net increase (decrease) in cash, cash equivalents and restricted cash		1,020			(5,523	)
Cash, cash equivalents and restricted cash at beginning of period		25,547			34,467
Cash, cash equivalents and restricted cash at end of period	$	26,567		$	28,944
SUPPLEMENTAL DISCLOSURE INFORMATION
Cash paid for interest	$	664			301
Cash paid for income taxes	$	55			34
Share-based compensation capitalized in intangible assets	$	27			27
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Liability incurred for future contingent payments in connection with TAPP consolidation	$	2,693		$	—
Liability incurred for deferred payment in connection with True North acquisition	$	—		$	860
Contingent consideration in connection with True North acquisition	$	—		$	250
Equity issued in connection with True North acquisition	$	—		$	211

See notes to consolidated financial statements

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

(unaudited)

1. Summary of significant accounting policies

(a) Basis of preparation

The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods ended March 31, 2023 and 2022, respectively, but are not necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending December 31, 2023.

From time to time, the Company may enter into relationships or investments with other entities, and, in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity (“VIE”). The Company consolidates a VIE in its financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the operations of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K") filed with the SEC on March 15, 2023. The consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date included in the 2022 Form 10-K.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.

(b) Recently issued and adopted accounting standards

Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our consolidated financial statements.

In January 2016, the Financial Accounting Standards Board issued Accounting Standards Updates No. 2016-13, Financial Instruments—Credit Losses and additional changes, modifications, clarifications, or interpretations thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amounts expected to be collected. The new guidance is effective for annual and interim periods beginning after December 15, 2022, and early adoption is permitted. The Company completed its assessment of the new guidance and determined it had no material impact on its consolidated financial statements.

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share and per share data)

(unaudited)

(c) Revenue recognition

Revenue is when control of goods or services is transferred to customers, in the amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's performance obligation is typically to (a) deliver data records, based on predefined qualifying characteristics specified by the customer, (b) generate conversions, based on predefined user actions (for example, a click, a registration or the installation of an app) and subject to certain qualifying characteristics specified by the customer, (c) verify user interest or transfer calls to advertiser clients as a part of the contact center operation, or (d) deliver media spend as a part of the business of AdParlor, LLC, a wholly-owned subsidiary of the Company.

Revenue is recognized upon satisfaction of associated performance obligation. The Company elected the “right to invoice” practical expedient under ASC 606-10-55-18 as a measure for revenue to be recognized, as it corresponds directly with the amounts that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

If a customer pays consideration before the Company's performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the balance of deferred revenue was $1,005 and $1,014, respectively. The majority of the deferred revenue balance as of December 31, 2022 was recognized into revenue during the first quarter of 2023.

When there is a delay between the period in which revenue is recognized and when a customer invoice is issued, revenue is recognized, and the related amounts are recorded as unbilled revenue within accounts receivable on the consolidated balance sheets. As of March 31, 2023 and December 31, 2022, unbilled revenue included in accounts receivable was $22,777 and $26,878, respectively. In line with industry practice, the unbilled revenue balance is recorded based on the Company's internally tracked conversions, net of estimated variances between this amount and the amount tracked and subsequently confirmed by customers. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have not been materially different from actual revenue billed.

(d) Use of estimates

The preparation of consolidated financial statements in accordance with GAAP requires the Company’s management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, useful lives of intangible assets, recoverability of the carrying amounts of goodwill and intangible assets, the portion of revenue subject to estimates for variances between internally-tracked conversions and those confirmed by the customer, purchase accounting, consolidation of variable interest entity, accruals for contingencies, and income tax provisions. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

(e) Fair value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

●

Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.

●

Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of the Company’s cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.

As of March 31, 2023, the Company regards the fair value of its long-term debt to approximate its carrying value. The fair value assessment represents a Level 2 measurement. See Note 5, Long-term debt, net.

The fair value of certain long-lived non-financial assets and liabilities may be required to be measured on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. As of March 31, 2023, certain non-financial assets have been measured at fair value subsequent to their initial recognition. The Company determined the estimated fair value to be a Level 3, as certain inputs used to determine fair value are unobservable, see Note 4, Goodwill, for further discussion of the impairment charge.

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share and per share data)

(unaudited)

2. Loss per share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, in addition to restricted stock units ("RSUs") that are vested but not delivered. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock and is calculated using the treasury stock method for stock options, restricted stock units, restricted stock, warrants and deferred common stock. Stock equivalent shares are excluded from the calculation in loss periods, as their effects would be anti-dilutive.

For the three months ended March 31, 2023 and 2022, basic and diluted loss per share were as follows:

	*Three Months Ended March 31,*
	*2023*			*2022*
Numerator:
Net loss	$	(31,943	)	$	(2,013	)
Denominator:
Weighted average shares outstanding		80,210,282			79,161,367
Weighted average restricted shares vested not delivered		1,696,631			1,727,684
Total basic weighted average shares outstanding		81,906,913			80,889,052
Dilutive effect of assumed conversion of restricted stock units		—			—
Total diluted weighted average shares outstanding		81,906,913			80,889,052
Basic and diluted loss per share:
Basic	$	(0.39	)	$	(0.02	)
Diluted	$	(0.39	)	$	(0.02	)

Based on exercise prices compared to the average stock prices for the three months ended March 31, 2023 and 2022, respectively, certain stock equivalents, including stock options and warrants, have been excluded from the diluted weighted average share calculations due to their anti-dilutive nature.

	*Three Months Ended March 31,*
	*2023*		*2022*
Restricted stock units		5,270,095		1,985,611
Stock options		2,139,000		2,139,000
Warrants		—		833,333
Total anti-dilutive securities		7,409,095		4,957,944

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share and per share data)

(unaudited)

3. Intangible assets, net

Intangible assets, net, other than goodwill, consist of the following:

	*Amortization period (in years)*		*March 31, 2023*			*December 31, 2022*
Gross amount:
Software developed for internal use		3	$	15,403			13,740
Acquired proprietary technology		3-5		15,462			15,965
Customer relationships		5-10		38,068			38,068
Trade names		4-20		16,657			16,657
Domain names		20		195			195
Databases		5-10		31,292			31,292
Non-competition agreements		2-5		1,768			1,768
Total gross amount				118,845			117,685
Accumulated amortization:
Software developed for internal use				(9,076	)		(8,097	)
Acquired proprietary technology				(14,446	)		(14,305	)
Customer relationships				(35,404	)		(35,156	)
Trade names				(6,261	)		(6,038	)
Domain names				(70	)		(68	)
Databases				(24,170	)		(23,508	)
Non-competition agreements				(1,768	)		(1,768	)
Total accumulated amortization				(91,195	)		(88,940	)
Net intangible assets:
Software developed for internal use				6,327			5,643
Acquired proprietary technology				1,016			1,660
Customer relationships				2,664			2,912
Trade names				10,396			10,619
Domain names				125			127
Databases				7,122			7,784
Total intangible assets, net			$	27,650		$	28,745

The gross amounts associated with software developed for internal use primarily represent capitalized costs of internally developed software. The amounts relating to acquired proprietary technology, customer relationships, trade names, domain names, databases and non-competition agreements primarily represent the fair values of intangible assets acquired as a result of the acquisition of Fluent, LLC, effective December 8, 2015 (the "Fluent LLC Acquisition"); the acquisition of Q Interactive, LLC, effective June 8, 2016 (the "Q Interactive Acquisition"); the acquisition of substantially all the assets of AdParlor Holdings, Inc. and certain of its affiliates, effective July 1, 2019 (the "AdParlor Acquisition"); the acquisition of a 50% interest in Winopoly, LLC (the "Initial Winopoly Acquisition"), effective April 1, 2020; and the acquisition of a 100% interest in True North Loyalty, LLC, (the "True North Acquisition"), effective January 1, 2022 (see Note 11, Business acquisition).

The Company completed its quarterly triggering event assessments for the three months ended March 31, 2023 and has determined that no triggering event had occurred requiring impairment assessments for its long-lived assets.

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share and per share data)

(unaudited)

Amortization expense of $2,256 and $3,141 for the three months ended March 31, 2023 and 2022, respectively, is included in depreciation and amortization expenses in the consolidated statements of operations. As of March 31, 2023, intangible assets with a carrying amount of $971, included in the gross amount of software developed for internal use, have not commenced amortization, as they are not ready for their intended use.

As of March 31, 2023, estimated amortization expenses related to the Company's intangible assets for the remainder of 2023 and through 2028 and thereafter are as follows:

Year	*March 31, 2023*
Remainder of 2023	$	4,734
2024		6,816
2025		6,370
2026		2,332
2027		830
2028 and thereafter		6,568
Total	$	27,650

4. Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for under business combination accounting. As of March 31, 2023, the total balance of goodwill was $33,354, a decrease of $25,700 from December 31, 2022, as a result of a non-cash impairment charge, offset by a $3,943 preliminary increase in goodwill related to the TAPP consolidation (see Note 12, Variable Interest Entities). The balance also relates to the Fluent LLC Acquisition, the Q Interactive Acquisition, the AdParlor Acquisition, the Initial Winopoly Acquisition, and the True North Acquisition (see Note 11, Business acquisition).

In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is assessed at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. The measurement date of the Company's annual goodwill impairment test is set to October 1.

The Company completed its quarterly triggering event assessments for the three months ended March 31, 2023 and determined that the decline in the market value of its publicly-traded stock, which resulted in a corresponding decline in its market capitalization, constituted a triggering event. The Company conducted an interim test of the fair value of the Fluent reporting unit's goodwill for potential impairment as of March 31, 2023. The Company considered a combination of income and market approaches to determine the fair value of the Fluent reporting unit. The Company determined that a market-based approach, which considered the Company’s implied market multiple applied to management’s forecast and further adjusted for a control premium, provided the best indication of fair value of the Fluent reporting unit. The results of this market-based approach indicated that its carrying value exceeded its fair value by 20%. The Company therefore concluded that the Fluent reporting unit’s goodwill of $51,614 was impaired and recorded a non-cash impairment charge of $25,700.

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FLUENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands, except share and per share data)

(unaudited)

5. Long-term debt, net

Long-term debt, net of unamortized discount and financing costs, related to the Credit Facility consisted of the following:

	*March 31, 2023*			*December 31, 2022*
Credit Facility due 2026 (less unamortized discount and financing costs of $596 and $656, respectively)	$	39,404		$	40,594
Less: Current portion of long-term debt		(5,000	)		(5,000	)
Long-term debt, net (non-current)	$	34,404		$	35,594

Credit Facility

On March 31, 2021, Fluent, LLC entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “Credit Agreement”) with certain subsidiaries of Fluent, LLC as guarantors, and Citizens Bank, N.A. as administrative agent, lead arranger and bookrunner. The Credit Agreement provides for a term loan in the aggregate principal amount of $50,000 funded on the closing date (the “Term Loan”), along with an undrawn revolving credit facility of up to $15,000 (the "Revolving Loans," and together with the Term Loan, the "Credit Facility"). On December 20, 2022, the Company entered into the second amendment to the Credit Agreement, which amended certain provisions to: (i) reflect the replacement of the current benchmark settings with Term Secured Overnight Financial Rate ("SOFR") pursuant to an early opt-in election; (ii) acknowledge certain litigation matters; and (iii) join additional subsidiaries of Borrower as guarantors of the loan facilities provided under the Credit Agreement.  On May 15, 2023, the Company entered into the third amendment to the Credit Agreement, which amended certain provisions to: (i) add an additional tier of applicable margin to the selected rates; (ii) establish the applicable pricing floor for the remaining fiscal quarters in 2023; (iii) modify and adjust certain EBITDA add-backs for certain fiscal quarters in 2023; (iv) add monthly financial reporting for the remaining fiscal quarters in 2023; (v) provide additional financial covenant testing conditions on Fluent’s ability to draw on the Revolving Loans for the remaining fiscal quarters in 2023; (vi) provide additional notice of certain material events; (vii) add tiers to certain financial covenants and add a minimum cash liquidity financial covenant for the remaining fiscal quarters in 2023; (viii) provide additional restrictions on the ability to make loans and advances to officers, directors and employees for the remaining fiscal quarters in 2023; (ix) provide additional restrictions on the ability to invest in certain subsidiaries and joint ventures for the remaining fiscal quarters in 2023; (x) provide additional restrictions on the ability to make additional loans, investments or permitted acquisitions for the remaining fiscal quarters in 2023; and (xi) add unrestricted cash requirements in order for the Company to be permitted to pay dividends, make distributions or redeem or repurchase equity interests, for the remaining fiscal quarters in 2023, in each case pursuant to the terms and conditions under the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the benchmark selected by the Borrower, which may be based on the Alternative Base Rate, LIBOR rate (subject to a floor of 0.25%) prior to the election as of December 31, 2022 or Term SOFR (subject to a floor of 0.00%) subsequent to the election, plus a margin applicable to the selected benchmark. The applicable margin is between 0.75% and 2.75% for borrowings based on the Alternative Base Rate and 1.75% and 3.25% for borrowings based on Term SOFR, depending upon the Borrower's total leverage ratio. The opening interest rate of the Credit Facility was 2.50% (LIBOR + 2.25%), which increased to 7.16% (Term SOFR + 0.1% + 2.25%) as of March 31, 2023.

The Credit Agreement matures on March 31, 2026 and interest is payable monthly. Scheduled principal amortization of the Term Loan is $1,250 per quarter, which commenced with the fiscal quarter ended June 30, 2021. At March 31, 2023, the Company was in compliance with all of the financial and other covenants under the Credit Agreement.

Table of Contents

The Credit Agreement contains negative covenants that, among other things, limit the Borrower's ability to: incur indebtedness; grant liens on its assets; enter into certain investments; consummate fundamental change transactions; engage in mergers or acquisitions or dispose of assets; enter into certain transactions with affiliates; make changes to its fiscal year; enter into certain restrictive agreements; and make certain restricted payments (including for dividends and stock repurchases, which are generally prohibited except in a few circumstances and/or up to specified amounts). Each of these limitations are subject to various conditions.

The Credit Agreement also contains certain affirmative covenants and customary events of default provisions, including, subject to thresholds and grace periods, among others, payment default, covenant default, cross default to other material indebtedness, and judgment default.

The Credit Agreement also contains certain customary conditions to extensions of credit, including that representations and warranties made in the Existing Credit Agreement be materially true and correct at the time of such extension. One such representation concerning the absence of litigation or proceedings is not currently true and correct as a result of the matters pending involving the Federal Trade Commission and the Pennsylvania Office of the Attorney General described