10-K: Fluent Inc. Amends Consulting Agreement and Files 10-K Report

Fluent Inc. extends a consulting agreement and files its annual 10-K report, detailing financial performance and strategic initiatives.

Summary

• Fluent Inc. has amended a consulting agreement with Ryan Perfit, extending it on a month-to-month basis for up to six months starting February 1, 2024.
• The company's 10-K filing for the fiscal year ended December 31, 2023, shows a revenue of $298.4 million, a net loss of $63.2 million, and adjusted EBITDA of $6.8 million.
• This compares to the previous year's revenue of $361.1 million, a net loss of $123.3 million, and adjusted EBITDA of $22.7 million.
• The company's treasury stock increased to 4,611,569 shares as of December 31, 2023, from 4,300,152 shares in 2022, primarily due to shares withheld for taxes on vesting RSUs.
• Outstanding RSUs included in vested not delivered were 1,739,592 as of December 31, 2023, compared to 1,691,666 in 2022.
• The company received a cash reimbursement of $640 for tenant improvements in 2019.
• A single long-standing advertiser client accounted for 18.1% of consolidated revenue in 2023, down from 22.1% in 2022.
• The company's market value of voting stock held by non-affiliates was approximately $52.8 million on June 30, 2023.
• As of March 28, 2024, the number of outstanding shares of common stock was 81,571,864.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company has some strengths and strategic initiatives, the financial results are worse than the previous year, and there are several risks and challenges that could impact future performance. The sentiment is therefore cautiously negative.

Positives

• The company is an industry leader in digital marketing services.
• Fluent has a large, proprietary database of first-party, self-declared user information and preferences.
• The company has experience in purchasing media and creating content.
• Fluent has a proprietary and innovative technology platform.
• The company has a diverse client base across various industries.
• Fluent has a strong focus on performance marketing solutions.
• The company has implemented a Traffic Quality Initiative to improve the quality of consumer traffic.
• Fluent is expanding its network through syndicated performance marketplaces.
• The company is investing in its people through competitive salaries, benefits, and development opportunities.

Negatives

• The company experienced a decrease in revenue and adjusted EBITDA compared to the previous year.
• Fluent reported a net loss of $63.2 million for 2023.
• The company is exposed to credit risk from its clients.
• Fluent faces challenges in a competitive and rapidly evolving industry.
• The company is subject to various telemarketing laws and regulations.
• Fluent is dependent on third-party service providers.
• The company has experienced significant charges to goodwill.
• The company has transitioned to a hybrid in-office/remote model, which may affect employee retention.
• The company is subject to sales and use tax and other taxes.

Risks

• The company operates in a competitive and rapidly evolving industry.
• A significant portion of revenue is derived from gaming advertisers, exposing the company to risks associated with that industry.
• Unfavorable publicity and negative public perception about the industry could harm the company's reputation.
• A sudden reduction in online marketing spend by clients could seriously harm the business.
• The company is exposed to credit risk from its clients, and may not be able to collect on amounts owed.
• A decline in the supply of media available through third parties or an increase in the price of this media could reduce profitability.
• Limitations on the ability to collect and use data derived from user activities could increase the cost of media.
• The company's rewards fulfillment costs fluctuate, and it could lose clients if it fails to adequately detect fraud.
• It may be difficult to effectively manage future growth and scale infrastructure and products quickly enough.
• Economic or political instability could adversely affect the business.
• The expansion of international operations subjects the company to increased challenges and risks.
• Acquisitions, investments, and divestitures could complicate operations.
• The company's failure to recruit or the loss of management and highly trained personnel could adversely affect the business.
• The company has transitioned to a hybrid in-office/remote model, which may adversely affect its ability to attract and retain employees.
• The company is dependent upon third-party service providers in its operations.
• The company is subject to a significant number of telemarketing laws and regulations.
• The company's use of email marketing is subject to laws and rules in each of the jurisdictions in which it operates.
• Laws and regulations regarding privacy, data protection, and the handling of personal information are complex and evolving.
• The company is subject to litigation, inquiries, investigations, examinations, or other legal proceedings.
• The company's business and the businesses of its advertiser clients may be subject to sales and use tax and other taxes.
• The company collects and processes personal information and other data, and its actual or perceived failure to safeguard such data and user privacy could damage its reputation and results of operations.
• If the company does not adequately protect its intellectual property rights, its competitive position and business may suffer.
• As a creator and a distributor of digital media content, the company faces liability and expenses for legal claims based on the nature and content of the materials that it creates or distributes.
• Covenants in the company's Credit Agreement impose restrictions that may limit its operating and financial flexibility.
• The Term Loan under the company's Credit Facility bears interest based on one of two variable rates, which could increase the cost of servicing the debt.
• The company may require additional capital in the future to pursue its business objectives.
• The company has experienced significant charges to its goodwill and could experience significant charges to its intangible assets.
• There can be no assurance that the company's common stock will continue to be listed on The Nasdaq Stock Market.
• The company's stock price has been and may be volatile in the future.
• The concentration of the company's stock ownership presents risks.
• Future issuances of shares of the company's common stock could have a dilutive effect on your investment.
• The company does not intend to pay cash dividends for the foreseeable future.
• The company is a smaller reporting company and a non-accelerated filer, and it benefits from certain reduced governance and disclosure requirements.

Future Outlook

The company believes the first half of 2024 will continue to be characterized by slowed economic conditions and uncertainty, with improvement projected in the second half of 2024.

Management Comments

• The company is focused on improving the quality of traffic sourced to its media properties.
• Fluent is working with a select group of advertisers to define high performing consumer segments and strategically price paid conversions to help clients drive higher ROAS.
• The company expects that its industry-leading compliance protocols will be a competitive advantage that will enable it to recapture market share from its competitors.

Industry Context

The document highlights the challenges faced by digital marketing professionals, such as cookie deprecation and rising acquisition costs, and positions Fluent as a solution provider in this evolving landscape. The company is also adapting to the emergence of commerce media and the increasing importance of first-party data.

Comparison to Industry Standards

• The document mentions that global advertising spend is projected to reach $752 billion, with the performance marketing sector maintaining a Serviceable Available Market of $300 billion, indicating the scale of the industry in which Fluent operates.
• The document cites eMarketer reports that digital marketing is anticipated to continue growing at 9.3% annually through 2027, suggesting that Fluent is operating in a growing market.
• The document also notes that commerce media could surpass $109 billion in the digital advertising space by 2027, highlighting a significant opportunity for Fluent.
• The document mentions that 86% of Americans express apprehension about data privacy, according to KPMG research, indicating a trend that Fluent is addressing with its first-party data approach.
• The document cites a YouGov survey that only 33% of marketers think they are prepared for the phase-out of third-party cookie tracking, suggesting that Fluent's solutions are well-positioned to address this challenge.
• The document references a Semrush report that 41% of marketers listed generating high-quality leads cost-effectively as their biggest challenge, indicating a key area where Fluent's services can provide value.
• The document mentions that 54% of customer experience professionals say their teams are unable to prove ROI for their projects, according to Forrester, highlighting the need for measurable marketing solutions like those offered by Fluent.

Legal Proceedings

• The company reached a settlement for $1.7 million with the New York State Department of Taxation and Finance in 2022.
• Fluent agreed to the terms of a Stipulated Order for Permanent Injunction, Monetary Judgment, Civil Penalty Judgment, and Other Relief with the FTC in 2023, imposing a civil penalty of $2.5 million.
• The company entered into a settlement with the PAAG in 2023, agreeing to injunctive relief and to pay $0.25 million for investigatory costs.
• The company agreed to participate in the settlement of a TCPA class action, contributing $3.1 million.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and adjusted EBITDA, as well as the net loss.
• Employees may be affected by the company's transition to a hybrid work model and potential workforce reductions.
• Customers may benefit from the company's focus on improving the quality of consumer traffic and providing measurable marketing results.
• Suppliers may be affected by the company's financial performance and ability to pay on time.
• Creditors may be concerned about the company's debt obligations and ability to meet financial covenants.

Next Steps

• The company intends to continue to make investments to support its growth.
• Fluent will continue to diversify its client base.
• The company intends to further develop its 'ROAS program' across additional segments of advertisers.
• Fluent will continue to improve consumer engagement on its platform.
• The company will continue to strengthen relationships with existing advertisers and build relationships with new advertisers.
• Fluent will continuously seek to enhance its product offerings for consumers and targeting capabilities for advertisers.

Key Dates

Keywords

digital marketing, performance marketing, customer acquisition, online advertising, data marketing, lead generation, mobile marketing, programmatic advertising, social media marketing, call center, first-party data, media buying, influencer marketing