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Fluent, Inc. (NASDAQ: FLNT), a leading data-driven performance marketing company, today reported financial results for the second quarter ended 2020. Ryan Schulke, Fluent’s Chief Executive Officer,... Fluent Announces Second Quarter 2020 Financial Results

Fluent, Inc. (NASDAQ: FLNT), a leading data-driven performance marketing company, today reported financial results for the second quarter ended 2020.

Ryan Schulke, Fluent’s Chief Executive Officer, commented, “Our second quarter performance once again demonstrated the strength and diversification of our platform, as well as the macro benefits of Performance Marketing, which enabled us to meet and exceed our prior business outlook.”

“As we continue to navigate this challenging and uncertain environment, I want to thank all of our employees for their exceptional work under the most difficult of circumstances and to reiterate that Fluent remains resilient and steadfast in striving to support our colleagues, clients, consumers and communities.”

Second Quarter Financial Summary

  • Q2 2020 revenue of $71.5 million, up 1% over Q2 2019
  • Net income of $0.5 or $0.01 per share, compared to net income of $0.7 million, or $0.01 per share, in Q2 2019
  • Media margin of $24.8 million, an increase of 8% over Q1 2019 and representing 34.7% of revenue
  • Adjusted EBITDA of $9.4 million, representing 13.1% of revenue
  • Adjusted net income of $4.2 million, or $0.05 per share

Media margin, adjusted EBITDA and adjusted net income are non-GAAP financial measures, as defined and reconciled below. 

Business Outlook

  • Fluent currently sees Q3 2020 returning to more normalized seasonal patterns, without a recurrence of the factors that affected its Q3 2019 results.
  • Media & Entertainment remains the Company’s fastest growing vertical, underpinned by direct relationships in the Streaming Services and Mobile Gaming categories.
  • Q2 2020 revenue from engaging consumers in international markets, primarily the UK, more than doubled as compared with Q2 2019, and represented more than 5% of total company revenue in the quarter.
  • The Company has adapted well to a work-from-home environment, and, notwithstanding the extraordinary challenges imposed by the global pandemic, the Company’s business and operations have remained on solid footing.

Conference Call

Fluent, Inc. will host a conference call on Monday, August 10, 2020 at 4:30 PM ET to discuss its 2020 second quarter financial results. To listen to the conference call on your telephone, please dial (888) 339-0797 for domestic callers, or (412) 317-5248 for international callers. To access the live audio webcast, visit the Fluent website at investors.fluentco.com. Please login at least 15 minutes prior to the start of the call to ensure adequate time for any downloads that may be required. Following completion of the earnings call, a recorded replay of the webcast will be available for those unable to participate. To listen to the telephone replay, please dial (877) 344-7529 or (412) 317-0088 with the replay passcode 10147081. The replay will also be available for one week on the Fluent website at investors.fluentco.com

About Fluent, Inc.

Fluent (NASDAQ: FLNT) is a leading performance marketing company with expertise in creating meaningful connections between consumers and brands. Leveraging our proprietary first-party database of opted-in consumer profiles, Fluent drives intelligent growth strategies that deliver superior outcomes. Founded in 2010, the company is headquartered in New York City. For more information, visit www.fluentco.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

The matters contained in this press release may be considered to be “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Those statements include statements regarding the intent, belief or current expectations or anticipations of Fluent and members of our management team. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: compliance with a significant number of governmental laws and regulations, including those laws and regulations regarding privacy and data; failure to safeguard the personal information and other data contained in our database; unfavorable global economic conditions, including as a result of health and safety concerns around the ongoing COVID-19 pandemic; failure to compete effectively against other online marketing and advertising companies; dependence on third-party publishers, internet search providers and social media platforms for a significant portion of visitors to our websites; dependence on our key personnel; dependence on emails, text messages and telephone calls, among other channels, to reach users for marketing purposes; competition we face for web traffic; ability to compete and manage media costs in an industry characterized by rapidly-changing internet media and advertising technology, evolving industry standards, regulatory uncertainty, and changing user and client demands; liability related to actions of third-party publishers; limitations on our or our third-party publishers’ ability to collect and use data derived from user activities; ability to remain competitive with the shift of online interactions from computers to mobile devices; dependence on third-party service providers; management of the growth of our operations, including the integration of the AdParlor and Winopoly businesses and other acquired business units or personnel; management of unfavorable publicity and negative public perception about our industry; failure to meet our clients’ performance metrics or changing needs; risks associated with the expansion of our international operations; failure to detect click-through or other fraud on advertisements; achievement of some or all of the benefits that we expect to achieve as a stand-alone company; failure to adequately protect intellectual property rights or allegations of infringement of intellectual property rights; compliance with the covenants of our credit agreement; and the potential for failures in our internal control over financial reporting. These and additional factors to be considered are set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our other filings with the Securities and Exchange Commission. Fluent undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations.

FLUENT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(unaudited)

 June 30, 2020  December 31, 2019 
ASSETS:     
Cash and cash equivalents$20,218  $18,679 
Accounts receivable, net of allowance for doubtful accounts of $309 and $1,967, respectively 55,304   60,915 
Prepaid expenses and other current assets 1,996   1,921 
Total current assets 77,518   81,515 
Restricted cash 1,480   1,480 
Property and equipment, net 2,566   2,863 
Operating lease right-of-use assets 9,063   9,865 
Intangible assets, net 51,094   55,603 
Goodwill 165,088   164,774 
Other non-current assets 1,592   993 
Total assets$308,401  $317,093 
LIABILITIES AND SHAREHOLDERS’ EQUITY:     
Accounts payable$11,601  $21,574 
Accrued expenses and other current liabilities 21,027   20,358 
Deferred revenue 2,468   1,140 
Current portion of long-term debt 9,677   6,873 
Current portion of operating lease liability 2,279   2,282 
Total current liabilities 47,052   52,227 
Long-term debt, net 38,115   44,098 
Operating lease liability 8,176   9,056 
Other non-current liabilities 1,243   775 
Total liabilities 94,586   106,156 
Contingencies        
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 — 79,908,985 and 78,642,078, respectively; and Shares outstanding — 76,292,587 and 75,873,679, respectively 40   39 
Treasury stock, at cost — 3,616,398 and 2,768,399 shares, respectively (9,930)  (8,184)
Additional paid-in capital 409,961   406,198 
Accumulated deficit (186,256)  (187,116)
Total shareholders’ equity 213,815   210,937 
Total liabilities and shareholders’ equity$308,401  $317,093 

FLUENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(unaudited)

 Three Months Ended June 30,  Six Months Ended June 30, 
 2020  2019  2020  2019 
Revenue$71,509  $70,560  $150,443  $137,121 
Costs and expenses:           
Cost of revenue (exclusive of depreciation and amortization) 49,007   49,133   105,631   93,962 
Sales and marketing (1) 2,888   3,058   5,718   6,492 
Product development (1) 3,115   2,287   5,846   4,445 
General and administrative (1) 10,044   10,294   21,120   20,329 
Depreciation and amortization 3,853   3,306   7,586   6,623 
Goodwill impairment 817      817    
Total costs and expenses 69,724   68,078   146,718   131,851 
Income from operations 1,785   2,482   3,725   5,270 
Interest expense, net (1,333)  (1,767)  (2,865)  (3,545)
Income before income taxes 452   715   860   1,725 
Income tax benefit          35.0 
Net income 452   715   860   1,760 
                
Basic and diluted income per share:           
Basic$0.01  $0.01  $0.01  $0.02 
Diluted$0.01  $0.01  $0.01  $0.02 
                
Weighted average number of shares outstanding:           
Basic 78,510,383   79,388,383   78,557,331   79,297,599 
Diluted 78,666,776   81,132,304   78,905,792   80,443,530 
                
(1) Amounts include share-based compensation expense as follows:               
Sales and marketing$269  $160  $487  $529 
Product development 286   277   523   522 
General and administrative 726   2,517   2,668   4,178 
Share-based compensation$1,281  $2,954  $3,678  $5,229 

FLUENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)

 Six Months Ended June 30, 
 2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net income$860  $1,760 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization 7,586   6,623 
Non-cash interest expense 694   648 
Share-based compensation expense 3,678   5,229 
Goodwill impairment 817    
Non-cash accrued compensation expenses for Put/Call Consideration 530    
Provision for bad debt 131   189 
Changes in assets and liabilities, net of business acquisition:     
Accounts receivable 5,513   2,758 
Prepaid expenses and other current assets (75)  (522)
Other non-current assets (599)  (21)
Operating lease assets and liabilities, net (81)  1,560 
Accounts payable (9,973)  (1,551)
Accrued expenses and other current liabilities (515)  (3,762)
Deferred revenue 1,328   202 
Other (62)   
Net cash provided by operating activities 9,832   13,113 
CASH FLOWS FROM INVESTING ACTIVITIES:     
Business acquisition, net of cash acquired (1,426)   
Acquisition of property and equipment (37)  (1,894)
Capitalized costs included in intangible assets (1,211)  (978)
Net cash used in investing activities (2,674)  (2,872)
CASH FLOWS FROM FINANCING ACTIVITIES:     
Repayments of long-term debt (3,873)  (3,095)
Taxes paid related to net share settlement of vesting of restricted stock units (446)  (3,079)
Repurchase of treasury stock (1,300)   
Net cash used in financing activities (5,619)  (6,174)
Net increase in cash, cash equivalents and restricted cash 1,539   4,067 
Cash, cash equivalents and restricted cash at beginning of period 20,159   19,249 
Cash, cash equivalents and restricted cash at end of period$21,698  $23,316 

Definitions, Reconciliations and Uses of Non-GAAP Financial Measures

The following non-GAAP measures are used in this release:

 Media margin is defined as revenue minus cost of revenue (exclusive of depreciation and amortization) attributable to variable costs paid for media and related expenses. Media margin is also presented as percentage of revenue.
  
 Adjusted EBITDA is defined as net income excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) goodwill impairment, (5) accrued compensation expense for Put/Call Consideration, (6) share-based compensation expense, (7) acquisition-related costs, (8) restructuring and certain severance costs, (9) certain litigation and other related costs, and (10) one-time items.
  
 Adjusted net income is defined as net income excluding (1) goodwill impairment, (2) accrued compensation expense for Put/Call Consideration, (3) share-based compensation expense, (4) acquisition-related costs, (5) restructuring and certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted net income is also presented on a per share (basic and diluted) basis.

Below is a reconciliation of media margin from net income, which we believe is the most directly comparable GAAP measure.

 Three Months Ended June 30,  Six Months Ended June 30, 
 2020  2019  2020  2019 
Net income$452  $715  $860  $1,760 
Income tax benefit          (35)
Interest expense, net 1,333   1,767   2,865   3,545 
Goodwill impairment 817      817    
Depreciation and amortization 3,853   3,306   7,586   6,623 
General and administrative 10,044   10,294   21,120   20,329 
Product development 3,115   2,287   5,846   4,445 
Sales and marketing 2,888   3,058   5,718   6,492 
Non-media cost of revenue (1) 2,312   1,475   3,915   2,836 
Media margin$24,814  $22,902  $48,727  $45,995 
Revenue$71,509  $70,560  $150,443  $137,121 
Media margin % of revenue 34.7%  32.5%  32.4%  33.5%

(1) Represents the portion of cost of revenue (exclusive of depreciation and amortization) not attributable to variable costs paid for media and related expenses.

Below is a reconciliation of adjusted EBITDA from net income, which we believe is the most directly comparable GAAP measure.

 Three Months Ended June 30, Six Months Ended June 30, 
 2020 2019 2020 2019 
Net income$452 $715 $860 $1,760 
Income tax benefit       (35)
Interest expense, net 1,333  1,767  2,865  3,545 
Depreciation and amortization 3,853  3,306  7,586  6,623 
Goodwill impairment 817    817   
Accrued compensation expense for Put/Call Consideration 530    530   
Share-based compensation expense 1,281  2,954  3,678  5,229 
Acquisition-related costs 15  448  62  448 
Restructuring and certain severance costs   250    360 
Certain litigation and other related costs 1,115  227  2,022  716 
One-time items       168 
Adjusted EBITDA$9,396 $9,667 $18,420 $18,814 

Below is a reconciliation of adjusted net income and adjusted net income per share from net income, which we believe is the most directly comparable GAAP measure.

 Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except share data)2020 2019 2020 2019
Net income$452 $715 $860 $1,760
Goodwill impairment 817    817  
Accrued compensation expense for Put/Call Consideration 530    530  
Share-based compensation expense 1,281  2,954  3,678  5,229
Acquisition-related costs 15  448  62  448
Restructuring and certain severance costs   250    360
Certain litigation and other related costs 1,115  227  2,022  716
One-time items       168
Adjusted net income$4,210 $4,594 $7,969 $8,681
Adjusted net income per share:           
Basic$0.05 $0.06 $0.10 $0.11
Diluted$0.05 $0.06 $0.10 $0.11
Weighted average number of shares outstanding:           
Basic 78,510,383  79,388,383  78,557,331  79,297,599
Diluted 78,666,776  81,132,304  78,905,792  80,443,530

We present media margin, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental measures of our financial and operating performance because we believe they provide useful information to investors. More specifically:

 Media margin, as defined above, is a measure of the efficiency of the Company’s operating model. We use media margin and the related measure of media margin as a percentage of revenue as primary metrics to measure the financial return on our media and related costs, specifically to measure the degree by which the revenue generated from our digital marketing services exceeds the cost to attract the consumers to whom offers are made through our services. Media margin is used extensively by our management to manage our operating performance, including evaluating operational performance against budgeted media margin and understanding the efficiency of our media and related expenditures. We also use media margin for performance evaluations and compensation decisions regarding certain personnel.
  
 Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated. The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain severance costs associated with department-specific reorganizations and certain litigation and other related costs associated with legal matters outside the ordinary course of business. Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. Adjusted EBITDA for the six months ended June 30, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented.
  
 Adjusted net income, as defined above, and the related measure of adjusted net income per share exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. Adjusted net income for the six months ended June 30, 2019 excluded as one-time items $0.2 million of costs associated with the move of our corporate headquarters. There were no other adjustments for one-time items in the current period presented. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income.

Media margin, adjusted EBITDA, adjusted net income and adjusted net income per share are not intended to be performance measures that should be regarded as an alternative to, or more meaningful than, net income as indicators of operating performance. None of these metrics are presented as measures of liquidity. The way we measure media margin, adjusted EBITDA and adjusted net income may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in our various agreements.

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