Fluent Announces First Quarter 2023 Financial Results
- Revenue of
$77.3 million for Q1 2023 - Gross profit (exclusive of depreciation and amortization) of
$19.0 million for Q1 2023 - Net loss of
$31.9 million for Q1 2023 - Media margin of
$22.0 million for Q1 2023 - Adjusted EBITDA of
$0.4 million for Q1 2023 - Adjusted net loss of
$2.7 million for Q1 2023
We continue to make disciplined progress against our strategic priorities, along with the required tactical enhancements to upgrade our consumer solutions. Execution against these initiatives has us encouraged by the positive trendline in our
First Quarter Financial Highlights
- Revenue decreased 13% to
$77.3 million , from$89.1 million in Q1 2022 - Gross profit (exclusive of depreciation and amortization) of
$19.0 million , a decrease of 12% over Q1 2022 and representing 25% of revenue - Net loss of
$31.9 million , or$0.39 per share, primarily due to non-cash impairment charge of$25.7 million to goodwill, compared to net loss of$2.0 million , or$0.02 per share, for Q1 2022 - Media margin of
$22.0 million , a decrease of 15% over Q1 2022 and representing 28.4% of revenue - Adjusted EBITDA of
$0.4 million , a decrease of$4.3 million over Q1 2022 and representing 0.6% of revenue - Adjusted net loss of
$2.7 million , or$0.03 per share, compared to adjusted net income$1.1 million , or$0.01 per share, for Q1 2022
Media margin, adjusted EBITDA, and adjusted net income are non-GAAP financial measures, as defined and reconciled below.
Business Outlook
- Focusing on expansion of Fluent’s media footprint by continuing to leverage our platform to drive consumer insights for additional growth.
- Strengthening our
Performance Marketplace through vertical expansion in our Call Solutions business and leveraging our Influencer platform. - Ensuring we source customer traffic that meets our internal quality and regulatory requirements, leading to higher user participation rates, conversion rates and monetization.
- In the current economic environment, continuing to be prudent in managing our growth, margin, and investment initiatives for long-term success.
Conference Call
About
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;
- The outcome of litigation, regulatory investigations or other legal proceedings in which we are involved or may become involved;
- Failure to safeguard the personal information and other data contained in our database;
- Failure to adequately protect intellectual property rights or allegations of infringement of intellectual property rights;
- Unfavorable global economic conditions, including as a result of health and safety concerns around the ongoing COVID-19 pandemic;
- Dependence on our key personnel;
- Dependence on third-party service providers;
- Management of the growth of our operations, including international expansion and the integration of acquired business units or personnel;
- The impact of the Traffic Quality Initiative, including our ability to replace lower quality consumer traffic with traffic that meets our quality requirements;
- Ability to compete and manage media costs in an industry characterized by rapidly-changing internet media and advertising technology and evolving industry standards;
- Regulatory uncertainty, and changing user and client demands; management of unfavorable publicity and negative public perception about our industry;
- Failure to compete effectively against other online marketing and advertising companies;
- The competition we face for web traffic;
- Dependence on third-party publishers, internet search providers and social media platforms for a significant portion of visitors to our websites;
- Dependence on emails, text messages and telephone calls, among other channels, to reach users for marketing purposes;
- 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 to mobile applications;
- Failure to detect click-through or other fraud on advertisements;
- The impact of increased fulfillment costs;
- Failure to meet our clients’ performance metrics or changing needs;
- 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, 2022 and in our other filings with the
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(unaudited)
| ASSETS: | ||||||||
| Cash and cash equivalents | $ | 26,567 | $ | 25,547 | ||||
| Accounts receivable, net of allowance for doubtful accounts of |
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 | ||||||
| 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 — |
— | — | ||||||
| Common stock — |
43 | 42 | ||||||
| (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 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(unaudited)
| Three Months Ended |
||||||||
| 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 | ||||||
| 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 | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
| Three Months Ended |
||||||||
| 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 | ||||||
| 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 | ||||
Definitions, Reconciliations and Uses of Non-GAAP Financial Measures
The following non-GAAP measures are used in this release:
Media margin is defined as that portion of gross profit (exclusive of depreciation and amortization) reflecting the variable costs paid for media and related expenses and excluding non-media cost of revenue. Gross profit (exclusive of depreciation and amortization) represents revenue minus cost of revenue (exclusive of depreciation and amortization). Media margin is also presented as percentage of revenue.
Adjusted EBITDA is defined as net income (loss) excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) goodwill impairment, (6) write-off of intangible assets, (7) acquisition-related costs, (8) restructuring and other severance costs, and (9) certain litigation and other related costs.
Adjusted net income (loss) is defined as net income (loss) excluding (1) share-based compensation expense, (2) goodwill impairment, (3) write-off of intangible assets, (4) acquisition-related costs, (5) restructuring and other severance costs, and (6) certain litigation and other related costs. Adjusted net income (loss) is also presented on a per share (basic and diluted) basis.
Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization), which we believe is the most directly comparable GAAP measure.
| Three Months Ended |
||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 77,254 | $ | 89,063 | ||||
| Less: Cost of revenue (exclusive of depreciation and amortization) | 58,272 | 67,562 | ||||||
| Gross profit (exclusive of depreciation and amortization) | $ | 18,982 | $ | 21,501 | ||||
| Gross profit (exclusive of depreciation and amortization) % of revenue | 25 | % | 24 | % | ||||
| Non-media cost of revenue (1) | 2,981 | 4,449 | ||||||
| Media margin | $ | 21,963 | $ | 25,950 | ||||
| Media margin % of revenue | 28.4 | % | 29.1 | % | ||||
(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 loss for the three months ended
| Three Months Ended |
||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (31,943 | ) | $ | (2,013 | ) | ||
| Income tax expense | 101 | — | ||||||
| Interest expense, net | 689 | 384 | ||||||
| Depreciation and amortization | 2,359 | 3,307 | ||||||
| Share-based compensation expense | 1,061 | 988 | ||||||
| 25,700 | — | |||||||
| Write-off of intangible assets | — | 128 | ||||||
| Acquisition-related costs(1)(2) | 623 | 558 | ||||||
| Restructuring and other severance costs | 480 | — | ||||||
| Certain litigation and other related costs | 1,378 | 1,402 | ||||||
| Adjusted EBITDA | $ | 448 | $ | 4,754 | ||||
(1) Balance includes compensation expense related to non-competition agreements entered into as a result of acquisitions.
(2) Balance includes earn-out expense of $85 for the three months ended March 31, 2023 as a result of an acquisition.
Below is a reconciliation of adjusted net income (loss) and adjusted net income (loss) per share from net loss for the three months ended
| Three Months Ended |
||||||||
| (In thousands, except share and per share data) | 2023 | 2022 | ||||||
| Net loss | $ | (31,943 | ) | $ | (2,013 | ) | ||
| Share-based compensation expense | 1,061 | 988 | ||||||
| 25,700 | — | |||||||
| Write-off of intangible assets | — | 128 | ||||||
| Acquisition-related costs(1)(2) | 623 | 558 | ||||||
| Restructuring and other severance costs | 480 | — | ||||||
| Certain litigation and other related costs | 1,378 | 1,402 | ||||||
| Adjusted net income (loss) | $ | (2,701 | ) | $ | 1,063 | |||
| Adjusted net income (loss) per share: | ||||||||
| Basic | $ | (0.03 | ) | $ | 0.01 | |||
| Diluted | $ | (0.03 | ) | $ | 0.01 | |||
| Weighted average number of shares outstanding: | ||||||||
| Basic | 81,906,913 | 80,889,052 | ||||||
| Diluted | 81,906,913 | 81,021,030 | ||||||
(1) Balance includes compensation expense related to non-competition agreements entered into as a result of an acquisitions.
(2) Balance includes earn-out expense of $85 for the three months ended March 31, 2023 as a result of an acquisition.
We present media margin, media margin as a percentage of revenue, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) 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 litigation and other related costs associated with legal matters outside the ordinary course of business. We consider items 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
Adjusted net income (loss), as defined above, and the related measure of adjusted net income (loss) 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. We believe adjusted net income (loss) affords investors a different view of our overall financial performance as compared to adjusted EBITDA and the GAAP measure of net income (loss).
Media margin, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share are non-GAAP financial measures with certain limitations regarding their usefulness. They do not reflect our financial results in accordance with GAAP, as they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations. Accordingly, these metrics are not indicative of our overall results or indicators of past or future financial performance. Further, they are not financial measures of profitability and are neither intended to be used as a proxy for the profitability of our business nor to imply profitability. The way we measure media margin, adjusted EBITDA, and adjusted net income (loss) 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.
Contact Information:
Investor Relations
(212) 785-0431
InvestorRelations@fluentco.com
Source: Fluent, Inc.