Fluent Inc

This business description should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto appearing elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"), which are incorporated herein by this reference.

Company Overview

Fluent, Inc. ("we," "us," "our," "Fluent," or the "Company") is an industry leader in digital marketing services. We primarily perform customer acquisition services by operating highly scalable digital marketing campaigns, through which we connect our advertiser clients with consumers they are seeking to reach. We access these consumers through both our owned and operated digital media properties and our auxiliary syndicated performance marketplace products. In 2023 we delivered data and performance-based customer acquisition services for over 500 consumer brands, direct marketers, and agencies across a wide range of industries, inclu ding Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment.

We attract consumers at scale to our owned and operated digital media properties primarily through promotional offerings where they are rewarded for completing activities within our platforms. When registering on our sites, consumers provide their names, contact information, and opt-in permission to present them with relevant offers on behalf of our clients. Approximately 90%of these users engage with our media on their mobile devices or tablets.

Once users have registered on our sites, we integrate our proprietary direct marketing technologies to engage them with surveys, polls, and other experiences, through which we gather information about their lifestyles, preferences, and purchasing histories, among other matters. Based on these insights, we serve targeted, relevant offers to them on behalf of our clients. As new users register and engage on our sites and existing registrants re-engage, the enrichment of our database expands our addressable client base and improves the effectiveness of our performance-based campaigns.

We also operate syndicated performance marketplaces on partner sites where we utilize our proprietary ad-serving technology to identify and acquire additional consumers for our advertiser clients. Our technology is integrated at key moments in the consumer experience to capitalize on high engagement and improve conversion. For example, Adflow, our post-sale e-commerce business, connects our advertisers to consumers on e-commerce websites after check-out. These syndicated solutions generate meaningful income for our partners, while driving additional growth for our advertiser clients. We typically remunerate our syndication partners on a revenue share or impression basis.

Additionally, the company operates a call center performance marketplace that provides live-call-based performance campaigns to help clients increase engagement. The call solutions marketplace serves clients across an array of industries but has a heavy focus on the health insurance sector.

Since our inception, we have amassed a large, proprietary database of first-party, self-declared user information and preferences. We solicit our users' consent to be contacted by us and/or our advertisers via various contact methods including email, telephone, SMS/text, and push messaging. We then leverage their self-declared data in our performance offerings primarily in two ways: (1) to serve advertisements that we believe will be relevant to users based on the information they provide when they engage on our sites or other partner sites through our syndicated performance marketplaces and (2) to provide our clients with users' contact information so that such clients may communicate with them directly. We may also leverage our existing technology and database to drive new revenue streams, including utilization-based models (e.g., programmatic advertising).

We generate revenue by delivering measurable marketing results to our clients. We differentiate ourselves from other marketing alternatives by our abilities to provide clients with a cost-effective and measurable return on advertising spend ("ROAS"), a measure of profitability of sales compared to the money spent on ads, and to manage highly targeted and highly fragmented online media sources. We are predominantly paid on a negotiated or market-driven "per click," "per lead," or other "per action" basis that aligns with the customer acquisition cost targets of our clients. We bear the costs of acquiring traffic from publishers for our performance marketplaces that ultimately generate qualified clicks, leads, calls, app downloads, or customers for our clients.

Through AdParlor, LLC ("AdParlor"), we conduct our non-core business which offers clients various social media strategies through the planning and buying of media on different platforms.

Market Opportunity

According to the Dentsu 2024 Forecast, global advertising spend is projected to reach $752 billion, defining the Total Addressable Market ("TAM") for companies operating in this space. The performance marketing sector, a subset of TAM excluding brand advertising and top-of-the-funnel budget considerations, maintains a Serviceable Available Market ("SAM") of $300 billion. This delineates the scope and potential for Fluent within the dynamic and ever-expanding digital marketing landscape.

According to eMarketer reports, digital marketing has grown steadily since 2021 and is anticipated to continue growing at 9.3% annually through 2027. The overall landscape is experiencing a significant transformation with the emergence of commerce media which combines media impressions and commerce transactions for informed ad placements on a retailer's e-commerce platform and the broader retail media network, which seeks to provide a unified approach to data-informed advertising on-site, off-site, and in-store. Projections suggest that by 2027, this evolution could offer a substantial opportunity, surpassing $109 billion in the digital advertising space.

The industry is undergoing further transformations as publishers increasingly invest in proprietary media networks (a collection of digital channels owned by a retail company), foster direct engagements with brands, and emphasize the value of first-party data. This shift is particularly noteworthy considering growing concerns about data privacy, with 86% of Americans expressing apprehension, according to KPMG research. As the use of cookies becomes more limited, marketers and businesses must realign their operations with this evolving landscape and Fluent is poised to assist.

Key Challenges Facing our Clients

Digital marketing professionals face a trio of challenges: cookie deprecation, rising acquisition costs, and the quest for reliable reporting. As Google and Apple phase out third-party cookie tracking, marketers grapple with the complexities of customer acquisition within this privacy-first world. With Fluent’s experience in building performance marketing engines for brands and advertisers, we believe we are uniquely positioned to help our clients with key challenges.

Cookie deprecation

Marketers have been struggling to acquire customers as privacy regulations, customer sentiment, and browser restrictions constrain them from gathering customer insights and building effective, personalized experiences. As Google and Apple wind down the era of third-party cookie tracking, only 33% of marketers think they are prepared, according to a survey by YouGov. Under these conditions, advertisers will be compelled to spend only with media partners that hold existing relationships with consumers (i.e. retail media networks and social media networks) and those with privacy-safe customer relationship management ("CRM").

Rising costs

According to a report published by Semrush, the highest percentage of marketers (41%) listed “generating high-quality leads cost-effectively” as their biggest challenge. As advertising costs continue to rise, so do the challenges associated with capturing the attention of potential customers in an oversaturated digital marketplace. To meet these mounting pressures, marketers are pushed to rethink their strategy and find "new" marketing channels & tactics.

Unreliable Reporting

Tracking advertising campaign performance continues to challenge marketers. 54% of customer experience professionals say their teams are unable to prove ROI for their projects according to Forrester. Less than 40% of companies can easily ascertain the effectiveness of their marketing. Finding the right balance between cost-effectiveness, scalability, and predictability can be a challenge, yet all are needed to properly measure the true impact of ads on the purchase decision. Brands struggle to connect the dots and meet their key performance indicators ("KPI") while staying within budget.

Our Offerings and Solutions to Clients

We primarily provide performance marketing solutions to our clients based on their desired outcomes, or specific actions in their marketing funnels, including the submission of a registration form, an app installation, or a completed transaction. Our owned and operated media properties include Flash Rewards, The Smart Wallet, and Careers & Jobs, among others. We believe our solutions are well-aligned with the needs and objectives of our clients, notably, due to our ability to provide them with measurability of return on ad spend ("ROAS"), scalability, and flexibility within our owned and operated properties and beyond. By using the data consumers provide when they register on our sites, our advertiser clients are able to reach the precise audiences they are targeting through the modes of contact these consumers prefer and at the times they are most receptive to being contacted.

•Performance Campaigns

For clients who seek the completion of certain actions by consumers, such as the submission of a registration form, the installation of a mobile app, or a trial subscription of a good or service, we provide performance campaigns that meet the criteria specified by the client.

We bear the cost and risk of paying various media sources to generate consumer traffic to our owned and operated digital media properties or to media properties operated by our clients, without the assurance of a subsequent revenue-generating event from such activity. In the case of our syndicated marketplaces, we have long-term contracts with site owners that provide additional opportunities to generate performance events for our clients. By leveraging our scale and expertise in acquiring consumer traffic, we work with our clients to define billable events and pricing tolerances that meet both our and our clients' profitability objectives, the latter of which may be difficult for them to achieve themselves economically, if at all.

•Consumer Data

We also generate revenue by providing clients with qualifying data of consumers who have opted to be marketed to directly, on our owned and operated media properties, through means such as direct mail, email, telephone, messaging, and other channels. Our clients then use this customer data to conduct their own marketing campaigns.

The data records we provide contain varying depths of user profiles depending on what consumers self-declare to us, ranging from basic contact information to detailed preferences and behaviors. Because consumers directly provide us with their information, we believe the scale and depth of information captured on our websites and reflected in our data profiles is a competitive advantage within the industry. Many other providers of consumer data offer data or information that is inferred from a consumer’s behavior but not directly observed or otherwise provided by a consumer. We believe our first-party data is more reliable and reflective of consumers' current interests and preferences.

•Programmatic Data Offerings

Since 2018, we have been offering modeled data sets pertaining to certain audience segments in programmatic environments, thereby enabling advertisers, such as those in the healthcare industry, to leverage the modeled data in an anonymized, privacy-minded manner to target high-intent prospects for their offerings. The programmatic data offering has grown considerably since its inception. Although representing a small percentage of our overall revenue, we believe it represents a strategically significant and incremental revenue stream.

•Social Media Campaigns

Through AdParlor, we offer clients a sophisticated suite of social media strategy, planning and buying, along with highly tailored creative services.

•Call Solutions Marketplace

Through our Call Solutions service, we maintain a contact center operation, which serves as a marketplace to connect consumers we have sourced with our advertising clients. We offer clients a high-value source of live call transfers of phone verified prospective customers for their businesses or in some cases direct sales transactions. Through this capability, we provide a positive and high-quality consumer experience enabling us to capture greater value from the leads we initially source.

Our Competitive Strengths

We believe our competitive strengths will continue to enable us to provide a compelling value proposition to our clients and drive differentiation of our offerings in the marketplace.

•Scale and Experience in Purchasing Media and Creating Content - Our ability to effectively access, at scale, channels and sources of media that supply consumer traffic and build meaningful experiences and relationships with those consumers has been critical to our growth. Since our inception, we have deployed more than $2 billion in media spend to our owned and operated media properties and those of our clients. Our team has gained knowledge and experience in creating content that we believe allows us to generate higher levels of profitability from given media sources, thereby enabling us to acquire media more competitively than others. This capability allows us to run thousands of campaigns simultaneously and cost-effectively for our clients, at acceptable media costs and margins to us.

•Proprietary and Innovative Technology Platform- Our internally developed technology platforms are unique in the industry, having been purpose-built for performance marketing and developed with a mobile-first user experience in mind. Our platforms use our robust consumer data and proprietary machine-learning capabilities to optimize the performance of our digital marketing campaigns for our advertisers.

•Database of First-Party Consumer Information*-*We attract hundreds of thousands of consumers to our owned and operated media properties on a daily basis and collect demographic, behavioral and other data as they engage with our direct marketing experiences. This data is generated in real-time, as consumers respond to dynamically populated survey questions, thereby enabling targeted ads to be served in response. This data is also stored and analyzed and can be further enhanced as consumers return to our sites and declare and exhibit preferences and behaviors through additional surveying, allowing for the development of deeper insights and additional monetization opportunities.

Our Growth Strategy

We believe that the performance marketing industry has significant opportunities for growth. Elements of our strategy include:

•IncreasingHigh Quality Traffic to Our Owned and Operated Digital Media Properties. As our business has grown, we have attracted larger and more sophisticated clients to our platform. To further increase our value proposition to clients and to fortify our leadership position in relation to the evolving regulatory landscape of our industry, we implemented a Traffic Quality Initiative ("TQI") in 2020 to remove lower quality customer traffic, including traffic that did not consistently meet regulatory standards from our marketplaces. By improving the quality of consumer traffic sourced to our media properties, we have increased user participation and conversion rates, ultimately, increased revenue from more "name brand" advertiser clients and created a more sustainable foundation for our business.

In an effort to source more high quality traffic, we have also built out an influencer marketing platform. This platform allows us to diversify our current media buys on social media platforms and capture available scale in the influencer market. According to Aspire's 2024 State of Influencer Marketing report, influencer marketing is estimated to grow to approximately $24 billion in 2024 and is expected to account for an increasing share of most companies' marketing spend. By operating our own influencer marketing platform, we can ensure compliant operations, effectively manage our media spend by eliminating middlemen, and offer our clients direct access to our network of influencers.

•Increasing Monetization of Our Traffic. By presenting consumers with a broad array of offers curated to their preferences, as informed by their responses to our surveys and our platform’s ad serving logic, we seek to facilitate transactions that are beneficial for the advertiser, the consumer and us. As we continue to improve consumer engagement on our platform, we will continue to strengthen our relationships with existing advertisers and build relationships with new advertisers. We continuously seek to enhance our product offerings for consumers and targeting capabilities for advertisers to ensure we are optimizing the value of our traffic.

***•******Expanding our Network through Development of Syndicated Performance Marketplaces.***We have developed and launched syndicated performance marketplaces that utilize our existing technology to extend our ad network for our clients. Adflow, our post-sale e-commerce solution to access a new pool of users for our advertiser clients. We deploy an "ad module" primarily on the transaction confirmation page of the e-commerce website that offers a series of curated offers to users after check-out. We compensate our e-commerce partners by either sharing revenue proceeds or by remunerating them on an impression basis. Adflow affords our advertiser clients exposure to a pool of users with strong buying power who having just completed a transaction and are in a purchase mode. And it opens up a new range of advertisers to our customer acquisition services. Adflow has been operating for the majority of 2023, with growth during the second half.

•Developing and Enhancing Products to Increase the Quality of Our Offerings. Our product development efforts are intended to attract consumers, drive traffic, increase monetization and increase affiliate and partner opportunities. Examples of some areas where our product development team is currently focused include designing new consumer-facing creative concepts, enhancing site experiences, developing mobile app products to expand our media footprint beyond our mobile web presence, and improving the reputation of our domains.

Sales and Marketing

We generate new client sales primarily through our in-house sales team. We service established clients through our in-house account directors and managers, who seek to optimize results for and expand our business with these clients.

Our Competition

Our traditional competitors have been digital marketing and database marketing services providers, online and traditional media companies, and advertising agencies. We believe the competitive landscape is changing and becoming more complex, but we believe our data and our ad serving and customer acquisition technologies enable our clients to better target, engage, qualify, and communicate with relevant consumers, in a more measurable and profitable manner than our competitors.

Some of our competitors have substantially greater financial, technical, sales and marketing resources, better name recognition and a larger customer base.

Concentration

We have an extensive list of clients across a wide range of industries. For the year ended December 31, 2023, a single long-standing advertiser client of the Company accounted for 18.1% of consolidated revenue. For the year ended December 31, 2022, this same client accounted for 22.1% of the Company's consolidated revenue.

Acquisitions

• On July 1, 2019, we completed the acquisition of substantially all of the assets of AdParlor Holdings, Inc.

• On April 1, 2020, we acquired a fifty percent (50%) interest in Winopoly, LLC, and acquired the remaining fifty percent (50%) interest on September 1, 2021.

• On January 1, 2022, we acquired a one hundred percent (100%) interest in True North Loyalty, LLC.

Our Intellectual Property

We rely on trade secret, trademark and copyright law, confidentiality agreements, and technical measures to protect our intellectual property rights. We maintain a portfolio of perpetual common law and federally registered trademark rights across several brands and domains relating to our business units, products, services, and solutions. We claim copyright protection in our original content that is published on our websites and included in our marketing materials.

Regulatory Matters

Our business is subject to a significant number of federal, state, local and international laws, rules, and regulations applicable to online or digital advertising, commercial email marketing, telemarketing, and text messaging. We are also subject to laws, rules, and regulations regarding data collection, privacy and data security, intellectual property ownership and infringement, sweepstakes and promotions and taxation, among others. Some of our clients operate in regulated industries, such as financial services, credit repair, gambling, consumer and mortgage lending, healthcare and medical services, health insurance including Medicare Advantage and related Medicare insurance plans and secondary education, and, to the extent applicable, we must comply with the laws, rules, and regulations applicable to marketing activities in those industries. Outside of the United States, we own and operate consumer facing websites in the United Kingdom, Canada, and Australia and are subject to the laws, rules, and regulations of those countries as they impact our operations.

These laws, rules, and regulations, which generally are designed to regulate and prevent deceptive practices in advertising, online marketing, and telemarketing, protect individual privacy rights and prevent the misuse and unauthorized disclosure of personal information, are complex, change frequently and have tended to become more stringent over time. In addition, the application and interpretation of these laws, rules, and regulations are often uncertain, particularly in the rapidly evolving industry in which we operate.

We were involved in investigations with federal and state regulators over our practices including the Federal Trade Commission ("FTC") and the Pennsylvania Office of the Attorney General ("PAAG"). These investigations and claims have all been settled as of December 31, 2023. As part of the FTC settlement, we have made additional changes to our business practices that adversely affected our results of operations for the year ended December 31, 2023. See Item 1A. Risk Factors - Risks Relating to Legal and Regulatory Matters and Item 3. Legal Proceedings for further discussion of the impacts of these proceedings and various laws, rules, and regulations on our business.

Human Capital

Fluent is dedicated to certain core principles and values which include continuous learning, efficiency, collaboration, and high performance. Fluent is committed to providing our employees with opportunities to grow and develop in their careers, supported by competitive compensation and comprehensive medical and wellness benefits. We embrace challenges and welcome opportunities to make improvements in our corporate culture and employee benefits. We are proud to have been the recipients of many awards for our corporate culture including regularly being listed onCrain’s Best Places to Work.

As of December 31, 2023, we had 277 employees, of which 274 were full-time employees. This represents an increase of 0.7% over the number of employees as of December 31, 2022. None of our employees are represented by a labor organization, and none are party to any collective bargaining agreement with us. We have not experienced any work stoppages and strive to maintain a positive relationship with our team. While we believe we adapted well to a work-from-home model, we continue to operate under a hybrid strategy based around flexibility and collaboration See Item 1A. Risk Factors –— "We have transitioned to a hybrid in-office/remote model, which may adversely affect our ability to attract and retain employees." and "Our failure to recruit or the loss of management and highly trained and qualified personnel could adversely affect our business." for further information about the risks of our hybrid work model.

Competition in the recruitment of top talent within our industry remains constant and our future success will depend in part on our continued ability to hire, motivate, and retain exceptional colleagues across the business. As the business evolves, we continue to source talent to complement the existing team with different strengths, experience, and ideas.

Investing in our People

As a performance-based organization, Fluent offers generous and competitive salaries and bonus/commission plans to both attract, reward, and retain our employees. We match up to 4% of employees’ contributions in their 401(k) to help our employees plan for their futures. We also prioritize the health and well-being of our people, offering multiple health insurance plans to choose from, on-demand wellness sessions, and mental health resources like virtual and in-person therapy, coaching, mental wellness screenings, and self-help exercises. To ensure our people take time to recharge, we offer discretionary time off that provides vacation days throughout the year in addition to our 13 paid company holidays. Our goal is to create a flexible work environment that fuels creativity and results.

We encourage curiosity and provide our people with the tools and resources to learn and grow. From internal Fluent University courses to company-wide workshops and memberships to corporate networking organizations, such as She Runs It, we offer continuous opportunities for personal and professional development. In 2023 through these courses, we created approximately 1,000 hours of learning for our employees. Additionally, over the past few years, we have worked to support internal mobility for those who have excelled in their roles and are looking to gain new experience in other areas of the business that align with their individual career goals. We reward positive performance and celebrate our employees for their persistent drive to succeed.

Diversity, Equity, & Inclusion ("DEI")

We are constantly striving to make Fluent a more inclusive and compassionate place to work. We make a concerted effort to post roles and source top candidates to present a diverse candidate slate for our hiring teams, and our dedicated DEI team is designed to create opportunities for connection, education, and service. Fluent continues to invest in our colleagues by providing DEI trainings and creating opportunities to connect to discuss current events. In 2023, our Women Leader’s Group sponsored their third year of the mentorship program and increased by 37% to 74 participants. We are proud to foster a learning and coaching culture to support the development and growth for all of our employees.

Available Information

Fluent’s principal executive offices are located at 300 Vesey Street, 9th Floor, New York, New York 10282, and our telephone number is (646) 669-7272. Our internet website is www.fluentco.com. The website address provided in this 2023 Form 10-K is not intended to function as a hyperlink and information obtained on the website is not and should not be considered part of this 2023 Form 10-K and is not incorporated by reference in this 2023 Form 10-K or any filing with SEC. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our Investor Relations website at investors.fluentco.com/ as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our periodic reports are filed or furnished electronically with the SEC under SEC File Number 001-37893 and can be accessed at the SEC’s website at www.sec.gov, and specifically at www.sec.gov/edgar/browse/?CIK=1460329.