Fluent Inc

Summary of Risk Factors

Investing in our common stock involves a high degree of risk. The following summary identifies certain material risks and uncertainties facing our business, many of which are beyond our control. A more complete discussion of each these and other risks and uncertainties is set forth under "Risk Factors." Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, including those set forth below and elsewhere in this 2023 Form 10-K, the occurrence of any one of which could have a material adverse effect on our actual results.

Risks Related to Our Business

Risks Related to Our Industry

Risks Related to Our Publishers

Risks Related to Our Owned and Operated Media Properties

Other Business Risks

Risks Relating to Legal and Regulatory Matters

Risks Relating to Data Security and Intellectual Property

Risks Related to Financial Matters

Risks Related to Our Common Stock and the Securities Markets

Risk Factors

Risks Relating to Our Business

Risks Related to Our Industry

We operate in a competitive, rapidly evolving industry, which makes it difficult to evaluate our business and prospects.

We derive substantially all of our revenue from digital marketing services, which is an intensely competitive industry characterized by rapidly changing internet media and advertising technology, evolving industry standards, regulatory uncertainty, and changing user and client demands. Our future success depends on our ability to effectively respond to this constant change and cost effectively acquire media from our publishers.

We compete for advertiser clients against other digital marketing companies and online and traditional media companies based on many factors, including return on advertising spend ("ROAS"), price, and client service. Our clients may curtail their advertising spend with us or stop using our services altogether if we fail to meet their expectations in terms of their ROAS or the quality and convertibility of leads or otherwise fail to compete effectively against other online marketing and advertising companies. Conversion rates for leads can be impacted by factors outside our control, such as competition in our clients' industries and our clients' sales practices. Lower conversion rates could be even more likely as we expand our services and relationships with our clients by moving our conversion point further "down the funnel," closer to where our clients are able to monetize the leads we provide. To the extent we cannot meet the challenges from existing or new competitors or develop new product offerings to meet client preferences or needs, our revenues and profitability could be materially and adversely affected.

To remain competitive, we have invested in developing new products, markets, services, and technologies and expanded our workforce to enable us to upgrade our systems. However, based on our experience, new websites, systems, products, and services may be less predictable and have lower margins than more established websites, products and services and may be more prone to technological instability or failure. If we are unsuccessful in enhancing and upgrading our websites, products, services, and back-end systems, we may fail to maintain our profitability, attract new clients, or grow our revenue, or we may suffer service disruptions.

Additionally, the introduction of new technologies and services, including voice assistance, artificial intelligence, internet-of-things and machine learning, and the emergence of new industry standards and practices related to these technological developments could render our existing technologies and services obsolete and unmarketable or require unanticipated investments in technology. In particular, as we continue to transition to cloud-based technology and migrate our database to a new environment, we may face new and additional costs to operate our business.

While we continually make enhancements and other modifications to our proprietary technologies, such changes may contain design or performance defects that are not readily apparent. If our proprietary technologies fail to achieve their intended purpose or are less effective than technologies used by our competitors, our business could be harmed.

A material percentage of our consolidated revenue is derived from gaming (apps) advertisers, sowe are exposed to risks associated with the gaming industry in general and one gaming client in particular.

Approximately 38% of our consolidated revenue was derived from gaming advertisers in 2023. This revenue derives from app installations and app-related user actions. The stability and potential growth of this client base depends in part on the state of the app-based gaming industry, which is subject to numerous risks including:

Moreover, one of our gaming advertiser clients accounted for 18.1% of consolidated revenue in 2023, a decrease from 22.1% of consolidated revenue in 2022. This client materially reduced its advertising spend in the second half of 2023, and there can be no assurance that we will be able to regain the pricing and performance levels that we had prior to this shift. If pricing and performance were to degrade further, our results of operations may continue to be adversely affected.

Unfavorable publicity and negative public perception about our industry or us may damage our reputation, which could harm our business, financial condition, and results of operations.

With the growth of online advertising and e-commerce, there is increasing awareness and concern regarding online marketing, advertising, telecommunications, and privacy matters, particularly as they relate to individual privacy interests. Our ability to attract potential users, and thereby clients, depends in part on users trusting us enough to provide self-declared registration data and other personal information. If we fail to maintain the quality and user expectations of our owned and operated websites, our reputation could be harmed and damage our ability to attract and retain users, which could adversely affect our business. There can be no assurance that we will be able to maintain or enhance our reputation, and failure to do so would harm our business growth prospects and operating results.

Heightened scrutiny on the part of the public or regulators and an increasing regulatory burden especially relating to data privacy may lead to general distrust of our industry, consumer reluctance to share and permit use of personal data and increased consumer opt-out rates, any of which could negatively influence, change, or reduce our current and prospective clients' demand for our products and services, and adversely affect our business, financial condition, and results of operations. As a large player in our niche of the industry, smaller competitors frequently design their websites to look like they are owned and operated by us. If these competitors engage in non-compliant activities, it could have a particularly damaging impact on all participants in our industry and on our relationships with our users and/or clients who are unaware that the non-compliant websites are not ours.

A sudden reduction in online marketing spend by our clients, a loss of clients or lower advertising yields may seriously harm our business.

Because the majority of our contracts with our advertiser clients do not require fixed commitments, these clients can unilaterally terminate their agreements with us, pause their campaigns, or materially reduce the amount of business they conduct with us at any time, with little or no prior notice. There is no guarantee that we will be able to retain or renew existing agreements with any of our clients on acceptable terms, or at all.

Additionally, because of the performance-based nature of our agreements, we typically bear the costs of purchasing media without the assurance of advertising spend by any particular advertiser client. To be profitable, we must be able to generate more revenue from our users than our costs to acquire such users. Our ability to do so is dependent on many factors, including having the right media sources to drive users who engage with our sites, providing content and experiences that retain users' attention and displaying relevant advertisements and other content to users.

Our results are also subject to fluctuation from seasonality and cyclicality in our and our clients' businesses. The Adflow business unit, which places ad modules on third-party e-commerce websites' transaction confirmation pages, and our call solutions business, which relies on Medicare open enrollment periods for a material portion of its revenue, are both subject to seasonality, with the fourth quarter being both units' strongest quarter. The costs to acquire media from our publishers are also subject to seasonal variability with media cost typically increasing in the fourth quarter. Our results of operations have in the past been adversely affected when we were unable to respond to the fluctuations in the price and availability of media, and similar effects may occur in the future.

Beyond these budgetary constraints and buying patterns of clients, macroeconomic conditions affecting the digital media industry and the various market verticals we serve may result in a decrease of our clients' advertising spending and, thereby, have a material adverse effect on our business and results of operations.

We are exposed to credit risk from our clients, and we may not be able to collect on amounts owed to us.

We regularly extend payment terms to our clients, which exposes us to risk of bad debt. Some of our clients are thinly capitalized and pose credit risks, and some of our clients may challenge the determination of amounts we believe they owe or may refuse to pay because of performance-related or other claims. In these circumstances, we may have difficulty collecting on amounts we believe are owed us. We are particularly exposed in certain verticals where there is a risk of tightening regulations or restrictions on sourcing consumer traffic. For example, if new regulations affect our clients such that their businesses are no longer viable, our clients may become insolvent or otherwise unable to pay amounts owed to us. In such circumstances, we may be exposed to risks of significant bad debt, which could have a material adverse effect on our results of operations.

A small portion of our client business is sourced through advertising agencies and brokers. In many cases, agencies are not required to pay us unless and until they are paid by the underlying client. In addition, many agencies and brokers are thinly capitalized and have or may develop high-risk credit profiles. If an agency or broker becomes insolvent, or if an underlying client does not pay the agency or broker, we may be required to write off accounts receivable as bad debt.

Risks Related to Our Publishers

A decline in the supply of media available to us through third parties or an increase in the price of this media could increase the cost of attracting consumers and reduce our profitability.

Our success depends on our ability to attract users to our owned and operated websites and generate revenue from their activities thereon in a cost-effective manner. A substantial majority of our revenue on our websites is attributable to visitor traffic originating from third-party publishers, including ad networks, social media platforms, and search engines. Our ability to maintain the number of users who come to our and our third-party publishers' websites is not entirely within our control. If a third-party publisher decides not to make media inventory available to us, decides to demand higher pricing or a higher revenue share, or places significant restrictions on the use of such inventory, we may not be able to find media inventory from other media sources that satisfies our requirements in a timely and cost-effective manner.

There is substantial competition for web traffic among both established media buyers and smaller operators, and we expect this competition to continue to increase, given the limited barriers to entry into the market. As we have limited the volume of affiliate traffic to our websites as a result of the Traffic Quality Initiative ("TQI"), we have had to find other traffic sources that meet our quality standards at a cost and volume that meets our requirements. We have not, and do not expect, to increase our registration volume back to levels prior to 2020 when we first implemented the TQI.

We increasingly focus our media spend on social media platforms, which includes the use of influencers. Many of the influencers who drive users to our sites post their content on TikTok, which has been banned on federal and public sector employees' phones and on state employees' phones in the majority of states and on some college campuses in the U.S. Were the ban to become more widespread, our TikTok influencers would need to post their content on other social media platforms, which may not reach as many users as TikTok does and may come at a higher cost, thereby adversely affecting our results of operations.

Our business could be harmed if we or our third-party publishers are unable to contact users through specific channels.

We and our third-party publishers use email, text messages, telephone calls, push notifications, and social media, among other channels, to reach users for marketing purposes. The laws, rules, and regulations governing such usage continue to evolve, and changes in technology, the marketplace, or consumer preferences may lead to the adoption of or changes in laws, rules, or regulations. The Federal Communications Commission (the "FCC") recently adopted rules amending the Telephone Consumer Protection Act ("TCPA"), which will likely require us to alter our process for obtaining TCPA consent, which could limit our and our marketing partners' ability to contact users in a cost-effective manner. We use third parties, including mobile operating systems, internet service providers ("ISPs"), wireless carriers, aggregators, and internet browsers, to contact users via text messaging and to a lesser extent push notifications. These third-party providers or the wireless carriers may block our text messages or shut down our text message service providers' ability to send text messages. Some carriers will not approve our applications to lease short codes for our internal messaging campaigns, hampering our ability to re-engage with our users.

Additionally, email service providers ("ESPs") or ISPs may implement new or more restrictive email or content delivery or accessibility policies. For example, Google and Yahoo! have recently introduced new guidelines restricting senders from sending bulk emails and requiring the provision of one-click unsubscribe options. If ESPs materially limit or halt the delivery of emails advertising our websites, or if we fail to deliver emails to users in a manner compatible with email providers' handling or authentication technologies, our ability to contact users through email could be significantly restricted.

With a heightened aversion to calls, consumers increasingly screen or block their incoming telephone calls, texts, and emails, so users may not reliably receive our messaging. If we are unable to contact users effectively by email, telephone, text, or other means because of legislation, regulatory rules or interpretive positions, blockage, screening technologies or otherwise, our business, operating results and financial condition would be harmed. See also risk factor entitled "Our business is subject to a significant number of telemarketing laws and regulations."

Limitations on our or our third-party publishers' ability to collect and use data derived from user activities or deliver internet-based advertising could increase the cost of media and significantly diminish the value of our services.

The use of personal information provided by a consumer, including transactional data, is subject to evolving laws and regulations, regulatory scrutiny, litigation, and industry self-regulatory activities. We collect personal information and user survey responses in our targeted ad serving, lead generation and consumer data offerings. Interruptions, failures, or defects in our data collection systems or restrictions on collection could limit our ability to analyze and optimize data from our clients' marketing campaigns. If our or our clients' access to data is limited in the future, we may be unable to provide effective services to clients and may lose clients and revenue.

Moreover, the development and adoption of technologies, tools, software, and applications that can block online advertising or mask users' location could reduce the number of display and search advertisements that we or our third-party publishers are able to deliver, which could adversely affect our business and results of operations. Major web browsers such as Google Chrome and Apple Safari either block by default or permit users to block third-party cookies and user-level tracking. In general, while we rely on internally created identifiers to associate returning users with their user profile, we and our third-party advertisers use cookies to track user attributes and conversions. While the digital advertising industry has sought to mitigate the impact of the elimination of cookies by using other conversion tracking technologies, the impact of these changes on our business is uncertain.

More significantly, companies and new laws and regulations are moving to limit online user-level tracking including conversion data as part of the push for enhanced data privacy protection. Use of conversion data such as whether a user downloads and installs an app, may be limited, which may inhibit our clients' and our respective operations. For example, Apple's 2021 update to iOS defaults to blocking ad tracking, making it difficult for us and our advertiser clients to track conversions and ROAS. Google also plans to eliminate the use of third-party cookies for ad tracking, which may lead some advertisers to curtail their ad spend or other clients to stop online advertising altogether.

The move away from user level tracking may also adversely impact the efficiency of ad platforms such as those operated by Alphabet and Meta and other social media platforms which could lead to publishers reducing their spend on social media platforms or increases in the cost of media. Many of our publishers buy media on these platforms and may seek to pass along their increased media costs to us or be unable to supply us with media at the volume and price we require, either of which could adversely affect our results.

Risks Related to Our Owned and Operated Media Properties

An increasing number of people are accessing content on their mobile devices through mobile applications, and our ability to remain competitive with the shift to mobile apps is critical to maintaining our revenue and profitability.

Mobile devices are now the primary means by which people access online content, increasingly through mobile applications rather than browsers. While our websites are designed with a "mobile first" approach, mobile applications are not a primary driver of our business, which could place us at a competitive disadvantage in the marketplace. We may experience difficulties developing mobile apps or making them available in the Google Play and Apple App stores, and consumers may not install and use our apps. If we experience these difficulties or problems promoting our apps on social media platforms, our consumer acquisition capabilities and our growth may be impaired, making it more difficult for our mobile app initiatives to achieve profitability.

Our rewards fulfillment costs fluctuate, and we could lose clients if we fail to adequately detect fraud on advertisements.

Our rewards sites generate a large portion of our revenues and gross profit. Users who complete the program requirements and are verified during the claims process can earn valuable rewards such as gift cards and cash equivalents. However, we are exposed to the risk of fraudulent clicks or actions on our websites or our third-party publishers’ websites, which could lead our clients to become dissatisfied with our campaigns and lead to a loss of clients and related revenue. Click-through fraud occurs when automated systems (sometimes called "bots") are used to create an individual click on an ad displayed on a website, rather than an individual user actually viewing the underlying content, with the intent of generating a payment to the publisher. Alternatively, publishers may seek to increase compensable actions by using bots or other fraudulent means to complete online forms with false or fictitious information. Our results could be adversely affected if users are successful in claiming rewards they are not entitled to or we deny rewards to users who we believe are not entitled to claim them. These users may seek to damage our reputation by filing complaints or posting negative online reviews, which could adversely affect our results of operations.

The risk of fraud may increase as bots become more sophisticated and difficult to detect. We do not charge our clients for fraudulent clicks or actions when they are detected, and we have terminated and may, in the future, terminate our relationships with publishers who we believe have engaged in fraud. However, we may not be able to replace them with new publishers, which could result in a reduction in traffic to our sites and registrations.

Other Business Risks

It may be difficult to effectively manage any future growth and scale our infrastructure and products quickly enough to meet the needs of our business while maintaining profitability.

Our future success depends in part on the efficient performance of our ad serving and lead generation platforms and technology infrastructure. As the number of websites and internet users and the amount of data collected increases, we have begun to revamp our technology infrastructure to accommodate this increased volume. For example, we rearchitected our database of consumer information to accommodate users' exercise of their privacy rights under new data privacy and data protection laws. Unexpected constraints on our technology infrastructure could lead to slower website response times or system failures and adversely affect the availability of our websites and the level of user responses received, which could result in the loss of clients or revenue.

We are continuously upgrading our systems, procedures, processes, and controls to support our future operations as we grow. We have incurred significant expenditures and have been forced to reallocate valuable management resources to facilitate these upgrades. We have incurred substantial costs to secure hosting, other technical services, and additional data storage and to upgrade our technology and network infrastructure to handle increased traffic on our owned-and-operated websites. We have also deployed new products and services and third-party solutions to respond to an increasing volume of data privacy requests. However, these upgrades and expansion in our technical capabilities are costly and complex and could result in inefficiencies or operational failures which could damage our reputation and cause us to lose current and potential users and clients and harm our operating results.

In the future, we directly or through our third-party provided information technology systems or software may incorporate artificial intelligence ("AI") capabilities into our business. As with many innovations, AI presents risks, challenges, and unintended consequences that could affect its adoption, and therefore our business. AI algorithms and training methodologies may be flawed, ineffective or inadequate. AI development or deployment practices by us or third-party providers could result in incidents that could increase the resources we need to implement cybersecurity measures to protect the security of our data. These deficiencies and other failures of any potential AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm.

Economic or political instability could adversely affect our business, financial condition, and results of operations.

Our results of operations could be adversely affected by general conditions in the global economy, including events or factors that are outside of our control. Such events or factors could include those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere. Such events or factors could decrease the spending of our existing and potential new customers, adversely affect demand for our products, cause one or more of our customers, vendors, and partners to file for bankruptcy protection or go out of business, impact expected spending and pricing levels from existing and potential new customers, and negatively impact collections of accounts receivable.

The full extent to which these factors may negatively affect our business and operations, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope, severity and duration of the Hamas-Israel and Russia-Ukraine conflicts, other areas of geopolitical tension around the world and any economic downturns and the actions taken by governmental authorities and other third parties in response. In particular, our revenue is susceptible to developments in the Hamas-Israel conflict, as a significant portion of our customers in the Media & Entertainment industry are located in Israel.*** ***

Additionally, the Federal Reserve may further raise the Federal Funds Rate. These rate increases, coupled with a strong labor market and reduced consumer confidence, result in uncertainty, and may cause our customers and/or clients to be cautious in their ad spending.

The expansion of our international operations subjects us to increased challenges and risks.

We have website offerings beyond the U.S., in the United Kingdom (the "UK"), Canada, and Australia, and we may expand further into additional countries. Continued international expansion will require us to invest significant funds and other resources and may subject us to additional risks, including those related to cross-border data transfers; retooling our consumer facing product offerings to better align with local customs, practices, and consumer preferences; compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act; recruiting, training, managing, and retaining contractors and service providers in foreign countries; increased competition from local providers; economic and political instability; and less protective or restrictive intellectual property laws. Currently, we operate our owned-and-operated websites in the UK, Canada, and Australia from servers in the Cloud and in the U.S., which may lead to latency in the performance of our websites located outside the U.S., diminishing their performance.

Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, legal and regulatory systems, taxation regimes, and commercial infrastructures. If our revenue from our international operations does not exceed the expense of establishing and maintaining these operations, our business and operating results could suffer, and we may decide to make changes to our business or exit certain jurisdictions to mitigate losses. If we are unable to successfully manage the risks and costs associated with international operations, our business and/or results of operations could be adversely affected.

Acquisitions, investments, and divestitures could complicate operations, or could result in other harmful consequences that may adversely impact our business and results of operations.

Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. In addition, we regularly review and assess strategic alternatives in the ordinary course of business, including potential acquisitions, investments, or divestitures. These potential strategic alternatives may result in many strategic transactions that could be material to our financial condition and results of operations.

The process of evaluating strategic alternatives involves a number of risks and uncertainties and may distract management from our other businesses or result in significant expenses. Moreover, we may invest significant resources towards evaluating and negotiating strategic alternatives that do not ultimately result in a strategic transaction. The success of our acquisitions and other investments will depend in part on our ability to successfully integrate and leverage them to enhance our existing products and services or develop compelling new ones. It may take longer than expected to realize the full benefits from these acquisitions or investments, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected. Our failure to address these risks or other problems encountered in connection with our acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and harm our business generally.

Our failure to recruit or the loss of management and highly trained and qualified personnel could adversely affect our business.

Our future success depends, in part, on our ability to attract and retain key personnel, including Donald Patrick, our Chief Executive Officer, Ryan Schulke, our Chief Strategy Officer, and Matthew Conlin, our Chief Customer Officer. It also depends upon our ability to hire and retain highly skilled managerial, technical, and operational personnel in all areas of our organization, each of whom is important to the management of certain aspects of our business and operations and the development of our strategic direction and may be difficult to replace. The loss of the services of these key individuals and the process to replace these individuals could involve significant time and expense and could significantly delay or prevent the achievement of our business objectives.

We have transitioned to a hybrid in-office/remote model, which may adversely affect our ability to attract and retain employees***.***

We implemented a company-wide work-from-home policy beginning on March 13, 2020. During the pandemic, many employees relocated away from our New York City headquarters. As was the case with many organizations, we experienced higher levels of turnover during the pandemic, and hiring became increasingly difficult as new hires commanded higher salaries.

While we have adapted to a work-from-home environment, we believe it is preferable to have our workforce on premises. Having a large part of our workforce working remotely creates challenges to our technological capacity and cybersecurity capabilities, as well as causes operational inefficiencies and may lead to the diminution in the loyalty and goodwill of our employees. In September 2022, we modified the policy to now require that employees be in the office at least two days a week, and we have recently begun hosting events to bring our employees together. Despite not utilizing our offices at pre-pandemic levels, we have not yet been able to reduce our occupancy costs, and we may not be able to do so prior to the expiration of our current lease in October 2025.

If we are unable to maintain our corporate culture as we grow, our business, financial condition, and results of operations could be harmed. The failure to maintain the key aspects of our culture as our organization grows could result in decreased employee satisfaction and increased difficulty in attracting and retaining top talent, which in turn could compromise the quality of our client service and adversely affect our operations.

We are dependent upon third-party service providers in our operationsand may be adversely affected if any of their platforms malfunction.

In addition to risks associated with purchasing online media from third-party publishers discussed above, we utilize numerous third-party service providers in our operations such as cloud-based hosting services, enterprise resource planning systems and other software as a service platforms and services. As with all software and web applications and systems, there may be occasional technical malfunctions that arise with some of these third-party providers. Remedying any such situation could require substantial time, resources, and technical knowledge that we may not have or be able to acquire in a timely fashion. A failure by a third-party service provider could prevent us from operating our websites, connecting our advertiser clients with users, providing online marketing and advertising services, or tracking the performance and results of our online marketing activities and our operations in general. If any of these platforms or applications malfunctions for an extended time period, we may lose clients and/or incur significant costs to either internalize some of these services or find suitable alternatives, which could have a material adverse effect on our business or results of operations.

Risks Relating to Legal and Regulatory Matters

Our business is subject to a significant number of telemarketing laws and regulations. Compliance with these laws and regulations may cause us to incur significant expenses or reduce the availability or effectiveness of our solutions, and failure to comply with them could subject us to civil or criminal penalties or other liabilities.

We, our third-party publishers', and our clients' businesses operate in highly regulated industries, subject to many laws and regulatory requirements, including federal, state, and local laws and regulations regarding telemarketing. Many of these laws and regulations are frequently changing and can be subject to vagaries of interpretation, and the extent and evolution of future government regulation is uncertain. Keeping our business in compliance or bringing our business into compliance with new laws and regulations, therefore, may be costly, affect our revenue and harm our financial results.

We are subject to various state and federal laws regulating telemarketing communications (including SMS or text messaging), including the federal TCPA, Telemarketing Sales Rule ("TSR"), and state telemarketing laws. We use our data to manage internal text messaging campaigns to re-engage with our users and supply it to third-party call center clients for their telemarketing and text messaging campaigns. TCPA regulations have resulted in an increase in individual and class action litigation against marketing companies for alleged TCPA violations. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the FCC or state authorities or through private litigation. Recently, for example, we contributed $3.1 million to settle a TCPA class action, which may increase the risk of additional claims under the TCPA.

Changes in the interpretation of the TCPA or TSR could also have a material adverse effect on our business. For example, the FCC recently adopted rules which, among things, modified how companies may obtain consumer consent under the TCPA. If implemented, these rules would ban marketers from obtaining a single consumer consent as grounds for delivering calls and text messages from multiple marketers on subjects beyond the scope of the original consent. This portion of the new rules takes effect in January 2025. There are many aspects of the new rules that are unclear and will be subject to interpretation by the courts and regulatory authorities, and it is likely that there will be legal challenges to the new rules. Because of the uncertainty surrounding the application of the revised TCPA rules to our business, we are unable to predict the impact on our business. If the new rules take effect, we expect that they will impact the sale of telemarketing data and our call solutions business unit, which may adversely affect our revenue and results of operations.

In addition, we promote Medicare Supplement plans by supplying call transfers and contract information of interested users to insurance agencies, brokers and other parties participating in the sale of these policies, as well as selling policies using our own agents. The Centers for Medicare & Medicaid Services ("CMS") has regularly issued rules tightening the acceptable marketing practices of these plans and we expect CMS to continue to issue new rules. Depending on the rules adopted our ability to market and sell these plans may be curtailed which may adversely affect the results of our operations in this space.

We may also face liability for any failure of our third-party publishers, strategic partners, or vendors to comply with legal and regulatory requirements. Users or clients may complain about the content of publisher ads or the methods by which ads are delivered by third-party publishers, who may use unapproved marketing channels, such as text messaging, to drive users to our sites, which may expose us to liability under the TCPA and other laws regulating telemarketing and text messaging.

If we are unable to cause our third-party publishers and strategic partners to monitor and enforce our clients’ contractual restrictions on such affiliates, our clients may terminate their relationships with us or decrease their marketing budgets with us. In addition, we may also face liability for any failure of our third-party publishers, strategic partners, vendors, or their respective affiliates to comply with regulatory requirements. The law is unsettled on the extent of liability that an advertiser in our position has for the activities of third-party publishers, strategic partners, or vendors. In addition, certain of our contracts impose liability on us, including indemnification obligations, for the acts of our third-party publishers, strategic partners, or vendors. Despite our efforts to monitor and deter unauthorized or unlawful actions by these third-party publishers, and to contractually limit our liability in such instances, we may be held responsible for this behavior. As a result, we could be subject to costly litigation and, if we are unsuccessful in defending ourselves, could incur damages for the unauthorized or unlawful acts of third-party publishers, strategic partners, or vendors.

Our use of email marketing is subject to laws and rules in each of the jurisdictions in which we operate.

We operate internal email campaigns to promote our owned and operated websites and utilize third party publishers who use email to generate traffic for our websites and to promote our advertisers' products. As a result of these activities, we and our email publishers are subject to various state and federal laws regulating commercial email communications, including the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act of 2003 and the California Business and Professions Code Sec. 17529.5. If we or any of our third-party publishers fail to comply with any provisions of these laws or regulations, we could be subject to regulatory investigation, enforcement actions, litigation, or claims. In addition, the FTC Consent Order requires us to obtain "affirmative express consent" for e-mail marketing, a more stringent level of consent than is required of other companies in our industry. This may inhibit our ability to cost- effectively generate email data for our clients.

Further, foreign laws and regulations, such as the Canadian Anti-Spam Law, also apply to our business activities in the foreign jurisdictions in which we operate. If we or any of our third-party publishers fail to comply with any provisions of these laws or regulations, we could be subject to regulatory investigation, enforcement actions and litigation, as well as indemnification obligations with respect to our clients. Any negative outcomes from such regulatory actions or litigation, including monetary penalties or damages, could have a material adverse effect on our financial condition, results of operation and reputation.

Laws and regulations regarding privacy, data protection, and the handling of personal information are complex and evolving. While we strive to comply with all legal and contractual obligations regarding these matters, any failure or perceived failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

Because we collect, store, process, use and sell data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations, as well as contractual requirements, regarding privacy, data protection and the collection, maintenance, protection, use, transmission, disclosure, and disposal of personal information. These laws and regulations continuously evolve and involve matters central to our business, including user privacy, data protection, content, intellectual property, electronic contracts and other communications, e-commerce, sweepstakes, rewards and other promotional marketing campaigns, competition, protection of minors, consumer protection, taxation, libel, defamation, internet or data usage, and online payment services. While we strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection, these obligations may be interpreted and applied in new ways or inconsistently across jurisdictions, and new regulations may be enacted.

The European Union's General Data Protection Regulation ("GDPR") imposed new requirements on entities and granted individuals new rights in connection with the collection, use and storage of the personal information of European Union residents. Our operations in the UK are subject to the UK-GDPR, which took effect prior to Brexit and is largely identical to the GDPR. The fines for failing to comply with the GDPR or UK-GDPR are significant and the potential ways that the regime could be applied to a business such as ours are uncertain. Similarly, the data privacy laws in Canada and Australia are becoming more stringent and we must comply with these laws or risk regulatory inquiries, fines, and penalties.

Currently, approximately a dozen U.S. states have comprehensive data privacy laws in place, including the California Consumer Privacy Act of 2018 ("CCPA"), which is similar to the GDPR and was the first comprehensive U.S. data privacy law enacted. Similar bills are pending in ten additional states. Some of the proposed laws include a private right of action to enforce noncompliance, which, if enacted, would expose us to potential litigation and claims. Because of the number of different laws, it will be extremely difficult and expensive to comply with this "patchwork" of data privacy laws. There can be no assurance that we will be able to do so or that the costs of compliance will not be prohibitively expensive, either of which could have a material adverse effect on our business and results of operations.

Due to the high volume of user registrations on our owned-and-operated websites, we receive many requests from users seeking to exercise their data privacy rights. We elected to implement a third-party solution to support our systems and processes to handle these requests and have already devoted significant resources to handling data privacy requests. We expect to incur additional costs to maintain compliance with the evolving data privacy and data protection laws and regulations.

The outcome of litigation, inquiries, investigations, examinations, or other legal proceedings in which we are involved, in which we may become involved, or in which our clients or competitors are involved could distract management, increase our expenses, or subject us to significant monetary damages or restrictions on our ability to do business.

From time to time, we are subject to audits, inquiries, investigations, claims of non-compliance and lawsuits by private litigants or federal and state governmental agencies, regulatory agencies, attorneys general and other governmental or regulatory bodies, any of whom may allege violations of legal and regulatory requirements. The scope and outcome of these proceedings is often difficult to assess or quantify. Plaintiffs in lawsuits may seek recovery of large amounts, and the cost to defend such litigation may be significant.

For example, Fluent, LLC recently settled investigations by the FTC and PAAG. As a result of these settlements, we made several changes to our employment opportunities marketplace and programmatic advertising businesses and implemented industry-leading compliance measures across the entire business which had and may continue to have a negative impact on our revenues and media margin. While in the medium term, we expect that our industry-leading compliance protocols will be a competitive advantage that will enable us to recapture market share from our competitors, we cannot assure that the adverse impact on our revenues and media margin will not continue longer than expected. Despite resolving the FTC and PAAG matters, we could be subject to additional regulatory actions from other state attorneys general. We also recently agreed to participate in the settlement of a TCPA class action and are involved in other active TCPA class action litigations. Such actions could have a substantial adverse impact on our reputation and ability to continue to buy media cost effectively and the willingness of our advertiser clients to continue to do business with us, which could in turn materially and adversely affect our results of operations and financial position.

There may also be adverse publicity and uncertainty associated with investigations, litigation, and orders (whether pertaining to us, our clients, or our competitors) that could diminish consumers' view of our services and/or result in material discovery expenses. A court-ordered injunction or an administrative cease-and-desist order or settlement may require us to modify our business practices or prohibit conduct in which our competitors may engage. Additionally, our clients might face similar proceedings, actions or inquiries which could affect their businesses and, in turn, our ability to do business with those clients. Any negative outcomes from regulatory actions or litigation or claims, including monetary penalties or damages or injunctive provisions regulating or restricting how we conduct our business could have a material adverse effect on our business, financial condition, results of operations and reputation.

Regardless of whether any current or future claims in which we are involved have merit, or whether we are ultimately held liable or subject to payment of penalties or consumer redress, such investigations and claims have been and may continue to be expensive to defend, may divert management's time away from our operations and may result in changes to our business practices that adversely affect our results of operations.

Our business and the businesses of our advertiser clients may be subject to sales and use tax and other taxes.

The application of sales and use taxes, business taxes, and gross receipts taxes on our digital marketing/advertising services is complex and evolving. Because of changes in the laws governing us, we are potentially subject to taxes in many more states than was previously the case. The line between exempt services and non-enumerated services subject to sales is unclear and varies from state to state. While our advertising services are generally not subject to sales tax, some states, like New York, impose sales tax on information services. Further complicating the determination of the sales taxability of services is the need to determine the source of revenues from the services (i.e., where the service is rendered, where the service is consumed or where the information is accessed).

Changes in tax laws, interpretation, and implementation of regulations, rules, or guidance on taxes may result in our revenues being subject to sales or other taxes or have a significant adverse impact on our effective tax rate. Were any of these to occur, our overall tax burden could increase, which could have a material adverse impact on our business.

Risks Relating to Data Security and Intellectual Property

We collect and process personal information and other data, and our actual or perceived failure to safeguard such data and user privacy could damage our reputation and results of operations.

We maintain data that contain user information such as name, age, personal address, phone number, email address, survey responses and transactional data. Our ability to protect such information and to provide services using such information without unauthorized disclosure is critical. A breach of the security measures on our systems or on those of our third-party vendors could result in the misappropriation of either our proprietary information or our users' personal information, or the interruption or breakdown of our operations. Our business is largely dependent on consumer-facing websites, which could become inaccessible due to service interruptions or attacks. If our websites are unavailable when users attempt to access them, or if they do not load as quickly as expected, users may not return as often in the future, or at all.

Cybersecurity risks have significantly increased in recent years, in part because of the proliferation of new technologies, the increased use of the internet and telecommunications technologies to exchange information and conduct transactions, and the increased sophistication and activities of computer hackers, organized crime, terrorists, and other external parties, including foreign state actors. Outside parties may try to fraudulently induce employees or our users to disclose sensitive information to enable them to access our systems, user information and information relating to our business operations. Although we continue to enhance our physical and cyber security controls and associated procedures, we cannot guarantee that our websites, database, and information technology systems, and those of our third-party service providers, will be free of security breaches, computer malware or viruses, phishing impersonation attacks, misplaced or lost data, programming and/or human errors, ransomware and similar incidents or disruptions from unauthorized use of our database and systems. We have been subject to and are likely to continue to be the target of future cyberattacks.

We, or any of our third-party partners or service providers, could experience compromises to security that result in the decreased performance or availability of our websites or mobile applications; the loss or unauthorized disclosure, access, acquisition, alteration; or the use of confidential information. As a result, consumers, publishers, or advertisers may lose trust and confidence in us, and consumers may decrease the use of our websites, advertisers may stop using our services and/or publishers may stop providing media to us.

Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.

Any or all of these issues could adversely affect our ability to attract new users and increase engagement by existing users, cause advertisers to not use our services or cause publishers to stop providing media, disrupt our business operations or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business. Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included denial of service attacks and phishing.

See also risk factor entitled "Laws and regulations regarding privacy, data protection and the handling of personal information..." above for additional information.

If we do not adequately protect our intellectual property rights, our competitive position and business may suffer.

Our ability to compete effectively depends upon our proprietary systems and technology. We rely on trade secret, trademark and copyright law, confidentiality agreements, and technical measures to protect our proprietary rights. We enter into confidentiality agreements with our employees, consultants, advisers, client vendors and publishers. However, these agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our services or obtaining and using our proprietary information. Further, these agreements may not provide an adequate remedy in the event of unauthorized disclosures or uses, and we cannot guarantee that our rights under such agreements will be enforceable.

Policing unauthorized use of our proprietary rights can be difficult and costly. Litigation, while it may be necessary to enforce or protect our intellectual property rights, could result in substantial costs and diversion of resources and management attention, and could adversely affect our business, even if we are successful on the merits. In addition, others may independently discover trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software and functionality or obtain and use our proprietary information. For example, third party website operators have created look-alike sites of our reward sites, some of which contain links to our terms, privacy policies and/or customer service. These sites divert traffic away from our sites, expose us to regulatory scrutiny as the look-alike sites often have compliance issues, and create consumer confusion. Despite our efforts to monitor the internet for look-alike sites, there can be no assurance that we will be able to quickly detect and remove all look-alike sites, which could impair our reputation, expose us to regulatory scrutiny, and adversely affect our business.

As a creator and a distributor of digital media content, we face liability and expenses for legal claims based on the nature and content of the materials that we create or distribute, including materials provided by third parties. If we are required to pay damages or expenses in connection with these legal claims, our business and results of operations may be harmed.

We display original and third-party content on our websites and in our marketing messages. As a result, we have faced and may continue to face potential liability based on a variety of legal theories, including copyright or trademark infringement. We generally rely on the "fair use" exception for our use of third-party brand names and marks, but these third parties may disagree, and the laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis. We also create content we believe to be original for our websites. While we do not believe that this content infringes on any third-party copyrights or other intellectual property rights, owners of competitive websites that present similar content have taken and may take the position that our content infringes on their intellectual property rights.

We are also exposed to risk that content provided by third parties and posted to our websites is inaccurate or misleading. These claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merit of these claims. The general liability and cyber/technology errors and omissions insurance we maintain may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance, or that exceeds our insurance coverage, could materially adversely affect our business, financial condition, and results of operations.

Risks Related to Financial Matters

Covenants in our Credit Agreement impose restrictions that may limit our operating and financial flexibility.

On April 2, 2024, Fluent, LLC entered into a credit agreement (the "SLR Credit Agreement") by and among Fluent, LLC, as Borrower, Fluent, Inc. and certain subsidiaries of the Borrower as guarantors, Crystal Financial LLC D/B/A SLR Credit Solutions, as administrative agent, lead arranger and bookrunner ("SLR"), and the lenders from time to time party thereto. The SLR Credit Agreement provides for a $20.0 million term loan (the "Term Loan") and a revolving credit facility of up to $30.0 million (the "Revolving Facility" and, together with the Term Loan, the "SLR Credit Facility"). As of April 2, 2024, the SLR Credit Facility has an outstanding principal balance of $32.7 million and will mature on April 2, 2029 (the "Maturity Date"). We used $30.0 million of the proceeds to repay our prior credit facility with Citizens Bank, N.A., as administrative agent, lead arranger and bookrunner, and the other lenders thereto.

We may voluntarily prepay the Term Loan, in whole or in part, at any time, subject to a premium payable on the aggregate principal amount of any such voluntary prepayments within the first three years following the closing date. There is no principal amortization prior to maturity under the SLR Credit Agreement, except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case, subject to certain reinvestment rights, thresholds and other exceptions. Unfunded commitments under the Revolving Facility will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50% per annum. All amounts owed under the Credit Facilities will be due and payable on the Maturity Date, or earlier following a change in control or other event of default, unless otherwise extended in accordance with the terms of the SLR Credit Agreement. Borrowings under the SLR Credit Agreement bear interest at a rate per annum equal to a 3-month term SOFR plus 0.26161%, subject to a 1.50% floor, plus 5.25% (the "Applicable Margin"). The Applicable Margin will be reduced to 5.0% when our fixed charge coverage ratio is greater than 1.10 to 1. The anticipated opening interest rate of the SLR Credit Facility is 10.81% (SOFR + CSA + 5.25%).

The SLR Credit Facility is guaranteed by us and certain of our direct and indirect subsidiaries and is secured by substantially all of our assets and those of certain of our direct and indirect subsidiaries, including Fluent, LLC.

The SLR Credit Agreement contains restrictive covenants which impose limitations on the way we conduct our business, including limitations on the amount of additional debt we are able to incur and our ability to make certain investments or to pay dividends or other restricted payments. The restrictive covenants may limit our strategic and financing options and our ability to return capital to our shareholders through dividends or stock buybacks. In addition, the SLR Credit Agreement requires us to maintain and comply with certain financial covenants.

While we expect to be in compliance with the financial and other covenants, we cannot guarantee that we will be. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the outstanding indebtedness under the SLR Credit Facility and the termination of commitments under the Revolving Facility, which would materially adversely affect our financial health if we are unable to access sufficient funds to repay all the outstanding amounts. Moreover, if we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing, or sell assets, which we may not be able to do on satisfactory terms, or at all.

If we become unable to satisfy a financial covenant or otherwise breach a covenant under our debt facility, our auditors and/or our management may determine that the potential for acceleration of our payment obligations, together with other then-existing factors, creates substantial doubt about our ability to continue as a going concern, as was the case with our prior credit facility as of the filing date of Form 10-Q for the third quarter of 2023. If our financial statements were to include such a going concern uncertainty in the future, the perception that we may not be able to continue as a going concern may cause publishers and other vendors, advertisers and other clients (or potential clients), and others, to review their business relationships and terms with us and potentially terminate the relationship or require changes in terms of the relationship that negatively impact our business, financial condition or results of operations. Furthermore, if we seek additional financing to fund our operations at a time when our financial statements include such a going concern uncertainty, financing sources may be unwilling to provide such funding to us on commercially reasonable terms, or at all, which may exacerbate our ability to alleviate the going concern uncertainty. Such uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the trading price of our common stock, which could negatively impact our ability to obtain stock-based financing or enter into strategic transactions intended to alleviate the going concern uncertainty.

The Term Loan under our Credit Facility bears interest based onone of two variable rates (the Federal Funds Rate or a Term Secured Overnight Financing Rate ("SOFR")) plus an applicable margin. Either of these interest rates may increase which could increase the cost of servicing our Term Loan and have an adverse effect on our results of operations, cash flows and stock price. In addition, our experience with SOFR based loans is limited.

The term loan under our Credit Facility is at our option either Alternative Base Rate Loans that bear interest at a base rate which is based on the Federal Funds Rate plus a prescribed margin, or Term SOFR Loans that bear interest at rates selected by us (based on loans of one-, three- or six- month duration) based on SOFR published by the CME Group plus prescribed margins. We bear the risk that the rates we are charged by our lenders will increase faster than the earnings and cash flow of our business, which could reduce profitability, adversely affect our ability to service our debt, or cause us to breach covenants contained in our credit agreement or leases.

The use of SOFR based rates is intended to replace rates based on the London Interbank Offered Rate ("LIBOR") and reflects the discontinuation of the use of LIBOR in the financial markets. The use of SOFR-based rates may result in interest rates and/or payments that are higher or lower than the rates and payments that we experienced previously for the term loan under our Credit Facility, where interest rates were based on LIBOR. Also, the use of SOFR-based rates is relatively new, and there could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates. In particular, if the agent under the Credit Facility determines that the Term SOFR rates cannot be determined or the agent or the lenders determine that Term SOFR-based rates do not adequately reflect the cost of funding the SOFR Loans, outstanding SOFR Loans will be deemed to have been converted into Alternate Base Rate Loans by the Company. This could result in increased borrowing costs for the Company, which could materially adversely affect our business, financial condition, and result of operations.

We may require additional capital in the future to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. If capital is not available to us, the future growth of our business and operations would be severely limited.

We intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. The Credit Agreement includes an undrawn revolving credit facility of up to $30 million that we can use subject to certain conditions. If we require additional capital, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them or on acceptable terms. Disruptions in the global equity and credit markets may also limit our ability to access capital.

To the extent that we raise additional funds by issuing equity securities, the ownership of our existing stockholders will be diluted. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue certain operations. Any of these events could significantly harm our business and results of operations.

We have experienced significant charges to our goodwill and could experience significant charges to our intangible assets, which may affect our results of operations in the future.

As a result of prior acquisitions, we had a substantial amount of goodwill and purchased intangible assets on our consolidated balance sheet. The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of intangible assets with identifiable useful lives are amortized based on their economic lives. Goodwill that is expected to contribute indefinitely to our cash flows is not amortized but must be evaluated for impairment at least annually and when events or changes in circumstances indicate the carrying value may not be recoverable. If necessary, a quantitative test is performed to compare the carrying value of the asset to its estimated fair value, as determined based on a discounted cash flow approach, or when available and appropriate, to comparable market values. If the carrying value of the asset exceeds its current fair value, the asset is considered impaired and its carrying value is reduced to fair value through a non-cash charge to earnings. As of December 31, 2023, substantially all of the goodwill from prior acquisitions has been impaired. Unfavorable changes in the business climate or competitive environment, our revenue forecasts, our market capitalization, capital structure, capital expenditure levels, operating cash flows, as well as adverse legal or regulatory actions or developments could cause further material impairments to the carrying value of our intangible assets or intangible assets we may obtain in future periods.

We will continue to monitor indicators of possible impairment that would cause a triggering event requiring us to complete an interim impairment analysis and possibly recognize additional impairment charges in the future. Impairment charges to our intangible assets could have a material adverse effect on our financial condition, and results of operations.

Risks Related to Our Common Stock and the Securities Markets

There can be no assurance that our common stock will continue to be listed on The Nasdaq Stock Market, which could limit investors' ability to make transactions in our common stock and the price of our common stock and our ability to access the capital markets.

On May 1, 2023, The Nasdaq Stock Market LLC ("Nasdaq") notified us that we were not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Price Requirement"). The closing bid price for our common stock, par value $0.0005 per share, had been less than $1.00 per share for the previous 30 consecutive business days. We were provided an initial period of 180 calendar days, or until October 30, 2023 (the "Initial Compliance Period"), to regain compliance with the Minimum Bid Price Requirement. On October 18, 2023, we transferred the listing of our common stock from The Nasdaq Global Market to The Nasdaq Capital Market, and on October 31, 2023, the Nasdaq confirmed that we were eligible for an additional 180 calendar day period, or until April 29, 2024 (the "Additional Compliance Period"), to regain compliance with the Minimum Bid Price Requirement, including by effecting a reverse stock split, if necessary.

On March 18, 2024, our stockholders approved a proposed Certificate of Amendment to our Certificate of Incorporation and gave the Board the authority, at its discretion, to file the Certificate of Amendment to effect a reverse stock split of our common stock at any time within one year following stockholder approval.

While we intend to demonstrate compliance with the Minimum Bid Price Requirement through a reverse stock split if necessary by April 29, 2024, there can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement or continue to satisfy other continued listing standards and maintain the listing of our common stock on Nasdaq. The suspension or delisting of our common stock, or the commencement of delisting proceedings, could, among other things, materially impair our stockholders' ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. Although we may effect a reverse stock split of our issued and outstanding common stock in the future, there can be no assurance that such reverse stock split will enable us to regain compliance with the Nasdaq Minimum Bid Price Requirement. Moreover, the liquidity of the shares of our common stock may be affected adversely by a reverse stock split given the reduced number of shares that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase because of the reverse stock split.

If we do not regain compliance and our common stock is delisted from Nasdaq, it may be subject to the "penny stock" rules. The SEC has adopted regulations that define a "penny stock" to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange, which is the exception on which we currently rely. For any transaction involving a "penny stock," unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a "penny stock," a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market.

Our stock price has been and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses.

There can be no guarantee that our stock price will remain at current prices or that future sales of our common stock will not be at prices lower than those sold to investors. We may incur rapid and substantial increases or decreases in our stock price in the foreseeable future attributable to various factors including those discussed in the Risk Factors included in this report. Some factors may be unrelated to our operating performance or prospects or may be beyond our control. The price for our common stock may be influenced by many factors, including investor reaction to our business strategy; the success of our services, products, or technologies; compliance with the Nasdaq listing standards; variations in our financial results; any major change in our board or management; or our involvement in regulatory investigations or litigation. In addition, if one or more analysts covering our business downgrade their evaluations of our common stock or the stock of other companies in our industry, the price of our common stock could decline. If one or more analysts cease to cover our common stock, we could lose visibility in the market for our common stock, which in turn could cause our stock price to decline.

Since our stock price may continue to be volatile in the future, investors in our common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management's and our board of directors' attention and resources from our business. Such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. We may be required to incur significant legal fees and other expenses related to any securities litigation and activist stockholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.

The concentration of our stock ownership presents risks, including lack of liquidity in the trading market for our common stock and limitations on any individual stockholder's ability to influence corporate matters.

As of December 31, 2023, our executive officers, directors, and holders of 10% or more of our outstanding common stock, in the aggregate, beneficially owned and have the ability to exercise some voting control over approximately 43.6% of our outstanding shares of common stock. As a result, these stockholders could exert significant influence over all matters requiring stockholder approval, including the election of directors and determination of significant corporate actions. The interests of these stockholders may not always coincide with the interests of other stockholders, and these stockholders may act in a manner that advances their interests and not necessarily those of other stockholders, which might affect the trading price of our common stock.

The concentration of stock ownership may also serve to limit the trading volume of our common stock and lead to greater volatility in our stock price. Our largest shareholder, Frost Gamma Investments Trust ("FGIT"), owns, directly and indirectly, approx imately 35.6% ofour outstanding common stock. FGIT has no obligation to provide us with advance notice of any sale or purchase of our common stock. If the concentration of our common stock ownership were to significantly shift, via sales of shares currently held by FGIT or otherwise, we cannot predict the impact that any resulting change to the trading volume might have on our stock price.

Future issuances of shares of our common stock in connection with acquisitions or pursuant to our stock incentive plans could have a dilutive effect on your investment in us.

During 2022 and 2023, we issued 1,328,375 and 1,532,433 shares, respectively, of our common stock in connection with acquisitions, vesting of awards made under our 2018 Stock Incentive Plans and our 2022 Omnibus Equity Incentive Plan (the "2022 Plan"), and for other business purposes. Also, as of December 31, 2023, there were an additional 6,203,001 shares of restricted stock and underlying options issued under the 2022 Plan, as well as other compensatory arrangements that might vest and be delivered through 2031. The benefits derived by us from any future acquisition might notexceed the dilutive effect of the acquisition. Pursuant to the incentive plans, our board of directors has granted and may continue to grant stock options, restricted stock units, or other equity awards to our directors and employees. When these awards vest or are exercised, the issuance of shares of common stock underlying these awards may have a dilutive effect on our common stock, which could cause our stock price to decline.

We have never declared or paid cash dividends on our common stock and we do not expect to declare or pay any cash dividends in the foreseeable future. Additionally, our Credit Agreement prohibits us from paying cash dividends on our common stock and contains limitations on our ability to redeem or repurchase shares of our common stock. As a result, shareholders may only receive a return on your investment in our common stock if the trading price of your shares increases.

We are a smaller reporting company anda non-accelerated filer, and we benefit from certain reduced governance and disclosure requirements, including that our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting. We cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies and*** non-accelerated filers***will make our common stock less attractive to investors.

Currently, we are a "smaller reporting company," meaning that our outstanding common stock held by nonaffiliates had a value of less than $250 million at the end of our most recently completed second fiscal quarter. We are also a non-accelerated filer because we had a public float of less than $75 million as of the last business day of our most recently completed second quarter. As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of Section 404 of the** Sarbanes-Oxley Act, meaning our auditors are not required to attest to the effectiveness of our internal control over financial reporting. As a result, investors and others may be less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in internal controls go undetected may increase. In addition, as a smaller reporting company, we take advantage of our ability to provide certain other less comprehensive disclosures in our SEC filings, including, among other things, providing only **two years of audited financial statements in annual reports and simplified executive compensation disclosures. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects, as the information we provide to investors is less robust than the disclosure investors receive from public companies that are not a smaller reporting company.