Fluent Inc
For the period ended Jun 30, 2024. Filed Aug 19, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 19, 2024
FLNT$3.84+6.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001437749-24-017112
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-19.
0001437749-24-027236
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 106 previous paragraphs and 113 current paragraphs.
47 unchanged; 39 reworded; 23 added; 16 removed; 4 previous and 4 current paragraphs rearranged.
Tables are not compared: 18 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (23)
Current report
Second Quarter Financial Summary
Current report
Six months ended June 30, 2024, compared to six months ended June 30, 2023:
Current report
The decrease in revenue was primarily attributable to the contraction of our owned and operated marketplaces. A challenging macro-economic environment and a decrease in media supply resulting from changes in our business practices to comply with the FTC Consent Order, which in effect drove a reduction in spend from key clients in the Media & Entertainment, Financial Products & Services, and Staffing & Recruitment sectors, including our largest client in the gaming sector which pulled back pricing and spend as it refocused on ROAS starting in the third quarter of 2023. Further, there was minimal revenue related to the sale of certain health insurance policies that began in the fourth quarter of 2023 due to a write-off of accounts receivable and associated adjustment to revenue of $3.1 million for the three months ended June 30, 2024 due to unauthorized changes made to submitted policies by unrelated third parties. The challenges were partially offset by the revenue growth from our new syndicated performance marketplaces. We have seen recovery in the owned and operated media supply and further growth of the syndicated performance marketplaces after June 30, 2024.
Current report
The decrease in revenue was primarily attributable to the contraction of our owned and operated marketplaces and changes related to our commission revenue as described above.
Current report
For the six months ended June 30, 2024, the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue decreased to 75% compared to 74% for the six months ended June 30, 2023.
Current report
For the six months ended June 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $8.0 million and $7.4 million, restructuring and severance costs of $0.4 and $0.1 million, professional fees of $0.3 and $0.1 million, travel and entertainment of $0.3 and $0.2 million, and advertising costs of $0.2 and $0.6 million, respectively. The increase in salaries and benefits was primarily due to annual salary increases, and the increase in restructuring costs was due to the current year period reduction in workforce described below offset by the decline of third party referral fees.
Current report
For the three months ended June 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $3.5 million and $3.4 million, professional fees of $0.5 million and $0.4 million, software license and maintenance costs of $0.4 million and $0.5 million, and restructuring and severance costs of $0.2 and $0.0 million, respectively. The restructuring and severance costs in the current year period were due to the reduction in workforce described below.
Current report
For the three ended June 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $4.2 million and $4.6 million, professional fees of $1.7 million and $1.3 million, office overhead of $1.0 million and $1.0 million, software license and maintenance costs of $0.7 million and $0.7 million, non-cash share-based compensation expense of $0.3 million and $0.7 million, acquisition-related costs of $0.0 million and $0.6 million, and certain litigation and related costs of $0.0 million and a credit related to insurance reimbursements and lower than expected regulatory settlement for previously incurred legal fees received in the prior period of ($5.7) million, respectively. The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs, which was partially offset by a reduction in salaries and benefits due to lower headcount, a decline in share based compensation expense and a decrease in acquisition related costs mainly due to the divestiture of True North Loyalty, LLC and its direct and indirect subsidiaries ("True North").
Current report
The decrease in depreciation and amortization costs was driven by the same factors discussed above as compared to the six months ended June 30, 2023.
Current report
The Company recognized a $1.3 million goodwill impairment in the current year period related to the All Other reporting unit and a $1.0 million impairment on its software developed for internal use related to the Fluent reporting unit and customer relationships related to the All Other reporting unit as of June 30, 2024, compared to no goodwill impairment loss or write-off of intangible assets for the prior period.
Current report
The Company recognized a $1.3 million goodwill impairment in the current year period and a $1.0 million impairment as described above, compared to the goodwill impairment of $25.7 million for the Fluent reporting unit for the six months ended June 30, 2023.
Current report
Income (loss) before income taxes
Current report
The decrease in income (loss) before income taxes of $18.3 million was primarily driven by the decline in revenue of $23.4 million and an increase in operating expenses of $5.4 million driven in part by the prior year period legal fee reimbursement related to previously incurred legal fees and lower than expected regulatory settlement of a legal case and legal fees, partly offset by a decline in cost of revenue of $13.4 million.
Current report
Income tax (expense) benefit
Current report
Net income (loss)
Current report
For the three months ended June 30, 2024 and 2023, net loss was $11.6 million and net income was $4.3 million, respectively, as a result of the foregoing.
Current report
***Cash (used in) provided by financing activities.***For the six months ended June 30, 2024, net cash provided by financing activities was $7.4 million, compared to net cash used in financing activities of $3.0 million for the six months ended June 30, 2023. The increase was mainly due to the sale of warrants and the net proceeds received from the issuance of the new debt partly offset by repayment of the prior debt and repayments on the new debt revolver as well as debt financing costs.
Current report
As of June 30, 2024, we had cash, cash equivalents, and restricted cash of $6.4 million, a decrease of $9.4 million from $15.8 million as of December 31, 2023.
Current report
As a result of economic downward trends as described above in "Advertiser Trends & Seasonality", we updated our projections in the third quarter to reflect the continued pressure on our operating results. We entered into two letter agreements with SLR, pursuant to which SLR extended the deadline for delivery of the compliance certificate required for the fiscal month ended June 30, 2024, and the related notice of event of default, to August 21, 2024.(See Note 5,Long-term debt, netin the Notes to the consolidated financial statements).
Current report
On August 19, 2024, the Borrower and SLR entered into the Second Amendmentto the SLR Credit Agreement, which, among other things, required that the we raise $2.0 million in additional capital. To raise the capital, we entered into convertible subordinated notes (See Note 12,Subsequent Eventsin the Notes to the consolidated financial statements) raising an aggregate of $2.1 million. In addition, among other things, the Second Amendment waived non-compliance with the financial covenant as of June 30, 2024, modified the financial covenant through December 31, 2025, ended a requirement to engage a financial advisor, and increased the interest rate margin from 5.25% to 5.75%.
Current report
While based on current projections, we expect to be in compliance with the new financial covenants for each of the quarters in the twelve* *months following the issuance date of this Quarterly Report on Form 10-Q, if during any fiscal quarter, we do not comply with any of its financial covenants, such non-compliance would result in an event of default that would give SLR the right to accelerate maturities. In such case, the Company likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver (as described above). In addition, while we believe the proceeds from the sale of the Convertible Notes (as defined in Note 12,*Subsequent Events,*in the Notes to the consolidated financial statements) will provide sufficient liquidity for any anticipated cash needs, there is no assurance that our available cash plus borrowing base will be sufficient to fund operations over the next twelve months. Further, if needed, we will consider implementing other cost saving measures, but there is no guarantee that the plans will be successfully executed or have the expected benefits. As a result, management concluded that there is substantial doubt about our ability to continue as a going concern for one year after the date of this Quarterly Report on Form 10-Q.
Current report
As disclosed in Note 3,*Intangible assets, net,*we conducted an interim test of recoverability of its long lived assets for the three months ended June 30, 2024. We compared the undiscounted cash flows to the carrying value of the asset group. If we were to experience sales declines, a significant change in operating margins which may impact our cash flows, and/or a decrease in our projected long-term growth rates, there would be an increased risk of impairment of other assets. Based on the results of this approach as of June 30, 2024, we concluded that the long-lived asset was not recoverable and an impairment loss was calculated. We assessed the fair value taking into account the market and the impact of the asset on the forecast and determined that the full remaining balance was impaired. As such, we recorded a non-cash impairment charge of $383 in the second quarter of 2024.
Current report
As disclosed in Note 4,*Goodwill,*we conducted an interim test of the fair value of its goodwill for potential impairment for the three months ended June 30, 2024. We considered a combination of income and market approaches to determine the fair value of the All Other reporting unit and determined the income approach provided the best indication of fair value. The critical assumptions in the income approach include forecasted revenues and profitability, long-term growth rates, and discount rates. If we were to experience sales declines, a significant change in operating margins which may impact our cash flows, an increase in our discount rates, and/or a decrease in our projected long-term growth rates, there would be an increased risk of impairment of goodwill. Based on the results of this approach as of June 30, 2024, we concluded that its carrying value exceeded its estimated fair value by 58%. As such, we concluded that its goodwill of $1,261 for the All Other reporting unit was impaired and recorded a non-cash impairment charge of its remaining balance in the second quarter of 2024.
Removed paragraphs (16)
Previous report
First Quarter Financial Summary
Previous report
Recent Developments
Previous report
On May 13, 2024, we entered into securities purchase agreements with certain accredited investors, including three individuals who are our officers and/or directors and a principal stockholder of our Company to sell pre-funded warrants to purchase up to 2,955,084 shares of our common stock for an aggregate of $10.0 million in gross proceeds before deducting offering expenses payable by us (the "Private Placement") (see Note 12,*Subsequent Events,*in the Notes to the Consolidated Financial Statements). The pre-funded warrants are exercisable for $0.0005 per share and will expire when exercised in full. The exercise of the pre-funded warrants is subject to stockholder approval expected in July. No underwriting discounts or commissions were paid with respect to the Private Placement. The issuance of the pre-funded warrants was made in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.
Previous report
The decrease in revenue was primarily attributable to contraction of our owned and operated marketplaces due to a challenging macro-economic environment and media supply challenges related to changes in business practices to reflect regulatory requirements in connection with the FTC Consent Order, which influenced reductions in spend by key clients in the Media & Entertainment, Retail & Consumer, and Staffing & Recruitment sectors. These challenges in the owned and operated marketplaces have continued into the second quarter causing further revenue retraction. The decreases have been partially offset by growth of our new syndicated performance marketplaces.
Previous report
The Company did not recognize an impairment loss related to goodwill or a write-off of intangible assets during the three months ended March 31, 2024, compared to the goodwill impairment of $25.7 million for the Fluent Reporting Unit for the three months ended March 31, 2023.
Previous report
Loss before income taxes
Previous report
Income tax expense
Previous report
Net loss
Previous report
*Cash used in financing activities. *Net cash used in financing activities for the three months ended March 31, 2024 and 2023 was $2.2 million and $1.5 million, respectively. The decrease was mainly due to the $2.0 million issuance of a junior secured promissory note in the current period offset by debt financing costs, as compared to the prior period taxes paid related to share settlements of vesting of restricted stock units.
Previous report
As of March 31, 2024, we had cash and cash equivalents of $11.7 million, a decrease of $4.1 million from $15.8 million as of December 31, 2023. If we are not in compliance with our covenants or unable to draw on the SLR Revolver (as defined herein), both as described below, we would not have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months and beyond, raising substantial doubt about our ability to continue as a going concern.
Previous report
As of March 31, 2024, we were in compliance with our covenants under the SLR Credit Agreement (as defined herein) and had excess access to the SLR Revolver. As a result of economic downward trends as described above in "Advertiser Trends & Seasonality", we updated our projections to reflect the continued decline in our operating results. Based on our projections, we do not expect to be in compliance for each of the quarters in the next twelve months. Such non-compliance, in turn, would constitute an event of default that would give SLR (as defined herein) the right to accelerate the maturities under the SLR Credit Agreement. Furthermore, the decline in operating results could lead to declines in the borrowing base under the SLR Revolver, which could lead to the Company's inability to draw on the SLR Revolver in order to fund its operations as well as, potentially, require repayment of a portion of its current borrowings under the SLR Credit Facility.
Previous report
As a result, on May 13, 2024, we entered into the Private Placement discussed in Recent Developments above.
Previous report
In addition, management initiated discussions with SLR about remedies if we are unable to meet our future covenants in the next twelve months or our borrowing base declines. As a result of such discussions, on May 15, 2024 we entered into the first amendment to the SLR Credit Agreement pursuant to which SLR, among other things, waived any required repayments on the SLR Revolver from the proceeds from the Private Placement (See Note 5,Long-term debt, netin the Notes to the Consolidated Financial Statements).
Previous report
While we believe the proceeds from the Private Placement and other steps as noted above will be adequate enough to cover a decline in the borrowing base under the SLR Revolver (as defined below) as well as fund our current operations, there is no guarantee that our plans will be successfully executed or have the expected benefits. Furthermore, if an event of default under the SLR Credit Agreement (as defined below) were to occur and the maturity date accelerated, we likely would not have sufficient funds to repay the SLR Term Loan and the SLR Revolver. While management believes they will be able to work through their plans to mitigate any event of default with SLR, obtaining a waiver of an event of default or entering into an amendment to mitigate an event of default is not entirely within our control. As there can be no* assurance that we will be able to effectively implement our plans within one year after the date of this report, based on the factors above, management concluded that there is substantial doubt about our ability to continue as a going concern through such one-*year period.
Previous report
On March 31, 2021, Fluent, LLC (the "Borrower") entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the "Citizens Credit Agreement") with certain subsidiaries of Fluent, LLC as guarantors, the lenders thereto, and Citizens Bank, N.A. ("Citizens Bank") as administrative agent, lead arranger and bookrunner. The original Citizens Credit Agreement provided for a term loan in the aggregate principal amount of $50.0 million funded on the closing date, along with an undrawn revolving credit facility of up to $15.0 million (together with the term loan, the "Citizens Credit Facility").
Previous report
On January 26, 2024, the Borrower and Citizens Bank entered into a Third Temporary Waiver and Amendment to Credit Agreement (the "Third Waiver"), pursuant to which Citizens Bank agreed to waive through the earlier of April 30, 2024, an occurrence of any other event of default, or failure to comply with requirements of the Third Waiver and its rights and remedies arising from the Company’s breach of the total leverage covenant and fixed charge ratio during the quarters ending December 31, 2023 and March 31, 2024. Among other things, the Third Waiver required the Borrower to, by March 31, 2024, deliver one or more Transaction Commitments, defined as: (i) a third-party commitment to provide additional capital in exchange for equity or subordinated debt, (ii) a purchase agreement for the sale of a divested business, or (iii) a third-party commitment to refinance the Credit Agreement. One condition of the Transaction Commitments was that the Borrower provide for net proceeds, in the aggregate, to Fluent of not less than $10.0 million.
Reworded paragraphs (39)
Previous wording
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects. Forward-looking statements are those that do not relate strictly to historical or current matters, but instead relate to anticipated or expected events, activities, trends, or results as of the date they are made. These forward-looking statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "will," or the negative thereof or other variations thereon or comparable terminology. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements , including, without limitation, those discussed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on April 2, 2024 (the "2023 Form 10-K"), those contained in this Quarterly Report on Form 10-Q, and such other factors contained in our other filings we make with the SEC. We do not undertake any obligation to update forward-looking statements, except as required by law and intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.
Current wording
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about our expectations, beliefs, or intentions regarding our business, financial condition, results of operations, strategies, the outcome of litigation, or prospects. Forward-looking statements are those that do not relate strictly to historical or current matters, but instead relate to anticipated or expected events, activities, trends, or results as of the date they are made. These forward-looking statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "project," "will," or the negative thereof or other variations thereon or comparable terminology. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements , including, without limitation, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on April 2, 2024 (the "2023 Form 10-K"), those contained in this Quarterly Report on Form 10-Q, and such other factors contained in our other filings we make with the SEC. We do not undertake any obligation to update forward-looking statements, except as required by law and intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.
Previous wording
Additionally, the Company operates a call center-supported performance marketplace that provides live-call-based performance campaigns to help clients increase engagement and in some cases sell products and services directly on behalf of our clients. The call solutions marketplace serves clients across an array of industries but has a heavy focus on the health insurance sector.
Current wording
Additionally, the Company operates a call center-supported performance marketplace that provides live call-based performance campaigns to help clients increase engagement and in some cases sell products and services directly on behalf of our clients. The call solutions marketplace serves clients across an array of industries but has had a heavy focus on the health insurance sector. However, due to the increased unauthorized activity by third parties impacting our commission revenue related to the sale of certain health insurance policies, we have paused our participation in this sector as we re-evaluate its profitability for our business, even as we expect regulatory changes made by the government subsequent to the quarter close to mitigate further attrition.
Previous wording
Our business depends on identifying and accessing media sources that are of high quality and on our ability to attract targeted users to our owned and operated media properties. As our business has grown, we have attracted larger and more sophisticated clients to our marketplaces. To further increase our value proposition to clients and to fortify our leadership position in the evolving regulatory landscape of our industry, we implemented a Traffic Quality Initiative in 2020 and established new syndicated performance marketplaces in 2023 to access more higher value consumers. Sourcing high quality traffic will remain a focus and part of a broader initiative to improve customer acquisition for our clients.
Current wording
Our business depends on identifying and accessing high quality media sources and on our ability to attract targeted users to our owned and operated media properties. As our business has grown, we have attracted larger and more sophisticated clients to our marketplaces. To further increase our value proposition to clients and to fortify our leadership position in the evolving regulatory landscape of our industry, we implemented a Traffic Quality Initiative in 2020 and established new syndicated performance marketplaces in 2023 to access more higher value consumers. Sourcing high quality traffic will remain a focus and part of a broader initiative to improve customer acquisition for our clients.
Previous wording
Starting in 2022, we increased our spend with major digital media platforms, revised our bidding strategies for affiliate traffic, and developed partnerships to expand traffic from social media platforms, including the growing influencer sector. We also pursued strategic initiatives that enable us to grow revenue with existing user traffic volume by attracting users to our media properties via email and SMS messages. In addition, we have focused on improved monetization of consumer traffic through improved customer relationship management and internal capabilities that allow us to re-engage consumers who have registered on our owned media properties. Through these initiatives, our business has become less dependent on the volume of users to generate revenue growth.
Current wording
Starting in 2022, we increased our spend with major digital media platforms, revised our bidding strategies for affiliate traffic, and developed partnerships to expand traffic from social media platforms, including the growing influencer sector. We also pursued strategic initiatives that enable us to grow revenue with existing user traffic volume by attracting users to our owned media properties via email and SMS messages. In addition, we have focused on improved monetization of consumer traffic through improved customer relationship management and internal capabilities that allow us to re-engage consumers who have registered on our owned media properties. Through these initiatives, our business has become less dependent on the volume of users to generate revenue growth.
Previous wording
We believe that significant value has been, and will continue to be, created by improving the quality of traffic and value of consumers sourced to our media properties and syndicated performance marketplaces, through increased user participation rates, leading to higher conversion rates, resulting in increased monetization, and ultimately increasing revenue and media margin. Media margin, a non-GAAP measure, is the portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue.
Current wording
We believe that significant value has been, and will continue to be, created by improving the quality of traffic and value of consumers sourced to our media properties and syndicated performance marketplaces. Increased user participation rates lead to higher conversion rates, resulting in increased monetization, and ultimately increased revenue and media margin. Media margin, a non-GAAP measure, is the portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses and excluding non-media cost of revenue.
Previous wording
Since 2022, we have experienced challenges growing our traffic volume to our owned and operated properties due to several factors including the volatility of affiliate supply sources, changes in search engine algorithms, email and text message blocking algorithms, tightened compliance standards for available media, and increased competition that often does not follow our compliance standards. In response to these challenges, we invested in strategic and internal efforts to secure additional traffic from the growing influencer sector and expanding our ad network beyond our owned and operated marketplace to new syndicated performance marketplaces. The mix and profitability of our media channels, strategies, and partners is likely to continue to be dynamic and reflect evolving market trends and the regulatory environment.
Current wording
Since 2022, we have experienced challenges growing traffic volume to our owned and operated properties, primarily due to the FTC investigation and subsequent FTC Consent Order that tightened our standards for media sourcing and put us at a competitive disadvantage versus the market. Other factors that affected our traffic volume have included the volatility of affiliate supply sources, changes in search engine algorithms, and email and text message blocking algorithms. In response to these challenges, we have invested in strategic and internal efforts to secure additional traffic from the growing influencer sector and to expand our ad network beyond our owned and operated marketplaces to new syndicated performance marketplaces. The mix and profitability of our media channels, strategies, and partners is likely to continue to be dynamic and reflect evolving market trends and the regulatory environment.
Previous wording
We deliver data and performance-based marketing executions to our clients across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment. Both data and performance-based spend continued to be challenged in 2024 by general economic uncertainty. In 2023, we experienced slowdowns in certain sectors of the Media & Entertainment, Staffing & Recruitment, and Financial Products & Services industries. Specifically, in the third quarter of 2023, our largest client in the gaming sector pulled back pricing and spend as they refocused on ROAS rather than growth. Although the Company addressed this pullback by scaling other clients in the marketplace from the gaming sector and other sectors of the Media & Entertainment industry, the gap was not fully absorbed by other bidders. In the first quarter of 2024 revenue declined due to media supply challenges in our owned and operated marketplaces. Those challenges have continued into the second quarter causing further sequential revenue retractions.
Current wording
We deliver data and performance-based marketing executions to our clients across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment. In 2023, we experienced slowdowns in certain sectors of the Media & Entertainment, Staffing & Recruitment, and Financial Products & Services industries. Specifically, in the third quarter of 2023, our largest client in the gaming sector pulled back pricing and spend as they refocused on ROAS rather than growth. Although we addressed this pullback by scaling other clients in the marketplace from the gaming sector and other sectors of the Media & Entertainment industry, the gap was not fully absorbed by other bidders. Both data and performance-based spend continued to be challenged in 2024 by general economic uncertainty. In the first half of 2024 revenue declined due to media supply challenges in our owned and operated marketplaces and regulatory pressure on the insurance sector in our call solutions marketplace. The regulatory challenges in the insurance sector have continued into the third quarter of 2024, but we expect that they will be outweighed by the recovery of our owned and operated marketplaces and growth of our syndicated performance marketplaces.
Previous wording
To offset the advertiser pull back challenges, we continue to work with a select group of advertisers to define high performing consumer segments and strategically price paid conversions to help clients drive higher ROAS. This initiative has driven increased budgets from clients across the Media & Entertainment industry, which represents a large component of our revenue mix.
Current wording
To offset individual advertiser pull-back, we continue to work with select advertisers to define high performing consumer segments and strategically price paid conversions to help clients drive higher ROAS. This initiative has driven increased budgets from clients across the Media & Entertainment industry, which represents a large component of our revenue mix.
Previous wording
Additionally, our performance is subject to fluctuations as a result of seasonality and cyclicality in our clients' businesses and fluctuations in media sources. Specifically, Adflow and our performance marketplaces that benefit from Medicare and Affordable Care Act open enrollment experience increased volume in the fourth quarters. Other factors affecting our business may include macroeconomic conditions that impact the digital advertising industry, the various client verticals we serve, and general market conditions.
Current wording
Additionally, our performance is subject to fluctuations as a result of seasonality and cyclicality in our clients' businesses and fluctuations in media sources. Specifically, Adflow and our performance marketplaces that benefit from Medicare and Affordable Care Act open enrollment periods experience increased volume in the fourth quarters. Other factors affecting our business may include macroeconomic conditions that impact the digital advertising industry, the various client verticals we serve, and general market conditions.
Previous wording
We believe the second quarter of 2024 will continue to be characterized by slowed economic conditions and media supply uncertainty. To confront these headwinds, we will continue to diversify our client base and intend to further develop our "ROAS program" across additional segments of advertisers in an effort to gain additional budget allocations and further improve our user monetization.
Current wording
We believe the second half of 2024 will continue to be characterized by tepid economic conditions and potential media supply uncertainty in the owned and operated marketplaces. To confront these headwinds, we will continue to source additional media for our syndicated performance marketplaces and diversify our client base. We also continue to develop our "ROAS program" across additional segments of advertisers in an effort to gain additional budget allocations and further improve our user monetization.
Previous wording
During 2023 and into 2024, we continued to be affected by slowed economic conditions and the impacts of the FTC Consent Order described in Note 10,Contingencies, to the Consolidated Financial Statements (the "FTC Consent Order"), on our owned and operated marketplaces and programmatic advertising business. The industry-leading compliance measures implemented on the owned and operated marketplace, continue to put negative competitive impacts on our revenues and media margin. Although we have not yet experienced it, we continue to believe that the increased regulatory scrutiny on the broader industry will eventually eliminate the advantage that less compliance-focused competitors currently benefit from, enabling us to recapture market share.
Current wording
We have continued to be affected by slowed economic conditions and the impacts of the FTC Consent Order (the "FTC Consent Order") (as described in Note 10,Contingencies, in the Notes to the consolidated financial statements) on our owned and operated marketplaces and programmatic advertising business. The industry-leading compliance measures we implemented on our owned and operated marketplaces continue to negatively impact our revenues and media margin. Although we have not yet experienced it, we continue to believe that the increased regulatory scrutiny on the broader industry will eventually eliminate the advantage that less compliance-focused competitors currently benefit from, enabling us to recapture market share.
Previous wording
Adjusted EBITDA is defined as net income (loss), excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) loss on early extinguishment of debt, (6) accrued compensation expense for Put/Call Consideration, (7) goodwill impairment, (8) write-off of intangible assets,** **(9) loss (gain) on disposal of property and equipment, (10) acquisition-related costs, (11) restructuring and other severance costs, and (12) certain litigation and other related costs.
Current wording
Adjusted EBITDA is defined as net income (loss), excluding (1) income taxes, (2) interest expense, net, (3) depreciation and amortization, (4) share-based compensation expense, (5) loss on early extinguishment of debt, (6) accrued compensation expense for Put/Call Consideration, (7) goodwill impairment, (8) impairment of intangible assets,** **(9) loss (gain) on disposal of property and equipment, (10) acquisition-related costs, (11) restructuring and other severance costs, and (12) certain litigation and other related costs.
Previous wording
Adjusted net income (loss) is defined as net income (loss), excluding (1) share-based compensation expense, (2) loss on early extinguishment of debt, (3) accrued compensation expense for Put/Call Consideration, (4) goodwill impairment, (5) write-off of intangible assets,** **(6) loss (gain) on disposal of property and equipment, (7) acquisition-related costs, (8) restructuring and other severance costs, and (9) certain litigation and other related costs. Adjusted net income (loss) is also presented on a per share (basic and diluted) basis.
Current wording
Adjusted net income (loss) is defined as net income (loss), excluding (1) share-based compensation expense, (2) loss on early extinguishment of debt, (3) accrued compensation expense for Put/Call Consideration, (4) goodwill impairment, (5) impairment of intangible assets,** **(6) loss (gain) on disposal of property and equipment, (7) acquisition-related costs, (8) restructuring and other severance costs, and (9) certain litigation and other related costs. Adjusted net income (loss) is also presented on a per share (basic and diluted) basis.
Previous wording
Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure:
Current wording
Below is a reconciliation of media margin from gross profit (exclusive of depreciation and amortization) for the three and six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:
Previous wording
Below is a reconciliation of adjusted EBITDA from net loss for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure:
Current wording
Below is a reconciliation of adjusted EBITDA from net loss for the three and six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure:
Previous wording
Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three months ended March 31, 2024 and 2023, which we believe is the most directly comparable GAAP measure.
Current wording
Below is a reconciliation of adjusted net loss and adjusted net loss per share from net loss for the three and six months ended June 30, 2024 and 2023, which we believe is the most directly comparable GAAP measure.
Previous wording
Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated. The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under U.S. GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain litigation and other related costs associated with legal matters outside the ordinary course of business, including costs and accruals related to matters as described below (See Part II, Item 1 — Legal Proceedings). We consider items one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. There were no adjustments for one-time items in the periods presented in this Quarterly Report on Form 10-Q.
Current wording
Adjusted EBITDA, as defined above, is another primary metric by which we evaluate the operating performance of our business, on which certain operating expenditures and internal budgets are based and by which, in addition to media margin and other factors, our senior management is compensated. The first three adjustments represent the conventional definition of EBITDA, and the remaining adjustments are items recognized and recorded under U.S. GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. These adjustments include certain litigation and other related costs associated with legal matters outside the ordinary course of business, including costs and accruals related to matters as described below (see Note 10,Contingencies, in the Notes to the consolidated financial statements). We consider items one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. There were no adjustments for one-time items in the periods presented in this Quarterly Report on Form 10-Q.
Previous wording
Comparison of Our Results of Operations for the Three Months Ended March 31, 2024 and 2023
Current wording
Comparison of Our Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023
Previous wording
The decrease in cost of revenue (exclusive of depreciation and amortization) was largely attributable to the same factors causing the decline in revenue for the period. Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers, digital media platforms, and influencers for our owned and operated websites and purchasing media from syndicated publisher partners. The costs also include enablement costs associated with our call centers and tracking costs related to our consumer data. In addition, there are indirect costs which include fulfillment costs related to rewards earned by consumers who complete the requisite number of advertiser offers, along with call center software and hosting costs.
Current wording
The decrease in cost of revenue (exclusive of depreciation and amortization) was largely attributable to the same factors causing the decline in owned and operated revenue for the period offset by growth of our syndicated performance marketplaces. Our cost of revenue primarily consists of media and related costs associated with acquiring traffic from third-party publishers, digital media platforms, and influencers for our owned and operated websites and purchasing media from syndicated publisher partners. The costs also include enablement costs associated with our call centers and tracking costs related to our consumer data. In addition, there are indirect costs which include fulfillment costs related to rewards earned by consumers who complete the requisite number of advertiser offers, along with call center software and hosting costs.
Previous wording
For the three months ended March 31, 2024 the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue decreased to 72% compared to 75% for the three months ended March 31, 2023.
Current wording
For the three months ended June 30, 2024 the total cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue increased to 79% compared to 72% for the three months ended June 30, 2023.
Previous wording
In the normal course of executing paid media campaigns to source consumer traffic, we regularly evaluate new channels, strategies, and partners. Traffic acquisition costs incurred with the major digital media platforms have historically been higher than affiliate traffic sources. For the three months ended March 31, 2024, digital media spend continued to be driven by strategic test and learn initiatives that began in the second quarter of 2022. The mix and profitability of our media channels, strategies, and partners reflect evolving market dynamics, the impact of our Traffic Quality Initiative, and the increased compliance obligations from the FTC Consent Order. As we evaluate and scale new media channels, strategies, and partners, we may determine that certain sources initially able to provide us profitable quality traffic may not be able to maintain our quality standards over time, and we may need to discontinue, or direct a modification of the practices of such sources which could reduce profitability. The improved traffic quality being sourced is the foundation to support sustainable long-term growth and positioning us as an industry leader. For the three months ended March 31, 2024, decreased spend for our owned and operated websites from social media platforms was the largest driver of the decline. Past levels of cost of revenue (exclusive of depreciation and amortization) may therefore not be indicative of future costs, which may increase or decrease as these uncertainties in our business play out.
Current wording
In the normal course of executing paid media campaigns to source consumer traffic, we regularly evaluate new channels, strategies, and partners. For the six months ended June 30, 2024, digital media spend continued to be a mix of affiliate traffic, paid media from major digital platforms, influencer activations, and inventory from strategic media partners. Traffic acquisition costs incurred with the major digital media platforms have historically been higher than affiliate traffic sources and the mix and profitability of our media channels, strategies, and partners reflect evolving market dynamics, the impact of our Traffic Quality Initiative, and the increased compliance obligations from the FTC Consent Order. As we evaluate and scale new media channels, strategies, and partners, we may determine that certain sources initially able to provide us profitable quality traffic may not be able to maintain our quality standards over time, and we may need to discontinue, or direct a modification of the practices of such sources which could reduce profitability. We believe improved traffic quality is the foundation to support sustainable long-term growth and position us as an industry leader. For the three and six months ended June 30, 2024, decreased spend for our owned and operated websites from social media platforms was the largest driver of the decline in revenue compared to the comparable 2023 periods. Past levels of cost of revenue (exclusive of depreciation and amortization) are not indicative of future costs, which may increase or decrease as a percentage of revenue these uncertainties in our business play out.
Previous wording
For the three months ended March 31, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $4.1 million and $3.8 million, restructuring and severance costs of $0.2 and $0.1 million, professional fees of $0.2 and $0.1 million, travel and entertainment of $0.1 and $0.1 million, and advertising costs of $0.0 and $0.3 million, respectively. The immaterial decrease was primarily due to the decline of third party referral fees largely offset by annual salary increases.
Current wording
For the three months ended June 30, 2024 and 2023, sales and marketing expenses consisted mainly of employee salaries and benefits of $3.8 million and $3.6 million, advertising costs of $0.2 and $0.3 million, restructuring and severance costs of $0.2 and $0.0 million, professional fees of $0.1 and $0.1 million, and travel and entertainment of $0.1 and $0.1 million, respectively. The increase in salaries and benefits was primarily due to annual salary increases, and the increase in restructuring costs was due to the current year period reduction in workforce described below offset by the decline of third party referral fees.
Previous wording
For the three months ended March 31, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $3.2 million and $3.5 million, software license and maintenance costs of $0.5 million and $0.5 million, professional fees of $0.4 million and $0.5 million, and restructuring and severance costs of $0.4 and $0.1 million, respectively. The decrease in product development expense was primarily due to lower salaries and other employee related costs due in part to lower headcount, which was partially offset by an increase in restructuring costs due to the current period reduction in workforce.
Current wording
For the six months ended June 30, 2024 and 2023, product development expenses consisted mainly of salaries and benefits of $6.7 million and $6.9 million, professional fees of $1.0 million and $1.0 million, software license and maintenance costs of $0.9 million and $0.9 million, and restructuring and severance costs of $0.5 and $0.1 million, respectively. The immaterial increase in product development expense was primarily due to an increase in restructuring costs due to the current year period reduction in workforce described below mainly offset by lower salaries and other employee related costs due in part to lower headcount and decline in share-based compensation.
Previous wording
For the three months ended March 31, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $4.7 million and $4.9 million, professional fees of $1.7 million and $1.6 million, office overhead of $1.0 million and $1.1 million, acquisition-related costs of $0.8 million and $0.6 million, software license and maintenance costs of $0.7 million and $0.6 million, non-cash share-based compensation expense of $0.5 million and $0.8 million, and certain litigation and related costs of $0.0 million and $1.4 million, respectively. The decrease in general and administrative expenses is primarily due to the decline in litigation and related costs which was mainly the result of legal fees in the prior period related to the FTC Consent Order that was settled as of the second quarter of 2023.
Current wording
For the six months ended June 30, 2024 and 2023, general and administrative expenses consisted mainly of employee salaries and benefits of $8.9 million and $9.5 million, professional fees of $3.4 million and $2.9 million, office overhead of $2.0 million and $2.2 million, software license and maintenance costs of $1.5 million and $1.2 million, acquisition-related costs of $0.8 million and $1.2 million, non-cash share-based compensation expense of $0.8 million and $1.4 million, and certain litigation and related costs of $0.0 million and a credit of ($4.4) million, respectively. The increase in general and administrative expenses was primarily related to the absence of the credit for certain litigation and related costs, which was partially offset by a reduction in salaries and benefits due to lower headcount, a decline in share-based compensation expense, a decrease in acquisition related costs mainly due to the divestiture of True North.
Previous wording
During the first quarter of 2023 and the first quarter of 2024, the Company implemented reductions in the workforce that resulted in the termination of 20 and 20 employees, respectively. These reductions in workforce were implemented following management’s determination to decrease the Company's overhead to more effectively align resources to the Company's strategic initiatives. In connection with the first quarter 2023 reductions in workforce, the Company incurred $0.5 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, fully settled in cash by March 31, 2024. In connection with the first quarter 2024 reductions in workforce, the Company incurred $0.7 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by September 30, 2024. Apart from these exit-related restructuring costs, these reductions in workforce are expected to result in corresponding reductions in future salary and benefits within sales and marketing, product development, and general and administrative expenses.
Current wording
During the first quarter of 2023 and 2024 and the second quarter of 2024, the Company implemented reductions in the workforce that resulted in the termination of 20, 20, and 19 employees, respectively. These reductions in workforce were implemented following management's determination to decrease the Company's overhead to more effectively align resources to the Company's strategic initiatives. In connection with the reductions in workforce during the first quarter of 2023, the Company incurred $0.5 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, fully settled in cash by March 31, 2024. In connection with the reductions in workforce during the first quarter of 2024, the Company incurred $0.7 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by September 30, 2024. In connection with the second quarter 2024 reductions in workforce, the Company incurred $0.6 million in exit-related restructuring costs, consisting primarily of one-time termination benefits and associated costs, to be fully settled in cash by December 31, 2024. Apart from these exit-related restructuring costs, these reductions in workforce are expected to result in corresponding reductions in future salary and benefits within sales and marketing, product development, and general and administrative expenses. Subsequent to the second quarter of 2024, the Company implemented an additional reduction in workforce that resulted in the termination of another 9 employees.
Previous wording
The increase in depreciation and amortization costs was mainly due to an increase in software developed for internal use and the amortization of the intangibles related to the consolidation of TAPP Influencers Corp ("TAPP") as compared to the three months ended March 31, 2023, partly offset by certain intangible assets that fully amortized as compared to the prior period.
Current wording
The decrease in depreciation and amortization costs was mainly due to certain intangible assets that fully amortized as compared to the three months ended June 30, 2023.
Previous wording
The increase in interest expense was driven by a higher average interest rate on the Citizens Bank term loan described below under "Liquidity and Capital Resources" below along with increased loan amortization.
Current wording
The increase in interest expense was driven by a higher average interest rate on the SLR (as defined herein) term loan in the current year period as compared to the prior period's Citizens Bank, N.A. term loan described below under "Liquidity and Capital Resources" below along with increased loan amortization.
Previous wording
The decrease in loss before income taxes of $26.5 million was primarily due to a decrease of goodwill impairment of $25.7 million that occurred in the prior period, a decline in cost of revenue of $10.9 million, and an overall decrease in operating expenses of $2.3 million driven in part by the increase in prior period legal fees, partially offset by decline in revenue of $11.3 million.
Current wording
The decrease in loss before income taxes of $8.1 million was primarily due to the decline in revenue of $34.7 million and an increase in operating expenses of $3.3 million driven mainly by the prior year period legal fee reimbursement and settlement of the FTC case for lower than expected, partly offset by a decrease in goodwill impairment of $23.5 and a decline in cost of revenue of $24.4 million.
Previous wording
For the three months ended March 31, 2024 and 2023, the effective tax rate of 16.9% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense, offset by the benefit of federal research and development credit. For the three months ended March 31, 2023, the Company's effective income tax expense rate of 0.3% primarily represents the projected federal and state cash tax expense expected to result in taxable income for full-year 2023 after the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses, offset by the benefit of federal research and development credits on expected federal cash tax expense.
Current wording
For the three months ended June 30, 2024, the effective tax rate of 6.5% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. For the three months ended June 30, 2023, the Company's effective income tax expense rate of 29.2% primarily by the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses offset by the benefit of federal research and development credits.
Previous wording
For the three months ended March 31, 2024 and 2023, net loss was$6.3 million and $31.9 million, respectively, as a result of the foregoing.
Current wording
For the six months ended June 30, 2024 and 2023, net loss was $17.9 million and $27.7 million, respectively, as a result of the foregoing.
Previous wording
Cash (used in) provided by operating activities. For the three months ended March 31, 2024, net cash used in operating activities was $0.1 million, compared to net cash provided by operating activities of $4.9 million for the three months ended March 31, 2023. Net loss in the current period of $6.3 million represents a decrease of $25.7 million, as compared with net loss of $31.9 million in the prior period. Adjustments to reconcile net** loss to net cash used in operating activities of **$4.0 million in the current period decreased by $25.1 million, as compared with $29.1 million in the prior period, primarily due to no goodwill impairment in the current period as compared to the goodwill impairment of $25.7 million in the prior period. There were changes in assets and liabilities sourcing cash of $2.2 million in the current period, as compared with $7.7 million in the prior period, primarily due to ordinary-course changes in working capital, largely involving the timing of receipt of amounts owing from clients and disbursements of amounts payable to vendors.
Current wording
Cash (used in) provided by operating activities. For the six months ended June 30, 2024, net cash used in operating activities was $13.2 million, compared to net cash provided by operating activities of $2.1 million for the six months ended June 30, 2023. Net loss in the current year period of $17.9 million represents a decrease of $9.8 million, as compared with net loss of $27.7 million in the prior period. Adjustments to reconcile net** loss to net cash used in operating activities of **$10.1 million in the current year period decreased by $23.1 million, as compared with $33.2 million in the prior period, primarily due to a goodwill impairment of $1.3 million and intangible impairment of $1.0 million in the current year period as compared to the goodwill impairment of $25.7 million in the prior period, partly offset by the current year period loss on early extinguishment of debt of $1.0 million. There were changes in assets and liabilities consuming cash of $5.4 million in the current year period, as compared with $3.4 million in the prior period, primarily due to ordinary-course changes in working capital, largely involving the timing of receipt of amounts owing from clients and disbursements of amounts payable to vendors.
Previous wording
Cash used in investing activities. For the three months ended March 31, 2024 and 2023, net cash used in investing activities was $1.8 million and $2.4 million, respectively.** **The decrease was mainly due to the increase in investment in capitalized software, compared to the impact of the TAPP consolidation that occurred in 2023.
Current wording
Cash used in investing activities. For the six months ended June 30, 2024 and 2023, net cash used in investing activities was $3.5 million and $3.6 million, respectively.** **The minor decrease was mainly due to the increase in investment in capitalized software, compared to the impact of the TAPP consolidation that occurred in 2023.
Previous wording
As of March 31, 2024, we had noncancelable operating lease commitments of $3.6 million and long-term** **debt with a $30.0 million principal balance. For the three months ended March 31, 2024, we funded our operations using available cash.
Current wording
As of June 30, 2024, we had noncancelable operating lease commitments of $2.9 million and long-term** **debt with a $34.3 million principal balance. For the six months ended June 30, 2024, we funded our operations using available cash.
Previous wording
On April 2, 2024, Fluent, LLC, as Borrower, entered into a credit agreement (the "SLR Credit Agreement") with 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.
Current wording
As of June 30, 2024, we were not in compliance with our financial covenants under our credit facility. On April 2, 2024, Fluent, LLC, as Borrower, entered into a credit agreement (as amended, the "SLR Credit Agreement") with the Company 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 "SLR Term Loan") and a revolving credit facility of up to $30.0 million (the "SLR Revolver" and, together with the SLR Term Loan, the "SLR Credit Facility"). We used a portion of the net proceeds of the SLR Credit Facility to repay our outstanding obligations under the Citizens Credit Agreement dated March 31, 2021, prior to its maturity. As of June 30, 2024, the SLR Credit Facility had an outstanding principal balance of $32.3 million (of which $12.3 million relates to the SLR Revolver) and matures on April 2, 2029 (the "Maturity Date").
Previous wording
The SLR Credit Agreement contains restrictive covenants which impose limitations on the way we conduct our business, including, but not limited to, 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.
Current wording
The SLR Credit Facility 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, but not limited to, 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 SLR Credit Agreement also contains certain affirmative covenants and customary events of default provisions, including, subject to grace periods, among others, payment default, covenant default and judgment default.
Previous wording
On May 15, 2024, the Borrower and SLR entered into the first amendment to SLR Credit Agreement, pursuant to which SLR (1) waived any required prepayments on the SLR Revolver from the proceeds from the Private Placement; (2) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor, (3) increased the minimum excess availability covenant following the Private Placement; (4) amended the definition of borrowing base (as defined in the SLR Credit Agreement); and (5) amended certain post-closing obligations.
Current wording
On May 15, 2024, the Borrower and SLR entered into the first amendment to SLR Credit Agreement, pursuant to which SLR (1) waived any required prepayments on the SLR Revolver from the proceeds from the Private Placement; (2) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor to assist in preparing the Company's projections, (3) increased the minimum excess availability covenant following the Private Placement; (4) amended the definition of borrowing base (as defined in the SLR Credit Agreement); and (5) amended certain post-closing obligations.
Previous wording
We may voluntarily prepay the SLR 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 SLR Revolver 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 opening interest rate of the SLR Credit Facility was 10.81% (SOFR + CSA + 5.25%).
Current wording
We may voluntarily prepay the SLR 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 SLR Revolver 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 SLR Credit Facility 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 opening interest rate of the SLR Credit Facility was 10.81% (SOFR + CSA + 5.25%), which increased to 10.86% (SOFR + CSA+5.25%) as of June 30, 2024.
Previous wording
Furthermore, given the continued challenges we have faced achieving our financial targets, we plan to implement additional cost reductions and focus resources on opportunities that will enable us to meet our projected budget and cash flow requirements. These initial plans have included divesting a business unit that has not met our needs (see Note 12,*Subsequent Events,*in the Notes to the Consolidated Financial Statements) and reviewing divesting other business units to determine the impact of potential divestments.
Current wording
Given the continued challenges we have faced achieving profitability, we made reductions in workforce during the first half of 2024 and continue to further consider cost reduction measures and focus resources on opportunities that will enable us to meet our projected budget and cash flow requirements. Initial measures included divesting a non-core business unit (see Note 11,Variable Interest Entity,in the Notes to the consolidated financial statements), transferring another business unit (see Note 3, Intangible assets, net in the Notes to the consolidated financial statements), and reviewing other business units to determine the impact of potential divestments.
Previous wording
Further details of the Company's accounting policies are available in Item 1, Financial Statements, Note 1,Summary of significant accounting policies, to Consolidated Financial Statements.
Current wording
Further details of the Company's accounting policies are available in Item 1, Financial Statements, Note 1,Summary of significant accounting policies, to the consolidated financial statements.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
The decrease in cost of revenue (exclusive of depreciation and amortization) was largely attributable to the same factors causing the decline in owned and operated revenue for the period offset by growth of our syndicated performance marketplaces.
Current report — wording carried from elsewhere
The increase in interest expense was driven by the same factors discussed above.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, the effective tax rate of 0.8% differed from the statutory federal income tax rate of 21% primarily due to state and local tax expense and losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. For the six months ended June 30, 2023, the Company's effective income tax expense rate of 6.9% primarily by the impact of a non-deductible goodwill impairment against pre-tax year-to-date losses offset by the benefit of federal research and development credits.
Current report — wording carried from elsewhere
Three months ended June 30, 2024 compared to** the three months ended June 30, 2023**
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
The SLR Credit Agreement provides for a $20.0 million term loan (the "SLR Term Loan") and a revolving credit facility of up to $30.0 million (the "SLR Revolver" and, together with the SLR 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").
Previous report — wording carried elsewhere
We used a portion of the net proceeds of the SLR Credit Facility to repay our outstanding obligations under the Citizens Credit Agreement dated March 31, 2021.
Previous report — wording carried elsewhere
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.
Previous report — wording carried elsewhere
The SLR Credit Agreement also contains certain affirmative covenants and customary events of default provisions, including, subject to grace periods, among others, payment default, covenant default and judgment default.