FLUENT, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

FLUENT, INC. Management’s Discussion and Analysis of Financial Condition and Results
of Operations. (form 10-Q)

You ought to learn the next dialogue along side our consolidated
monetary statements and associated notes included on this Quarterly Report on Form
10-Q. In addition to historic data, this Quarterly Report on Form 10-Q
comprises sure forward-looking statements throughout the which means 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 relating to our enterprise, monetary
situation, outcomes of operations, methods, the end result of litigation, or
prospects. You can determine forward-looking statements by the truth that these
statements don’t relate strictly to historic or present issues. Rather,
forward-looking statements relate to anticipated or anticipated occasions, actions,
traits, or outcomes as of the date they’re made. These forward-looking
statements will be recognized by the use of terminology corresponding to “anticipate,”
“imagine,” “estimate,” “anticipate,” “intend,” “challenge,” “will,” or the adverse
thereof or different variations thereon or comparable terminology. Because
forward-looking statements relate to issues that haven’t but occurred, these
statements are inherently topic to dangers and uncertainties that would trigger
our precise outcomes to vary materially from any future outcomes expressed or
implied by the forward-looking statements. Many elements may trigger our precise
actions or outcomes to vary materially from the actions and outcomes
anticipated in forward-looking statements. These elements embody these contained
on this and our different Quarterly Reports on Form 10-Q, in addition to the disclosures
made within the Company’s Annual Report on Form 10-Okay for the yr ended December 31,
2021 filed on March 9, 2022 (“2021 Form 10-Okay”) together with with out limitation,
these mentioned in Item 1A. “Risk Factors.” in Part I. of the 2021 Form 10-Okay,
and different filings we make with the Securities and Exchange Commission (the
“SEC”). We don’t undertake any obligation to replace forward-looking statements,
besides as required by legislation. We intend that each one forward-looking statements be
topic to the protected harbor provisions of PSLRA. These forward-looking statements
are solely predictions and replicate our views as of the date they’re made with
respect to future occasions and monetary efficiency.

Overview

Fluent, Inc. (“we,” “us,” “our,” “Fluent,” or the “Company”), is an business
chief in data-driven digital advertising and marketing companies. We primarily carry out buyer
acquisition companies by working extremely scalable digital advertising and marketing campaigns,
via which we join our advertiser shoppers with shoppers they’re in search of
to achieve. We ship performance-based advertising and marketing executions and lead era
knowledge information to our shoppers, which incorporates over 500 client manufacturers, direct
entrepreneurs, and companies throughout a variety of industries, together with Media &
Entertainment, Financial Products & Services, Health & Wellness, Retail &
Consumer, and Staffing & Recruitment.

We appeal to shoppers at scale to our owned digital media properties primarily
via promotional choices and employment alternatives. To register on our
websites, shoppers present their names, contact data and opt-in permission
to current them with gives on behalf of our shoppers. Approximately 90% of these
customers interact with our media on their cell units or tablets. Our always-on,
real-time capabilities allow customers to entry our media every time and wherever
they select.

Once customers have registered with our websites, we apply our proprietary direct
advertising and marketing applied sciences to interact them with surveys and different experiences,
via which we find out about their existence, preferences and buying
histories. Based on the insights gleaned, we serve focused, related gives to
them on behalf of our shoppers. As new customers register and interact on our websites and
current registrants re-engage, we imagine the enrichment of our database
via the brand new registrations or re-engagements expands our addressable consumer
base and improves the effectiveness of our performance-based campaigns.

Since our inception, now we have amassed a big, proprietary database of
first-party, self-declared person data and preferences. We have permission
to contact the bulk of customers in our database via a number of channels, such
as e-mail, junk mail, phone, push notifications or SMS textual content messaging. We
leverage this knowledge in our efficiency choices primarily to serve
ads that we imagine will likely be related to our registered customers based mostly on
the knowledge they supply, and in our lead era choices to offer
our shoppers with customers’ contact data in order that our shoppers might talk
with the customers immediately. We proceed to leverage our current database into new
income streams, together with utilization-based fashions, corresponding to programmatic
promoting.

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Second Quarter Financial Summary

Three months ended June 30, 2022, in comparison with three months ended June 30, 2021:

• Revenue elevated 34% to $98.4 million, in comparison with $73.4 million.
• Net loss was $56.9 million, or $0.70 per share, in comparison with web loss

of $5.2 million or $0.06 per share.
• Gross revenue (unique of depreciation and amortization) was $28.3 million, an

improve of 69% as in comparison with the three months ended June 30, 2021,

and representing 29% of income for the three months ended June 30, 2022
• Media margin elevated 60% to $32.3 million, in comparison with $20.1 million,

representing 32.8% of income for the three months ended June 30, 2022
• Adjusted EBITDA elevated to $9.4 million representing 9.6% of income, based mostly

on web loss of $56.9 million, in comparison with $1.9 million, based mostly on web loss

of $5.2 million.
• Adjusted web earnings was $0.6 million, or $0.01 per share, in comparison with adjusted

web loss of $1.9 million, or $0.02 per share.

Six months ended June 30, 2022, in comparison with six months ended June 30, 2021:

• Revenue elevated 31% to $187.4 million, in comparison with $143.5 million.
• Net loss was $59.0 million, or $0.73 per share, in comparison with web loss of $11.4

million or $0.14 per share.
• Gross revenue (unique of depreciation and amortization) was $49.8 million, an

improve of 39% as in comparison with the six months ended June 30, 2021,

and representing 27% of income for the six months ended June 30, 2022
• Media margin elevated 29% to $58.3 million, in comparison with $45.0 million,

representing 31.1% of income for the six months ended June 30, 2022
• Adjusted EBITDA elevated to $14.2 million, representing 7.6% of income, based mostly

on web loss of $59.0 million, in comparison with $6.6 million, based mostly on web loss

of $11.4 million.
• Adjusted web earnings was $1.6 million, or $0.02 per share, in comparison with adjusted

web loss of $1.6 million, or $0.02 per share.

Media margin, adjusted EBITDA and adjusted web earnings (loss) are non-GAAP
monetary measures. See “Definitions, Reconciliations and Uses of Non-GAAP
Financial Measures” beneath.

Trends Affecting our Business

Development, Acquisition and Retention of High-Quality Targeted Media Traffic

Our enterprise relies on figuring out and accessing media sources which might be of excessive
high quality and on our capability to draw focused customers to our media properties. As
our enterprise has grown, now we have attracted bigger and extra subtle shoppers
to our platform. To additional improve our worth proposition to shoppers and to
fortify our management place in relation to the evolving regulatory panorama
of our business, we commenced a visitors high quality initiative (the “Traffic Quality
Initiative”) in 2020. Our Traffic Quality Initiative curtailed the quantity of
decrease high quality affiliate visitors that we supply, starting within the fourth quarter
of 2020 as we took a strategic course in constructing prime quality visitors. Our
technique of specializing in prime quality focused media visitors continued into the
second quarter of 2022.

We imagine that vital worth will be created by bettering the standard of
visitors we supply to our media properties, via elevated person participation
charges on our websites, resulting in greater conversion charges, leading to elevated
monetization, and in the end rising income and media margin. Media margin,
a non-GAAP measure, is the portion of gross revenue (unique of depreciation
and amortization) reflecting variable prices paid for media and associated bills
and excluding non-media value of income. We have additionally been pursuing
strategic initiatives that allow us to develop income with current person visitors
quantity, whereas attracting new customers to our media properties. During the second
quarter of 2022, we continued to see improved monetization of client visitors
via improved buyer relationship administration, new streams of visitors and
inside capabilities that enable us to re-engage shoppers who’ve registered
on our owned media properties. Through these initiatives, our enterprise has
turn out to be much less depending on conventional, low-quality sources of visitors quantity to
generate income development.

In the primary six months of 2022, we elevated our spend with main digital media
platforms and revised our bidding methods for affiliate visitors. While these
methods yielded decrease margins initially and beneath our historic ranges
achieved via online marketing, we higher optimized our spend for improved
profitability within the second quarter 2022 and intend to proceed to take action
in future intervals. The combine and profitability of our media channels, methods
and companions is more likely to proceed to be dynamic and replicate evolving market
dynamics in addition to the impression of our Traffic Quality Initiative. Volatility of
affiliate provide sources, consolidation of media sources, adjustments in search
engine, e-mail and textual content message blocking algorithms, and elevated competitors
for out there media made the method of rising our visitors beneath our evolving
high quality requirements difficult throughout 2021. As we consider and scale new media
channels, methods, and companions, we might decide that sure sources
initially in a position to present us worthwhile high quality visitors might not have the ability to
keep our high quality requirements over time, and we might have to discontinue, or
direct a modification of the practices of, such sources, which may cut back
profitability.

Seasonality and Cyclicality

Our outcomes are topic to fluctuations consequently of seasonality and
cyclicality in our and our shoppers’ companies. Other elements affecting our
enterprise might embody macroeconomic situations that impression the digital
promoting business, the assorted consumer verticals we serve, and common market
situations.

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COVID-19

On March 11, 2020, the World Health Organization characterised COVID-19 as a
pandemic. At this time, our operations haven’t been considerably impacted by
the worldwide financial impression of COVID-19, and now we have taken applicable
measures to make sure that we’re in a position to conduct our enterprise remotely with out
vital disruptions.

On March 13, 2020, we applied a company-wide work-from-home coverage. On April
1, 2022, we applied a hybrid method to have our staff within the workplace
two days per week, however provided that staff are snug to take action. While we
imagine now we have tailored effectively to a work-from-home surroundings, COVID-19 will increase
the probability of sure dangers of disruption to our enterprise, such because the
incapacity of sure staff or system interruptions, which may result in
diminishment of our common enterprise operations, technological capability and
cybersecurity capabilities, in addition to operational inefficiencies and
reputational hurt. The identical hybrid method continued into the second quarter of
2022.

Please see Item 1A. Risk Factors within the Form 10-Okay for the yr ended December
31, 2021, for extra data or additional dialogue of the attainable impression of
the COVID-19 pandemic on our enterprise.

Definitions, Reconciliations and Uses of Non-GAAP Financial Measures

We report the next non-GAAP measures:

Media margin is outlined as that portion of gross revenue (unique of
depreciation and amortization) reflecting the variable prices paid for media and
associated bills and excluding non-media value of income. Gross revenue
(unique of depreciation and amortization) represents income minus value of
income (unique of depreciation and amortization). Media margin can also be
introduced as share of income.

Adjusted EBITDA is outlined as web earnings (loss) excluding (1) earnings taxes, (2)
curiosity expense, web, (3) depreciation and amortization, (4) share-based
compensation expense, (5) loss on early extinguishment of debt, (6) accrued
compensation expense for the Put/Call Consideration, (7) goodwill impairment,
(8) write-off of intangible property, (9) acquisition-related prices, (10)
restructuring and different severance prices, and (11) sure litigation and different
associated prices.

Adjusted web earnings (loss) is outlined as web earnings (loss) excluding (1)
share-based compensation expense, (2) loss on early extinguishment of debt,
(3) accrued compensation expense for the Put/Call Consideration, (4) goodwill
impairment, (5) write-off of intangible property, (6) acquisition-related
prices, (7) restructuring and different severance prices, and (8) sure litigation
and different associated prices. Adjusted web earnings (loss) can also be introduced on a per
share (fundamental and diluted) foundation.

Below is a reconciliation of media margin from gross revenue (unique of
depreciation and amortization) for the three and six months ended June 30, 2022
and 2021, respectively, which we imagine is probably the most immediately comparable GAAP
measure.

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue $ 98,361 $ 73,378 $ 187,424 $ 143,548
Less: Cost of income (unique of
depreciation and amortization) 70,026 56,605 137,589 107,595
Gross revenue (unique of depreciation
and amortization) $ 28,335 $ 16,773 $ 49,835 $ 35,953
Gross revenue (unique of depreciation
and amortization) % of income 29 % 23 % 27 % 25 %
Non-media value of income (1) 3,974 3,363 8,423 9,053
Media margin $ 32,309 $ 20,136 $ 58,258 $ 45,006
Media margin % of income 32.8 % 27.4 % 31.1 % 31.4 %

(1) Represents the portion of value of income (unique of depreciation and

amortization) not attributable to variable prices paid for media and associated

bills.

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Below is a reconciliation of adjusted EBITDA from web loss for the three and six
months ended June 30, 2022 and 2021, respectively, which we imagine is probably the most
immediately comparable GAAP measure:

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net loss $ (56,944 ) $ (5,179 ) $ (58,957 ) $ (11,437 )
Income tax expense (profit) 5,122 – 5,122 (1 )
Interest expense, web 430 427 814 1,435
Depreciation and amortization 3,332 3,366 6,639 6,739
Share-based compensation expense 863 1,201 1,851 2,432
Loss on early extinguishment of debt – – – 2,964
Accrued compensation expense for
Put/Call Consideration – 881 – 2,627
Goodwill impairment 55,400 – 55,400 –
Write-off of intangible property – 199 128 199
Loss on disposal of property and
tools 21 – 21 –
Acquisition-related prices(1) 579 500 1,137 500
Restructuring and different severance prices 38 97 38 97
Certain litigation and different associated
prices 596 359 1,998 1,027
Adjusted EBITDA $ 9,437 $ 1,851 $ 14,191 $ 6,582

(1) Includes compensation expense associated to non-competition agreements entered

into consequently of acquisitions (See Note 11. Business acquisition, within the

Notes to the Consolidated Financial Statements)

Below is a reconciliation of adjusted web earnings (loss) and adjusted web earnings
(loss) per share from web loss for the three and six months ended June 30, 2022
and 2021, respectively, which we imagine is probably the most immediately comparable GAAP
measure.

Three Months Ended June 30, Six Months Ended June 30,
(In hundreds, besides share knowledge) 2022 2021 2022 2021
Net loss $ (56,944 ) $ (5,179 ) $ (58,957 ) $ (11,437 )
Share-based compensation expense 863 1,201 1,851 2,432
Loss on early extinguishment of debt – – – 2,964
Accrued compensation expense for
Put/Call Consideration – 881 – 2,627
Goodwill impairment 55,400 – 55,400 –
Write-off of intangible property – 199 128 199
Loss on disposal of property and
tools 21 – 21 –
Acquisition-related prices(1) 579 500 1,137 500
Restructuring and different severance prices 38 97 38 97
Certain litigation and different associated
prices 596 359 1,998 1,027
Adjusted web earnings (loss) $ 553 $ (1,942 ) $ 1,616 $ (1,591 )
Adjusted web earnings (loss) per share:
Basic $ 0.01 $ (0.02 ) $ 0.02 $ (0.02 )
Diluted $ 0.01 $ (0.02 ) $ 0.02 $ (0.02 )
Weighted common quantity of shares
excellent:
Basic 81,493,821 79,962,275 81,193,107 79,560,643
Diluted 81,493,821 79,962,275 81,193,107 79,560,643

(1) Includes compensation expense associated to non-competition agreements entered

into as half of an acquisition (See Note 11. Business acquisition, within the

Notes to the Consolidated Financial Statements).

We current media margin, as a share of income, adjusted EBITDA, adjusted
web earnings (loss) and adjusted web earnings (loss) per share as supplemental
measures of our monetary and working efficiency as a result of we imagine they
present helpful data to buyers. More particularly:

Media margin, as outlined above, is a measure of the effectivity of the Company’s
working mannequin. We use media margin and the associated measure of media margin as
a share of income as major metrics to measure the monetary return on
our media and associated prices, particularly to measure the diploma by which the
income generated from our digital advertising and marketing companies exceeds the fee to
appeal to the shoppers to whom gives are made via our companies. We use media
margin extensively to handle our working efficiency, together with evaluating
operational efficiency in opposition to budgeted media margin and understanding the
effectivity of our media and associated expenditures. We additionally use media margin for
efficiency evaluations and compensation choices relating to sure personnel.

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Adjusted EBITDA, as outlined above, is one other major metric by which we
consider the working efficiency of our enterprise, on which sure working
expenditures and inside budgets are based mostly and by which, along with media
margin and different elements, our senior administration is compensated. The first three
changes characterize the standard definition of EBITDA, and the remaining
changes are objects acknowledged and recorded beneath GAAP particularly intervals
however is likely to be seen as not essentially coinciding with the underlying enterprise
operations for the intervals wherein they’re so acknowledged and recorded. These
changes embody sure litigation and different associated prices related to
authorized issues exterior the peculiar course of enterprise, together with prices and
accruals associated to the New York State Tax Department, New York Attorney General
and Federal Trade Commission issues as described beneath (See Part II, Item 1 –
Legal Proceedings). We contemplate objects one-time in nature if they’re
non-recurring, rare or uncommon and haven’t occurred up to now two years
or should not anticipated to recur within the subsequent two years, in accordance with SEC
guidelines. There have been no changes for one-time objects within the intervals introduced by
this Quarterly Report on Form 10-Q.

Adjusted web earnings (loss), as outlined above, and the associated measure of
adjusted web earnings (loss) per share exclude sure objects which might be acknowledged
and recorded beneath GAAP particularly intervals however is likely to be seen as not
essentially coinciding with the underlying enterprise operations for the intervals
wherein they’re so acknowledged and recorded. We imagine adjusted web earnings
(loss) affords buyers a special view of the general monetary efficiency
as in comparison with adjusted EBITDA and the GAAP measure of web earnings (loss).

Media margin, adjusted EBITDA, adjusted web earnings (loss) and adjusted web
earnings (loss) per share are non-GAAP monetary measures with sure limitations
relating to their usefulness. They don’t replicate our monetary leads to
accordance with GAAP, as they don’t embody the impression of sure bills that
are mirrored in our consolidated statements of operations. Accordingly, these
metrics should not indicative of our total outcomes or indicators of previous or
future monetary efficiency. Further, they don’t seem to be monetary measures of
profitability and are neither supposed for use as a proxy for the
profitability of our enterprise nor to suggest profitability. The method we measure
media margin, adjusted EBITDA and adjusted web earnings (loss) will not be
corresponding to equally titled measures introduced by different firms and might not
be an identical to corresponding measures utilized in our numerous agreements.

Results of Operations

Three months ended June 30, 2022 in comparison with three months ended June 30, 2021

Revenue. Revenue elevated $25.0 million, or 34%, to $98.4 million for the three
months ended June 30, 2022, in comparison with $73.4 million for the three months ended
June 30, 2021. The improve was largely attributable to development within the Rewards
enterprise, pushed by increasing media footprint in each U.S and worldwide
markets, elevated consumer demand within the Fluent Sales Solution enterprise unit, and
expanded buyer relationship administration (“CRM”) capabilities which
have enabled us to re-engage with customers who’ve already registered on our owned
media properties.

Each of the foregoing elements has served to extend monetization of client
visitors, which has partially offset reductions in visitors quantity year-over-year,
stemming from our Traffic Quality Initiative. Through these initiatives, our
enterprise has turn out to be much less depending on visitors quantity to generate income
development. We additionally continued to supply greater volumes of visitors from main digital
media platforms within the second quarter of 2022, with year-over-year reductions in
lower-quality affiliate visitors. The development in Q2 2022 additionally displays some of our
Q3 2022 strategic initiatives that started sooner than deliberate. Moving ahead,
we’ll proceed to evaluate the strategic relevancy of these initiatives to our
core, whereas we decide the place we make our long run bets. These traits are
anticipated to proceed within the close to future as we check and scale media channels,
methods and partnerships.

Cost of income (unique of depreciation and amortization). Cost of income
elevated $13.4 million, or 24%, to $70.0 million for the three months ended
June 30, 2022, in comparison with $56.6 million for the three months ended June 30,
2021. Our value of income primarily consists of media and associated prices
related to buying visitors from third-party publishers and digital media
platforms for our owned and operated web sites and, traditionally, on behalf of
third-party advertisers, in addition to the prices of fulfilling rewards earned by
shoppers who full the requisite quantity of advertisers’ gives.

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The complete value of income as a share of income decreased to 71% for the
three months ended June 30, 2022, in comparison with 77% for the three months ended
June 30, 2021. In the traditional course of executing paid media campaigns to supply
client visitors, we frequently consider new channels, methods and companions,
in an effort to determine actionable alternatives which may then be optimized
over time. Traffic acquisition prices incurred with the foremost digital media
platforms from which we sourced elevated visitors volumes have traditionally been
greater than affiliate visitors sources. In the second quarter of 2022, we
continued to extend our spend and enhance profitability with our main digital
media platforms in comparison with the identical interval final yr. The development additionally displays
some of our Q3 2022 strategic and check and study initiatives that started earlier
than deliberate. Moving ahead, we’ll proceed to evaluate the strategic relevancy
of these initiatives to our core, whereas we decide the place we make our long run
bets. The combine and profitability of our media channels, methods and companions
is more likely to be dynamic and replicate evolving market dynamics and the impression of
our Traffic Quality Initiative. As we consider and scale new media channels,
methods and companions, we might decide that sure sources initially in a position to
present us worthwhile high quality visitors might not have the ability to keep our high quality
requirements over time, and we might have to discontinue, or direct a modification of
the practices of, such sources, which may cut back profitability. We imagine
our Traffic Quality Initiative will profit the Company over time, offering the
basis to assist sustainable long-term development and positioning us as an
business chief. Past ranges of value of income (unique of depreciation and
amortization) might subsequently not be indicative of future prices, which can
improve or lower as these uncertainties in our enterprise play out.

Sales and advertising and marketing. Sales and advertising and marketing bills elevated $1.5 million, or
49%, to $4.5 million for the three months ended June 30, 2022, in contrast
to $3.0 million for the three months ended June 30, 2021, resulting from improve in
enterprise journey, occasions and in-person conferences. For the three months ended June
30, 2022 and 2021, the quantities consisted primarily of worker salaries and
advantages of $3.8 million and $2.6 million, promoting prices
of $0.3 and $0.1 million, and non-cash share-based compensation bills
of $0.1 and $0.2 million respectively. As enterprise journey and in-person conferences
and occasions have resumed, we anticipate that our gross sales and advertising and marketing expenditures
might improve in future intervals. As a outcome, previous ranges of gross sales and advertising and marketing
expenditures will not be indicative of future expenditures, which can improve or
lower as these uncertainties in our enterprise play out.

Product improvement. Product improvement expense elevated $1.4 million, or 40%,
to $4.8 million for the three months ended June 30, 2022, in contrast
to $3.4 million for the three months ended June 30, 2021. For the three months
ended June 30, 2022 and 2021, the quantities consisted primarily of salaries and
advantages of $3.5 million and $2.4 million, skilled charges of $0.7 million and
$0.3 million, software program license and upkeep prices of $0.4 million and
$0.3 million, and non-cash share-based compensation expense of $0.1 million and
$0.2 million, respectively. The improve in product improvement bills replicate
investments in our expertise and analytics platform, in addition to the event
of new app-based media properties, increasing past our conventional concentrate on
web-based media properties.

General and administrative. General and administrative bills
elevated by $0.2 million, or 1%, to $11.7 million for the three months ended
June 30, 2022, in comparison with $11.5 million for the three months ended June 30,
2021. For the three months ended June 30, 2022 and 2021, the quantities consisted
primarily of worker salaries and advantages of $6.0 million and
$5.0 million, skilled charges of $1.3 million and $1.2 million, workplace
overhead of $1.2 million and $1.1 million, sure litigation and associated prices
of $0.6 million and $0.4 million, non-cash share-based compensation expense
of $0.6 million and $0.8 million, software program license and upkeep prices
of $0.6 million and $0.9 million, acquisition-related prices of $0.6 million
and $0.5 million, and accrued compensation expense for the Put/Call
Consideration from the Initial Winopoly Acquisition described beneath beneath the
heading “Liquidity and Capital Resources” of $0.0 million and $0.9 million (see
Note 11, Business acquisition, within the Notes to Consolidated Financial
Statements), respectively. The improve was primarily the outcome of continued
investments within the enterprise, together with elevated worker salaries and
advantages, sure litigation and associated prices, partially offset by the lower
in accrued compensation expense for the Winopoly Put/Call Consideration.

Depreciation and amortization. Depreciation and amortization bills decreased
$0.01 million, or 1%, to $3.3 million for the three months ended June 30, 2022,
in comparison with $3.4 million for the three months ended June 30, 2021.

Write-off of intangible property. For the three months ended June 30, 2022, the
Company acknowledged an impairment loss associated to goodwill of $55.4 million
in comparison with $0.2 million acknowledged for the write off of intangible property
associated to software program developed for inside use for 3 months ended June 30,
2021.

Interest expense, web. Interest expense, remained flat at $0.4 million for the
three months ended June 30, 2022 and 2021.

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Net loss earlier than earnings taxes. For the three months ended June 30, 2022, web
loss earlier than earnings taxes was $51.8 million, in comparison with web loss earlier than earnings
taxes of $5.2 million for the three months ended June 30, 2021. The improve in
web loss earlier than earnings taxes of $46.6 million was primarily because of the non-cash
impairment cost of $55.4 million, a rise in value of income of $13.4
million, a rise in gross sales and advertising and marketing of $1.5 million, and a rise in
product improvement of $1.4 million, partially offset by a rise in income
of $25.0 million, as mentioned above.

Income tax expense. For the three months ended June 30, 2022, the Company had
earnings tax expense of $5.1 million, with no corresponding impression for the three
months ended June 30, 2021.

As of June 30, 2022 and 2021, we recorded a full valuation allowance in opposition to our
web deferred tax property. We intend to keep up a full valuation allowance
in opposition to the web deferred tax property till there’s enough proof to
assist the discharge of all or some portion of this allowance. Based on numerous
elements, together with our historical past of losses, present loss, estimated future taxable
loss, unique of reversing momentary variations and carryforwards, future
reversals of current taxable momentary variations and consideration of
out there tax planning methods, we imagine it’s unlikely that throughout the
subsequent twelve months, enough optimistic proof might turn out to be out there to permit
us to achieve a conclusion that a good portion of the valuation allowance
could also be launched. Release of some or all of the valuation allowance would outcome
within the recognition of sure deferred tax property and a rise in deferred
tax profit for any interval wherein such a launch could also be recorded, nevertheless, the
actual timing and quantity of any valuation allowance launch are topic to
change, relying on the profitability that we’re in a position to obtain and the web
deferred tax property out there.

Net loss. Net loss of $56.9 million and web loss of $5.2 million have been acknowledged
for the three months ended June 30, 2022 and 2021, respectively, consequently of
the foregoing.

Six months ended June 30, 2022 in comparison with six months ended June 30, 2021

Revenue. Revenue elevated $43.9 million, or 31%, to $187.4 million for the six
months ended June 30, 2022, in comparison with $143.5 million for the six months ended
June 30, 2021. The improve was largely attributable to development within the Rewards
enterprise, pushed by increasing media footprint in each U.S and worldwide
markets, elevated consumer demand within the Fluent Sales Solution enterprise unit, and
expanded CRM capabilities which have enabled us to re-engage with customers who’ve
already registered on our owned media properties.

Each of the foregoing elements has served to extend monetization of client
visitors, which has partially offset reductions in visitors quantity year-over-year,
stemming from our Traffic Quality Initiative. Through these initiatives, our
enterprise has turn out to be much less depending on visitors quantity to generate income development.
We additionally sourced greater volumes of visitors from main digital media platforms in
the primary six months of 2022 in comparison with the primary six months of 2021, with
year-over-year reductions in lower-quality affiliate visitors. These traits are
anticipated to proceed within the close to future as we check and scale media channels,
methods and partnerships.

Cost of income (unique of depreciation and amortization). Cost of income
elevated $30.0 million, or 28%, to $137.6 million for the six months ended June
30, 2022, in comparison with $107.6 million for the six months ended June 30, 2021.

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The complete value of income as a share of income decreased to 73% for the
six months ended June 30, 2022, in comparison with 75% for the six months ended June
30, 2021.

Sales and advertising and marketing. Sales and advertising and marketing bills elevated $2.4 million, or
40%, to $8.3 million for the six months ended June 30, 2022, in contrast
to $6.0 million for the six months ended June 30, 2021, resulting from improve in
enterprise journey, occasions and in-person conferences. For the six months ended June
30, 2022 and 2021, the quantities consisted primarily of worker salaries and
advantages of $7.1 million and $5.1 million, promoting prices
of $0.6 and $0.3 million, and non-cash share-based compensation expense
of $0.3 and $0.4 million respectively.

Product improvement. Product improvement expense elevated $2.5 million, or 36%,
to $9.4 million for the six months ended June 30, 2022, in comparison with $6.9 million
for the six months ended June 30, 2021. For the six months ended June 30, 2022
and 2021, the quantities consisted primarily of salaries and advantages of $6.8 million
and $5.0 million, skilled charges of $1.4 million and $0.5 million, software program
license and upkeep prices of $0.7 million and $0.7 million, and non-cash
share-based compensation expense of $0.3 million and
$0.5 million, respectively. The improve in product improvement bills replicate
investments in our expertise and analytics platform, in addition to the event
of new app-based media properties, increasing past our conventional concentrate on
web-based media properties.

General and administrative. General and administrative bills
decreased by $0.3 million, or 1%, to $23.0 million for the six months ended June
30, 2022, in comparison with $23.2 million for the six months ended June 30, 2021. For
the six months ended June 30, 2022 and 2021, the quantities consisted primarily of
worker salaries and advantages of $10.9 million and $9.9 million, skilled
charges of $2.7 million and $2.7 million, workplace overhead of $2.3 million
and $2.2 million, sure litigation and associated prices of $2.0 million and
$1.0 million, non-cash share-based compensation expense of $1.3 million
and $1.6 million, software program license and upkeep prices of $1.2 million
and $1.5 million, acquisition-related prices of $1.1 million and $0.5 million,
and accrued compensation expense for the Put/Call Consideration from the Initial
Winopoly Acquisition described beneath beneath the heading “Liquidity and Capital
Resources” of $0.0 million and $2.6 million (see Note 11, Business acquisition,
within the Notes to Consolidated Financial Statements), respectively. The
lower was primarily the outcome of the Put/Call Consideration associated to the
Initial Winopoly Acquisition (as outlined beneath) and software program license charges,
offset by elevated worker salaries and advantages, litigation and associated prices
because of the New York State Tax Department settlement and the acquisition-related
prices in reference to the True North Acquisition and the Full Winopoly
Acquisition (as outlined beneath).

Depreciation and amortization. Depreciation and amortization bills
decreased $0.1 million, or 1%, to $6.6 million for the six months ended June 30,
2022, in comparison with $6.7 million for the six months ended June 30, 2021.

Write-off of intangible property. During the six months ended June 30, 2022, the
Company acknowledged an impairment loss associated to goodwill of $55.4
million, in comparison with $0.2 million acknowledged for the six months ended June 30,
2021 for the write off of intangible property associated to software program developed for
inside use.

Interest expense, web. Interest expense, web, decreased $0.6 million,
or 43%, to $0.8 million for the six months ended June 30, 2022,
from $1.4 million for the six months ended June 30, 2021. The lower
was attributable to a decrease rate of interest on the New Credit Facility, described
beneath beneath “Liquidity and Capital Resources,” in comparison with to the prior mortgage in
place through the first quarter of 2021.

Loss on early extinguishment of debt. During the six months ended June 30, 2021,
we acknowledged $3.0 million of loss because of the early extinguishment of debt,
described beneath beneath “Liquidity and Capital Resources,” with no
corresponding cost within the six months ended June 30, 2022.

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Net loss earlier than earnings taxes. For the six months ended June 30, 2022, web loss
earlier than earnings taxes was $53.8 million, in comparison with web loss earlier than earnings taxes
of $11.4 million for the six months ended June 30, 2021. The improve in web
loss of $42.4 million was primarily because of the non-cash impairment cost of
$55.4 million, a rise in the fee of income of $30.0 million, a rise
in product improvement of $2.5 million, and a rise in gross sales and advertising and marketing
of $2.4 million, partially offset by a rise in income of $43.9 million, as
mentioned above.

Income tax (expense) profit. For the six months ended June 30, 2022, the
Company had earnings tax expense of $5.1 million, in comparison with $0.01 million earnings
tax profit for the six months ended June 30, 2021.

Net loss. Net loss of $59.0 million and web loss of $11.4 million
have been acknowledged for the six months ended June 30, 2022 and 2021, respectively,
consequently of the foregoing.

Liquidity and Capital Resources

Cash (utilized in) working actions. For the six months ended June 30, 2022, web
money utilized in working actions was $1.9 million, in comparison with $0.7 million for
the six months ended June 30, 2021. Net loss within the present interval
of $59.0 million represents a rise of $47.5 million, as in contrast with web
loss of $11.4 million within the prior interval. Adjustments to reconcile web loss to
web money utilized in working actions of $69.5 million within the present interval
elevated by $54.9 million, as in contrast with $14.6 million within the prior interval,
primarily resulting from a non-cash impairment loss associated to goodwill of $55.4 million
within the present interval. Changes in property and liabilities consumed money of
$12.4 million within the present interval, as in contrast with $3.8 million within the prior
interval, primarily resulting from ordinary-course adjustments in working capital, largely
involving the timing of receipt of quantities owing from shoppers and disbursements
of quantities payable to distributors.

Cash (utilized in) investing actions. For the six months ended June 30, 2022 and
2021, web money utilized in investing actions was $3.2 million and $1.6 million,
respectively. The improve was primarily because of the True North Acquisition that
occurred within the present yr.

Cash (utilized in) supplied by financing actions. Net money utilized by financing
actions for the six months ended June 30, 2022 was $2.9 million and web money
supplied by financing actions was $6.3 million for the six months ended June
30, 2021. The change of $9.2 million in money utilized in financing actions within the
present interval was primarily because of the lower within the compensation of long run debt
of $40.5 million, primarily offset by the web proceeds from issuance of long-term
debt, web of financing prices of $49.6 million, the train of inventory choices by
a former key government of $0.9 million, and the prepayment penalty on early debt
extinguishment of $0.8 million within the six months ended June 30, 2021.

As of June 30, 2022, we had noncancelable working lease commitments
of $7.6 million and long-term debt with a $43.8 million principal stability. For
the six months ended June 30, 2022, we funded our operations utilizing out there
money.

As of June 30, 2022, we had money and money equivalents of roughly $26.4
million, a lower of $8.1 million from $34.5 million as of December 31, 2021.
We imagine that we are going to have enough money sources to finance our operations
and anticipated capital expenditures for the following twelve months and past.

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We might discover the attainable acquisition of companies, merchandise and/or
applied sciences which might be complementary to our current enterprise. We proceed to
determine and prioritize further applied sciences, which we might want to develop
internally or via licensing or acquisition from third events. While we might
interact on occasion in discussions with respect to potential acquisitions,
there will be no assurance that any such acquisitions will likely be made or that we
will have the ability to efficiently combine any acquired enterprise with our then
present enterprise or understand anticipated value synergies. In order to finance such
acquisitions and working capital, it could be mandatory for us to lift further
funds via public or personal financings. Any fairness or debt financings, if
out there in any respect, could also be on phrases which aren’t favorable to us and, within the case
of fairness financings, might lead to dilution to shareholders.

On April 1, 2020, we acquired a 50% membership curiosity in Winopoly, LLC (the
“Initial Winopoly Acquisition”), for a deemed buy value of $2.6 million,
comprised of $1.6 million in upfront money paid to the vendor events
and contingent consideration with a good worth of $1.0 million, payable based mostly
upon the achievement of specified income targets over the eighteen-month interval
following the completion of the acquisition. (See Note 11, Business acquisition,
within the Notes to Consolidated Financial Statements.) On September 1, 2021, we
acquired the remaining 50% membership curiosity in Winopoly, LLC (“the Full
Winopoly Acquisition”) in a negotiated transaction. The consideration was $7.8
million, which consisted of $3.4 million of money at closing, $2.0 million of
money due on January 31, 2022, and $0.5 million of deferred funds due at every
of the primary and second anniversaries of the closing. We additionally issued
500,000 shares of fully-vested inventory beneath the Fluent, Inc. 2018 Stock Incentive
Plan (the “2018 Plan”) to sure Winopoly personnel valued at $1.4 million.
(See Note 11, Business acquisition, within the Notes to Consolidated Financial
Statements.) On January 1, 2022, we acquired a 100% membership curiosity in True
North Loyalty, LLC. (“True North Acquisition”) for a deemed buy value of
$2.3 million, which consisted of $1.0 million of money at closing, $0.5 million
of deferred funds due at each the primary and second anniversary of the closing
and contingent consideration with a good worth of $0.3 million, payable based mostly
upon the achievement of specified income targets over the five-year interval
following the completion of the acquisition. We additionally issued 100,000 shares of
absolutely vested inventory beneath the 2018 Plan to the sellers valued at $0.2 million.
(See Note 11 Business acquisition, within the Notes to Consolidated Financial
Statements.)

On March 31, 2021, Fluent, LLC, our wholly-owned subsidiary, entered into
a credit score settlement (the “Credit Agreement”) with sure subsidiaries of Fluent,
LLC as guarantors and Citizens Bank, N.A., as administrative agent, lead
arranger and bookrunner. The Credit Agreement supplies for a time period mortgage within the
combination principal quantity of $50.0 million funded on the Closing Date (the
“Term Loan”), together with an undrawn revolving credit score facility of as much as $15.0
million (the “Revolving Loans,” and along with the Term Loan, the “New Credit
Facility”). As of June 30, 2022, the Credit Agreement has an excellent
principal stability of $43.8 million and matures on March 31, 2026. Principal
amortization of the Credit Agreement is $1.3 million per quarter,
which commenced with the fiscal quarter ended June 30, 2021.

Borrowings beneath the Credit Agreement bear curiosity at a charge every year equal to
an relevant margin, plus, on the Company’s choice, both a base charge or a
LIBOR charge (topic to a ground of 0.25%). The relevant margin is between 0.75%
and 1.75% for base charge borrowings and 1.75% and 2.75% for LIBOR charge
borrowings, relying upon the Company’s consolidated leverage
ratio. The opening rate of interest of the New Credit Facility was 2.50% (LIBOR +
2.25%), which elevated to three.92% (LIBOR + 2.25%) as of June 30, 2022.

The Credit Agreement comprises restrictive covenants which impose limitations on
the way in which we conduct our enterprise, together with limitations on the quantity of
further debt we’re in a position to incur and our capability to make sure investments
and different restricted funds. The restrictive covenants might restrict our strategic
and financing choices and our capability to return capital to our stockholders
via dividends or inventory buybacks. Furthermore, we might have to incur
further debt to fulfill future financing wants. The Credit Agreement is
assured by us and our direct and oblique subsidiaries and is secured by
considerably all of our property and these of our direct and oblique
subsidiaries, together with Fluent, LLC, in every case, on an equal and ratable
foundation.

The Credit Agreement requires us to keep up and adjust to sure monetary
and different covenants. While we have been in compliance with the monetary and different
covenants as of June 30, 2022, we can’t assure that we will
keep compliance with such monetary or different covenants in future intervals.
Our failure to adjust to these covenants may lead to an occasion of default
which, if not cured or waived, may outcome within the acceleration of all of our
indebtedness, which might materially adversely have an effect on our monetary situation if
we’re unable to entry enough funds to repay all of the excellent quantities.
Moreover, if we’re unable to fulfill our debt obligations as they arrive due, we
may very well be pressured to restructure or refinance such obligations, search further
fairness financing or promote property, which we might not have the ability to do on passable
phrases, or in any respect.

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Critical Accounting Policies and Estimates

Management’s dialogue and evaluation of monetary situation and outcomes of
operations are based mostly upon our consolidated monetary statements, which have been
ready in accordance with GAAP. The preparation of these monetary statements
requires us to make estimates and judgments that have an effect on the reported quantities of
property, liabilities, revenues and bills, and associated disclosure of contingent
property and liabilities. We periodically consider our estimates, together with these
associated to income recognition, allowance for uncertain accounts, helpful lives of
intangible property, recoverability of the carrying quantities of goodwill and
intangible property, share-based compensation and earnings taxes. We base our
estimates on historic expertise and on numerous different assumptions which might be
believed to be affordable beneath the circumstances, the outcomes of which type the
foundation for making judgments concerning the carrying values of property and liabilities
that aren’t readily obvious from different sources. Actual outcomes might differ from
these estimates beneath completely different assumptions or situations.

As disclosed in Note 4, Goodwill, included on this Quarterly Report on Form
10-Q, the Company engaged a 3rd celebration to help in conducting an interim check
of the truthful worth of its goodwill for potential impairment. The
Company thought-about a mix of earnings and market approaches to find out
the truthful worth of the Fluent reporting unit. The Company decided {that a}
market-based method, which thought-about the Company’s implied market a number of
utilized to administration’s forecast and additional adjusted for a management premium,
supplied the most effective indication of truthful worth of the Fluent reporting unit. Based
on the outcomes of this market-based method as of June 30, 2022, the Company
concluded that its carrying worth exceeded its estimated truthful worth by 27%. As
such the Company concluded that its goodwill of $162.0 million for the Fluent
reporting unit was impaired and recorded a non-cash impairment cost
of $55.4 million. The impairment check includes the use of accounting estimates
and assumptions, adjustments wherein may materially impression our monetary
situation or working efficiency if precise outcomes differ from such estimates
or assumptions. The essential assumptions utilized in figuring out the truthful worth of
the reporting unit are forecasted money flows, market multiples, and management
premiums. Management workout routines judgment in creating these assumptions. Certain
of these assumptions are based mostly on details particular to the reporting unit, market
participant assumptions and administration’s projected money flows. If precise money
flows have been to say no from forecast, or market elements corresponding to valuation
multiples or rates of interest have been to development in an unfavorable path, there
could be an elevated danger of goodwill impairment for the Fluent reporting unit.

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For further data, please check with our 2021 Form 10-Okay. Except as set
forth herein, there have been no further materials adjustments to Critical
Accounting Policies and Estimates disclosed within the 2021 Form 10-Okay.

Recently issued accounting and adopted requirements

See Note 1(b), “Recently issued and adopted accounting requirements,” within the Notes
to Consolidated Financial Statements included on this Quarterly Report on Form
10-Q.
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