Summary of significant accounting policies

(a) Basis of preparation and liquidity

The accompanying unaudited consolidated financial statements have been prepared by Fluent, Inc., a Delaware corporation (the "Company" or "Fluent"), in accordance with accounting principles generally accepted in the United States ("US GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to those rules and regulations.

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are

not

necessarily indicative of the results of operations to be anticipated for any future interim periods or for the full year ending

December

31,

2019.

The information included in this quarterly report on Form

-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form

-K for the year ended

December 31, 2018

2018

Form

-K") filed with the SEC on

March 18, 2019.

The consolidated balance sheet as of

December 31, 2018

included herein was derived from the audited financial statements as of that date included in the

2018

Form

-K.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant transactions among the Company and its subsidiaries have been eliminated upon consolidation.

Spin-off of Red Violet

March

26,

2018,

Fluent completed the previously announced spin-off (the "Spin-off") of its risk management business from its performance marketing business by way of a distribution of all the shares of common stock of Fluent's wholly-owned subsidiary, Red Violet, Inc. ("Red Violet"), to Fluent's shareholders of record as of

March

19,

2018

and certain warrant holders. See Note

Discontinued operations

, for details.

Reclassifications

During the year ended

December 31, 2018

, the Company reviewed the classification of certain expenses presented in the consolidated statement of operations in an effort to bring added transparency and conformity to its reporting. As a result of this review, the Company made a number of changes to classification of operating expenses. Expenses for prior periods have been reclassified to conform to the current period presentation. For the

three

and

nine

months ended

September 30, 2018

, the reclassifications had

effect on income from operations, net income from continuing operations, or net income (loss).

The following table summarizes the reclassification activity for the

three

months ended

September 30, 2018

	As previously reported		Category expansion			Operating costs and expenses reclassification			As currently reported
Cost of revenue (exclusive of depreciation and amortization)	$	39,090	$	—		$	2,654		$	41,744
Sales and marketing		4,186		(143	)		(403	)		3,640
Product development		—		1,680			—			1,680
General and administrative		13,563		(1,537	)		(2,251	)		9,775

The following table summarizes the reclassification activity for the

nine

months ended

September 30, 2018

	As previously reported		Category expansion			Operating costs and expenses reclassification			As currently reported
Cost of revenue (exclusive of depreciation and amortization)	$	108,646	$	—		$	6,474		$	115,120
Sales and marketing		11,870		(742	)		(1,219	)		9,909
Product development		—		3,556			—			3,556
General and administrative		33,456		(2,814	)		(5,255	)		25,387

Immaterial Correction of an Error

During the year ended

December 31, 2018

, the Company identified an error in its calculation of basic and diluted weighted average shares outstanding, in which shares that had vested but were subject to deferred delivery were

not

included in both the basic and diluted calculations. As a result, the calculation for basic and diluted weighted average shares outstanding, and the corresponding changes to basic and diluted income (loss) per share as previously reported for

three

and

nine

months ended

September 30, 2018

s adjusted

by an immaterial amount as follows:

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	As previously reported		As currently reported		As previously reported (1)			As currently reported
Weighted average number of shares outstanding:
Basic		78,199,579		78,199,633		73,941,595			76,002,514
Diluted		78,199,579		78,199,633		73,941,595			76,002,514
Basic and diluted income (loss) per share:
Continuing operations	$	0.06	$	0.06	$	0.02		$	0.02
Discontinued operations	$	—	$	—	$	(0.29	)	$	(0.28	)
Net income (loss)	$	0.06	$	0.06	$	(0.26	)	$	(0.26	)

(

)

Contains summation difference due to rounding.

(b) Recently issued and adopted accounting standards

February 2016,

the FASB issued Accounting Standards Update ("ASU")

No.

2016

("ASU

2016

02"

Leases (Topic

842

)

, and additional changes, modifications, clarifications or interpretations thereafter, which generally require companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. Effective

January 1, 2019,

the Company adopted ASU

2016

using a modified retrospective approach, utilizing transition guidance introduced in ASU

2018

11,

Leases: Targeted Improvements,

and elected the ‘package of practical expedients,’ which permitted the Company

not

to reassess prior conclusions about lease identification, classification and initial direct costs.

As of

January 1, 2019,

the adoption of ASU

2016

resulted in the recording of right-of-use assets and operating lease liabilities of

$10,866

and

$11,138,

respectively, on the consolidated balance sheets. The difference between the right-of-use assets and operating lease liabilities was recorded as a write-off of the previously recognized deferred rent liability included in accrued expenses and other current liabilities on the consolidated balance sheets. ASU

2016

did

not

impact the Company's consolidated statements of operations or consolidated statements of cash flows. The accounting for financing leases, previously referred to as capital leases, was unchanged as a result of the adoption of ASU

2016

02.

Subsequent to the adoption of Accounting Standards Codification ("ASC")

842,

the Company will continue to recognize, on a discounted basis, its minimum commitments under noncancelable operating leases on its consolidated balance sheets. ASC

842

also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify. Accordingly, the Company will

not

recognize right-of-use assets or lease liabilities for qualifying leases, including existing short-term leases in effect at the transition date, and will recognize those payments on the consolidated statements of operations on a straight-line basis over the lease term. Additionally, the Company has elected the practical expedient to

not

separate lease and non-lease components for all of its leases. See Note

Lease commitments

, for additional disclosures.

January 2016,

FASB issued ASU

No.

2016

13,

Financial Instruments—Credit Losses,

and additional changes, modifications, clarifications or interpretations thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amount expected to be collected.

The new guidance is effective for annual and interim periods beginning after

December 15, 2019

, and early adoption is permitted.

The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Revenue is recognized when control of goods or services is transferred to customers, in amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods or services. The Company's performance obligation is typically to (a) deliver data records, based on predefined qualifying characteristics specified by the customer or (b) generate conversions, based on predefined user actions (for example, a click, a registration or the installation of an app) and subject to certain qualifying characteristics specified by the customer.

The Company applies the practical expedient related to the review of a portfolio of contracts in reviewing the terms of customer contracts as

one

collective group, rather than by individual contract. Based on historical knowledge of the contracts contained in this portfolio and the similar nature and characteristics of the customers, the Company has concluded the financial statement effects are

not

materially different than accounting for revenue on a contract-by-contract basis.

Revenue is recognized upon satisfaction of the associated performance obligations. The Company's customers simultaneously receive and consume the benefits provided, as the Company satisfies its performance obligations. Furthermore, the Company elected the "right to invoice" practical expedient available within ASC

606

as the measure of progress, since the Company has a right to payment from a customer in an amount that corresponds directly with the value of the performance completed to date. The Company's revenue arrangements do

not

contain significant financing components. The Company has further concluded that revenue does

not

require disaggregation.

For each identified performance obligation in the contract with the customer, the Company assesses whether it or the

third

-party supplier is the principal or agent. In arrangements where Fluent has substantive control of the specified goods and services, is primarily responsible for the integration of products and services into the final deliverable to the customer, has inventory risk and discretion in establishing pricing, Fluent acts as the principal. For performance obligations in which Fluent acts as principal, the Company records the gross amount billed to the customer within revenue and the related incremental direct costs incurred as cost of revenue. If the

third

-party supplier, rather than Fluent, is primarily responsible for the performance and deliverable to the customer, and Fluent solely arranges for the

third

-party supplier to provide services to the customer, Fluent acts as the agent. For performance obligations for which Fluent acts as the agent, the net fees on such transactions are recorded as revenue with

associated costs of revenue for the Company.

If a customer pays consideration before the Company's performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets. As of

September 30, 2019

and

December 31, 2018

, the balance of deferred revenue was

$1,178

and

$444

, respectively. The majority of the deferred revenue balance as of

December 31, 2018

was recognized into revenue during the

first

quarter of

2019

If there is a delay between the period in which revenue is recognized and when customer invoices are issued, revenue is recognized and related amounts are recorded as unbilled revenue in accounts receivable on the consolidated balance sheets. As of

September 30, 2019

and

December 31, 2018

, unbilled revenue included in accounts receivable totaled

$19,081

and

$25,545

, respectively. In line with industry practice, the unbilled revenue balance is recorded based on the Company's internally-tracked conversions, net of estimated variances between this amount and the amount tracked and subsequently confirmed by customers. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service. Historical estimates related to unbilled revenue have

not

been materially different from actual revenue billed.

Sales commissions are recorded at the time revenue is recognized and recorded in sales and marketing expenses. The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.

In addition, the Company elected the practical expedient to

not

disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of

one

year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.