某些關係和關聯方交易
主要股東
賣出股東
配送計劃
股本說明
法律事項專家在那裏您可以找到更多信息財務報表你只應依賴本招股章程或本招股章程的任何修訂或補充所載的資料。本招股說明書是一項僅出售在此提供的證券的要約，但僅限於在合法的情況下和在司法管轄區內。吾等及售股股東均未授權任何人向閣下提供與本招股說明書或本招股說明書的任何修訂或補充所載資料不同的資料。除本招股說明書或本招股說明書的任何修訂或補充資料外，吾等及出售股東對任何資料的可靠性概不負責，亦不能就其可靠性提供任何保證。本招股說明書或對本招股說明書的任何修訂或補充中的信息僅在其日期當日是準確的，無論本招股說明書或本招股說明書的任何修訂或補充適用的交付時間，或本招股說明書提供的任何證券的任何出售。自那以後，我們的業務、財務狀況、經營結果和前景可能發生了變化。
關於這份招股說明書我們沒有，出售股東也沒有授權任何人向您提供與本招股說明書或任何隨附的招股說明書增刊或免費撰寫的招股說明書中包含的信息不同的信息，我們和出售股東對其他人可能向您提供的任何其他信息不承擔任何責任。出售這些證券的股東提出出售這些證券，並尋求僅在允許要約和出售的司法管轄區購買這些證券的要約。本招股說明書及本招股說明書隨附的任何附錄不構成出售要約或邀請買入任何證券的要約，但在本次註冊交易中提供的證券除外。您不應假定本招股說明書或任何招股說明書副刊或免費撰寫的招股說明書中包含的信息在該等文件封面上的日期以外的任何日期都是準確的，無論本招股說明書的交付時間或任何證券的出售時間。自那以後，我們的業務、財務狀況、運營結果和前景可能發生了變化。
本招股說明書涉及出售股東轉售我們的A類普通股。我們不會出售本招股說明書下的任何證券，也不會從出售股東出售我們的A類普通股中獲得任何收益，儘管我們將獲得根據本招股說明書中描述的購買協議將我們的A類普通股出售給New Circle的任何收益。在購買我們的任何A類普通股之前，您應仔細閱讀本招股說明書、本招股說明書的任何附錄以及標題下的其他信息。在那裏您可以找到更多信息。.”
這些文件包含您在作出投資決策時應考慮的重要信息。除文意另有所指外，本招股說明書中提及的「公司」、「Direct Digital」、「Direct Digital Holdings」、「DDH」、「We」、「Our」及類似術語均指Direct Digital Holdings，Inc.及其合併子公司。本文檔包括其他公司的商標名和商標。本文檔中出現的所有此類商標名和商標均爲其各自所有者的財產。.”
某些定義
除文意另有所指外，本註冊聲明中提及：本招股說明書涵蓋出售股東轉售我們A類普通股的8,500,000股，如果我們根據購買協議向New Circle出售股份，我們可能會根據購買協議在未來向New Circle發行和出售這些股份。於2024年10月22日，本公司提交了一份註冊說明書(「事先註冊說明書」)和一份招股說明書(「事先招股說明書」)，內容包括出售股東轉售2,932,113股A類普通股，其中包括：(I)62,762股A類普通股，總價值約150,000美元(「承諾股」)，我們全權酌情發行這些股票作爲部分對價，以代替New Circle承諾購買的現金支付(Ii)吾等可根據購買協議向New Circle發行及出售A類普通股及(Ii)根據購買協議吾等可向New Circle發行及出售2,869,351股股份，倘吾等根據購買協議向New Circle出售股份，則其可根據先前招股章程轉售該等股份(該等股份爲「先前轉售股份」)。11根據購買協議，吾等不得向New Circle出售任何A類普通股，直至購買協議所載的所有條件均獲滿足爲止，該等條件發生在美國證券交易委員會宣佈預先登記聲明生效後不久(「生效日期」)。自此以後，吾等可在36個月的期間內，在吾等選擇的任何營業日(只要該等購買通知的交付時間已按照購買協議交付且購買協議所載的所有先決條件仍獲滿足)指示New Circle購買以下股份中的較少者：(I)相當於緊接吾等購買通知日期前五個交易日內普通股每日平均交易量100%的股份數目及(Ii)100,000股股份；但New Circle可全權酌情同意放棄該等規定，並同意就某一特定購買通知購買超過上述金額的股份。自生效以來至2025年1月16日，我們已根據購買協議和包含預先招股說明書的預先登記聲明，以約480美元萬的價格出售了總計2,869,351股A類普通股。
我們將控制向New Circle出售我們的A類普通股的任何時間和金額，但不控制出售股東隨後轉售的任何時間和金額。根據購買協議可在常規購買中出售給New Circle的股份的購買價將基於根據購買協議計算的我們的A類普通股市場價格的商定固定折扣。每股收購價將根據用於計算每股收購價的營業日內發生的任何重組、資本重組、非現金股息、股票拆分或其他類似交易進行公平調整。
吾等可隨時自行決定於五個交易日發出通知後終止購買協議，不收取任何費用、罰款或費用。購買協議或註冊權協議對未來融資、優先購買權、參與權、罰金或違約金沒有任何限制，但禁止吾等在購買協議期限內(除某些例外情況外)在購買協議定義的期間內進行或訂立浮動利率交易。New Circle不得轉讓或轉讓其在《購買協議》項下的權利和義務。
截至2025年1月14日，我們的A類普通股流通股爲6,450,554股，其中5,924,438股由非關聯公司持有。購買協議規定，吾等可向New Circle出售合共2000万的A類普通股，而根據本招股說明書，吾等將發售8,500,000股A類普通股，即除先前轉售股份外，根據購買協議可於未來向New Circle發行及出售的股份，前提是吾等根據購買協議向New Circle出售該等股份。根據我們根據購買協議選擇向New Circle發行和出售股票時我們A類普通股的市場價格，我們可能需要根據證券法登記我們A類普通股的額外股份的轉售，以便獲得相當於我們根據購買協議可獲得的2,000美元萬總承諾的總收益。如果New Circle根據本招股說明書提供的全部8,500,000股A類普通股已於本招股說明書日期發行及發行，則該等股份約佔：(I)已發行A類普通股總數的56.9%及非聯營公司持有的A類普通股已發行股份總數約58.9%，及(Ii)於本招股說明書所載各情況下，佔本公司所有類別已發行普通股總數的32.9%。New Circle最終提供轉售的股份數量取決於我們根據購買協議向New Circle出售的股份數量。
Www.directdigitalholdings.com
i
。我們網站上包含的或可以通過我們的網站訪問的任何信息都不會以引用的方式併入本招股說明書附錄中，也不會以任何方式成爲本招股說明書附錄的一部分，也不應作爲與投資我們的證券有關的任何決定所依賴的依據。我們被要求向美國證券交易委員會提交年度、季度和當前報告、委託書和其他信息。您可以從美國證券交易委員會的網站免費獲取我們向美國證券交易委員會提交的任何文件，網址爲
Www.sec.gov。
供品
發行人直接數字控股公司A類普通股由出售股東根據本招股說明書發行
8,500,000股，包括吾等可根據購買協議不時出售及發行予New Circle的股份。
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本招股說明書涵蓋的8,500,000股A類普通股在開始向新圈子出售前未償還的普通股
6,450,554股A類普通股
•發售條款
•出售股東將決定何時以及如何出售本招股說明書中提供的A類普通股的普通股，如本招股說明書所述。
•配送計劃
•收益的使用
•根據本招股說明書，我們將不會從New Circle出售我們的A類普通股股份中獲得任何收益。出售A類普通股的所有收益將記入出售股票的股東的帳戶。根據購買協議，我們可在生效日期後根據購買協議向New Circle出售A類普通股的任何股份，從而獲得總計高達2000万的總收益。如果公司的債務協議要求，我們打算使用我們在購買協議下收到的任何淨收益來減少我們的未償債務，並用於一般公司目的。我們可能不會根據購買協議發行任何股份。請參閱“收益的使用“在第頁上。
•有關更多信息，請參閱本招股說明書。
•風險因素投資我們的A類普通股涉及風險，潛在投資者應慎重考慮下文討論的事項。風險因素
•「從第頁開始」
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在投資我們的A類普通股之前，請閱讀本招股說明書。
證券交易所股票上市
我們的A類普通股在納斯達克資本市場上市交易，交易代碼爲「DRCT」。
A類普通股的股票數量基於截至2025年1月14日的6,450,554股已發行股票，不包括：
173,784股A類普通股，可按加權平均行權價每股2.18美元行使未償還期權發行；
243,660股A類普通股，可在歸屬已發行的限制性股票單位時發行；以及
根據我們的2022年綜合激勵計劃，爲未來發行預留488,257股A類普通股。
有關前瞻性陳述的警示說明
由於我們向美國證券交易委員會提交的幾份定期報告的延遲提交，我們將沒有資格使用S-3表格中的登記聲明來登記我們的證券要約和出售，直到我們重新獲得並保持當前備案者地位的一年後。如果我們希望在我們有資格使用S-3表格之前向公衆登記我們的證券發售和銷售，我們的交易成本和完成交易所需的時間都可能增加，使任何此類交易更難成功執行，並可能損害我們的財務狀況。
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此外，公司還有幾個員工股權計劃和董事股權計劃，這些計劃是根據S-8表格修訂的1933年證券法登記的。根據美國證券交易委員會的規定，公司未能向美國證券交易委員會提交定期報告和年度報告，導致在這些報告未備案期間暫停提供這些內幕股權計劃。出於這個原因，員工和董事不被允許清算任何先前持有的A類普通股，公司也無法發放股權保留或激勵獎勵。這些限制可能會對公司的員工和業務產生不利影響，可能會影響我們未來的前景和運營。
我們對截至2023年12月31日的季度的合併財務報表的重報使我們面臨一些額外的成本、風險和不確定性。
正如在本招股說明書的其他部分所討論的，我們的管理層決定重述截至2023年12月31日的季度的綜合財務報表，原因是會計錯誤：(1)非控股權益(NCI)的會計和列報，(2)與公司首次公開募股相關的組織交易的確認，(3)考慮到公司認股權證某些特徵的影響以及更正NCI的會計和列報的影響而列報每股收益，以及(4)2023年認股權證贖回的記錄時間。我們合併財務報表的重述和正在進行的彌補重大弱點的過程導致我們在法律、會計和其他專業服務方面產生了大量費用，並轉移了我們管理層對我們業務的注意力，並可能繼續這樣做。由於重述和
由於我們註冊會計師事務所的變更，我們延遲提交截至2023年12月31日的年度Form 10-K報告和截至2024年3月31日和2024年6月30日的Form 10-Q季度報告，並且不能保證我們能夠及時提交未來期間所需的報告。此外，由於重述以及相關的不依賴以前發佈的季度財務報表，投資者可能會對我們的財務報告失去信心，我們A類普通股的價格可能會下降。我們還可能受到與重述和/或相關重大弱點相關的監管、股東或其他行動的影響，無論結果如何，這都將消耗管理層的時間和注意力，並可能導致額外的法律、會計和其他成本。如果發生此類訴訟，而我們在此類訴訟中沒有勝訴，我們可能被要求支付損害賠償或和解費用。重述及相關事宜可能損害我們的聲譽，或導致我們的股東或其他交易對手對我們失去信心。這些情況中的任何一種都可能對我們的業務、財務狀況和經營結果產生不利影響。
客戶高度集中使我們面臨主要客戶面臨的各種風險，並可能使我們的收入大幅波動或下降。
從業務的賣方和買方的主要客戶的收入中產生的應收賬款存在固有的信用風險集中。在截至2023年12月31日和2022年12月31日的年度中，賣方業務的一個客戶分別佔收入的73%和63%。截至2023年12月31日和2022年12月31日，賣方業務一家客戶分別佔應收賬款的83%和80%。2024年，我們遇到了來自該客戶的短期付款通知，導致我們2023年的收入減少到報告的15710美元萬。該公司未獲提供有關短付薪酬的原因的資料，因此對此提出異議。除了短付，該公司還記錄了向幾家出版商支付的880万美元，主要是因爲由於缺乏支持此類交易的信息和相關文件，公司無法向出版商收取短付的費用。我們預計這些金額不會以任何實質性的方式再次出現，儘管不能保證該客戶或其他客戶未來不會採取此類行動。
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此外，儘管我們不斷尋求使我們的客戶基礎多樣化，但我們不能向您保證，在不久的將來，來自該客戶的收入貢獻佔我們總收入的比例將會下降。依賴數量有限的大客戶將使我們面臨重大損失的風險，如果其中任何一個減少甚至停止與我們的業務，我們的應收賬款可能會增加，並可能延長週轉天數。具體地說，以下任何事件都可能導致我們的收入出現重大波動或下降，並對我們的業務、財務狀況、運營結果和前景產生重大不利影響：
我們的一個或多個重要客戶的業務全面下滑；
我們的一個或多個重要客戶決定轉向我們的競爭對手；
我們的一個或多個重要客戶同意降低我們的服務價格；或
我們的任何重要客戶未能或無法及時爲我們的服務付款。
我們面臨與支付相關的風險，如果我們的客戶不支付或對他們的發票產生爭議，我們的業務、財務狀況和經營業績可能會受到不利影響。
我們與廣告公司簽訂的許多合同規定，如果廣告客戶不向廣告公司付款，廣告公司不對我們負責，我們必須僅向廣告客戶尋求付款。同樣，在我們業務的賣方，我們直接與我們的出版商簽訂合同，以獲得銷售數字廣告單元的權利，因此，根據合同，我們必須向出版商支付我們出售給廣告商或廣告代理公司的固定費率，無論我們是由廣告商還是代理商支付我們的費用。在某些情況下，與這些當事人簽約可能會產生更高風險的信用狀況，與我們直接與廣告商或代理機構等其他各方簽約相比，可能會使我們面臨更大的信用風險。這種信用風險可能會因各種因素而有所不同，包括廣告公司的聚合廣告客戶群的性質。我們還可能與代理商及其廣告商就我們平台的運營、我們協議的條款或我們通過我們平台進行的購買的賬單發生糾紛。如果我們無法收取或調整支付給客戶的賬單，我們可能會產生壞賬註銷，這可能會對我們在以下期間的運營業績產生重大不利影響
發生覈銷。未來，壞賬可能會超過此類意外情況的準備金，我們的壞賬敞口可能會隨着時間的推移而增加。壞賬覈銷的任何增加都可能對我們的業務、運營結果和財務狀況產生實質性的負面影響。即使我們的客戶沒有按時或根本沒有向我們支付費用，我們仍然有義務爲我們爲廣告活動購買的廣告支付費用，因此，我們的經營業績和財務狀況將受到不利影響。
此外，根據合同，我們通常被要求在商定的時間內向廣告庫存和數據的供應商付款，無論我們的客戶是否按時或根本不付款。雖然我們試圖與供應商談判較長的付款期限，而從客戶那裏獲得較短的付款期限，但我們並不總是成功。因此，我們的應付賬款的到期週期往往比我們的應收賬款更短，這要求我們從自己的資金中滙款，並接受壞賬風險。
如果我們未能發現廣告欺詐，我們可能會損害我們的聲譽，並損害我們執行商業計劃的能力。
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我們可能會受到試圖使用我們的賣方或買方平台用於不正當目的的人進行的欺詐性或惡意活動的影響，這可能會對我們造成重大影響。例如，我們的賣方平台可能被用來轉移或人爲誇大廣告商的購買量，或者擾亂或轉移我們的系統以及我們的出版商及其消費者的設備的運行，以便挪用信息、產生欺詐性賬單、發動網絡攻擊或用於其他非法目的。此外,
我們買方廣告業務的成功取決於我們向出版商、廣告商和代理商提供有效的數字廣告活動的能力。其中一些活動可能會經歷欺詐性和其他無效的印象、點擊或轉換，廣告商可能認爲這些印象、點擊或轉換是不受歡迎的，例如，計算機產生的非人類流量旨在模擬人類用戶，並人爲地誇大網站上的用戶流量。這些活動可能會誇大我們的業務表現，包括任何給定的數字廣告活動，並可能損害我們的聲譽。我們可能很難發現欺詐性或惡意活動，因爲我們不擁有內容，並在一定程度上依賴我們的數字媒體屬性來控制此類活動。行業自律機構、美國聯邦貿易委員會(FTC)和某些有影響力的國會議員加強了對廣告欺詐和其他惡意活動的審查和認識，並採取了最近的行動來解決這些問題。如果我們未能發現或阻止欺詐性或其他惡意活動，受影響的廣告商可能會體驗到或感覺到他們的投資回報減少，我們的聲譽可能會受到損害。高水平的欺詐或惡意活動可能導致對我們的解決方案的不滿、拒絕付款、退款或未來的信貸要求或撤回未來的業務，其中任何一項都可能對我們的業務、前景或運營結果產生實質性的不利影響。
我們平台的運營和性能問題，無論是真實的還是感知的，包括未能對技術變化做出反應或未能升級我們的技術系統，都可能對我們的業務、運營業績和財務狀況產生不利影響。
我們的大部分收入來自通過我們的平台以編程方式購買或銷售廣告庫存的客戶。我們預計，在可預見的未來，程序性廣告購買和銷售支出仍將是我們的主要收入來源，我們的收入增長將在很大程度上依賴於通過我們的平台增加支出。程序性廣告購買市場是一個新興市場，我們現有和潛在的客戶可能不會足夠快地從其他購買方式轉向程序性廣告購買，從而降低我們的增長潛力。由於我們的行業相對較新，我們將遇到類似快速發展的行業中處於早期階段的公司經常遇到的風險和困難，包括需要：維護我們的聲譽，並與廣告商和數字媒體所有者建立信任；
向出版商、廣告商和數字媒體代理商提供有競爭力的價格；
保持我們廣告庫存的質量和數量；
繼續開發、推出和升級使我們能夠提供解決方案的技術；
響應有關互聯網、電信、移動、隱私、營銷和廣告方面的不斷變化的政府法規；
確定、吸引、留住和激勵合格的人員；以及
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經濟高效地管理我們的運營。
如果程序性廣告購買市場惡化或發展速度慢於我們的預期，可能會減少對我們平台的需求，我們的業務、增長前景和財務狀況將受到不利影響。
此外，收入的增長速度可能不一定與我們平台上的支出增長速度相同。隨着節目廣告市場的成熟，由於數量折扣和產品、媒體、客戶和渠道組合的變化等一系列因素，支出的增長可能會超過我們收入的增長。收入佔支出百分比的顯著變化可能會導致我們的業務和增長招股說明書發生不利變化。此外，任何這種波動，即使它們反映了我們的戰略決策，也可能導致我們的業績低於證券分析師和投資者的預期，並對我們A類普通股的價格產生不利影響。我們通常有很長的銷售週期，這可能會導致從最初與潛在客戶接觸到執行客戶協議之間需要相當長的時間，這使得我們很難預測何時會獲得新客戶，以及何時會從這些客戶中產生收入。我們的銷售週期，從最初的接觸到合同的執行和實施，可能需要相當長的時間。我們的賣方銷售週期通常爲6至12個月，而我們的買方業務銷售週期通常爲3至9個月。作爲我們銷售週期的一部分，在我們從潛在客戶那裏獲得任何收入之前，我們可能會產生大量費用。我們不能保證在我們的銷售努力上花費的大量時間和金錢會產生大量的收入。如果市場狀況發生負面變化，通常或與特定的潛在客戶，我們可能無法收回任何這些費用。我們的銷售工作包括向客戶介紹我們平台的用途、技術能力和優勢，並通過技術聯繫與潛在客戶合作解決技術問題。我們的一些客戶經常進行評估，不僅涉及我們的平台，還涉及我們競爭對手的產品。因此，很難預測我們何時會獲得新客戶並開始從這些新客戶中產生收入。即使我們的銷售努力最終獲得了新客戶，客戶也會控制它何時以及在多大程度上使用我們的平台，從而控制我們產生的收入，這可能不足以證明獲得客戶和相關培訓支持所產生的費用是合理的。因此，我們可能無法以預期的速度增加客戶或產生收入，這可能會損害我們的增長前景。未能維護我們解決方案的品牌安全功能可能會損害我們的聲譽，並使我們承擔責任。
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廣告是通過我們的解決方案以毫秒級的自動交易進行買賣的。對於賣家來說，在其媒體上投放的廣告必須是高質量的，符合適用的賣方標準，不與現有的賣方安排衝突，並符合適用的法律和法規要求。對買家來說，重要的是將他們的廣告放在適當的媒體上，接近適當的內容，他們被收費的印象是合法的，他們的廣告活動產生了他們想要的結果。我們使用各種措施，包括技術、內部流程和協議，努力存儲、管理和處理買家和賣家設定的規則，並通過我們的解決方案確保交付給賣家和廣告商的結果的質量和完整性。如果我們未能正確執行或尊重買家和賣家建立的規則，可能會通過我們的平台投放不當廣告，這可能會損害我們的聲譽，並需要支付退款和潛在的法律責任。
我們的業務面臨着大流行、地震、洪水、火災和停電等災難性事件的風險，以及恐怖主義等人爲問題的干擾。 | 我們的業務很容易受到流行病、地震、洪水、火災、停電、電信故障、恐怖襲擊、戰爭行爲、人爲錯誤、入室盜竊和類似事件的破壞或中斷。一場重大自然災害可能會對我們的業務、運營結果和財務狀況產生實質性的不利影響，我們的保險覆蓋範圍可能不足以補償可能發生的損失。此外，恐怖主義行爲可能會對我們或我們的出版商和合作夥伴的業務或整個經濟造成破壞。我們的 | |||||||
服務器還可能容易受到計算機病毒、入侵、拒絕服務攻擊和未經授權篡改我們的計算機系統造成的類似破壞，這可能導致中斷、延誤和關鍵數據的丟失。在某些情況下，我們可能沒有足夠的保護或恢復計劃。由於我們嚴重依賴我們的數據中心設施、計算機和通信系統以及互聯網來開展業務和提供高質量的客戶服務，這些中斷可能會對我們的業務運營能力產生負面影響，並直接或間接地擾亂出版商和合作夥伴的業務，這可能會對我們的業務、運營結果和財務狀況產生不利影響。 | 我們的收入和經營業績高度依賴於廣告的整體需求。影響廣告支出金額的因素，如經濟低迷和季節性，可能會使我們的收入難以預測，並可能對我們的業務產生不利影響。 | |||||||
我們的業務取決於對廣告的總體需求，以及我們當前和潛在賣家和廣告商的經濟健康狀況。如果廣告商減少他們的整體廣告支出，我們的收入和運營結果將直接受到影響。對於巨人SSP來說，許多廣告商將不成比例的廣告預算投入到日曆年的第三和第四季度，以配合一年一度的假日購物季，出於季節性和預算原因，買家可能會在第二和第三季度在廣告活動上投入更多資金。因此，如果發生任何事件，減少第二、第三或第四季度的廣告支出，或減少廣告商在此期間可用的庫存量，如不利的經濟狀況或經濟不確定性，可能會對我們該財年的收入和經營業績產生不成比例的不利影響。經濟衰退或政治或市場狀況的不穩定通常可能會導致現有或新的廣告商減少他們的廣告預算。由於賣家流失而導致的庫存減少，將使我們的解決方案不那麼可靠，對買家也不那麼有吸引力。不利的經濟狀況和經濟復甦的普遍不確定性可能會影響我們的業務前景。特別是，通脹、利率上升和烏克蘭戰爭對美國經濟的影響的不確定性可能會導致美國和其他地方的總體商業狀況惡化或變得不穩定，這可能會導致廣告商推遲、減少或取消購買我們的解決方案，並使我們面臨更大的廣告商訂單信用風險。此外，廣告費用的稅收優惠待遇及其扣除額的任何變化都可能導致廣告需求的減少。(1) | 如果我們使用的非專有技術、軟件、產品和服務不可用，具有我們不能同意的未來條款，或者沒有按照我們的預期執行，我們的業務、運營結果和財務狀況可能會受到損害。 | |||||||
DDH由DDM控股，DDM的利益可能與我們的公衆股東的利益不同。 | 截至2024年9月30日，由我們的董事長兼首席執行官和我們的總裁間接擁有的控股公司DDM通過擁有B類普通股，控制了我們A類普通股總投票權的約74.1%。在可預見的未來，DDM現在和將來都能夠通過其所有權地位對我們的公司管理和事務產生重大影響，並能夠控制幾乎所有需要股東批准的事項。在符合適用法律的情況下，DDM可以選舉我們董事會的大多數成員，並控制我們和我們董事會將要採取的行動，包括修訂我們的公司註冊證書和公司章程，以及批准重大公司交易，包括合併和出售我們幾乎所有的資產。在符合我們的負債條款和適用的規章制度的情況下，董事有權增發股票、實施股票回購計劃、宣佈股息和做出其他決定。在某些情況下，DDM的利益可能會與我們的利益以及包括您在內的其他股東的利益發生衝突。例如，DDM可能與我們有不同的稅務立場，特別是考慮到應收稅款協議，這可能會影響我們關於是否和何時處置資產、是否和何時產生新的債務或爲現有債務進行再融資，以及DDH是否和何時應該終止應收稅款協議並加快其在該協議下的義務的決定。此外，在確定未來的納稅申報位置和安排未來交易時，可能會考慮DDM的納稅或其他考慮因素，這可能與我們或我們其他股東的考慮不同。請參閱“某些關係和關聯人交易，以及董事的獨立性“.” | |||||||
以獲取更多信息。 | 與DDM和DDH LLC的應收稅金協議要求我們就我們可能享有的某些稅收優惠向他們支付現金。在某些情況下，應收稅金協議下的支付可能會加快和/或大大超過我們實現的實際稅收優惠。作爲與DDH LLC和DDM簽訂的應收稅款協議的一方，我們必須向DDM支付相當於我們實際實現的或在某些情況下被視爲實現(使用某些假設計算)的稅收優惠的85%的現金，原因是(I)DDH LLC資產的計稅基礎增加，原因是(A)下述LLC單位未來的任何贖回或交換某些關係和關聯人交易，以及董事獨立性44“及(B)應收稅項協議項下的付款及(Ii)應收稅項協議項下的付款所產生的若干其他稅項利益。請參閱“ | |||||||
某些關係和關聯人交易，以及董事的獨立性“ | 以獲取更多信息。雖然應收稅款協議項下任何付款的實際金額和時間會因多種因素而有所不同，包括交換的時間、贖回或交換時我們A類普通股的價格、該等贖回或交換的程度、未來的稅率、以及我們的應稅收入的金額和時間(在計入基數調整所產生的稅務折舊或攤銷扣減之前)，我們預計，由於DDH LLC有形和無形資產的稅基增加幅度較大，在應收稅金協議的預期期限內，我們可能向DDM支付的款項可能很大。應收稅項協議項下的付款乃根據吾等厘定的稅務申報立場而厘定，而美國國稅局(「國稅局」)或另一稅務機關可對全部或部分稅基增加以及吾等所採取的其他相關稅務立場提出質疑，而法院亦可承受此等質疑。除吾等根據應收稅項協議向DDM支付之任何超額款項將於日後根據應收稅項協議被要求向DDM支付外，DDM將不會償還吾等先前根據應收稅項協議向DDM支付之任何款項，惟吾等根據應收稅項協議向DDM支付之任何超額款項將被扣除。最後，應收稅項協議亦規定，於若干合併、資產出售或其他形式的業務合併或某些其他控制權變更時，吾等(或吾等繼承人)有關稅務優惠的責任將基於若干假設，包括吾等(或吾等繼承人)將擁有足夠的應課稅收入以利用增加的稅項扣減及應收稅款協議涵蓋的其他利益所產生的利益。因此，在這些情況下，我們實現的實際現金節稅可能大大少於相應的應收稅金協議付款。在控制權變更的情況下，我們根據應收稅金協議採取的加速付款義務和/或假設可能會削弱我們完成控制權變更交易的能力，或對A類普通股所有者在控制權變更交易中收到的價值產生負面影響。11我們的組織結構，包括應收稅金協議，賦予DDM某些利益，使A類普通股股東受益的程度與他們使DDM受益的程度相同。 | |||||||
我們的組織結構，包括應收稅金協議，賦予DDM某些利益，但不會使我們A類普通股的持有者同樣受益。我們與DDH LLC和DDM簽訂的應收稅金協議規定，我們向DDM支付由於稅收屬性而實際實現或在某些情況下被視爲實現的稅收優惠金額的85%(如果有的話)。由於各種因素的不確定性，我們無法準確量化我們將因購買有限責任公司單位和有限責任公司單位交易所而實現的可能稅收優惠，以及根據應收稅款協議我們可能向DDM支付的金額；然而，我們估計此類支付可能會很大。請參閱“ | 某些關係和關聯人交易，以及董事獨立性 | |||||||
__________________
(1)了解更多信息。儘管我們保留實際實現的此類稅收優惠金額的15%，但我們組織結構的這一方面和其他方面可能會對A類普通股未來的交易市場產生不利影響。此外，我們的組織結構，包括應收稅款協議，施加了額外的合規成本，並要求投入大量資源，而組織結構較簡單的公司不需要這樣的資源。
•我們可能無法實現目前預期因應收稅項協議涵蓋的稅務屬性以及根據應收稅項協議支付的款項而產生的全部或部分稅項優惠。
•我們能否實現我們目前預期由於稅務屬性、根據應收稅金協議支付的款項以及根據應收稅金協議扣除的利息而獲得的稅收優惠，均取決於多項假設，包括我們在可扣除該等稅項期間每年賺取足夠的應稅收入，以及適用法律或法規沒有不利變化。此外，如果我們的實際應稅收入不足或適用法律或法規有其他不利變化，我們可能無法實現全部或部分預期稅收優惠，我們的現金流和股東權益可能會受到負面影響。請參閱“
•某些關係和關聯人交易，以及董事獨立性
8
了解更多信息。
由於我們預計在可預見的將來不會對我們的A類普通股支付任何現金股息，資本增值(如果有的話)將是您唯一的收益來源。我們從未宣佈或支付過A類普通股的任何股息。我們目前打算保留任何收益，爲我們業務的運營和擴張提供資金，我們預計在可預見的未來不會支付任何現金股息。未來是否派發股息，將由我們的董事會自行決定。此外，我們現有債務安排的條款禁止我們支付股息，我們未來的債務協議，如果有的話，可能會包含類似的限制。因此，只有當我們A類普通股的市場價格上升時，您在我們A類普通股上的投資才能獲得回報。一般風險
如果證券或行業分析師不發表關於我們業務的研究或報告，或者發表關於我們業務的不準確或不利的研究報告，我們的股價和交易量可能會下降。
我們A類普通股的交易市場部分依賴於證券或行業分析師發佈的關於我們或我們業務的研究和報告。我們對這些分析師沒有任何控制權。如果跟蹤我們的一位或多位分析師下調了我們的股票評級，或者改變了他們對我們業務前景的看法，我們的股價可能會下跌。如果其中一位或多位分析師停止對我們的報道，或未能定期發佈有關我們的報告，我們可能會在金融市場失去可見性，這可能會導致我們的股價或交易量下降。
•我們報告的財務結果可能會受到美國公認會計原則(「美國公認會計原則」)變化的不利影響。如果我們對關鍵會計政策的估計或判斷被證明是不正確的，我們的經營結果可能會受到不利影響。
•美國公認會計准則受到財務會計準則委員會(「FASB」)、美國證券交易委員會以及爲頒佈和解釋適當的會計原則而成立的各種機構的解釋。這些原則或解釋的改變可能會對我們報告的運營結果產生重大影響，並可能影響對在宣佈變化之前已完成的交易的報告。
•根據美國公認會計原則編制財務報表要求管理層作出估計和假設，以影響財務報表日期的資產、負債和或有負債的報告金額，以及本招股說明書其他部分的財務報表和附註中顯示的報告期內的收入和費用報告金額。實際結果可能與這些估計不同。我們基於過去的經驗、市場狀況和我們認爲在這種情況下合理的其他假設來進行估計，並持續評估這些估計。我們使用估計來確定許多已報告的金額，包括但不限於收入確認中的毛與淨評估、商譽和長期資產的可回收性、用於無形資產攤銷的使用壽命、所得稅和估值津貼以及在企業合併中收購的資產和負債的公允價值。如果我們的假設發生變化或實際情況與我們的假設不同，我們的運營結果可能會受到不利影響，這可能會導致我們的運營結果低於證券分析師和投資者的預期，從而導致我們A類普通股的市場價格下降。
•如果我們對關鍵會計政策的估計或判斷是錯誤的，或者基於改變或被證明是不正確的假設，我們的經營結果可能會低於證券分析師和投資者的預期，導致我們的股價下跌。
•按照公認會計准則編制財務報表要求管理層作出估計和假設，以影響合併財務報表和附註中報告的金額。我們的估計是基於我們的最佳判斷、歷史經驗、從第三方獲得的信息以及我們認爲在這種情況下合理的各種其他假設，如標題爲“
•管理層對財務狀況和經營成果的探討與分析
•其結果構成了對資產、負債、權益、收入和支出的賬面價值作出判斷的基礎，而這些資產、負債、權益、收入和支出從其他來源看起來並不是很明顯。如果我們的判斷被證明是錯誤的，假設改變或實際情況與我們的假設不同，我們的運營業績可能會受到不利影響，這可能會導致我們的運營業績低於證券分析師和投資者的預期，從而導致我們的股價下跌。在編制我們的綜合財務報表時使用的重要假設和估計包括與收入確認、基於股票的薪酬和所得稅有關的假設和估計。
•新的圓圈交易
•一般信息
•於2024年10月18日，吾等與New Circle訂立購買協議，據此，New Circle已同意於購買協議期限內不時向吾等購買總值達20,000,000美元的A類普通股(受若干限制規限)。同樣在2024年10月18日，我們與New Circle簽訂了註冊權協議。根據註冊權協議項下吾等的義務，吾等已向美國證券交易委員會提交包括本招股說明書的註冊說明書，以根據證券法登記根據購買協議已向New Circle發行或可能向New Circle發行的A類普通股股份。此處使用但未定義的術語應與《採購協議》中每個此類術語的含義相同。
•本招股說明書涵蓋出售股東轉售我們A類普通股的8,500,000股，如果我們根據購買協議向New Circle出售股份，我們可能會根據購買協議在未來向New Circle發行和出售這些股份。於2024年10月22日，吾等提交載有出售股東回售2,932,113股A類普通股的預先招股章程，當中包括：(I)62,762股承諾股份，總值約150,000美元，吾等全權酌情決定發行該等股份作爲部分代價，以代替現金支付New Circle根據購買協議購買A類普通股的承諾；及(Ii)吾等可根據購買協議向New Circle發行及出售2,869,351股股份，倘吾等根據購買協議向New Circle出售股份，則吾等可根據優先招股章程向New Circle再出售股份。
•根據購買協議，吾等不得向New Circle出售我們的任何A類普通股，直至購買協議所載的所有條件均獲滿足，而該等條件在美國證券交易委員會宣佈預先登記聲明生效後不久發生。此後，吾等可在36個月的期間內，在吾等選擇的任何營業日(只要該等購買通知的交付時間已按照購買協議交付且購買協議所載的所有先決條件仍獲滿足)，指示New Circle購買最多(I)相當於緊接吾等購買通知日期前五個交易日普通股每日平均交易量100%的股份數目或(Ii)100,000股，以較少者爲準；但New Circle可全權酌情同意放棄該等規定，並同意就某一特定購買通知購買超過上述金額的股份。自生效日期起至2025年1月16日止，我們已根據購買協議及載有預先招股說明書的預先登記聲明，以約480美元萬出售A類普通股共2,869,351股。
•我們將控制向New Circle出售我們的A類普通股的任何時間和金額，但不控制出售股東隨後轉售的任何時間和金額。根據購買協議可在常規購買中出售給New Circle的股份的購買價將基於根據購買協議計算的我們的A類普通股市場價格的商定固定折扣。每股收購價將根據用於計算每股收購價的營業日內發生的任何重組、資本重組、非現金股息、股票拆分或其他類似交易進行公平調整。
•吾等可隨時自行決定於五個交易日發出通知後終止購買協議，不收取任何費用、罰款或費用。購買協議或註冊權協議對未來融資、優先購買權、參與權、罰金或違約金沒有任何限制，但禁止吾等在購買協議期限內進行或訂立浮動利率交易，但在購買協議定義的期限內的某些例外情況除外。New Circle不得轉讓或轉讓其在《購買協議》項下的權利和義務。
•截至2025年1月14日，我們的A類普通股流通股爲6,450,554股，其中5,924,438股由非關聯公司持有。購買協議規定，我們可以向New Circle出售總計$2000万的A類普通股，而根據本招股說明書，我們將提供8,500,000股A類普通股，這是指根據購買協議，除先前轉售股份外，未來可能向New Circle發行和出售的股份，如果我們將該等股份出售給New Circle
•我們A類普通股的交易不應已被美國證券交易委員會、納斯達克證券交易所或FINRA暫停，並且我們沒有收到我們將於某一日期終止上市的最終通知；以及
•有足夠數量的已授權但未發行和未保留的普通股股份，可根據該購買通知發行所有普通股股份。
•我們的終止權
9
•吾等有權於任何時間，以任何理由，不向吾等支付任何款項或承擔任何責任，於五個交易日前通知New Circle終止購買協議。
•New Circle不做空或對沖
•New Circle已同意，在購買協議終止前的任何時間內，其或其任何聯屬公司均不得直接或間接賣空我們的A類普通股；但條件是，New Circle可出售相當於其根據待決購買通知無條件有義務購買但尚未收到本公司的股份數量的公司A類普通股。
•對浮動利率交易的禁止
•自購買協議日期及之後直至購買協議終止爲止，除購買協議另有規定外，吾等不得達成或訂立協議以達成或訂立任何浮動利率交易(定義見購買協議)，該等交易一般包括本公司發行或出售可轉換、可交換或可行使的股本證券的任何交易，或包括(I)以基於我們A類普通股的交易價格或報價或(Ii)換股的轉換價、行使價或匯率收取額外A類普通股的權利，可在未來日期或發生特定意外事件時重新設定的行權或交換價格。作爲可變利率交易，除某些例外情況外，還禁止進入任何其他股權信用額度或其他連續發行股票。
收購協議的履行對我國股東的影響
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根據購買協議，本招股說明書可能向New Circle發行或出售的所有8,500,000股股份預計均可自由流通。預期於本次發售中登記的股份的轉售將於生效日期起計最多36個月期間出售予New Circle。在購買協議懸而未決期間的任何給定時間，New Circle在本次發行中登記的8,500,000股股份和/或先前回售的股份中的大量股份的回售可能會導致我們A類普通股的市場價格下跌和波動。我們的A類普通股是否出售給New Circle，如果有的話，將取決於市場狀況和其他由我們決定的因素。我們可能最終決定將根據購買協議可供我們出售的A類普通股的全部、部分或全部出售給New Circle。如果我們向New Circle出售股份，在New Circle收購股份後，New Circle可以隨時或不時酌情轉售全部、部分或不出售這些股份。因此，我們根據購買協議向New Circle出售股份可能導致A類普通股的其他持有者的利益大幅稀釋。此外，如果吾等根據購買協議向New Circle出售大量股份，或如果投資者預期吾等會這樣做，則股份的實際出售或吾等與New Circle的協議本身的存在，可能會令吾等日後更難按我們希望出售的時間及價格出售股本或與股本有關的證券。然而，吾等有權控制向New Circle額外出售吾等股份的時間及金額，吾等可隨時酌情終止購買協議，而吾等無須承擔任何費用。
根據購買協議的條款，我們有權利但沒有義務指示New Circle購買我們最多20,000,000美元的A類普通股。根據我們根據購買協議向New Circle出售A類普通股的每股價格，我們可能需要根據購買協議向New Circle出售比本招股說明書提供的A類普通股更多的A類普通股，以獲得相當於我們根據購買協議可獲得的20,000,000美元總承諾的總收益。如果我們選擇這樣做，我們必須首先根據證券法登記我們A類普通股的此類額外股份的轉售，這可能會對我們的股東造成額外的大幅稀釋。根據本招股說明書，New Circle最終提供轉售的股份數量取決於我們根據購買協議指示New Circle購買的股份數量。
購買協議禁止吾等根據購買協議向New Circle發行或出售A類普通股的任何股份，前提是該等股份與New Circle及其聯屬公司當時實益擁有的A類普通股的所有其他股份合計超過實益所有權上限。
下表列出了我們根據收購協議以不同的收購價格向New Circle出售股份將從New Circle獲得的大約總收益：
•假設每股平均收購價
•數量
•股份
•在以下情況下發布
•全額購買
•百分比
•優秀
•由於三個關鍵的持續發展，媒體日益變得更加數字化：
•技術進步，跨多個平台提供更復雜的數字內容；
•消費者行爲的變化，包括每天使用移動設備和其他設備的時間更長；以及
•更好的受衆細分，更有效的目標定位和可衡量的結果。
•由此產生的轉變爲廣告商提供了多種選擇，使其能夠有效地定位和衡量幾乎所有媒體渠道和設備上的廣告活動。這些努力是由預算龐大的大型跨國公司牽頭的，這些公司受到激勵，撒下了廣泛的廣告網，以支持民族品牌。
•中小型公司越來越多地採用數字廣告
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•直到最近，中小型企業才開始以有意義的方式利用數字媒體的力量，因爲新興技術使廣告能夠在高度本地化的多個渠道上進行。活動效率產生了可衡量的結果和更高的廣告ROI，促使這些公司開始加快利用數字廣告的步伐。我們相信這個市場正在迅速擴大，中小型廣告商將繼續增加他們的數字支出。
•季節性
•在廣告業，公司通常會經歷收入的季節性波動。從歷史上看，對於我們的買方廣告部門，今年第二季度和第三季度反映了我們廣告活動的最高水平，第一季度反映了此類活動的最低水平。我們預計，基於影響整個廣告業的季節性因素，我們的買方收入將繼續波動。
•我們運營結果的組成部分
•收入
•對於賣方廣告部門，我們通過銷售廣告庫存(數字廣告單元)來產生收入，我們從出版商那裏向廣告商購買廣告庫存，通過在我們專有的賣方編程平台上將廣告印象貨幣化的過程來運營，該平台以Colossus SSP爲商標運營。對於買方廣告部分，我們從與我們簽訂協議提供託管廣告活動的客戶那裏獲得收入，其中包括購買數字廣告空間、數據和其他附加功能的數字營銷和媒體服務。
•結合我們對委託人和代理人考慮因素的分析，我們評估了特定的商品或服務，並考慮了我們是否在向客戶提供商品或服務之前對其進行控制，包括三個控制指標。基於這一分析以及我們的具體事實和情況，我們得出結論，我們是通過我們的賣方廣告部門和我們的買方部門銷售的商品或服務的委託人，因爲我們在指定的商品或服務轉移給客戶之前控制着它，並且我們是與客戶達成的協議中的主要義務人。因此，我們在毛收入的基礎上報告收入，包括所有供應商成本。我們向供應商支付數字媒體、廣告庫存、數據和任何附加服務或功能的費用。
•我們的收入確認政策在下一節中有更詳細的討論。
•-關鍵會計估計數和相關政策
收入成本
對於我們的賣方廣告部門的收入成本，我們向出版商支付費用，這通常是通過我們的平台貨幣化的廣告印象價值的一個百分比。收入成本主要包括出版商媒體費用和數據中心代管成本。媒體費用包括確保廣告空間的發佈和實時競價成本。對於買方廣告部分，收入成本主要包括數字媒體費用、第三方平台訪問費以及與向我們的客戶提供服務相關的其他第三方費用。
業務費用
營運開支包括與本公司高管、銷售、財務及行政人員有關的薪酬開支(包括薪金、佣金、股票薪酬、獎金、福利及稅項)；一般及行政開支(包括租金開支、專業費用、獨立承包人費用、銷售及市場推廣費用、行政及操作系統認購費用、保險、攤銷開支)；以及其他開支(包括性質不尋常或不經常發生的交易)。
其他收入（費用），淨額
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毛利
業務費用
營業收入(虧損)
其他收入（費用），淨額
所得稅前收入（損失）
所得稅費用
淨（損失）收入
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調整EBITDA
關於調整後EBITDA的定義、我們管理層使用這一計量的解釋以及調整後EBITDA與淨收入的對賬，見“-
非公認會計準則財務指標收入截至2024年9月30日的三個月，我們的收入爲910美元萬，比截至2023年9月30日的三個月的5,950美元萬減少了5,040美元，降幅爲85%。賣方廣告收入減少4,940美元萬，或96%，主要是由於印象庫存的減少。這一下降主要是由於公司的一個賣方客戶在第二季度暫停了與公司的連接，當時公司正在調查一篇誹謗性文章/博客文章中對公司的指控，公司認爲這是一場協調一致的錯誤信息運動的一部分。該客戶於2024年5月22日重新連接了公司，賣方交易量已恢復，但尚未恢復到2024年5月暫停之前的水平，這影響了截至2024年9月30日的整個季度。該公司平均每月銷售約2台億
在截至2024年9月30日的三個月內的印象，比前一時期減少了97%。在截至2023年9月30日的三個月中，買方收入下降了100美元萬，降幅爲12%，這是由於我們現有客戶群的支出減少了70美元，與2023年完成的某些一次性活動相比減少了70美元萬，部分被現有客戶和新客戶的增長所抵消。
截至2024年9月30日的9個月，我們的收入爲5,320美元萬，較截至2023年9月30日的9個月的11610美元萬減少了6,290美元萬，降幅爲54%。賣方廣告收入減少5,600美元萬，或63%，主要是由於2024年5月發生的客戶停職導致印象庫存減少，這對2024年第二季度和第三季度的收入產生了負面影響。在截至2024年9月30日的9個月內，該公司售出了約14張億平均每月預告片，較上一季度下降了%。在截至2023年9月30日的9個月中，買方收入下降了690美元萬，降幅爲25%，這是由於我們現有客戶群的支出減少了450万美元，以及2023年完成某些一次性活動導致的360万美元萬減少，部分被現有客戶和新客戶的增長所抵消。
收入成本
與收入的整體下降一致，截至2024年9月30日的三個月，560美元萬的收入成本減少了4,220美元萬，比截至2023年9月30日的三個月的4,770美元萬減少了88%。截至2024年9月30日的三個月，賣方廣告收入成本減少了4,200美元萬，至270美元萬，佔收入的121%，而2023年同期爲4,460美元萬，佔收入的86%。費用減少的主要原因是收入的相關減少，而收入百分比的增加是因爲固定成本保持在與上一年一致的水平。在截至2024年9月30日的三個月裏，買方廣告收入成本下降了20万，至290美元萬，佔收入的42%，而2023年同期爲310万，佔收入的40%。
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與收入的整體下降一致，截至2024年9月30日的9個月，3,880美元萬的收入成本減少了4,910美元萬，比截至2023年9月30日的9個月的8,780美元萬減少了56%。截至2024年9月30日的九個月，賣方廣告收入成本減少了4,650美元萬，至3,070美元萬，佔收入的93%，而2023年同期爲7,720美元萬，佔收入的87%。成本的下降主要是由於收入的相關下降，而收入的6%的增長是由於固定成本增加了約50美元萬與服務器容量的增加有關，以及與支持增長的新的分析和技術相關的成本以及出版商的混合和集中以及相關成本有關的約110美元萬。在截至2024年9月30日的九個月裏，買方廣告收入成本下降了260美元萬，至810美元萬，佔收入的40%，而2023年同期爲1,070美元萬，佔收入的39%。
毛利
截至2024年9月30日的三個月，毛利潤爲350美元萬，佔收入的39%，而2023年同期爲1,180美元萬，佔收入的20%，反映出減少了820美元萬，或70%。截至2024年9月30日的三個月的利潤率變化是由於我們的業務部門之間的收入組合，因爲我們的賣方部門比我們的買方部門有更高的收入成本，以及不被本期賣方收入覆蓋的固定成本的一致水平。
與2023年同期相比，在截至2024年9月30日的三個月中，賣方廣告毛利減少了750美元萬，主要是由於固定成本的穩定水平不被當期賣方收入覆蓋。截至2024年9月30日及2023年9月30日止三個月，賣方廣告毛利率分別爲(21%)%及14%。與去年同期相比，在截至2024年9月30日的三個月裏，買方廣告毛利減少了80美元萬，主要是由於收入的減少。截至2024年和2023年9月30日止三個月，買方廣告毛利率分別爲58%和60%。
NM%
NM--沒有意義
其他收入(支出)淨額主要包括520美元萬，與取消確認與公司遞延稅項資產在截至2024年9月30日的三個月中記錄的全額估值準備有關的應收稅金協議負債有關。截至2024年9月30日和2023年9月30日的三個月的其他收入(支出)淨額也分別包括140万美元萬和110万美元萬利息支出。利息支出增加了40美元萬，原因是公司信貸安排下的額外淨借款1,270美元萬，以及更高的利率。
截至2024年9月30日的9個月的其他收入(支出)淨額主要包括520美元的萬，與取消確認與公司遞延稅項資產上記錄的全額估值準備有關的應收稅金協議負債有關。其他收入(支出)，淨額還包括利息支出分別爲410美元萬和310万。利息支出增加了100美元萬，原因是公司信貸安排下的額外淨借款1,270美元萬，以及更高的利率。最後，截至2023年9月30日的九個月的其他收入(支出)淨額還包括與提前終止與新加坡廣播公司的信貸額度有關的虧損30美元萬。
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流動性與資本資源
持續經營的企業
正如本招股說明書其他部分所載截至2024年9月30日止三個月及九個月的簡明綜合財務報表附註9所述，於2024年5月10日，本公司成爲一篇誹謗文章/博客文章的主題，本公司認爲該文章/博文是一場協調一致的虛假信息運動的一部分。關於這篇帖子，公司的一個賣方客戶在2024年5月暫停了與公司的連接幾周，這降低了賣方的銷售量。截至我們截至2024年9月30日、2024年11月13日的Form 10-Q季度報告的日期，與該客戶相關的賣方交易量已經恢復，但還沒有恢復到2024年5月暫停之前的水平，這對公司的賣方業務造成了重大幹擾。該公司正在積極與其合作伙伴合作，以達到以前的銷量水平。然而，不能保證該公司將能夠達到以前的銷量水平
與其合作伙伴或就何時達到這樣的數量水平進行談判。此外，公司(1)在截至2024年9月30日的9個月中發生了1330美元的萬淨虧損，反映了上述賣方中斷的影響和客戶在買方的支出減少，(2)截至2024年9月30日的累計赤字爲660美元萬，(3)截至2024年9月30日的現金和現金等價物爲410美元，(4)根據公司與東西岸於7月7日簽訂的信貸協議，截至2024年9月30日和2024年11月13日分別借入了970美元萬和870美元萬。於2025年7月到期的2023年年報(「信貸協議」)，(5)於2024年4月17日獲通知本公司核數師已辭職，(6)未能及時提交2024年首兩個季度的2023年年報及季報，及(7)於2024年10月18日獲納斯達克通知，指其不符合納斯達克的最低股東權益要求。延遲提交公司的年度和季度報告擾亂了現有的融資努力，併產生了額外的審計、法律和其他費用。這些因素使人們對該公司在未來12個月內繼續經營下去的能力產生了極大的懷疑。
•該公司預計流動資金的來源將包括手頭現金和運營現金流，並已採取了幾項行動來解決流動性問題。這些行動包括(1)通過裁員來減少開支的計劃，暫停招聘和2024年7月1日執行的成本節約措施，(2)與貸款人合作，提供暫時的各種債務減免(見附註3--截至2024年9月30日的三個月和九個月的簡明綜合財務報表中的長期債務，以及“
•招股說明書摘要-最新發展-信貸協議修訂“
•包括在本招股說明書的其他部分)，同時重建賣方交易量，(3)實施通過股權儲備機制籌集資本的計劃(見附註4-截至2024年9月30日的三個月和九個月的簡明綜合財務報表中的股東虧損和基於股票的補償)以及
•「新圈子交易」
(4)恢復對2024年10月15日美國證券交易委員會拖欠備案文件的遵守，這將使公司能夠進入資本市場以及其他融資來源，以及(5)實現符合納斯達克最低股東權益要求的計劃。不能保證公司的行動會成功，也不能保證在需要時或在可接受的條件下會有額外的融資。
流動資金來源
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下表彙總了我們在2024年9月30日和2023年12月31日根據我們的信貸協議(定義如下)的現金和現金等價物、營運資本和可用性(以千爲單位)：
2024年9月30日
2023年12月31日
現金及現金等價物營運資金
信貸協議下的可用性
截至2024年9月30日的營運資金包括欠老佛爺廣場的所有金額，在與老佛爺廣場敲定豁免或修正案之前，這筆金額將顯示爲長期債務的當前部分。見簡明綜合財務報表附註中的附註3-長期債務。
爲了爲我們的運營提供資金並償還債務，並根據我們的增長和運營結果，我們可能會通過發行額外的股本和/或債務來籌集額外資本，這可能會稀釋我們的股東的權益。未來的任何股權或債務融資可能會以對我們不利的條款進行。隨着我們的信貸安排到期，我們將需要償還、延長或取代這些債務。我們能否做到這一點，將取決於未來的經濟、金融、商業和其他因素，其中許多因素是我們無法控制的。
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信貸安排
我們訂立的各項信貸安排的條款及條件於本招股說明書其他部分所載截至2024年9月30日止三個月及九個月的簡明綜合財務報表附註中的附註3-長期債務作進一步說明。
股權儲備機制
於截至2024年9月30日止三個月及九個月的簡明綜合財務報表附註內的附註4「股東虧損及基於股票的補償」中，進一步說明我們與New Circle訂立的股權儲備安排的條款及條件，該附註包括於本招股說明書的其他部分。
歷史現金流：
下表列出了我們截至2023年12月31日和2022年12月31日的現金流量(單位：千)：
18
截至12月31日的一年，
經營活動提供的淨現金
投資活動所用現金淨額
融資活動所用現金淨額
現金及現金等價物淨增(減)
我們於2023年12月31日的現金及現金等價物爲營運資金及一般企業用途。與2022年12月31日相比，現金和現金等價物有所增加，主要原因是經營活動產生的260万美元萬現金流量被用於投資活動的20万美元萬現金流量和用於融資活動的130万美元萬現金流量部分抵消。
19
下表列出了我們截至2024年9月30日和2023年9月30日的9個月的現金流(單位：千)：
截至9月30日的九個月，
•經營活動提供的現金淨額(用於)
•投資活動所用現金淨額
•融資活動提供（用於）的淨現金
•現金及現金等價物淨(減)增
•端到端、技術驅動的解決方案，專注於爲服務不足的市場提供更高的價值
•。我們的中小型客戶群正在尋求高ROI、低客戶獲取成本和可衡量的結果，以增長他們的背線。由於我們專注於媒體交付的第一英里和最後一英里，我們以第一美元的支出吸引數字供應鏈前端的客戶，在許多情況下是在代理商參與之前，並在整個數字廣告生態系統中推動數據驅動的結果，以優化ROI。我們提供端到端解決方案，使我們能夠以比我們的一些競爭對手更高效、更便宜的方式，全面制定和實施我們客戶的數字營銷戰略。中小型公司正在尋找能夠推動整個數字供應鏈取得成果的合作伙伴。在巨人SSP上，我們爲範圍廣泛的利基市場和一般市場出版商提供了一個機會，通過面向多元文化和其他受衆的技術支持的定向廣告，最大限度地增加廣告收入。我們相信，我們的技術能夠爲我們的客戶特定需求量身定做我們的努力，並通過數據和算法學習爲這些努力提供信息，這是服務於這一端市場的長期優勢。
•全面的流程可提高廣告庫存質量並減少無效流量(IVT)
•。我們運營着我們認爲是數字廣告生態系統中最全面的流程之一，以提高廣告庫存質量。在廣告業，庫存質量是根據IVT來評估的，IVT可能會受到欺詐的影響，例如通過自動技術人爲誇大印象計數而產生的「假眼球」。通過我們的平台設計和積極主動的IVT緩解努力，包括我們認可的驗證合作伙伴，我們在多個戰線解決IVT問題，包括先進的技術，它可以檢測並避免前端的IVT；直接的出版商和庫存關係，以優化供應路徑；以及持續的活動和庫存績效審查，以確保庫存質量和品牌保護控制到位。
•精心策劃的數據驅動的賣方平台，以支持客戶
•。Colossus SSP使我們能夠收集數據，爲我們的客戶構建和開發獨特的產品。SSP與戰略數據合作伙伴合作，以支持受衆管理。管理我們的供應的能力使我們能夠爲具有挑戰性和獨特的廣告需求的廣泛客戶提供服務，並以一種
我們孤立的競爭對手無法做到這一點。這種模式與我們的基礎設施解決方案和快速訪問過剩服務器容量的能力相結合，幫助我們高效地進行擴展，並使我們能夠以比純粹的買方解決方案更快的速度增長業務。
高客戶保留率和交叉銷售機會
。在截至2024年9月30日的9個月裏，我們的賣方約有15.8萬名買家，買方有230多名客戶。他們理解我們平台的獨立性，並堅持不懈地專注於推動基於ROI的結果。我們的價值主張是在我們整個數字供應平台上完全一致，從第一美元進來，最後一美元出來。我們是技術和媒體不可知的，我們的客戶信任我們爲他們的品牌和業務提供成功的最佳機會。因此，我們的客戶一直很忠誠，在截至2024年9月30日的9個月中，客戶保留率約爲88%，約佔我們收入的80%。此外，我們通過我們的託管和適度服務客戶渠道培養客戶關係，這些客戶通過我們的平台開展活動。託管服務交付模式使我們能夠將我們的技術與高度個性化的產品相結合，以戰略性地設計和管理廣告活動。
成長型和盈利的商業模式
20
。在2022年和2023年，我們的收入穩步增長，毛利潤也有所增加，我們相信這表明了我們技術平台的力量、我們客戶關係的力量以及我們商業模式固有的槓桿作用。截至2023年和2022年12月31日止年度，我們的營收分別爲15710美元萬和8,940美元萬。截至2023年和2022年12月31日止年度，我們的毛利分別爲3,760美元萬和2,930美元萬。截至2024年9月30日的九個月，我們的營收和毛利分別爲5,320美元萬和1,440美元萬。與上一年相比，2024年收入和毛利潤的下降主要是由於公司的一個賣方客戶在2024年第二季度暫停了與公司的連接，當時公司正在調查一篇誹謗文章/博客文章中對公司的指控，公司認爲這是一場協調一致的錯誤信息運動的一部分。該客戶於2024年5月22日重新連接了公司，賣方交易量已恢復，但尚未恢復到2024年5月暫停之前的水平，這影響了截至2024年9月30日的整個季度。
廣告潛在不穩定的解決方案
。由於廣告行業未來可能會逐步淘汰第三方Cookie，我們已經開始集成身份解析解決方案，以便在沒有Cookie的情況下爲我們的客戶提供準確、有針對性的廣告。我們將投資於人工智能和機器學習技術，以進一步從第一方和第三方數據源構建我們的數據圖表，並將促進不同數據集之間的匹配和關係。
經驗豐富的管理團隊
。我們的管理團隊由我們的兩位創始人領導，在數字廣告行業以及在識別和整合被收購的業務方面擁有豐富的經驗。具體地說，我們的兩位創始人，董事長兼首席執行官馬克·沃克和總裁·基思·史密斯，總共擁有超過45年的經驗。該團隊領導了大小公司的數字營銷工作，擁有獨特的經驗，帶領中小型公司度過了將平台過渡到程序化廣告空間的挑戰。我們的首席技術官Anu Pillai在開發賣方和買方的數字平台方面經驗豐富，範圍從專注於電子商務的消費包裝商品(CPG)公司到尋求將其廣告庫存貨幣化的出版商。我們的首席財務官Diana Diaz曾在德勤會計師事務所擔任審計高級經理，她在一家高增長的微型上市公司擔任CFO超過十年，並在上市和非上市公司擔任過其他CFO和領導職務，具有豐富的經驗。我們的首席增長官Maria Lowrey被評爲能源行業百強多元化領導者，她在能源、家居服務和鋼鐵行業擁有20多年的高級領導經驗。
以ESG爲中心的戰略
。我們相信，我們的業務戰略促進了專注於環境、社會和治理(ESG)問題的企業的理想，特別是關注社會和治理問題。隨着多元文化市場的持續增長和擴大，我們獨特的關注點已經導致與大小廣告商的衆多合作伙伴關係。此外，我們還被指定爲頂級少數族裔擁有的企業和全國少數族裔供應商多元化委員會(NMSDC)，通過認證，與財富500強公司、品牌和代理合作，幫助他們實現社會多樣性，
•在我們的媒體和廣告平台上實現公平和包容(「Dei」)目標和預算承諾。
•多樣性
•我們相信，對於我們的組織來說，從上到下了解和處理我們的客戶在賣方和買方面臨的問題是至關重要的。我們的創始人是非洲裔美國人，他們根據多元文化原則創建了我們的公司，旨在緩解買家和出版商進入一個廣闊的多元文化市場所面臨的挑戰。我們的管理團隊反映了我們多元文化受衆的基調和基調，以及我們關於性別平等和性別薪酬的政策。我們超過70%的管理層是女性和/或來自不同背景的人，包括我們所有的五名高管。我們完全遵守適用的法律和法規，包括反歧視法規來管理我們的招聘流程。
•名字
21
年齡
位置
執行官員：
Mark D.沃克
董事會主席兼首席執行官
Keith W.史密斯
總裁與董事
22
戴安娜·P·迪亞茲
首席財務官
阿努·皮萊
首席技術官
瑪麗亞·維爾切斯·勞裏
首席增長官
非僱員董事：
23
理查德·科恩
董事
安託瓦內特·R皮革漿果
董事
米斯泰爾·洛克
駱家輝女士於2023年1月成爲我們的董事會成員。駱家輝女士在2022年2月至2023年1月期間擔任我們董事會的顧問。她之前曾擔任行業領軍企業電通傳媒的首席營銷官。在此之前，駱家輝女士曾在iProspect擔任過多個高級管理職位，包括iProspect美洲公司的總裁、全球首席客戶官和全球首席營銷官。2008年，駱家輝通過與她的公司Range Online Media的合併，將iProspect從一個搜索引擎優化品牌轉變爲世界上最大、最具創新性的數字媒體和表演機構，擁有8000多名媒體和表演專家，業務遍及90多個市場。在她的職業生涯中，駱家輝曾與一些世界上最具標誌性的品牌合作，包括通用汽車、阿迪達斯、耐克、The Gap Brands、微軟、雅詩蘭黛公司、雅高酒店、巴寶莉、喜力和開雲集團。她還獲得了電子微軟必應「終身成就獎」，以表彰她對
•在數字廣告業，迅銷公司將她列入了「25位最佳女性商業建設者」的名單。我們相信，駱家輝女士有資格擔任我們董事會的成員，因爲她擁有豐富的行業洞察力和專業知識，將成爲高級領導團隊和我們戰略決策的寶貴資產。她擁有德克薩斯大學的企業傳播學學士學位。
•家庭關係
•沒有高管與任何其他董事或高管有血緣關係、婚姻或領養關係。
•董事獨立自主
•本公司遵守納斯達克股票市場(簡稱「納斯達克」)採用的公司治理標準。納斯達克規則要求我們的董事會對每個董事的獨立性做出肯定的決定。根據這些規則，我們的董事會於2024年10月14日對董事獨立性進行了年度審查，並認定理查德·科恩、Antoinette R.Leatherberry和Mistelle Locke各自滿足適用的美國證券交易委員會規則和納斯達克資本市場規則確立的獨立性標準。根據各董事要求及提供的有關其背景、受僱情況及所屬關係(包括家庭關係)的資料，本公司董事會認定，本公司無任何非僱員董事的關係會妨礙董事履行其職責時行使獨立判斷，而此等非僱員董事均爲納斯達克資本市場規則所界定的「獨立」董事。在作出這一決定時，我們的董事會考慮了每位非僱員董事與我們的關係，以及董事會認爲與確定其獨立性相關的所有其他事實和情況，包括每位非僱員董事對我們股本的實益所有權。
24
•以上表格和傳記列出了董事的高管和董事的姓名、他們的年齡、他們第一次成爲董事的年份、他們在我們公司的職位、他們至少在過去五年中的主要職業和僱主、他們在過去五年中擔任過的任何其他受交易所法案要求約束的公司的董事職務、或根據1940年投資公司法註冊爲投資公司的任何公司，以及其他信息，我們認爲所有這些信息都闡明瞭每一位董事被提名人在董事會任職的資格。我們的任何執行董事或董事與任何其他人士之間並無任何安排或諒解，據此他們中的任何人獲選爲高級管理人員或董事。
•高管薪酬
我們選擇遵守適用於「較小報告公司」的高管薪酬披露規則，因爲這一術語在《證券法》頒佈的規則中有定義。根據這些規則，我們2024財年的「被點名的執行官員」是：
馬克·沃克，董事長兼首席執行官；
基思·史密斯、總裁；以及
戴安娜·P·迪亞茲，首席財務官。
薪酬彙總表
下表列出了我們提名的高管在截至2024年和2023年12月31日的財政年度的薪酬信息。
名稱和主要職位
年
25
工資
非股權激勵計劃薪酬
股票獎勵
期權獎勵
全部其它補償
總計
馬克·沃克
26
董事長兼首席執行官
基思·史密斯
總統
戴安娜·P·迪亞茲
首席財務官
表示根據FASB ASC主題718計算的授予日期公允價值合計，不包括估計沒收的影響。計算這些價值時使用的假設在本公司綜合財務報表附註2中有所說明。
這些金額代表現金津貼，用於高管選擇的個人福利。
迪亞茲女士受僱於諮詢公司Vaco，LLC，在迪亞茲女士於2023年10月加入公司之前，我們在2023財年向該公司支付了總計29萬美元的費用。
年度獎勵計劃
我們任命的高管每人都有資格參加年度激勵計劃。根據這一計劃，每位參與計劃的高管都有一個目標年度獎勵金額，並可根據公司實現特定收入目標和EBITDA業績的情況，獲得該目標金額的零至150%的收入。2024年和2023年，沃克、史密斯和迪亞茲的目標年度獎勵金額分別相當於他們基本工資的75%、75%和50%。2024年公司業績的支出尚未確定，但預計將在2025年3月15日之前確定。
與我們指定的高級管理人員簽訂的高管聘用協議
27
沃克先生、史密斯先生和迪亞茲女士分別與我們的子公司DDH LLC簽訂了僱傭協議。僱傭協議規定，他們的年基本工資分別爲500,000美元、500,000美元和350,000美元，他們有資格獲得年度獎金和長期獎勵，他們的僱傭性質是隨意的，某些費用報銷，以及他們一般有資格參加我們的福利計劃。此外，僱傭協議還包括慣例的競業禁止、非邀約、非貶損、保密和知識產權公約。
每個高管的僱傭協議中的遣散費條款基本相同。如果管理人員因任何原因終止僱用，管理人員將有權獲得：(I)應計但未支付的基本工資
至終止日，(Ii)根據DDH LLC的費用報銷政策，報銷截至終止日發生的任何未報銷和合理的業務費用，(Iii)支付應計但未支付的帶薪休息日(如果適用法律要求)；以及(Iv)根據任何適用的計劃、計劃或補助金，其於終止日有權獲得的任何其他付款、福利或附帶福利。
此外，如果DDH有限責任公司在沒有「原因」的情況下終止對高管的僱用，或者高管在「控制權變更」(這些術語在高管的僱傭協議中定義)之前被高管以「充分的理由」終止聘用，高管將有權繼續領取12個月的基本工資。但是，如果在管理層變動時或之後發生這種無故終止或辭職的情況，行政人員的基本工資延續期限將從12個月延長至24個月，並且行政人員還將有權獲得相當於其離職年度目標獎金的一次總付。在每一種情況下，這些遣散費都將以行政人員執行全面釋放索賠爲條件。
股權獎
根據經修訂的2022年綜合激勵計劃(「2022年計劃」)，我們任命的每位高管也有資格獲得股權獎勵。股權獎勵的規模和其他條款由我們董事會的薪酬委員會自行決定。
安託瓦內特·R皮革漿果
2022年6月10日
2023年6月12日
米斯泰爾·洛克
2023年1月16日
28
2023年6月12日
我們的非員工董事薪酬政策旨在使我們能夠長期吸引和留住高素質的非員工董事。根據該政策，每位非員工的董事均可獲得以下現金補償：
每年聘用費
董事會：
所有非員工成員
非執行主席的額外聘用
審計委員會：
成員椅子的額外固定器薪酬委員會：
成員
29
椅子的額外固定器
提名和公司治理委員會：成員椅子的額外固定器
百分比
號百分比號
百分比
5%股東直接數字管理有限責任公司獲任命的行政人員及董事馬克·沃克， 董事長兼首席執行官
30
基思·史密斯，
總裁與董事
戴安娜·P·迪亞茲，
首席財務官理查德·科恩， 董事
安託瓦內特·R皮革漿果，
董事米斯特爾·洛克， 董事
請參閱合併財務報表隨附的附註。
直接數字控股公司和子公司
31
股東（虧損）股票變動綜合報表
(in除了共享數據外，數千人）
普通股
APIC
積累
赤字
非控股
興趣
會員'/
32
股東
股權
普通單位
A類
B類
單位
量
單位
量
33
贖回非參與優先單位
截至12月31日的一年，
行使期權的收益
行使認購權的收益
向LLC單位持有人的分配
•融資活動所用現金淨額
•現金及現金等價物淨增(減)
•現金及現金等值物，期末
•現金及現金等值物，期末
•現金流信息補充披露：
•支付稅款的現金
•支付利息的現金
•非現金活動：
•已購買的財產和設備計入應付賬款
•合作伙伴關係的外部基礎差異
•應付Direct Digital Management，LLC的應收稅款協議
34
•應收稅款協議的稅收優惠
•關聯方應收賬款中包含的向LLC單位持有人預付分配
•請參閱合併財務報表隨附的附註。
•注1 -業務組織和描述
2020年9月30日
擠在一起的群衆有限責任公司
買方
2012年11月13日
2018年6月21日
•直接數字控股有限責任公司
•N/A
•2018年6月21日
2022年2月15日
DDH擁有Direct Digital Holding，LLC 100%的投票權。截至2023年12月31日，DDH擁有Direct Digital Holdings，LLC 24.2%的經濟權益。見我們合併財務報表附註6中關於UP-C結構的進一步討論。
巨人SSP是一個獨立的平台，旨在向不同和多文化的受衆以及普通受衆提供有針對性的廣告。這兩家買方子公司Orange 142和Hudded MASS都通過需求側平台(DSP)向客戶提供技術支持的廣告解決方案和諮詢服務。
35
•提供前端、買方業務以及公司專有的賣方業務，使公司能夠策劃廣告技術生態系統執行過程中的第一步至最後一步，以推動更高的業績。
•附註2--列報和合並的依據以及主要會計政策摘要
•列報和合並的基礎
•公司的綜合財務報表是根據美國公認的會計原則(「美國公認會計原則」)編制的，反映了所有列報時期的財務狀況、經營成果和現金流量。合併財務報表包括Direct Digital的賬目
•控股公司及其全資子公司。所有重要的公司間帳戶和交易都已在合併中註銷。
•本公司是一家新興的成長型公司，如2012年的JumpStart Our Business Startups Act(「JOBS法案」)所界定。根據《就業法案》，新興成長型公司可以推遲採用適用於上市公司的新會計準則或修訂後的會計準則，直到這些準則適用於私營公司。本公司已選擇使用此延長過渡期以符合新的或經修訂的會計準則，該等準則對上市公司及非上市公司具有不同的生效日期，直至其(I)不再是新興成長型公司或(Ii)其明確及不可撤銷地選擇退出《就業法案》所規定的延長過渡期，兩者以較早者爲準。因此，這些合併財務報表可能無法與截至上市公司生效日期遵守新的或修訂的會計聲明的公司進行比較。下面討論的收養日期反映了這次選舉。
•收入確認
•該公司通過以下五個步驟確認收入：1)確定與客戶的合同；2)確定合同中的履約義務(S)；3)確定交易價格；4)將交易價格分配到合同中的履約義務(S)；以及5)在履行義務(S)得到履行時或作爲履行義務確認收入。該公司的收入主要來自兩個來源：賣方廣告和買方廣告。因此，公司將賺取的收入分解爲這兩個部分。有關更多分部披露，請參閱我們合併財務報表的附註7。該公司以書面服務協議的形式與其客戶保持協議，其中規定了關係的條款，包括付款期限(通常爲30至90天)和對其平台的訪問。
對於賣方廣告部門，公司通過銷售廣告庫存(數字廣告單元)來產生收入，公司通過在公司專有的賣方編程平台上將廣告印象貨幣化的過程從出版商手中向廣告商購買廣告印象，該平台在商標爲Colossus SSP的情況下運營。對於買方廣告部分，公司從與公司簽訂協議提供管理廣告活動的客戶那裏獲得收入，其中包括購買數字廣告空間、數據和其他附加功能的數字營銷和媒體服務。
十二月三十一日，
利息支出--拉斐特廣場
遞延融資成本攤銷--老佛爺廣場
遞延融資成本的利息支出和攤銷總額
2024年10月15日，生效日期爲2024年6月30日，本公司與老佛爺廣場簽訂了《定期貸款與擔保協議第五修正案》(《第五修正案》)，其中包括：(1)將定期貸款和延遲提取貸款的季度分期付款推遲至2025年6月30日至2025年12月31日，(2)要求本公司向老佛爺廣場支付50個點子或10美元萬的承諾費，(3)允許本公司未來股權融資的收益(如果有)用於糾正潛在的財務契約違規行爲，(4)規定一個月和三個月的利息期，(5)以綜合總槓桿率取代綜合總淨槓桿率的計算
計算適用按金和財務契約的目的和(6)將2021年信貸安排(自2024年6月30日起生效)下的財務契約替換爲：
截至
36
最低TTM*EBITDA(百萬美元)
最低流動資金(百萬美元)
最大綜合總槓桿率最低固定費用覆蓋率2024年6月30日
37
n/a
n/a
n/a
n/a
2024年9月30日
n/a
n/a
2024年12月31日
38
n/a
n/a
2025年3月31日
n/a
n/a
2025年6月30日
39
n/a
•1.50至1.00
•2025年9月30日
n/a
4.25至1.0
1.50至1.00
•2025年12月31日
•n/a
•4.00至1.0
•1.50至1.00
•2026年3月31日
•n/a
•3.75至1.0
•1.50至1.00
•合約年期
•(單位：年)
骨料
內在價值
40
(單位：千)
2022年1月1日未完成
授予
行使
沒收
截至2022年12月31日未償還
授予
行使
41
沒收
截至2023年12月31日的未償還債務 | 於2023年12月31日歸屬並可行使 截至2023年和2022年12月31日止年度授予的期權的加權平均公允價值分別爲2.44美元和1.01美元。截至2023年12月31日，與300，969份未歸屬股票期權相關的未確認股票薪酬爲40万美元，這些薪酬將在加權平均歸屬期1.86年內以直線法確認。 限售股單位 RSU通常在三年內每年在授予日期週年紀念日歸屬。截至2023年和2022年12月31日止年度RSU活動摘要及相關信息如下：(1) | 限售股單位 股份數量 估值免稅額 遞延稅金重新計量 其他 實際所得稅率 遞延稅項資產及負債反映淨營業虧損及稅項抵免結轉的稅項淨影響，以及財務報告資產及負債賬面值與用於稅務用途的金額之間的暫時性差異。遞延稅項資產的構成如下(以千計)：(2) | 12月31日， 與以下項目相關的遞延稅項資產： 合夥企業基準差額，扣除估值免稅額 淨營業虧損結轉 遞延所得稅資產，淨額 截至2023年12月31日，該公司結轉的聯邦淨營業虧損爲110万美元萬，可無限期結轉。 該公司在美國聯邦司法管轄區和各州司法管轄區提交所得稅申報單。在正常的業務過程中，公司可以接受包括美國國稅局在內的各種稅務機關的審查 。目前沒有正在進行的聯邦或州審計(1) | |||||||||||||||||
| $1.30 | 8,500,000 | 49.08 | % | $ | 11,050,000 | |||||||||||||||
| $1.40 | 8,500,000 | 49.08 | % | $ | 11,900,000 | |||||||||||||||
$1.50(3) | 8,500,000 | 49.08 | % | $ | 12,750,000 | |||||||||||||||
| $1.60 | 8,500,000 | 49.08 | % | $ | 13,600,000 | |||||||||||||||
| $1.70 | 8,500,000 | 49.08 | % | $ | 14,450,000 | |||||||||||||||
__________________
(1)。該公司分析其在要求提交所得稅申報單的所有美國聯邦、州和地方稅務管轄區以及這些司法管轄區所有開放納稅年度的納稅申報頭寸。截至2022年12月31日和2021年12月31日，聯邦和各州的申報單仍然開放。本公司評估在準備實體的納稅申報表過程中採取或預期採取的稅務立場，以確定是否「更有可能」的每一個稅務立場將由適用的稅務機關維持。截至2023年12月31日和2022年12月31日，
(2)該公司沒有不確定的稅務狀況。因此，本公司並未確認任何與不確定稅務狀況有關的罰款、利息或稅務影響。
(3)附註6--關聯方交易
42
關聯方交易
應付會員
截至2023年12月31日、2023年12月31日和2022年12月31日，本公司與成員公司就分配給有限責任公司單位持有人的時間安排有關的餘額分別爲170万美元和140万美元，分別作爲關聯方應收賬款和應付賬款計入綜合資產負債表。
UP-C結構
經營租賃
43
在截至2023年12月31日、2023年12月31日和2022年12月31日的年度內，公司分別產生了與房地產運營租賃相關的固定租金支出30万和30萬。本公司於此期間並無任何融資租賃、短期租賃或可變租賃。在截至2023年12月31日、2023年12月31日和2022年12月31日的年度內，公司有以下與租賃相關的現金和非現金活動(以千計)：
截至十二月三十一日止的年度：
就計入租賃負債計量的金額支付的現金：營運租賃的營運現金流出經營租賃ROU資產和經營租賃負債的非現金變動：
從新的經營負債中獲得的ROU資產的增加和修改
截至2023年12月31日，公司經營租賃的加權平均剩餘租期和貼現率分別爲5.5年和8.3%。截至2022年12月31日，公司經營租賃的加權平均剩餘租期和貼現率分別爲6.6年和8.3%。
44
截至2023年12月31日，根據經營租賃到期的未來付款如下(以千爲單位)：
此後未貼現租賃付款總額.”
45
折扣的影響較小
減少當期租賃負債經營租賃總負債，扣除當期部分附註10--財產、設備和軟件，淨額財產、設備和軟件，淨額由以下部分組成(以千計)：使用年限(年)
十二月三十一日，
傢俱及固定裝置
計算機設備
| 租賃權改進 | 大寫軟件 | 財產、設備和軟件，毛額 | 減：累計折舊和攤銷 | 財產、設備和軟件合計，淨額 | ||||||||||
| 該公司於2022年11月從第三方開發商手中獲得了其專有的Colossus SSP平台的許可證。該公司於2022年搬遷總部，並將與搬遷相關的傢俱和固定裝置、計算機設備和租賃改進資本化。下表按明細項目彙總了截至2022年12月31日、2023年和2022年與財產、設備和軟件有關的折舊和攤銷費用(單位：千)： | 100% | 截至的年度 | 12月31日， | 收入成本 | ||||||||||
| 一般及行政 | 100% | 折舊及攤銷總額 | 附註11--無形資產 | 於2020年9月，本公司收購奧蘭治142，收購價爲2,620美元萬，按收購的有形資產淨額(包括商譽及無形資產)的公允價值分配。收購對價超過了有形資產淨值的公允價值，導致商譽爲4，10美元萬，無形資產爲1,800美元萬。本公司在可識別無形資產的使用年限內以直線方式記錄攤銷費用。截至2023年12月30日和2022年12月30日的年度，攤銷費用分別爲200万美元萬和200億萬。截至2023年、2023年和2022年12月31日，扣除累計攤銷的無形資產淨值分別爲1,170美元萬和1,360美元萬。 | ||||||||||
| 截至2023年12月31日、2023年12月和2022年12月31日，無形資產包括以下內容(以千計)： | 100% | 2023年12月31日 | 加權平均 | 剩餘壽命(年) | ||||||||||
原創
量
46
積累
遞延所得稅資產，淨額
經營租賃使用權資產
其他長期資產
總資產
負債和股東權益
流動負債
應付賬款
應計負債
47
與應收稅款協議相關的負債，流動部分長期債務的當前期限遞延收入
經營租賃負債，流動部分
應付所得稅
關聯方應付款
流動負債總額
長期債務，扣除流動部分和遞延融資成本
經濟傷害災難貸款
與應收稅款協議相關的負債，扣除流動部分
經營租賃負債，扣除流動部分
總負債
重述
48
調整
經重列
資產
流動資產
現金及現金等價物應收賬款，淨額預付費用和其他流動資產
流動資產總額
財產、設備和軟件，淨
商譽
無形資產，淨值
遞延所得稅資產，淨額
經營租賃使用權資產
49
其他長期資產
總資產
負債和股東權益
流動負債
應付賬款
應計負債
收入成本
•買方廣告
•賣方廣告
•總收入成本
毛利
業務費用
補償、稅收和福利
一般及行政
總運營費用
50
經營所得
其他收入（費用）
其他收入
非參與優先單位贖回損失
提前終止信貸額度損失利息開支.”
其他費用總額，淨額
稅前收入
所得稅費用
淨收入
歸屬於非控股權益的淨利潤
總收入成本毛利
業務費用補償、稅收和福利一般及行政.”
總運營費用經營所得
其他收入（費用）其他收入
51
提前終止信貸額度損失非參與優先單位贖回損失
利息開支其他費用總額，淨額
稅前收入
所得稅費用
淨收入
| 歸屬於非控股權益的淨利潤 | 歸屬於Direct Digital Holdings，Inc.的淨利潤 | |||||||||||||
| 2023 | 2022 | 每股淨利潤： | 基本 | |||||||||||
| 稀釋 | ||||||||||||||
| 已發行普通股加權平均股數： | $ | 122,434 | $ | 60,011 | $ | 62,423 | 104 | % | ||||||
| 基本 | 34,676 | 29,349 | 5,327 | 18 | % | |||||||||
| 稀釋 | 157,110 | 89,360 | 67,750 | 76 | % | |||||||||
| (in數千人，每股數據除外） | ||||||||||||||
| 普通股 | 105,733 | 49,599 | 56,134 | 113 | % | |||||||||
| APIC | 13,803 | 10,439 | 3,364 | 32 | % | |||||||||
| 積累 | 119,536 | 60,038 | 59,498 | 99 | % | |||||||||
| 赤字 | 37,574 | 29,322 | 8,252 | 28 | % | |||||||||
| 非控股 | 39,759 | 21,343 | 18,416 | 86 | % | |||||||||
| 興趣 | (2,185) | 7,979 | (10,164) | (127) | % | |||||||||
| 股東 | (4,091) | (3,486) | (605) | 17 | % | |||||||||
| 股權 | (6,276) | 4,493 | (10,769) | (240) | % | |||||||||
| A類 | 568 | 326 | 242 | 74 | % | |||||||||
| B類 | $ | (6,844) | $ | 4,167 | $ | (11,011) | (264) | % | ||||||
如以往報告所述(1) | $ | 2,393 | $ | 10,169 | $ | (7,776) | (76) | % | ||||||
__________________
(1)單位
量
單位
52
量
平衡，2022年12月31日
收購和贖回認購證，包括費用
分配給會員
淨收入
調整總數
經重列
平衡，2022年12月31日
| 股票補償 | 與限制性股票單位歸屬相關的發行，扣除預扣稅 | |||||||||||||
| 2023 | 2022 | 收購和贖回認購證，包括費用 | 令狀贖回 | |||||||||||
| 已行使的股票期權 | $ | 17,730 | $ | 14,124 | $ | 3,606 | 26 | % | ||||||
| 向LLC單位持有人的分配 | 13,199 | 7,219 | 5,980 | 83 | % | |||||||||
| 淨收入 | 8,830 | — | 8,830 | 餘額，2023年9月30日重述 | ||||||||||
| (單位：千) | $ | 39,759 | $ | 21,343 | $ | 18,416 | 86 | % | ||||||
__________________
截至2023年3月31日的三個月
53
和以前一樣
已報告
非物質
經營租賃負債
經營活動提供的淨現金
投資活動中使用的現金流：
爲資本化軟件以及財產和設備支付的現金
投資活動所用現金淨額
| 融資活動中使用的現金流： | 定期貸款付款 | |||||||||||||
| 2023 | 2022 | 訴訟和解付款 | 支付遞延融資費用 | |||||||||||
| 行使認購權的收益 | $ | (4,378) | $ | (3,231) | $ | (1,147) | 35 | % | ||||||
| 融資活動所用現金淨額 | (300) | — | (300) | 現金及現金等價物淨增加情況 | ||||||||||
| 現金及現金等值物，期末 | 331 | — | 331 | 現金及現金等值物，期末 | ||||||||||
| 現金流信息補充披露： | — | (590) | 590 | 支付利息的現金 | ||||||||||
| (單位：千) | — | 287 | (287) | 截至2023年6月30日的六個月 | ||||||||||
| 和以前一樣 | 256 | 48 | 208 | 433 | % | |||||||||
| 已報告 | $ | (4,091) | $ | (3,486) | $ | (605) | 17 | % | ||||||
__________________
總資產
負債和股東赤字
54
流動負債
應付賬款
應計負債
與應收稅款協議相關的負債，流動部分
| 長期債務的當前期限 | 遞延收入 | 經營租賃負債，流動部分 | 應付所得稅 | |||||||||||||||||||||||
| 2024 | 2023 | 流動負債總額 | % | 2024 | 2023 | 長期債務，扣除流動部分 | % | |||||||||||||||||||
| 與應收稅款協議相關的負債，扣除流動部分 | ||||||||||||||||||||||||||
| 經營租賃負債，扣除流動部分 | $ | 2,202 | $ | 51,622 | $ | (49,420) | (96) | % | $ | 33,001 | $ | 89,006 | $ | (56,005) | (63) | % | ||||||||||
| 總負債 | 6,873 | 7,850 | (977) | (12) | % | 20,204 | 27,093 | (6,889) | (25) | % | ||||||||||||||||
| 承諾和連續性（注9） | 9,075 | 59,472 | (50,397) | (85) | % | 53,205 | 116,099 | (62,894) | (54) | % | ||||||||||||||||
| 股東的赤字 | ||||||||||||||||||||||||||
| A類普通股，每股面值0.001美元，授權股160，000，000股，已發行和發行股數分別爲3，795，199股和3，478，776股 | 2,654 | 44,606 | (41,952) | (94) | % | 30,670 | 77,190 | (46,520) | (60) | % | ||||||||||||||||
| B類普通股，每股面值0.001美元，授權股票20，000，000股，已發行和發行股票10，868，000股 | 2,907 | 3,113 | (206) | (7) | % | 8,091 | 10,650 | (2,559) | (24) | % | ||||||||||||||||
| 額外實收資本 | 5,561 | 47,719 | (42,158) | (88) | % | 38,761 | 87,840 | (49,079) | (56) | % | ||||||||||||||||
| 量 | 3,514 | 11,753 | (8,239) | (70) | % | 14,444 | 28,259 | (13,815) | (49) | % | ||||||||||||||||
| 單位 | 7,172 | 7,259 | (87) | (1) | % | 22,973 | 21,652 | 1,321 | 6 | % | ||||||||||||||||
| 量 | (3,658) | 4,494 | (8,152) | (181) | % | (8,529) | 6,607 | (15,136) | (229) | % | ||||||||||||||||
| 餘額，2023年12月31日 | 3,887 | (977) | 4,864 | (498) | % | 1,323 | (3,229) | 4,552 | (141) | % | ||||||||||||||||
| 股票補償 | 229 | 3,517 | (3,288) | (93) | % | (7,206) | 3,378 | (10,584) | (313) | % | ||||||||||||||||
| 與限制性股票單位歸屬相關的發行，扣除預扣稅 | 6,606 | 166 | 6,440 | 3880 | % | 6,132 | 166 | 5,966 | 3594 | % | ||||||||||||||||
| 行使的權證 | $ | (6,377) | $ | 3,351 | $ | (9,728) | (290) | % | $ | (13,338) | $ | 3,212 | $ | (16,550) | (515) | % | ||||||||||
已行使的股票期權(1) | $ | (2,855) | $ | 5,371 | $ | (8,226) | (153) | % | $ | (5,858) | $ | 8,978 | $ | (14,836) | (165) | % | ||||||||||
__________________
(1)發行股票代替現金獎金，扣除預扣稅淨虧損.”
非控制性利益再平衡
餘額，2024年9月30日
55
截至2024年9月30日的三個月
普通股
APIC
積累
赤字
非控股權益
股東
赤字
股權
56
A類
B類
單位
量
| 單位 | 量 | 平衡，2022年12月31日 | 股票補償 | |||||||||||||||||||||||
| 2024 | 2023 | 與限制性股票單位歸屬相關的發行，扣除預扣稅 | % | 2024 | 2023 | 行使的權證 | % | |||||||||||||||||||
| 令狀贖回應計 | $ | 3,526 | $ | 4,747 | $ | (1,221) | (26) | % | $ | 12,216 | $ | 12,934 | $ | (718) | (6) | % | ||||||||||
| 已行使的股票期權 | 3,646 | 2,512 | 1,134 | 45 | % | 10,757 | 8,718 | 2,039 | 23 | % | ||||||||||||||||
| 向LLC單位持有人的分配 | $ | 7,172 | $ | 7,259 | $ | (87) | (1) | % | $ | 22,973 | $ | 21,652 | $ | 1,321 | 6 | % | ||||||||||
淨收入
餘額，2023年9月30日
截至2023年9月30日的三個月
普通股
APIC
積累
赤字
57
非控股權益
股東
股權
| A類 | B類 | 單位 | 量 | |||||||||||||||||||||||
| 2024 | 2023 | 單位 | % | 2024 | 2023 | 量 | % | |||||||||||||||||||
| 餘額，2023年6月30日 | $ | (1,413) | $ | (1,060) | $ | (353) | 33 | % | $ | (4,068) | $ | (3,104) | $ | (964) | 31 | % | ||||||||||
| 股票補償 | 99 | 83 | 16 | 19 | % | 190 | 175 | 15 | 9 | % | ||||||||||||||||
| 與限制性股票單位歸屬相關的發行，扣除預扣稅 | — | — | — | 令狀贖回應計 | — | (300) | 300 | 已行使的股票期權 | ||||||||||||||||||
| 向LLC單位持有人的分配 | 5,201 | — | 5,201 | 淨收入 | 5,201 | — | 5,201 | 餘額，2023年9月30日 | ||||||||||||||||||
| 請參閱隨附的未經審計簡明綜合財務報表附註。 | $ | 3,887 | $ | (977) | $ | 4,864 | 直接數字控股公司和子公司 | $ | 1,323 | $ | (3,229) | $ | 4,552 | 簡明綜合現金流量表 | ||||||||||||
__________________
（未經審計）
(單位：千)
截至9月30日的九個月，
經營活動提供的現金流（使用）：
淨（損失）收入
將淨（損失）收入與經營活動提供的淨現金（使用）進行調節的調整：
58
遞延融資成本攤銷
無形資產攤銷使用權資產公允價值減少財產、設備和軟件的折舊和攤銷股票補償遞延所得稅費用
提前終止信貸額度損失
終止確認應收稅款協議負債
| 信用損失/壞賬費用撥備，扣除收回後 | 經營資產和負債變化： | |||||||
| 應收賬款 | $ | 4,087 | $ | 5,116 | ||||
預付費用和其他資產(1) | $ | (33,813) | $ | 3,280 | ||||
| 應付賬款 | $ | 300 | $ | 7,000 | ||||
__________________
(1)n/a
1.50至1.00
2025年6月30日
n/a
59
1.25至1.00
2.00至1.00
TTM=往績12個月
從2024年11月30日開始
| 從2025年1月31日開始 | ||||||||
| 2023 | 2022 | |||||||
| 從2025年4月15日開始 | $ | 2,558 | $ | 2,064 | ||||
| 於根據第三修正案對信貸協議的修訂生效後，本公司於2024年9月30日已遵守信貸協議下的所有財務契諾，但最低可追溯12個月的EBITDA契約除外。該公司正在與EWB討論放棄目前不遵守財務公約的情況。雖然本公司期望磋商一項可接受的決議案，但不能保證其將能夠就豁免或修訂進行談判，或該等放棄或修訂將以本公司可接受的條款作出。如果公司無法獲得EWB的豁免或與EWB達成修正案，可能會對我們的財務狀況和我們執行業務計劃的能力產生重大不利影響。由於到期日，信貸協議項下的債務被歸類爲截至2024年9月30日的流動債務。 | (178) | (688) | ||||||
| 信貸協議載有慣常的陳述和保證，幷包括適用於借款人及其各自子公司的肯定和否定契約。這些肯定公約包括要求公司保持合法存在和政府合規、提交某些財務報告和維持保險覆蓋範圍的公約。除其他外，消極公約包括對債務、留置權、投資、合併、處置、提前償還其他債務和紅利以及其他分配的限制。 | (1,311) | (2,013) | ||||||
| 信貸協議還包括常規違約事件，除其他事項外，包括不付款違約、契約違約、陳述和擔保的不準確、任何貸款文件下的違約、與其他債務的某些交叉違約、某些破產和無力償債事件、擔保無效或擔保權益的授予、某些與ERISA相關的交易和事件、某些沒收令、控制權變更、某些未解除的扣押、扣押或類似程序，以及某些未解除或未擱置的判決，在某些情況下受某些門檻和寬限期的限制。違約事件的發生可能導致本公司或其他借款人加速履行信貸協議項下的義務。截至2024年9月30日止九個月內，本公司並無產生任何與信貸協議有關的遞延融資成本。截至2024年9月30日，有 | $ | 1,069 | $ | (637) | ||||
970萬美元
由於到期日在報告期的十二個月內，信貸協議項下的未償還款項被歸類爲短期。
| 爲2021年信貸安排和信貸協議下的義務提供擔保的抵押品受Lafayette Square和EWB之間的債權人間協議的約束。 | ||||||||
| 2024 | 2023 | |||||||
| 硅谷銀行(SVB)融資 | $ | (7,095) | $ | 4,481 | ||||
| 於2023年1月9日，本公司訂立SVB貸款協議，由SVB作爲貸款方，而DDH LLC、本公司、抱團、巨人傳媒及Orange 142作爲借款方。SVB貸款協議提供一項循環信貸安排(「SVB循環信貸安排」)，原來本金爲500萬元，但須根據合資格帳戶厘定借款基數，以及在貸款人同意下額外提供250萬元的增量循環安排，令信貸安排的本金總額增至750萬元。SVB循環信貸安排下的貸款將於2024年9月30日到期，除非信貸安排根據貸款協議的條款以其他方式終止。 | (17) | (137) | ||||||
| 2023年3月10日，加州金融保護和創新部關閉了SVB，並指定聯邦存款保險公司爲接管人。由於本公司尚未根據SVB循環信貸安排提取任何款項，本公司於2023年3月13日發出終止SVB貸款協議的通知。SVB循環信貸安排的終止於2023年4月20日生效。於發出終止通知前，本公司已獲同意終止SVB循環信貸融資，並獲豁免根據其於2021年12月3日與老佛爺廣場貸款服務有限公司(「Lafayette Square」)訂立的定期貸款及擔保協議下有關SVB循環信貸融資的條款豁免。該公司並無在硅谷銀行持有任何現金存款或證券，亦未對其流動資金或其當前及預計的b | 6,083 | (2,909) | ||||||
| 因SVB關閉而導致的業務運營、財務狀況或運營結果。在截至2023年9月30日的9個月內，公司產生了40萬美元的遞延融資成本。於本公司發出終止通知後，於截至2023年9月30日止九個月內，總遞延融資成本30萬美元於提前終止信貸額度時計提虧損。 | $ | (1,029) | $ | 1,435 | ||||
9月30日，
止九個月
9月30日，
所得稅費用
實際所得稅率
截至三個月及九個月的實際稅率低於法定稅率。
60
2023年9月30日
主要是由於公司的合夥虧損，不需要繳納聯邦和州的稅。實際稅率與截至2024年9月30日的三個月和九個月的法定稅率不同，主要是由於記錄了遞延稅項的估值準備金。
截至2024年9月30日，該公司的聯邦淨營業虧損結轉爲$
440万
這可以無限期地延續下去。
該公司在美國聯邦司法管轄區和各州司法管轄區提交所得稅申報單。在正常的業務過程中，公司可以接受包括美國國稅局在內的各種稅務機關的審查。目前沒有正在進行的聯邦或州審計。該公司分析其在要求提交所得稅申報單的所有美國聯邦、州和地方稅務管轄區以及這些司法管轄區所有開放納稅年度的納稅申報頭寸。截至2022年12月和2021年12月的年度，聯邦和各州的申報單截至2024年9月30日仍然開放。本公司評估在準備實體的納稅申報表過程中採取或預期採取的稅務立場，以確定是否「更有可能」的每一個稅務立場將由適用的稅務機關維持。截至2024年9月30日和2023年12月31日，公司沒有不確定的稅務頭寸。因此，本公司並未確認任何與不確定稅務狀況有關的罰款、利息或稅務影響。
附註6--關聯方交易
關聯方交易
應付會員
截至2024年9月30日及2023年12月31日止，本公司從會員處的應收賬款淨額合共170萬美元，作爲關聯方應收賬款計入簡明綜合資產負債表。
UP-C結構
2022年2月，本公司完成了其證券的首次公開發行，並通過組織交易形成了一種UP-C結構，這種結構經常被合夥企業和有限責任公司使用，允許DDM，一家特拉華州的有限責任公司，由Mark Walker(「Walker」)和Keith Smith(「Smith」)間接擁有，保留其在DDH LLC的股權，並繼續實現與擁有實體權益相關的稅收優惠，該實體被視爲合夥企業或「傳遞」實體，用於美國聯邦所得稅目的。DDM在DDH LLC中持有無經濟投票權的有限責任公司單位，並在Direct Digital Holdings中以B類普通股的形式持有非經濟投票權股權(見附註4-股東虧損和基於股票的補償)。與這種結構相關的對DDM的稅收優惠之一是，分配給DDM的DDH LLC未來的應納稅所得額將按傳遞基礎徵稅，因此將不需要繳納實體層面的公司稅。此外，DDM可不時以一對一的方式贖回或交換其有限責任公司單位，以換取公司A類普通股的股份。UP-C結構還爲DDM提供了非上市有限責任公司的持有者通常無法獲得的潛在流動性。如果公司產生足夠的應稅收入來利用稅收優惠，DDH預計將從UP-C結構中受益，因爲一般而言，公司預計現金稅收節省的金額相當於DDM有限責任公司將A類普通股或現金贖回或交換所產生的某些稅收優惠的15%，以及TRA涵蓋的某些其他稅收優惠。如附註5-應收稅項協議及所得稅所述，截至2024年9月30日止三個月及九個月，520萬美元被記爲其他收入(開支)的收入，原因是導致TRA的遞延稅項有計入估值津貼以抵銷遞延稅項資產。
截至2024年9月30日的應稅負債彙總餘額
61
和
9月30日，
歸屬於A類股東和參與證券的淨（損失）收入
減：分配給參與證券的淨利潤
分配給A類股東的淨（損失）收入
加權平均已發行普通股-基本
b類普通股
購買普通股的期權
未歸屬的限制性股票單位加權平均已發行普通股-稀釋每股普通股淨（損失）收入，基本
每股普通股淨（虧損）收入，稀釋
以下普通股等效物的加權平均已發行股份不包括在所列期間歸屬於普通股股東的每股稀釋淨（損失）收益的計算中，因爲將它們包括在內將具有反稀釋作用（以千計）：
62
止三個月
| 9月30日， | ||||||||
| 2023 | 2022 | |||||||
止九個月(1) | $ | (6,844) | $ | 4,167 | ||||
| 9月30日， | ||||||||
| b類普通股 | 4,378 | 3,231 | ||||||
| 購買普通股的期權 | 1,954 | 1,954 | ||||||
| 未歸屬的限制性股票單位 | 706 | 154 | ||||||
| 可從普通股股東應占每股淨虧損中剔除的總額-稀釋 | 1,409 | — | ||||||
| 淨 | 253 | 34 | ||||||
| 剩餘壽命（年） | 300 | — | ||||||
| 量 | 568 | 326 | ||||||
| 攤銷 | (331) | — | ||||||
| 總計 | — | (287) | ||||||
| 客戶名單 | — | 590 | ||||||
| 商標和商品名 | $ | 2,393 | $ | 10,169 | ||||
__________________
(1)競業禁止協議
| 無形資產總額，淨 | 總計 | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| 此後 | $ | (6,377) | $ | 3,351 | $ | (13,338) | $ | 3,212 | ||||||
| 未來攤銷費用總額 | ||||||||||||||
| 8，500，000股A類普通股 | 1,413 | 1,060 | 4,068 | 3,104 | ||||||||||
| 招股說明書 | 488 | 488 | 1,465 | 1,465 | ||||||||||
| 2025年1月28日 | 149 | 242 | 811 | 546 | ||||||||||
| <img src="https://www.sec.gov/akam/13/pixel_7edab2ef?a=dD0zNjk0MDAyODhlMDk0YzQxOTY4MjJiZDNkODNlNWQwODY3ODRmZWFjJmpzPW9mZg==" style="visibility: hidden; position: absolute; left: -999px; top: -999px;" /> | 67 | 64 | 205 | 185 | ||||||||||
| Loss on early termination of line of credit | — | — | — | 300 | ||||||||||
| Income tax expense | 6,606 | 166 | 6,132 | 166 | ||||||||||
| Derecognition of tax receivable agreement liability | (5,201) | — | (5,201) | — | ||||||||||
| Adjusted EBITDA | $ | (2,855) | $ | 5,371 | $ | (5,858) | $ | 8,978 | ||||||
In addition to operating income and net income, we use Adjusted EBITDA as a measure of operational efficiency. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:
•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, derecognition of tax receivable agreement liability, and certain one-time items such as acquisition transaction costs, losses from early termination or redemption of credit agreements or preferred units and gains from settlements or loan forgiveness that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;
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•Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance; and
•Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.
Our use of this non-GAAP financial measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP.
Critical Accounting Estimates and Related Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. The Company uses estimates to determine many reported amounts, including but not limited to gross vs net assessment in revenue recognition, recoverability of goodwill and long-lived assets, useful lives used in amortization of intangibles, income taxes and valuation allowances, stock-based compensation and fair values of assets and liabilities acquired in business combinations.
Revenue recognition
The Company recognizes revenue using the following five steps: 1) identification of a contract with a customer; 2) identification of the performance obligation(s) in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligation(s) in the contract; and 5) recognition of revenue when, or as, the performance obligation(s) are satisfied. The Company’s revenues are derived primarily from two sources: sell-side advertising and buy-side advertising. Thus, the Company disaggregates the revenue earned into these two segments. For additional segment disclosures, refer to Note 7 of our consolidated financial statements. The Company maintains agreements with its customers in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days) and access to its platform.
For the sell-side advertising segment, the Company generates revenue by selling advertising inventory (digital ad units) that the Company purchases from publishers to advertisers through a process of monetizing ad impressions on the Company’s proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP. For the buy-side advertising segment, the Company generates revenue from customers that enter into agreements with the Company to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features.
In connection with the Company’s analysis of principal vs agent considerations, the Company has evaluated the specified goods or services and considered whether the Company controls the goods or services before they are provided to the customer, including the three indicators of control. Based upon this analysis and the Company’s specific facts and circumstances, the Company concluded that it is a principal for the goods or services sold through both the Company’s sell-side advertising segment and buy-side segment because the Company controls the specified good or service before it is transferred to the customer and the Company is the primary obligor in the agreement with customers. Therefore, the Company reports revenue on a gross basis inclusive of all supplier costs and pays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.
Sell-side advertising
The Company partners with publishers to sell advertising inventory to the Company’s Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and
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mobile mediums using its proprietary programmatic SSP. The Company refers to its publishers, app developers, and channel partners collectively as its “publishers”. The Company generates revenue through the monetization of publisher ad impressions on its platform. The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. The Company recognizes revenue at a point in time when an ad is delivered or displayed in response to a winning bid request from ad buyers.
Buy-side advertising
The Company purchases media based on the budget established by its customers with a focus on leveraging data services, customer branding, real-time market analysis and micro-location advertising. The Company offers its services on a fully managed basis, which is recognized over time using the output method when the performance obligation is fulfilled. An “impression” is delivered when an advertisement appears on pages viewed by users. The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum. Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities. The Company provides digital advertising and media buying capabilities with a focus on generating measurable digital and financial life for its customers.
Revenue arrangements are evidenced by a fully executed insertion order (“IO”) and/or a master service agreement (“MSA”) covering a combination of marketing tactics. Generally, IOs specify the number and type of advertising impressions to be delivered over a specified time at an agreed upon price and performance objectives for an ad campaign. Performance objectives are generally a measure of targeting, as defined by the parties in advance, such as number of ads displayed, consumer clicks on ads or consumer actions (which may include qualified leads, registrations, downloads, inquiries or purchases). These payment models are commonly referred to as CPM (cost per impression), CPC (cost per click) and CPA (cost per action). The majority of the Company’s contracts are flat-rate, fee-based contracts.
Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $1.0 million, $0.4 million and $0.5 million as of September 30, 2024, December 31, 2023 and 2022, respectively. Revenue recognized during 2024, 2023 and 2022 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $0.4 million, $0.5 million and $1.3 million, respectively.
ASC 606 provides various optional practical expedients. The Company elected the use of the practical expedient relating to the disclosure of remaining performance obligations within a contract and will not disclose remaining performance obligations for contracts with an original expected duration of one year or less.
Goodwill
Goodwill is assessed for impairment at least annually (as of December 31) starting with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed. Depending upon the results of the quantitative measurement, the recorded goodwill may be written down and an impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event. The Company determined that there was no impairment of goodwill during the years ended December 31, 2023 and 2022 or the nine months ended September 30, 2024 and 2023.
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Intangible assets, net
Intangible assets consist of customer relationships, trademarks and non-compete agreements. Intangible assets are recorded at fair value at the time of their acquisition and are stated within the consolidated balance sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives and recorded as amortization expense within general and administrative expenses in the consolidated statements of operations. The Company’s intangible assets are being amortized over their estimated useful lives, using the straight-line method with non-compete agreements over 5 years and other intangibles over 10 years.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets, including property, equipment and software costs and intangible assets if facts or circumstances indicate that any of those assets might be impaired. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows to determine if a write-down to fair value is necessary. No impairment loss was recognized during the years ended December 31, 2023 and 2022 or the nine months ended September 30, 2024 and 2023.
Stock-based compensation
Stock-based compensation cost for options and restricted stock units (“RSU”) awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date.
The Company estimates the fair value of RSU’s based on the closing price of the Company’s common stock on the date of the grant. The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates and the expected dividend yield. Given the Company’s short history as a public company, the expected volatility is determined based on the trading history of several unrelated public companies within the industry that the Company considers to be comparable and the expected term is determined based on a combination of terms of the stock options and peer data. The risk-free interest rate is derived using the U.S. Treasury yield curve in effect at date of grant. Other assumptions are based on historical experience and activity. The Company considers an estimated forfeiture rate for stock options based on historical experience and the anticipated forfeiture rates during the future contract life.
Income taxes
In February 2022, concurrent with its organizational transactions, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM”). The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement. DDH LLC is a limited liability company, is treated as a partnership for federal income tax purposes and generally is not subject to any entity-level U.S. federal income tax and certain state and local income taxes. Any taxable income or loss generated by the Company is allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss under the LLC Agreement. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC Units are redeemed or exchanged by the members of DDH, LLC. The Company made an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurred.
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Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. As of September 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $7.3 million and $0.5 million, respectively.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements for accounting pronouncements recently adopted and accounting pronouncements not yet adopted.
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BUSINESS
Company Overview
We are an end-to-end, full-service advertising and marketing platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to help brands, agencies, middle market businesses deliver successful marketing results that drive return on investment ("ROI") across both the sell- and buy-side of the digital advertising ecosystem. Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021, is the holding company for DDH LLC, the business formed by our founders in 2018 through the acquisitions of Colossus Media and Huddled Masses. Colossus Media operates our proprietary sell-side programmatic platform (“SSP”) operating under the trademarked banner of Colossus SSP™. In September 2020 DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals. In February 2022, we completed our initial public offering and certain organizational transactions which resulted in our current structure. In October 2024, we announced the unification of our buy-side businesses, Orange 142 and Huddled Masses.
Our sell-side advertising business, operated through Colossus Media, provides advertisers of all sizes a programmatic advertising platform that automates the sale of ad inventory between advertisers and agencies leveraging proprietary technology. Our platform offers extensive reach within both general market and multicultural media partners to help Fortune 500 brands and agencies scale to reach highly sought after audiences and helps publishers find the right brands for their readers, as well as drive advertising yields across all channels: web, mobile, and connected TV ("CTV").
Our buy-side advertising business, now operating as Orange 142, provides technology-enabled advertising solutions and consulting services to clients through multiple leading demand side platforms (“DSPs”), across multiple industry verticals such as travel, education, energy, healthcare, financial services, consumer products and other sectors with particular emphasis on small and mid-sized businesses transitioning into digital with growing digital media budgets. In the digital advertising space, buyers, particularly small and mid-sized businesses, can potentially achieve significantly higher ROI on their advertising spend compared to traditional media advertising by leveraging data-driven over-the-top/connected TV (“OTT/CTV”), video and display, in-app, native and audio advertisements that are delivered both at scale and on a highly targeted basis.
Programmatic Marketplace Transaction
The Sell-Side
On the sell-side of the digital supply chain, the supply side platform (“SSP”), is an ad technology platform used by advertisers, agencies, DSPs and publishers. Advertisers, agencies and DSPs utilize the SSP to access publishers and markets that they might not be able to access directly or through larger DSPs and ad exchangers. Publishers utilize the SSP to sell, manage and optimize the ad inventory on their websites in an automated and effective way. The SSPs help the publishers monetize the display ads, video ads, and native ads on their websites and mobile apps. The SSPs have enhanced their functionalities over the years and have included ad exchange mechanisms to efficiently manage their ad inventory. Also, SSPs allow the publishers to connect to DSPs directly instead of connecting through ad exchanges. The SSP allows publishers’ inventory to be opened up and made available to advertisers they may not be able to directly connect with. SSPs sell ad inventories in many ways - for example, directly to ad networks, via direct deals with DSPs, and most commonly via real-time bidding (“RTB”) auctions. The publisher makes its ad inventory available on an SSP and the SSP invites advertisers to bid based on the user’s data received. Each time the publisher’s web page loads, an ad request is sent to multiple ad exchanges and, in some cases, to the demand side platform directly from the SSP. In the case of RTB media buys, many DSPs place bids for the impressions being offered by the publisher during the auction. The advertiser that bids a higher amount compared to other advertisers will win the bid and, in most cases, pay the second highest price plus $0.01 and in a few cases pay the highest price for the winning impression to serve the ads.
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The Sell-Side Platform: Colossus SSP
Colossus Media, which has been in operation since 2017, owns and operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP™. The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. In the nine months ended September 30, 2024, our platform processed over 215 billion average monthly impressions, and served approximately 158,000 buyers. Each impression or transaction occurs in a fraction of a second. Given that most transactions take place in an auction/bidding format, we continue to make investment across the platform to further reduce the processing time. In addition to the robust infrastructure supporting our platform, it is also critical that we align with key industry partners in the digital supply chain.
Colossus SSP is agnostic to any specific DSP. We continually add new DSP partners especially where we believe the DSP might offer a unique advertising base seeking to target both our multicultural and general market audiences at scale. We help our advertiser clients efficiently reach multicultural and diverse communities including African Americans, Hispanic/Latin, Asian Americans and LGBTQIA+ customers in highly targeted campaigns. This business began as a trading desk supporting advertisers’ desires to reach diverse audiences and we have evolved into the preeminent ad tech platform to support this goal. We partner with publishers that range from small to large in scale across both general and multicultural markets such as Hearst, MediaVine, Gannett, Ebony Magazine, Blavity, La Nacion and many others.
Colossus SSP partners with publishers to sell advertising inventory to our Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. Buyers may include small and mid-sized buyers as well as larger, Fortune 500 industry leading brands and multinational agencies, along with intermediaries that sit between Colossus SSP and the end buyers.
Our proprietary Colossus SSP was custom developed with a view towards the specific challenges facing small and mid-sized publishers with the belief that smaller publishers often offer a more engaged, highly-valued, unique following but experience technological and budgetary constraints on the path to monetization. Our business strategy on the sell-side also presents significant growth potential, as we believe we are well positioned to be able to bring underserved multicultural publishers into the advertising ecosystem, thereby increasing our value proposition across all clients including our large clients. We believe that our technology curates unique, highly optimized audiences informed by data analytics, artificial intelligence and algorithmic machine-learning technology, resulting in increased campaign performance.
The Buy-Side
On the buy-side of the digital supply chain, digital advertising is the practice of delivering promotional content to users through various online and digital channels and leveraging multiple channels, platforms such as social media, email, search engines, mobile applications and websites to display advertisements and messages to audiences. Traditional (non-digital) advertising follows the “spray and pray” approach to reach out to the public, but the ROI is mostly unpredictable. On the other hand, digital advertising is heavily data-driven and can give real-time details of advertising campaigns and outcomes across an omni channel approach. The availability of user data and rich targeting capabilities makes digital advertising an effective and important tool for businesses to connect with their audiences.
We have aligned our business strategy to capitalize on significant growth opportunities due to fundamental market shifts and industry inefficiencies in serving the small and medium sized middle market companies that are the backbone of America. Several trends, happening in parallel, continue to revolutionize the way that advertising is purchased and sold. Specifically, the rise of the internet has led to a wholesale change in the way that media is consumed and monetized, as ads can be digitally delivered on a 1-to-1 basis. In traditional methods of advertising, such as broadcast TV, ads can target a specific network, program, or geography, but not a single household or individual as digital and OTT/CTV ads can. Additionally, we expect that the continued destabilization, including any potential phase out of digital “cookies” in the future, will (i) create more opportunities for technology companies that provide next-generation CTV and digital solutions, (ii) potentially minimize performance disruption for
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advertisers and agencies and (iii) potentially drive more small-to-mid sized businesses to pursue digital advertising goals through buy side businesses like ours rather than on their own.
The Buy-Side Business: Orange 142
The buy-side segment is now operated through Orange 142, which has been in operation since 2013. The buy-side segment allows us to facilitate the procurement of digital advertising inventory (ad space) on behalf of our clients, as well as offer a comprehensive suite of end-to-end media solutions. We specialize in tailoring strategies that enhance visibility, engage target audiences, and drive quantifiable Key Performance Indicators (“KPIs”) and tangible business outcomes.
The landscape of advertising is rapidly evolving, with digital channels gaining prominence over traditional advertising placements. Our buy-side business utilizes cutting-edge technology for first-party data management, media procurement, campaign execution, and analytics. This technological foundation empowers our clients to achieve enhanced ROI across a diverse range of digital media channels. We interface with prominent programmatic DSPs, social media networks, and search engines, granting us the ability to harness customer insights across multiple channels. This cross-channel approach optimizes campaign performance and ROI for our clients. By adopting a platform-agnostic stance, our buy-side division offers extensive market access, enabling clients to purchase advertisements seamlessly across various mediums such as desktop, mobile, connected TV, streaming audio, social media, and digital billboards.
A distinctive feature of our technology is its visibility across inventory, facilitating the creation of customized audience segments at scale. Based on client objectives and selected advertising channels, our buy-side business offers forecasting and in-depth market insights. These tools empower our clients to enhance their Return on Advertising Spend (“ROAS”) across channels. Our buy-side segment primarily caters to small-to-mid-sized businesses, empowering them to leverage advanced advertising technology for targeted engagement. Our technology allows for direct, one-on-one interactions with potential customers, tailored to local markets, media devices, and footprints. Leveraging data analytics, we assess potential buyers' decision-making processes and optimize campaign strategies accordingly.
We understand that small and mid-sized businesses often operate within constrained marketing budgets and localized footprints. Our objective is to deliver precise, ROI-focused advertising solutions that offer measurable campaign success. We serve the needs of over 230 small-to-mid-sized clients through our buy-side segment. Our buy-side leverages leading DSPs and advertising channels. This collaboration empowers us to drive increased advertising ROI and reduce customer acquisition costs for our clients. Through effective marketing strategies tailored to local markets, we aim to level the playing field for our buy-side customers, allowing them to compete effectively with larger advertisers. We believe our competitive advantage lies in our data-driven technology, enabling us to offer front-end, buy-side planning for small-to-mid-sized clients. Coupled with our access to multiple DSPs and advertising channels, we strive to deliver superior ROI.
Throughout this Registration Statement on Form S-1, we use the terms "client" and "customer" interchangeably to refer to the businesses we serve.
Our Industry and Trends
There are several key industry trends that continue to revolutionize the way that advertising is purchased and sold. We believe that we are well positioned to take advantage of the rapidly evolving industry trends in digital marketing and shifts in consumer behavior, including:
Shift to Digital Advertising. Media has increasingly become more digital as a result of three key ongoing developments:
•Advances in technology with more sophisticated digital content delivery across multiple platforms;
•Changes in consumer behavior, including spending longer portions of the day using mobile and other devices; and
•Better audience segmentation with more efficient targeting and measurable results.
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The resulting shift has enabled a variety of options for advertisers to efficiently target and measure their advertising campaigns across nearly every media channel and device. These efforts have been led by big-budgeted, large, multi-national corporations incentivized to cast a broad advertising net to support national brands.
Shift from Linear Broadcast to OTT/CTV. According to Emarketer, combined Linear TV and CTV ad spend will grow every year through to the end of 2027, when it will reach nearly $100 billion. CTV will account for all of the growth, with spend expecting to increase by $5.5 billion year over year to $42.4 billion by end of 2027.
The increase in video streaming has led to online sources becoming the default for TV viewing for a majority of TV viewers with broadband at home. Consumers increasingly want the flexibility and freedom to consume content on their own terms resulting in access to premium content at lower prices and with fewer interruptions. Advertisers are recognizing these trends and reallocating their ad budgets accordingly to those companies that can access audiences through a variety of existing and new channels.
Increased Adoption of Digital Advertising by Small and Mid-Sized Companies. Only recently have small and mid-sized businesses begun to leverage the power of digital media in meaningful ways, as emerging technologies have enabled advertising across multiple channels in a highly localized nature. Campaign efficiencies yielding measurable results and higher advertising ROI, as well as the needs necessitated by the global economic and supply chain challenges, have prompted these companies to begin utilizing digital advertising on an accelerated pace. We believe this market is rapidly expanding, and that small to-mid-sized advertisers will continue to increase their digital spend.
Significant Increase in Multicultural Audience and Targeted Content. As digital media has grown and emerging marketing channels continue to gain adoption, audience segmentation, including on multicultural lines, has become more granular. A growing and increasing segment of those audiences is the multicultural audience, which has been traditionally underserved in the industry. According to the U.S. Census Bureau, racial minority and multi-racial consumers represent 41% of the U.S. population and are projected to be the numerical majority in the U.S. by 2044. When we expand the definition of multicultural to include LGBTQIA+ customers, the numbers are significantly greater. Advertisers and publishers alike face the same challenge. Advertisers are seeking new avenues and opportunities to connect with multicultural audiences in their natural media consumption environments while publishers are producing unique content to attract loyal consumers. The advantage will go to those innovative companies able to directly connect both sides to those audiences and leverage the insights flowing from those connections.
Local Ad Buying Becoming More Programmatic. Programmatic advertising enables advertisers to precisely target local audiences and increasingly an “audience of one.” Large amounts of inventory have been consolidated, allowing local advertisers to then be more selective about where, when and to whom they show their ads. The technology behind programmatic advertising, such as geotargeting, IP address identification, 1-3-5 radius store location advertising, has provided the opportunity for targeted local advertising to smaller advertisers, which technologies in the past have been more easily available to larger national advertisers. We believe being able to go into a programmatic platform and target the same audience across all digital inventory is a major competitive advantage. Additionally, we also believe that the ability to customize audiences to the needs of local providers is a significant benefit for local advertisers since they are able to deviate from the broad audience segments defined by national advertisers. Higher customer engagement translates into higher retention and extended customer lifecycle representing the opportunity to sell and upsell customers. We believe the local advertising market remains in the early stages of understanding and leveraging these capabilities.
Potential Death of Cookies Could Destabilize Small-to-Mid-Size Business Ad Market. As the advertising industry faces a potential phase out of third-party cookies, small-to-mid-sized business are starting to face greater challenges in the adoption and transition to digital. While first- party data driven by first-party cookies will still have broad-based advertising support, more robust advertising efforts could experience some level of performance degradation. Specifically, the inability to tie ad impressions to an identity could add to the list of challenges already being faced by small-to-mid-sized businesses. However, we expect that any destabilization will create significant opportunities for next-generation technology companies, including us, that can provide media buying solutions and minimize performance disruption for advertisers and agencies.
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Our Customers
On the sell-side of our business, our customers (or buyers) include DSPs, agencies and individual advertisers. We have broad exposure to the ecosystem of buyers, reaching on average approximately 158,000 advertisers per month in the nine months ended September 30, 2024 compared to approximately 115,000 in 2023. As spending on programmatic advertising increasingly becomes a larger share of the overall ad spend, advertisers and agencies are seeking greater control of their digital advertising supply chains. To take advantage of this industry shift, we have entered into Supply Path Optimization (“SPO”) agreements directly with customers which address acceptable advertisements and data usage. As part of these agreements, we provide advertisers and agencies with benefits ranging from custom data and workflow integrations, product features, volume-based business terms, and visibility into campaign performance data and methodology. As a result of these direct relationships, our existing advertisers and agencies are incentivized to allocate an increasing percentage of their advertising budgets to our platform.
On the buy-side of our business, our customers consist of purchasers of digital advertising inventory (ad space). We serve the needs of over 230 small and mid-sized clients, consisting of advertising buyers, including small and mid-sized companies, large advertising holding companies (which may manage several agencies), independent advertising agencies and mid-market advertising service organizations. Many advertising agencies and advertising holding companies have a decision-making function that is generally highly decentralized, such that purchasing decisions are made, and relationships with advertisers are located, at the agency, local branch or division level. We serve a variety of customers across multiple industries including travel/tourism (including destination marketing organizations or “DMOs”), education, energy, consumer packaged goods, healthcare, financial services (including cryptocurrency technologies) and other industries.
Our Competitive Strengths
We believe the following attributes and capabilities form our core strengths and provide us with competitive advantages:
•End-to-End, Technology-Driven Solution Focused on Providing Higher Value to Underserved Markets. Our small and mid-sized client base is seeking high ROI, low customer acquisition costs and measurable results that grow their topline. Because we focus exclusively on the first and last miles of media delivery, we engage clients at the front-end of the digital supply chain with the first dollar of spend, in many cases prior to agency involvement, and drive data-driven results across the digital advertising ecosystem to optimize ROI. We offer an end-to-end solution that enables us to set and carry- out the digital campaign strategy of our clients in full, in a more efficient and less expensive manner than some of our competitors. Small and mid-sized companies are looking for partners that can drive results across the entire digital supply chain. On the Colossus SSP, we offer a wide range of niche and general market publishers an opportunity to maximize advertising revenue driven by technology-enabled targeted advertising to multicultural and other audiences. We believe our technology’s ability to tailor our efforts to our client-specific needs and inform those efforts with data and algorithmic learnings is a long-term advantage to serving this end of the market.
•Comprehensive Processes Enhance Ad Inventory Quality and Reduce Invalid Traffic (“IVT”). We operate what we believe to be one of the most comprehensive processes in the digital advertising ecosystem to enhance ad inventory quality. In the advertising industry, inventory quality is assessed in terms of IVT, which can be impacted by fraud such as “fake eyeballs” generated by automated technologies set up to artificially inflate impression counts. Through our platform design and proactive IVT mitigation efforts, including our accredited verification partners, we address IVT on a number of fronts, including sophisticated technology, which detects and avoids IVT on the front end; direct publisher and inventory relationships, for supply path optimization; and ongoing campaign and inventory performance review, to ensure inventory quality and brand protection controls are in place.
•Curated Data-Driven Sell-Side Platform to Support Customers. The Colossus SSP enables us to gather data to build and develop unique product offerings for our clients. The SSP works with strategic data partners to allow for audience curation. The ability to curate our supply allows us to serve a broad range of clients with challenging and unique advertising needs and optimize campaign performance in a way that
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our siloed competitors are unable to do. This model, together with our infrastructure solutions and ability to quickly access excess server capacity, helps us scale up efficiently and allows us to grow our business at a faster pace than a pure buy-side solution would.
•High Client Retention Rate and Cross Selling Opportunities. During the nine months ended September 30, 2024, we had approximately 158,000 buyers on the sell-side and over 230 clients on the buy-side. They understand the independent nature of our platform and relentless focus on driving ROI-based results. Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out. We are technology and media agnostic, and our clients trust us to provide the best opportunity for success of their brands and businesses. As a result, our clients have been loyal, with approximately 88% client retention amongst the clients that represent approximately 80% of our revenues for the nine months ended September 30, 2024. In addition, we cultivate client relationships through our pipeline of managed and moderate serve clients that conduct campaigns through our platform. The managed services delivery model allows us to combine our technology with a highly personalized offering to strategically design and manage advertising campaigns.
•Growing and Profitable Business Model. For 2022 and 2023, we grew our revenue steadily and have increased our gross profit, which we believe demonstrates the power of our technology platform, the strength of our client relationships and the leverage inherent to our business model. For the years ended December 31, 2023 and 2022, our revenue was $157.1 million and $89.4 million, respectively. For the years ended December 31, 2023 and 2022, our gross profit was $37.6 million and $29.3 million, respectively. For the nine months ended September 30, 2024, our revenue and gross profit were $53.2 million and $14.4 million, respectively. The decrease in revenue and gross profit in 2024 compared to the prior year was primarily caused by one of the Company’s sell-side customers pausing its connection to the Company during the second quarter of 2024 while it investigated allegations made against the Company in a defamatory article / blog post which the Company believes was part of a coordinated misinformation campaign. This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024, which affected the entirety of the quarter ended September 30, 2024.
•Solutions for the Potential Destabilization of Advertising. As the advertising industry faces a potential phase out of third-party cookies in the future, we have begun integrating identity resolution solutions in order to provide our clients with accurate, targeted advertising without cookies. We will be investing in artificial intelligence and machine learning technology to further build out our data graph from first-party and third-party data sources and will facilitate matches and relations between the disparate sets of data.
•Experienced Management Team. Our management team, led by our two founders, has significant experience in the digital advertising industry and with identifying and integrating acquired businesses. Specifically, our two founders, Chairman and Chief Executive Officer Mark Walker and President Keith Smith, have over 45 years of combined experience. The team has led digital marketing efforts for companies both large and small, with unique experience leading small and mid-sized companies through the challenges of transitioning platforms into the programmatic advertising space. Our Chief Technology Officer, Anu Pillai, is experienced in developing digital platforms on both the sell-side and buy-side, ranging from consumer-packaged goods (“CPG”) companies focused on e-commerce to publishers seeking to monetize their ad inventory. Our Chief Financial Officer, Diana Diaz, a former audit senior manager at Deloitte & Touche LLP, has significant experience working as CFO of a high growth microcap public company for more than ten years as well as other CFO and leadership roles at public and nonpublic companies. Our Chief Growth Officer, Maria Lowrey, was named a top 100 Diversity Leader in Energy and has over 20 years of senior level leadership experience working across energy, home services, and steel sectors.
•ESG-Centered Strategy. We believe our business strategy promotes the ideals of a business focused on environmental, social and governance (“ESG”) issues, with particular focus on social and governance issues. Our unique focus has already resulted in numerous partnerships with both large and small advertisers as the multicultural market continues to grow and expand. In addition, we have been designated as a top minority owned business and National Minority Supplier Diversity Council (“NMSDC”) certified to work with top Fortune 500 companies, brands and agencies to help them reach their social diversity,
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equity and inclusion (“DEI”) objectives and budget commitments across our media and advertising platform.
Diversity
We believe it is essential for our organization, from top to bottom, to understand and relate to the issues our clients face on both the sell-side and buy-side. Our founders are of African-American descent and founded our Company on multicultural principles designed to alleviate the challenges that buyers and publishers face accessing an expansive multicultural market. Our management team reflects the tone and tenor of our multicultural audiences and our policies on gender equality and gender pay. More than 70% of our management are women and/or identify as being from a diverse background, including all five of our executive officers. We manage our hiring processes in full compliance with applicable laws and regulations, including anti-discrimination statutes.
Environmental
Our platform requires significant amounts of information to be stored across multiple servers and we anticipate those amounts to increase significantly as we grow. We are committed to ensuring that we incorporate environmental excellence in our business mindset. Energy use, recycling practices and resource conservation are a few of the factors we take into consideration in building our technological infrastructure, selecting IT partners, and utilizing key suppliers. In the first half of 2023, we transitioned our server platform to HPE Greenlake, which is centered on environmentally-friendly operations and marketed as “Greenlake-as-a-service,” through which we promote its energy conservation principles. We opted for HPE GreenLake’s as-a-service model because it represents a shift towards supplier responsibility for the elimination of wasted infrastructure and processing capacity. Our needs are metered and monitored, providing insights that can lead to significant resource and energy efficiencies by avoiding overprovisioning and optimizing the IT refresh cycle. This enables us to bring existing equipment to the highest levels of utilization and to eliminate idling equipment that drains energy and resources, yielding both environmental and financial savings.
Our Growth Strategy
We have a multi-pronged growth strategy designed to continue to build upon the momentum we have generated so far in order to create opportunities. Our key growth strategies include our plans to:
•Continue to expand our highly productive “on the ground” sell-side and buy-side sales teams throughout the United States, with a particular focus on markets where we believe our client base is underserved.
•Utilize management’s experience to identify and close additional acquisition opportunities to accelerate expansion into new industry verticals, grow market share and enhance platform innovation capabilities.
•Leverage our end-to-end product offering as a differentiating factor to win new business and cross- sell to existing clients.
•Aggressively grow the Colossus SSP advertising inventory, including both multicultural and general inventory. We aim to increase our omni-channel capabilities to focus on highest growth content formats such as OTT/CTV audio (such as podcasts, etc.), in-app and others.
•Continue to innovate and develop our data management platform and proprietary data graph and collect first-party data to inform decision-making and optimize client campaigns.
•Invest in further optimization of our infrastructure and technology solutions to maximize revenue and operating efficiencies.
Revenues
We generate revenues through a broad range of offerings throughout our technology platforms. On the sell-side of our business, through our proprietary Colossus SSP, we generate revenues by selling advertising inventory (digital ad units) that we purchase from publishers to advertisers through a process of monetizing ad impressions on our proprietary sell-side programmatic platform operating un the trademarked banner Colossus SSP. The platform enables programmatic media buyers to buy ad inventory from our host of publishers and content creators aggregated to provide access to buyers at scale. Advertisers and agencies often have a large portfolio of brands requiring a
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variety of campaign types and support for a wide array of inventory formats and devices, including OTT/CTV, video and display, in-app, native and audio. Our omni-channel proprietary technology platform is designed to maximize these various advertising channels, which we believe is a further driver of efficiency for our buyers. As of September 30, 2024, the platform is comprised of publishers across multiple channels including OTT/CTV, display, native, in-app, online video (“OLV”), audio and digital out-of-home (“DOOH”). Through our platform during the nine months ended September 30, 2024, we processed approximately 215 billion average monthly impressions across many unique audiences including multicultural audiences at scale with 49 billion, or 23%, of those impressions being diverse and multicultural- focused, including African Americans, Latin Americans, Asian Americans and LGBTQIA+ customers. We provide our publishers with access to a host of media buyers on a daily basis. Our publishers, through our platform, had access to approximately 158,000 buyers of ad inventory over the nine-month period ended September 30, 2024. We have a sales team working on behalf of our publishers to enlist more ad buyers across all media channels to generate more revenue for our publishers. The Colossus SSP continues to expand its capabilities to give our content providers more avenues to distribute ad inventory such as OTT/CTV, digital audio, DOOH, etc. and inform our publishers to enhance their ad selling needs by distributing content in various forms to meet the rising demands of the ad buying community.
On the buy-side of our business, we generate revenue from customers that enter into agreements with us to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features. Our team of savvy digital strategists, skilled software developers, experienced ad buyers or traders, expert technicians and data analysts drives the execution of advertising strategies across an array of digital channels including programmatic advertising, social, paid search, mobile, native, email, video advertising, OTT/CTV, audio, DOOH and more. In the world’s constantly shifting and expanding digital landscape, where it is easy for “set it and leave it” mentalities and impersonal algorithms to steer digital advertising campaigns, our data-driven approach enables customized ROI-focused outcomes for our clients. We have a wide variety of small and mid-sized companies representing numerous industry verticals such as travel, education, energy, healthcare, financial services, and consumer goods and services. We are typically engaged on an “insertion order” or master services agreement, with the typical engagement driven by the campaign goals of the client. For our mid- sized clients, we typically engage on a long-term contractual basis ranging from one to five years, while our smaller clients tend to engage on a shorter duration of less than one year despite the fact that many of our smaller clients have been long-term clients well in excess of one year.
Marketing, Sales, and Distribution
Our sales organization focuses on marketing our technology solution to increase the adoption of our products by existing and new sellers and buyers. We market our products and services to sellers and buyers through our national sales team that operates from various locations across the United States. This team leverages market knowledge and expertise to demonstrate the benefits of programmatic advertising and how we can drive better performance and results for our clients. We are focused on expanding our national sales presence primarily by growing our sales personnel presence in certain states and regions around the country in which we currently operate and/or are seeking to establish a presence. We typically seek to add experienced sales personnel with an established track record and/or verifiable book of business and client relationships.
For Colossus SSP, our professional services team manages each new DSP or publisher/seller integration while the buyer team focuses on the unique challenges and issues arising with our inventory buys. For the buy-side platform, our sales team has three fundamental components: (1) a consulting services team that advises clients on a more enterprise level in the design and implementation of a digital media strategy; (2) a professional services team with each seller integration to assist sellers in getting the most value from our solution; and (3) our client services team that works closely with clients to manage and/or support campaigns.
Our marketing initiatives are focused on managing our brand, increasing market awareness and driving advertising spend to our platform. We often present at industry conferences, create custom events and invest in public relations. In addition, our marketing team advertises online and in other forms of media, creates case studies, sponsors research, writes whitepapers, publishes marketing collateral, generates blog posts and undertakes client research studies.
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Competition
Sell-Side Competition
On the sell-side of the digital advertising industry, competition is robust but more limited in that there were approximately 80 SSPs in operation including Pubmatic, Magnite and Acuity Ads. We continue to refine our offering so that it remains competitive in scope, ease of use, scalability, speed, data access, price, inventory quality, brand security, customer service, identity protection and other technological features that help sellers monetize their inventory and buyers increase the return on their advertising investment. While our industry is evolving rapidly and becoming increasingly competitive, we believe that our solution enables us to compete favorably on these factors. We achieve this by ensuring that we have the right integrations and implementations in place. Our traffic verification partner is directly integrated within our exchange to ensure inventory quality on a real-time basis. We partner with an accredited Media Rating Council vendor to provide an added layer of security through sophisticated IVT detection and filtration. We believe that our verification with the Trustworthy Accountability Group indicates our status as a trusted player in the digital advertising ecosystem. Through our direct integration with The Media Trust’s Creative Quality Assurance (QA) product, we detect and eliminate the serving of malicious ads in real time, and by transacting on a universal cookie ID, consumers are served more relevant ads, advertisers reach more valuable users and publishers can match their audience data. In the end, we believe these factors enable our sales team to promote the advantages of our platform and drive greater adoption of Colossus SSP.
Buy-Side Competition
The buy-side digital advertising industry is a very competitive, fast-paced industry with ongoing technological changes, new market entrants and behavioral changes in content consumption. Over time, digital advertising expenditure has predominantly flowed through a select group of major corporations, notably Google, Meta, and Amazon, all of which maintain their advertising inventory. These entities represent formidable competition as we compete for digital advertising inventory and market demand.
Despite the dominance of large companies, there is still a large addressable market that is highly fragmented and includes many providers of transaction services with which we compete. There has been rapid evolution and consolidation in the advertising technology industry, and we expect these trends to continue, thereby increasing the capabilities and competitive posture of larger companies, particularly those that are already dominant in various ways, and enabling new or stronger competitors to emerge. Based on the current focus of our competitors, there is even more pronounced opportunity for engagement in the underserved and multicultural markets on which we focus our Company’s efforts today.
Seasonality in Our Business
In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, for our buy-side advertising segment, the second and third quarters of the year reflect our highest levels of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.
Human Capital Resources
As of September 30, 2024, we had 83 employees, the majority of whom are full-time employees. None of our employees are currently covered by a collective bargaining agreement. We have not experienced any labor-related work stoppages and believe our relations with our employees are good. We promote a diverse workforce and believe that it fosters innovation and cultivates an environment filled with unique perspectives. As a result, in compliance with applicable laws and regulations, diversity and inclusion are part and parcel of our ability to meet the needs of our customers. Respect for human rights and a commitment to ethical business conduct are fundamental to our business model. In addition, we measure employee engagement on an ongoing basis, as we believe an engaged workforce leads to a more innovative, productive and profitable company. We obtain feedback from our employees to implement programs and processes designed to keep our employees connected with the Company.
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Intellectual Property
The protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, including trade secret, copyright and trademark laws in the U.S. and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.
We own intellectual property related to our owned sites. We acquired the license to our proprietary Colossus SSP platform in 2022 from our third-party developer. As of September 30, 2024, we owned approximately four websites and URLs in varying stages of development to support our marketers advertising efforts. We also hold seven U.S. registered trademarks.
Properties
Our headquarters are located in Houston, Texas, where we occupy a facility with approximately 7,400 square feet under a lease that expires in February 2030. We have permanent offices and/or a co-work office presence in two other office locations across the United States: Austin and New York. These offices or workspaces are leased, and we do not own any real property. We believe that our current facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any expansion of our operations.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Our filings are available to you on the internet website maintained by the SEC at www.sec.gov. We also maintain an internet website at www.directdigitalholdings.com. We make available, free of charge, on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our website also includes announcements of investor conferences and events, information on our business strategies and results, corporate governance information, and other news and announcements that investors might find useful or interesting. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
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MANAGEMENT
Executive Officers and Directors
Our current executive officers and directors are as follows:
| Name | Age | Position | ||||||||||||
| Executive Officers: | ||||||||||||||
| Mark D. Walker | 49 | Chairman of the Board of Directors and Chief Executive Officer | ||||||||||||
| Keith W. Smith | 56 | President and Director | ||||||||||||
| Diana P. Diaz | 61 | Chief Financial Officer | ||||||||||||
| Anu Pillai | 54 | Chief Technology Officer | ||||||||||||
| Maria Vilchez Lowrey | 43 | Chief Growth Officer | ||||||||||||
| Non-Employee Directors: | ||||||||||||||
| Richard Cohen | 73 | Director | ||||||||||||
| Antoinette R. Leatherberry | 63 | Director | ||||||||||||
| Mistelle Locke | 47 | Director | ||||||||||||
Executive Officers
Mark D. Walker. Mr. Walker is a co-founder of the Company and became our Chairman and Chief Executive Officer on August 23, 2021 and, from 2018 until August 22, 2021, served in the role of Managing Partner of Direct Digital Holdings LLC, a subsidiary of the Company and our holding company prior to the completion of our initial public offering (“DDH LLC”). Prior to founding Direct Digital with Mr. Smith, Mr. Walker worked at CVG Group, LLC (“CVG Group”), a private equity firm, from October 2016 to May 2019 as the Chief Operating Officer responsible for the operations of the portfolio companies within CVG Group’s holdings. In this role, he was the Acting COO for Ebony Media Operations (“Ebony Media”), where he was responsible for initiating and overseeing the digital transformation of Ebony Media from a print publication to a digital-first organization. Prior to CVG Group and Ebony Media, he worked for the largest retail electricity provider within the United States, NRG Energy Inc. (NYSE: NRG), from 2005 to 2016, in positions of progressively increasing scope and responsibility. While at NRG Energy, he built multiple revenue streams through digital, retail and business development activities while increasing overall revenue to NRG Energy, where he represented approximately 40% of new revenue of NRG Energy Home division. Mr. Walker brings nearly 20 years of experience building relationships and revenue generating operations for Fortune 500 corporations, working in business development and marketing for Deloitte, and startup organizations. Throughout his career, Mr. Walker has sat on multiple advisory boards within the industry, such as Hitwise and Dentsu Aegis, and has written multiple articles and case studies that have been showcased in Jupiter Research and Search Engine Watch. We believe that Mr. Walker is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our Chief Executive Officer and a founder of the Company, as well as his other extensive executive experience. Mr. Walker holds a B.A. in Economics from The University of Texas and was a member of the board of directors of the University of Texas Alumni Association.
Keith W. Smith. Mr. Smith is a co-founder of the Company and became our President on August 23, 2021 and, from 2018 until August 22, 2021, served in the role of Managing Partner of DDH LLC. Prior to founding Direct Digital, Mr. Smith was a Managing Partner at Parkview Advisors, LLC, and President and CEO of Parkview Capital Credit, Inc., from November 2014 to April 2020, where he invested and managed more than $75 million with small and mid-sized businesses to provide acquisition and growth capital. Prior to Parkview, Mr. Smith served as Managing Director for a private equity-led, direct lending platform, Capital Point Partners, where he invested and managed more than $150 million in direct lending first lien, second lien and mezzanine investments, as well as complimentary minority equity investments. Prior to Capital Point Partners, he worked for Rabobank International (“RI”) from 2006 to 2009, where he was a Vice President and Portfolio Manager of more than $2 billion in direct lending and structured credit bank assets for one of the company’s special investment vehicles. He played a key role in originating new client transactions as well as managing a book of existing bank clients. Prior to RI, he was an
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Associate Director in the Structured Finance Group of Standard & Poor’s from 2003 to 2006, where he analyzed and rated transactions across a broad spectrum of asset types. In addition to his investment banking background, Mr. Smith also has over six years of legal experience as an attorney and has served on the board of directors of numerous portfolio companies. We believe that Mr. Smith is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our President and a co-founder of the Company, as well as his other executive experience and financial, investment and management experience. Mr. Smith holds a B.A. in Economics from The University of Texas at Austin; a J.D. from Southern Methodist University; and an M.B.A. from The Olin School of Business at Washington University in St. Louis.
Diana P. Diaz. Ms. Diaz became our Chief Financial Officer in October 2023 after serving as the Company’s interim Chief Financial Officer since June 2023. Ms. Diaz joined the Company from Sharps Compliance Corp. (previously Nasdaq listed (SMED) until its acquisition), a leading national healthcare waste management provider to customers in multiple healthcare-related markets, specializing in regulated waste streams including medical, pharmaceutical and hazardous, where she served for a total of 13 years, including as Vice President and Chief Financial Officer from June 2010 to February 2022. Ms. Diaz’s prior positions include Chief Financial Officer of University General Hospital in Houston, Texas from September 2006 to May 2009, Controller at Memorial Hermann Healthcare System, Texas Medical Center from September 2002 to August 2006 and Controller of the wholesale group at Reliant Energy from July 1998 to May 2002. Ms. Diaz started her career at Deloitte & Touch LLP where she worked from July 1985 to June 1998, ending her tenure at that firm as Audit Senior Manager. Ms. Diaz received her BBA in Accounting from The University of Texas at Austin and her MBA from Rice University’s Jesse H. Jones Graduate School of Management.
Anu Pillai. Ms. Pillai became our Chief Technology Officer in March 2021. Ms. Pillai brings extensive experience in defining and executing new product development solutions as well as large enterprise IT implementations and has successfully led global projects with complete responsibility for cross-functional teams in program management, product design, software development, system architecture, cybersecurity, integration and implementation. Prior to serving at Digital Direct Holdings, Ms. Pillai held executive positions and led digital transformations at several companies, including BLK/OPL, a direct-to-consumer e-commerce cosmetic brand, from 2019 to 2021, where she served as SVP, Digital Technology & Ecommerce, and Ebony Media, publisher of the iconic EBONY magazine, from 2011 to 2019, where she served as SVP, Digital Technology & Monetization. She was responsible at both of these companies for the execution of all technology and digital initiatives including system design and architecture, development, project management, resource planning of onsite/offshore resources and monetization across all digital properties with specific emphasis on increasing revenues through various programmatic channels. Prior to that, Ms. Pillai held leadership roles with leading Fortune 50 technology and infrastructure companies, such as General Electric, from 2005 to 2007, where she served as an IT leaser; Intel Corporation, from 2000 to 2003, where she served as a Senior Software Engineer; and Motorola, from 1996 to 1998, where she served as an analyst, and we believe she has proven experience in managing and leading small and large global development teams with technology resources spread across the U.S., China, Mexico and India. Ms. Pillai holds a B.S. in Computer Science and Engineering from Bharathiar in India.
Maria Vilchez Lowrey. Ms. Lowrey became our Chief Growth Officer in August 2022. Ms. Lowrey is responsible for leading business development, channel development, and integrating the management of brand related marketing activities across Direct Digital’s portfolio of brands. With over 20 years of senior level leadership experience working across energy, home services, and steel sectors, Ms. Lowrey has delivered game-changing business transformation initiatives for Fortune 500 retail giants and multi-billion-dollar companies. As an energetic and ambitious leader, she has a passion for building new customer acquisition sales channels, scaling sales channels, and forging relationships that deliver material growth through B2B or B2B2C strategic partnerships. Her strategic partnerships encompass launching transformational energy retail programs for well-known brands like Sam’s Club, Home Depot, Kroger, Best Buy, and AT&T / DIRECTV. Ms. Lowrey comes to Direct Digital from Just Energy, where she served as Senior Vice President of Direct Sales and Partnerships for Just Energy Group (OTC: JE), Amigo Energy, Tara Energy, and Terrapass, its affiliate brands from December 2016 to August 2022. There, she was responsible for diversifying the company’s direct sales channels by launching its first national retail partnership with one of the largest retailers in the world. Prior to that, she served in various key management positions across sales leadership, business development, operations, and project management at NRG Energy, Inc.(NYSE: NRG)
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from 2007 to 2016, primarily responsible for building new go-to-market sales channels and developing strategic partnerships with the most well-known brands in the country. Prior to NRG, Ms. Lowrey started her career in the steel industry as global supply chain transportation and procurement manager serving large multi-national consumer companies. Ms. Lowrey spends her free time as a strong advocate of community service, serving on non-profit boards such as Homemade Hope and is on the advisory board for Houston Arts Alliance and Dress for Success Houston which all help underserved communities, especially Hispanics, African Americans and women. Ms. Lowrey holds a B.S. in Management Information Systems from Texas A&M University.
Non-employee Directors
Richard Cohen. Mr. Cohen became a member of our board of directors in November 2021. He has served as President of Richard M Cohen Consultants since 1996, where he provides corporate financial consulting services to a number of clients. Mr. Cohen served as Founder and Managing Partner of Chord Advisors from March 2012 to July 2015, a firm providing outsourced CFO services to both public and private companies. Prior to founding Chord Advisors, Mr. Cohen served as the Interim CEO, and as a member of the board of directors, of CorMedix Inc. (NASDAQ: CRMD), from March 2012 to July 2015. Mr. Cohen has also served as a partner with Novation Capital from July 2001 to August 2012 until its sale to a private equity firm. He has served as a member of numerous boards and committees, including as a member of the audit committee of Rodman and Renshaw, an investment banking firm, from July 2008 to August 2012, and as a member of the board of directors of Great Elm Capital Corp., a public company which operates as a management investment company, since March 2022; Smart for Life, Inc. (NASDAQ: SMFL), a public company which develops, manufactures and sells nutritional and related products, from February 2022 to August 2022; 20/20 GeneSystems Inc., a private company in the digital diagnostics sector, since 2018; Ondas Networks, Inc. (NASDAQ: ONDS), a public company which provides private wireless data and drone solutions, since 2016; and Helix BioMedix, a former public company specializing in dermatology and consumer products, since 2005, where he has also served as a member of the audit committee. We believe that Mr. Cohen is qualified to serve as a member of our board of directors because of his extensive financial experience, as well as his leadership and management skills gained from his prior board experience. He holds a B.S. with honors in Economics from the University of Pennsylvania Wharton School and an M.B.A. from Stanford University.
Antoinette R. Leatherberry. Ms. Leatherberry became a member of our board of directors in November 2021. Ms. Leatherberry retired from Deloitte, a consulting, audit, tax and advisory services company, in September 2020, where she served in a number of roles during her 30-year career, including Board Relations Leader for the Risk and Financial Advisory practice, from September 2017 to September 2020, and Principal, Technology Strategy, from 2008 to August 2017. She also served as President of the Deloitte Foundation, from 2016 until her retirement. Ms. Leatherberry has served as a member of the board of directors, audit committee, and human resource committee of Zoetis Inc. (NYSE: ZTS), a public animal health company, since December 2020, and as a member of the board of directors, the nominating and governance committee, and the compensation committee of American Family Insurance Mutual Holding Company, Inc., a private mutual company, since January 2021. She has also served on the Widener University Board of Trustees, since 2015, and the Boston University Board of Trustees since September 2020. She previously served as chair of The Executive Leadership Council from January 2019 until December 2020. We believe that Ms. Leatherberry is qualified to serve as a member of our board of directors because of her extensive experience with complex technology transformations, her strategic digital technology experience, and her corporate governance expertise. She holds a B.S. in Mechanical Engineering from Boston University and an M.B.A. in Operations Management and Supervision from Northeastern University.
Mistelle Locke. Ms. Locke became a member of our board of directors in January 2023. Ms. Locke served as an advisor to our board of directors from February 2022 through January 2023. She previously served as Chief Marketing Officer for industry leader Dentsu Media. Prior to that, Ms. Locke served in several senior executive positions for iProspect, including President of iProspect Americas, Global Chief Client Officer and Global Chief Marketing Officer. Ms. Locke transformed iProspect, a company that she helped grow through a merger in 2008 with her company, Range Online Media, from an SEO brand into the largest and most innovative digital media and performance agency in the world scaled across more than 90 markets with more than 8,000 media and performance specialists. In her career, Ms. Locke has worked with some of the world’s most iconic brands, including General Motors, Adidas, NIKE, The GAP Brands, Microsoft, Estée Lauder Companies, Accor Hotels, Burberry, Heineken and Kering. She also received the e-Microsoft Bing “Lifetime Achievement” award, for her contribution to the
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digital advertising industry, and Fast Company listed her on its list of “25 Top Women Business Builders.” We believe Ms. Locke is qualified to serve as a member of our board of directors because of her tremendous amount of industry insight and expertise and will be a valuable asset for the senior leadership team and our strategic decision-making. She holds a Bachelor’s Degree in Corporate Communications from the University of Texas.
Family Relationships
No executive officer is related by blood, marriage or adoption to any other director or executive officer.
Director Independence
The Company adheres to the corporate governance standards adopted by The Nasdaq Stock Market (“Nasdaq”). Nasdaq rules require our board of directors to make an affirmative determination as to the independence of each director. Consistent with these rules, our board of directors undertook its annual review of director independence on October 14, 2024 and determined that each of Richard Cohen, Antoinette R. Leatherberry and Mistelle Locke satisfy the independence standards established by applicable SEC rules and the rules of The Nasdaq Capital Market. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors determined that none of our non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these non-employee directors is “independent” as that term is defined under the rules of The Nasdaq Capital Market. In making this determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
The table and the biographies above set forth the names of our executive officers and directors, their ages, the year in which they first became directors, their positions with us, their principal occupations and employers for at least the past five years, any other directorships held by them during the past five years in companies that are subject to the reporting requirements of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940, as well as additional information, all of which we believe sets forth each director nominee’s qualifications to serve on the board of directors. There are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them are elected as an officer or director.
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EXECUTIVE COMPENSATION
We have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. In accordance with these rules, our “named executive officers” for fiscal year 2024 were:
•Mark Walker, Chairman and Chief Executive Officer;
•Keith Smith, President; and
•Diana P. Diaz, Chief Financial Officer.
Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the fiscal years ended December 31, 2024 and 2023 below.
| Name and principal position | Year | Salary ($) | Nonequity incentive plan compensation ($) | Stock awards ($)(1) | Option awards ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||||||||||||||||||
| Mark Walker | 2024 | 500,000 | — | — | — | 25,000 | (2) | 525,000 | ||||||||||||||||||||||||||||||||||||
| Chairman and Chief Executive Officer | 2023 | 530,200 | 380,335 | 276,844 | 71,759 | — | 1,259,138 | |||||||||||||||||||||||||||||||||||||
| Keith Smith | 2024 | 500,000 | — | — | — | 25,000 | (2) | 525,000 | ||||||||||||||||||||||||||||||||||||
| President | 2023 | 530,200 | 380,335 | 276,844 | 71,759 | — | 1,259,138 | |||||||||||||||||||||||||||||||||||||
| Diana P. Diaz | 2024 | 350,000 | — | — | — | 10,000 | (2) | 360,000 | ||||||||||||||||||||||||||||||||||||
| Chief Financial Officer | 2023(3) | 75,000 | 88,742 | 45,879 | 28,762 | — | 238,383 | |||||||||||||||||||||||||||||||||||||
__________________
(1)Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating these values are described in Note 2 to the Company’s consolidated financial statements contained herein.
(2)These amounts represent cash stipends to be used for individual benefits of the executive’s choosing.
(3)Ms. Diaz was employed by Vaco, LLC, a consulting firm, to which we paid a total of $290,000 in fees for fiscal year 2023, prior to Ms. Diaz joining the Company in October 2023.
Annual Incentive Program
Our named executive officers are each eligible to participate in an annual incentive program. Under this program, each participating executive has a target annual incentive amount and may earn between zero and 150% of that target amount based on the Company’s achievement of specified goals for revenue and EBITDA performance. For 2024 and 2023, Messrs. Walker and Smith and Ms. Diaz had target annual incentive amounts equal to 75%, 75% and 50% of their base salaries, respectively. Payouts for 2024 corporate performance have not yet been determined, but are expected to be determined prior to March 15, 2025.
Executive Employment Agreements with our Named Executive Officers
Messrs. Walker and Smith and Ms. Diaz have each entered into employment agreements with our subsidiary DDH LLC. The employment agreements set forth their annual base salaries of $500,000, $500,000 and $350,000, respectively, their eligibility for annual bonuses and long-term incentive awards, the at-will nature of their employment, certain expense reimbursements, and their eligibility to participate in our benefit plans generally. In addition, the employment agreements include customary non-competition, non-solicitation, non-disparagement, confidentiality, and intellectual property covenants.
The severance provisions of each executive’s employment agreement are substantially the same. If the executive’s employment ceases for any reason, the executive will be entitled to receive (i) accrued but unpaid base salary
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through the termination date, (ii) reimbursement for any unreimbursed and reasonable business expenses incurred through the termination date consistent with the expense reimbursement policy of DDH LLC, (iii) payout of accrued but unpaid paid-time-off days, if required by applicable law; and (iv) any other payments, benefits, or fringe benefits to which he or she is entitled as of the termination date under any applicable plan, program or grant.
In addition, if the executive’s employment is terminated by DDH LLC without “cause” or by the executive for “good reason”, in either case prior to a “change in control” (as those terms are defined in the executive’s employment agreement), the executive will be entitled to continuation of his or her base salary for twelve months. However, if such termination without cause or resignation with good reason occurs upon or following a Change in Control, the executive’s period of base salary continuation will be extended from twelve to twenty-four months and the executive will also be entitled to a lump sum payment equal to his or her target bonus for the year of separation. In each case, these severance payments will be conditioned on the executive’s execution of a general release of claims.
Equity Awards
Each of our named executive officers is also eligible to receive equity awards under our 2022 Omnibus Incentive Plan, as amended (the “2022 Plan”). The size and other terms of equity awards are determined by the compensation committee of our board of directors, in their discretion.
On March 20, 2023, the compensation committee granted to each of Messrs. Walker and Smith: (i) 40,000 RSUs vesting on March 20, 2024, and (ii) 29,910 RSUs vesting in three equal annual installments, on March 20, 2024, March 20, 2025 and March 20, 2026. During 2024, shares of Class A Common Stock were issued in respect of the portion of these RSUs vesting on March 20, 2024. However, in December 2024, the Company rescinded the issued shares (and the related RSUs) at the request of the grantees. The rescissions did not affect the portion of the 2023 RSUs vesting on March 20, 2025 and March 20, 2026, which RSUs remain outstanding.
In 2024, the compensation committee opted to pay the named executive officers’ earned 2023 annual incentives in shares of unrestricted Class A Common Stock, based on the weighted average closing price of our Class A Common Stock for the period December 1, 2023 through March 11, 2024. Otherwise, no equity awards were granted to the named executive officers in 2024.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding outstanding equity awards held by the Company’s named executive officers as of December 31, 2024.
| Name and principal position | Number of Securities Underlying Unexercised Options/ Warrant Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#)(1) | Option/ Warrant Exercise Price ($) | Option/ Warrant Expiration Date | Number of Shares of Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | ||||||||||||||||||||||||||||||||
| Mark Walker | 40,600 | 20,300 | (3) | $ | 1.62 | 6/10/2032 | 20,300 | (3) | $ | 32,886 | ||||||||||||||||||||||||||||
| Chairman and Chief Executive Officer | 9,970 | 19,940 | (4) | $ | 3.96 | 3/20/2033 | 12,398 | (4) | $ | 49,096 | ||||||||||||||||||||||||||||
| Keith Smith | 40,600 | 20,300 | (3) | $ | 1.62 | 6/10/2032 | 20,300 | (3) | $ | 32,886 | ||||||||||||||||||||||||||||
| President | 9,970 | 19,940 | (4) | $ | 3.96 | 3/20/2033 | 12,398 | (4) | $ | 49,096 | ||||||||||||||||||||||||||||
| Diana Diaz | 6,216 | 12,434 | (5) | $ | 2.46 | 10/16/2033 | 12,434 | $ | 30,588 | |||||||||||||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||||||||||||||||
__________________
(1)Options vest in equal annual installments over the three years after the option grant date. Each option is subject to the condition that the optionee will have remained employed by the Company, or any one or more of its subsidiaries, through such vesting dates. The relevant grant dates are indicated in the footnotes below.
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(2)Restricted stock units vest in equal annual installments over the three years after the restricted stock unit grant date. Each restricted stock unit is subject to the condition that the recipient will have remained employed by the Company, or any one or more of its subsidiaries, through such vesting dates. The relevant grant dates are indicated in the footnotes below.
(3)The grant date of this award was June 10, 2022.
(4)The grant date of this award was March 20, 2023.
(5)The grant date of this award was October 16, 2023.
Stock Option Grant Timing
As disclosed above, the Company did not grant stock options or similar instruments to its named executive officers during 2024.
The Company has no set policy or practice regarding the timing of stock option awards or similar instruments in relation to the disclosure of material nonpublic information. In general, the timing of stock option awards is dictated by the event or circumstance giving rise to the award and the schedules of the directors responsible for approving the award. If, in the future, a stock option grant is made at a time that material nonpublic information exists, the directors approving the award would be responsible for considering the anticipated effect of that information on our stock price and would take such effect into account when sizing and pricing the award.
Clawback Policy
In 2023, the Company adopted a clawback policy (the “Clawback Policy”) to comply with the requirements of the Exchange Act, SEC rules and the Nasdaq Stock Market’s listing rules, such that in the event of an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, the Company is required to seek recoupment of certain cash and performance-based equity incentive compensation received or deemed to be received by the Company’s current or former executive officers to the extent such compensation is determined to have been erroneously paid. The recovery of such compensation applies regardless of whether an executive officer engaged in misconduct or otherwise caused or contributed to the requirement for a restatement. The policy is administered by the Company’s Board of Directors or, if so designated by the Board of Directors, a committee of the Board of Directors. Any determinations made by the Board of Directors or a committee to which the Board’s authority under the Clawback Policy has been delegated shall be final and binding on all affected individuals.
Director Compensation
Non-employee director compensation for the year ended December 31, 2024 is shown in the table below:
| Name | Fees earned or paid in cash ($) | Stock awards ($)(1)(2) | Total ($) | |||||||||||||||||
| Richard Cohen | 40,000 | 21,009 | 61,009 | |||||||||||||||||
| Antoinette R. Leatherberry | 53,500 | 21,009 | 74,509 | |||||||||||||||||
| Mistelle Locke | 35,000 | 21,009 | 56,009 | |||||||||||||||||
__________________
(1)Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating these values are described in Note 2 to our consolidated financial statements included herein.
(2)Unvested restricted stock unit awards held by our non-employee directors as of December 31, 2024 are summarized below:
| Name | Shares to Award (#) | Grant Date | ||||||||||||
| Richard Cohen | 16,462 | June 10, 2022 | ||||||||||||
| 16,410 | June 12, 2023 | |||||||||||||
| Antoinette R. Leatherberry | 16,462 | June 10, 2022 | ||||||||||||
| 16,410 | June 12, 2023 | |||||||||||||
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| Mistelle Locke | 14,493 | January 16, 2023 | ||||||||||||
| 16,410 | June 12, 2023 | |||||||||||||
Our non-employee director compensation policy is designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors. Under the policy each director who is not an employee is paid cash compensation as set forth below:
Annual Retainer
| Board of Directors: | |||||
| All non-employee members | $ | 30,000 | |||
| Additional retainer for non-executive chairperson | $ | 20,000 | |||
| Audit Committee: | |||||
| Members | $ | — | |||
| Additional retainer for chair | $ | 10,000 | |||
| Compensation Committee: | |||||
| Members | $ | — | |||
| Additional retainer for chair | $ | 5,000 | |||
| Nominating and Corporate Governance Committee: | |||||
| Members | $ | — | |||
| Additional retainer for chair | $ | 3,500 | |||
These fees are payable in four equal quarterly installments, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on our board of directors or any committee of the board of directors. We also reimburse our non-employee directors for reasonable travel and other expenses incurred in connection with attending our board of directors and committee meetings.
Equity Awards
We have no fixed policy regarding the issuance of equity awards to our non-employee directors. However, our board of directors has in recent years approved annual awards of restricted stock units to our non-employee directors. Those awards generally vest (subject to the continued service of the grantee) in three equal annual installments, although vesting may accelerate in certain circumstances, such as in connection with a change in control.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since January 1, 2023, except as described herein, the Company has not been a party to any transaction in which the amount involved exceeded or will exceed $120,000, and in which any of its directors, named executive officers or beneficial owners of more than 5% of the Company’s capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, and other than compensation, termination, and change-in-control arrangements.
The written charter of the Audit Committee authorizes, and the Nasdaq Stock Market listing rules require, the Audit Committee to review and approve related-party transactions. In reviewing related-party transactions, the Audit Committee applies the basic standard that transactions with affiliates should be made on terms no less favorable to the Company than could have been obtained from unaffiliated parties. Therefore, the Audit Committee reviews the benefits of the transactions, terms of the transactions and the terms available from unrelated third parties, as applicable. All transactions other than compensatory arrangements between the Company and its officers, directors, principal stockholders and their affiliates will be approved by the Audit Committee or a majority of the disinterested directors, and will continue to be on terms no less favorable to the Company than could be obtained from unaffiliated third parties.
The following are summaries of certain provisions of transactions since the beginning of our last fiscal year to which we have been a party, in which the amount involved exceeds or will exceed $120,000 and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or immediate family member thereof, had or will have a direct or indirect material interest, and are qualified in their entirety by reference to all of the provisions of such agreements.
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions.
Tax Receivable Agreement
We expect to obtain an increase in our share of the tax basis of the assets of DDH LLC when (as described below under “— DDH LLC Agreement – LLC Unit Redemption Right”) DDM (a) redeems or exchanges its LLC Units for newly issued shares of our Class A Common Stock on a one-for-one basis and (b) receives payments under the Tax Receivable Agreement (such basis increase, a “Basis Adjustment”). We intend to treat such redemptions or exchanges of LLC Units as the direct purchase of LLC Units by Direct Digital Holdings from DDM for U.S. federal income and other applicable tax purposes, regardless of whether such LLC Units are surrendered by DDM to DDH LLC for redemption or sold to Direct Digital Holdings upon the exercise of our election to acquire such LLC Units directly. A Basis Adjustment may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities to the extent that we have positive taxable income in a future tax period that is offset by tax depreciation or amortization deductions arising from such Basis Adjustment. The Basis Adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets, which could also generate tax savings for us.
We entered into the Tax Receivable Agreement with DDH LLC and DDM. The Tax Receivable Agreement provides for our payment to DDM of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances, are deemed to realize (calculated using certain assumptions), as a result of any Basis Adjustments and certain other tax benefits arising from payments under the Tax Receivable Agreement. DDH LLC has, in effect, an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Units for shares of our Class A Common Stock occurs. These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either DDH LLC or us by DDMs. The rights of DDM under the Tax Receivable Agreement are assignable to transferees of its LLC Units (other than Direct Digital Holdings as transferee pursuant to subsequent redemptions (or exchanges) of the transferred LLC Units); provided, however, DDM may not, directly or indirectly, assign or otherwise transfer its rights under the Tax Receivable Agreement to any Person (as defined in the Tax Receivable Agreement) (other than to certain “Permitted Transferees” specified in the DDH LLC Agreement) without the express prior written consent
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of Direct Digital Holdings, and without such Person (including a permitted transferee) executing and delivering a joinder to the Tax Receivable Agreement agreeing to become a party to the Tax Receivable Agreement. We expect to benefit from the remaining 15% of tax benefits, if any, that we may realize. Actual tax benefits realized by us may differ from tax benefits calculated under the Tax Receivable Agreement as a result of the use of certain assumption in the Tax Receivable Agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits.
The Basis Adjustments, as well as any amounts paid to DDM under the Tax Receivable Agreement, will vary depending on a number of factors, including:
•the timing of any subsequent redemptions or exchanges — for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of DDH LLC at the time of each redemption or exchange;
•the price of shares of our Class A Common Stock at the time of redemptions or exchanges — the Basis Adjustments, as well as any related increase in any tax deductions, are directly related to the price of shares of our Class A Common Stock at the time of each redemption or exchange;
•the extent to which such redemptions or exchanges are taxable — if a redemption or exchange is not taxable for any reason, increased tax deductions will not be available; and
•the amount and timing of our taxable income (prior to taking into account the tax depreciation or amortization deductions arising from the Basis Adjustments) — the Tax Receivable Agreement generally requires Direct Digital Holdings to pay 85% of the tax benefits as and when those benefits are treated as realized under the terms of the Tax Receivable Agreement. Except as discussed below, in cases of (i) a material breach of a material obligation under the Tax Receivable Agreement, (ii) a change of control or (iii) an early termination of the Tax Receivable Agreement, if Direct Digital Holdings does not have taxable income, it will generally not be required to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been realized. However, any tax benefits that do not result in realized tax benefits in a given taxable year may generate tax attributes that may be utilized to generate tax benefits in future taxable years. The utilization of any such tax attributes will result in payments under the Tax Receivable Agreement.
The aggregate balance of tax receivable liabilities owed to DDM as of September 30, 2024, December 31, 2023 and 2022, is as follows (in thousands):
| September 30, | December 31, | ||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Liability related to tax receivable agreement: | |||||||||||||||||
| Short term | $ | 41 | $ | 41 | $ | 183 | |||||||||||
| Long term | — | 5,201 | 4,150 | ||||||||||||||
| Total liability related to tax receivable agreement | $ | 41 | $ | 5,242 | $ | 4,333 | |||||||||||
For purposes of the Tax Receivable Agreement, cash savings in income tax is computed by comparing Direct Digital Holdings’ actual income tax liability to the amount of such taxes that it would have been required to pay had there been no Basis Adjustments and had the Tax Receivable Agreement not been entered into. The Tax Receivable Agreement generally applies to each of our taxable years. The actual and hypothetical tax liabilities determined in the Tax Receivable Agreement is calculated using the actual U.S. federal income tax rate in effect for the applicable period and an assumed, weighted-average state and local income tax rate based on apportionment factors for the applicable period (along with the use of certain other assumptions). There is no maximum term for the Tax Receivable Agreement; however, the Tax Receivable Agreement may be terminated by us pursuant to an early termination procedure that requires us to pay DDM an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated based on certain assumptions, including regarding tax rates and utilization of the Basis Adjustments). For the nine months ended September 30, 2024, $5.2 million was recognized as income under other income (expense) due to the derecognition of the TRA liability as a valuation allowance was recorded against the deferred taxes associated with the Tax Receivable Agreement.
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The payment obligations under the Tax Receivable Agreement are obligations of Direct Digital Holdings and not of DDH LLC. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we may be required to make to DDM could be significant. The actual increases in tax basis with respect to future taxable redemptions, exchanges or purchases of LLC Units, as well as the amount and timing of any payments we are required to make under the Tax Receivable Agreement in respect of the acquisition of LLC Units from DDM in connection with future taxable redemptions, exchanges or purchases of LLC Units, may differ materially from the amounts set forth above because the potential future reductions in our tax payments, as determined for purposes of the Tax Receivable Agreement, and the payments we are required to make under the Tax Receivable Agreement, will each depend on a number of factors, including the market value of our Class A Common Stock at the time of redemption or exchange, the prevailing federal tax rates applicable to us over the life of the Tax Receivable Agreement (as well as the assumed combined state and local tax rate), the amount and timing of the taxable income that we generate in the future and the extent to which future redemptions, exchanges or purchases of LLC Units are taxable transactions.
There may be a material negative effect on our liquidity if, as described below, the payments made by us to DDM under the Tax Receivable Agreement exceed the actual benefits we receive in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to us by DDH LLC are not sufficient to permit us to make payments under the Tax Receivable Agreement. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will possibly accrue interest until paid by us. Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by DDM under the Tax Receivable Agreement. For example, the earlier disposition of assets following a transaction that results in a Basis Adjustment will generally accelerate payments under the Tax Receivable Agreement and increase the present value of such payments.
In addition, although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the Tax Receivable Agreement, DDM will not reimburse us for any payments previously made if such tax basis increases or other tax benefits are subsequently disallowed, except that any excess payments made to DDM will be netted against future payments otherwise to be made under the Tax Receivable Agreement, if any, after our determination of such excess. In addition, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment. As a result, in such circumstances we could make payments to DDM under the Tax Receivable Agreement that are greater than our actual cash tax savings and may not be able to recoup those payments, which could negatively impact our liquidity.
In addition, the Tax Receivable Agreement provides that, upon certain mergers, asset sales or other forms of business combination or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the benefits arising from the increased tax deductions and tax basis and other benefits covered by the Tax Receivable Agreement. As a result, upon a change of control, we could be required to make payments under the Tax Receivable Agreement that are greater than or less than the specified percentage of our actual cash tax savings, which could negatively impact our liquidity.
This provision of the Tax Receivable Agreement may result in situations where DDM, a holding company indirectly owned by our Chairman and Chief Executive Officer and our President, have interests that differ from or are in addition to those of our other stockholders. In addition, we could be required to make payments under the Tax Receivable Agreement that are substantial and in excess of our, or a potential acquirer’s, actual cash savings in income tax.
Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement is dependent on the ability of DDH LLC to make distributions to us. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will possibly accrue interest until paid.
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DDH LLC Agreement
We operate our business through DDH LLC and its subsidiaries. We and DDM entered into DDH LLC’s amended and restated limited liability company agreement, which we refer to as the “DDH LLC Agreement,” on February 15, 2022. The operations of DDH LLC, and the rights and obligations of the holders of LLC Units, are set forth in the DDH LLC Agreement.
Appointment as Manager and Voting Rights
Under the DDH LLC Agreement, we are a member and the sole manager of DDH LLC. As the sole manager, we are able to control all of the day-to-day business affairs and decision-making of DDH LLC. As such, we, through our officers and directors, are responsible for all operational and administrative decisions of DDH LLC and the day-to-day management of DDH LLC’s business. Pursuant to the terms of the DDH LLC Agreement, we cannot, under any circumstances, be removed as the sole manager of DDH LLC except by our election. In addition, as a result of our 100% ownership of all of the voting interests in DDH LLC, we control the decision-making of any matter required to be approved by the members of DDH LLC as provided under the DDH LLC Agreement.
Compensation
We are not entitled to compensation for our services as manager. We are entitled to reimbursement or capital contribution credit by DDH LLC for fees and expenses incurred on behalf of DDH LLC, including all expenses associated with maintaining our corporate existence.
Distributions
The DDH LLC Agreement requires “tax distributions” to be made by DDH LLC to its members, as that term is defined in the agreement. Tax distributions are made to members on a pro rata basis, including us, in amounts intended to be sufficient to allow the members, including us, to pay taxes owed in respect of income allocated by DDH LLC and to allow us to meet our obligations under the Tax Receivable Agreement (as described above under “— Tax Receivable Agreement”). The DDH LLC Agreement also allows for distributions to be made by DDH LLC to its members on a pro rata basis out of “distributable cash,” as that term is defined in the agreement. We expect DDH LLC may make distributions out of distributable cash periodically to the extent permitted by our agreements governing our indebtedness and necessary to enable us to cover our operating expenses and other obligations, including our tax liability and obligations under the Tax Receivable Agreement, as well as to make dividend payments, if any, to the holders of our Class A Common Stock.
LLC Unit Redemption Right
The DDH LLC Agreement provides a redemption right to DDM which entitles it to have its LLC Units redeemed, from time to time at its election (subject to the terms of the DDH LLC Agreement), for newly issued shares of our Class A Common Stock on a one-for-one basis (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Upon the exercise of the redemption right, DDM will surrender its LLC Units to DDH LLC for cancellation. The DDH LLC Agreement requires that we contribute shares of our Class A Common Stock to DDH LLC in exchange for an amount of newly issued LLC Units in DDH LLC that are issued to us equal to the number of LLC Units redeemed from DDM. DDH LLC will then distribute the shares of our Class A Common Stock to DDM to complete the redemption. In the event of such a redemption election by DDM, Direct Digital Holdings may effect a direct exchange of Class A Common Stock. Whether by redemption or exchange, we are obligated to ensure that at all times the number of LLC Units that we own equals the number of shares of Class A Common Stock issued by us (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).
Indemnification
The DDH LLC Agreement provides for indemnification of the manager, members and officers of DDH LLC and their respective subsidiaries or affiliates.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our Class A Common Stock and Class B Common Stock, as of January 14, 2025 (the “Determination Date”) by:
•each person, or group of affiliated persons, who is known to beneficially own more than 5% of either our Class A Common Stock or our Class B Common Stock;
•each of our named executive officers for fiscal year 2024 shown in our Summary Compensation Table;
•each of our current directors; and
•all of our current directors and executive officers as a group.
As of the Determination Date, there were 6,450,554 shares of our Class A Common Stock outstanding and 10,868,000 shares of our Class B Common Stock outstanding. As described in the section titled “Certain Relationships and Related Party Transactions,” DDM is entitled to have its LLC Units redeemed for shares of Class A Common Stock on a one-for-one basis (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the DDH LLC Agreement; provided that, at our election, we may effect a direct exchange of such Class A Common Stock. In connection with our initial public offering, we issued to DDM one share of Class B Common Stock for each LLC Unit it owned.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities, including options and warrants that are currently exercisable or exercisable within 60 days of the Determination Date. Shares of our Class A Common Stock issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options and the percentage of any group of which the person is a member but are not deemed outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Class A Common Stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Exchange Act. “Voting power” is the power to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares.
Unless otherwise indicated, the address for each director and executive officer listed is: c/o Direct Digital Holdings, Inc., 1177 West Loop South, Suite 1310, Houston, Texas 77027.
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| Shares of Class A Common Stock Beneficially Owned | Shares of Class B Stock Beneficially Owned | Total Voting Power Beneficially Owned | |||||||||||||||||||||||||||||||||
| No. (4) | Percent | No. | Percent | No. | Percent | ||||||||||||||||||||||||||||||
| 5% Stockholders | |||||||||||||||||||||||||||||||||||
Direct Digital Management, LLC(1) | — | — | % | 10,868,000 | 100 | % | 10,868,000 | 62.8 | % | ||||||||||||||||||||||||||
| Named Executive Officers and Directors | |||||||||||||||||||||||||||||||||||
Mark Walker, Chairman and Chief Executive Officer | 154,893 | (3) | 2.4 | % | 5,489,000 | (2) | 50.5 | % | 5,643,893 | 32.6 | % | ||||||||||||||||||||||||
Keith Smith, President and Director | 225,293 | (4) | 3.5 | % | 5,379,000 | (2) | 49.5 | % | 5,604,293 | 32.4 | % | ||||||||||||||||||||||||
Diana P. Diaz, Chief Financial Officer | 14,613 | (5) | * | — | — | % | 14,613 | * | |||||||||||||||||||||||||||
Richard Cohen, Director | 55,905 | * | — | — | % | 55,905 | * | ||||||||||||||||||||||||||||
Antoinette R. Leatherberry, Director | 55,812 | * | — | — | % | 55,812 | * | ||||||||||||||||||||||||||||
Mistelle Locke, Director | 30,201 | * | — | — | % | 30,201 | * | ||||||||||||||||||||||||||||
| All executive officers and directors as a group (8 persons) | 591,959 | (6) | 9.2 | % | 10,868,000 | 100 | % | 11,459,959 | 66.2 | % | |||||||||||||||||||||||||
__________________
*Less than 1%
(1)Direct Digital Management, LLC is a holding company in which Mark Walker, our Chairman and Chief Executive Officer, and Keith Smith, our President, each indirectly hold an approximately 50% economic and voting interest, as adjusted for redemptions of LLC Units in exchange for shares of Class A Common Stock of the Company. AJN Energy & Transport Ventures, LLC and SKW Financial LLC directly hold the equity interests in Direct Digital Management, LLC. Mr. Walker and his wife share voting and dispositive power with respect to the shares of Class B common stock held by AJN Energy & Transport Ventures, LLC. Mr. Smith and his wife share voting and dispositive power with respect to the shares of Class B Common Stock held by SKW Financial LLC.
(2)Consists of the shares owned by Direct Digital Management, LLC. Each of Messrs. Walker and Smith indirectly hold an approximately 50% economic and voting interest in Direct Digital Management, LLC, as adjusted for redemptions of LLC Units in exchange for shares of Class A Common Stock of the Company. AJN Energy & Transport Ventures, LLC and SKW Financial LLC directly hold the equity interests in Direct Digital Management, LLC. Mr. Walker and his wife share voting and dispositive power with respect to the shares of Class B Common Stock held by AJN Energy & Transport Ventures, LLC. Mr. Smith and his wife share voting and dispositive power with respect to the shares of Class B Common Stock held by SKW Financial LLC.
(3)Includes: 50,570 shares of Class A Common Stock that can be acquired by Mr. Walker upon the exercise of stock options that are vested or vesting within 60 days of the Determination Date.
(4)Includes: 50,570 shares of Class A Common Stock that can be acquired by Mr. Smith upon the exercise of stock options that are vested or vesting within 60 days of the Determination Date.
(5)Includes: 6,217 shares of Class A Common Stock that can be acquired by Ms. Diaz upon the exercise of stock options that are vested or vesting within 60 days of the Determination Date.
(6)Includes: 131,797 shares of Class A Common Stock that can be acquired by all executive officers and directors upon the exercise of stock options that are vested or vesting within 60 days of the Determination Date.
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THE SELLING STOCKHOLDER
This prospectus relates to the possible resale by the selling stockholder, New Circle, of shares of our Class A Common Stock that may be issued to New Circle pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with New Circle on October 18, 2024, concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by New Circle of the shares of our Class A Common Stock that may be issued to New Circle under the Purchase Agreement.
New Circle, as the selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we may issue to New Circle from time to time at our discretion under the Purchase Agreement. The “selling stockholder” may sell some, all or none of its shares. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling stockholder regarding the sale of any of the shares.
The following table presents information regarding the selling stockholder and the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder, and reflects its holdings as of January 14, 2025. Neither New Circle nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in accordance with Section 13(d) of the Exchange Act and Rule 13d-3 thereunder. The percentage of shares beneficially owned prior to the offering is based on 6,450,554 shares of our Class A Common Stock and 10,868,000 shares of our Class B Common Stock, each outstanding as of January 14, 2025.
Shares of All Classes of Common Stock Beneficially Owned Prior to Offering | Number of Shares Being Offered | Shares of All Classes of Common Stock Beneficially Owned After Offering(1) | |||||||||||||||||||||||||||||||||
Name | Number | % | Number | % | |||||||||||||||||||||||||||||||
New Circle Principal Investments LLC(2) | 0 | 0 | % | 8,500,000 | 0 | (1) | 0 | % | |||||||||||||||||||||||||||
__________________
(1)Assumes the sale of all shares of Class A Common Stock being offered by this prospectus, although the selling stockholder is under no obligation known to us to sell any shares of Class A Common Stock at this time.
(2)New Circle Principal Investments LLC (“New Circle”) is a wholly owned subsidiary of New Circle Capital LLC, the sole member of New Circle. Osman Ahmed and Walter Arnold are the Managing Members of New Circle Capital LLC. All investment decisions for New Circle Capital LLC are made by Messrs. Ahmed and Arnold. As such, each of New Circle, New Circle Capital LLC, and Messrs. Ahmed and Arnold may be deemed to have beneficial ownership of the securities directly held by New Circle. Each such entity or person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein. The address of each of New Circle and New Circle Capital LLC is 250 Park Avenue, Floor 7, New York, NY 10177.
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PLAN OF DISTRIBUTION
The Class A Common Stock offered by this prospectus is being offered by the selling stockholder, New Circle. The Class A Common Stock may be sold or distributed from time to time by the selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the Class A Common Stock offered by this prospectus could be effected in one or more of the following methods:
•ordinary brokers’ transactions;
•transactions involving cross or block trades;
•through brokers, dealers, or underwriters who may act solely as agents;
•“at the market” into an existing market for the Class A Common Stock;
•in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
•in privately negotiated transactions; or
•any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
New Circle is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
New Circle has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the Class A Common Stock that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Such unaffiliated broker-dealer may be deemed an underwriter within the meaning of Section 2(a)(11) of the Securities Act. New Circle has informed us that such broker-dealer will receive commissions from New Circle that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating in the distribution of the shares offered by this prospectus may receive compensation in the form of commissions, discounts, or concessions from the purchasers, for whom the broker-dealers may act as agent, of the Class A Common Stock sold by New Circle through this prospectus. The compensation paid to any such particular broker-dealer by any such purchasers of Class A Common Stock sold by New Circle may be less than or in excess of customary commissions. Neither we nor New Circle can presently estimate the amount of compensation that any agent will receive from any purchasers of Class A Common Stock sold by New Circle.
We know of no existing arrangements between New Circle or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus.
We may from time to time file with the SEC one or more supplements to this prospectus or amendments to the registration statement of which this prospectus forms a part to amend, supplement or update information contained in this prospectus, including, if and when required under the Securities Act, to disclose certain information relating to a particular sale of shares offered by this prospectus by the selling stockholder, including the names of any brokers, dealers, underwriters or agents participating in the distribution of such shares by the selling stockholder, any compensation paid by New Circle to any such brokers, dealers, underwriters or agents, and any other required information.
We will pay the expenses incident to the registration under the Securities Act of the offer and sale of the shares covered by this prospectus by New Circle. We have agreed to indemnify New Circle and certain other persons against certain liabilities in connection with the offering of shares of Class A Common Stock offered hereby,
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including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. New Circle has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by New Circle specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
New Circle has represented to us that at no time prior to the date of the Purchase Agreement has New Circle or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our Class A Common Stock or any hedging transaction, which establishes a net short position with respect to our Class A Common Stock; provided, however, that New Circle may sell a number of shares of the Company’s common stock equal to the number of shares that it is unconditionally obligated to purchase under a pending purchase notice, but has not yet received from the Company. New Circle agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised New Circle that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the date that all shares offered by this prospectus have been sold by New Circle.
Our Class A Common Stock is traded on the Nasdaq Capital Market under the symbol “DRCT.”
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DESCRIPTION OF CAPITAL STOCK
When used herein, the terms “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer to Direct Digital Holdings, Inc.
Common Stock
We are authorized to issue 160,000,000 shares of Class A Common Stock, 20,000,000 shares of Class B Common Stock and 10,000,000 shares of preferred stock, par value $0.001 per share.
Class A Common Stock
Voting Rights
Holders of our Class A Common Stock are entitled to cast one vote per share. Holders of our Class A Common Stock are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all holders of Class A Common Stock and Class B Common Stock present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments to the certificate of incorporation must be approved by a majority of the combined voting power of all shares of Class A Common Stock and Class B Common Stock, voting together as a single class.
Dividend Rights
Any dividend or distribution paid or payable to the holders of shares of Class A Common Stock shall be paid pro rata, on an equal priority, pari passu basis; provided, however, that if a dividend or distribution is paid in the form of Class A Common Stock (or rights to acquire shares of Class A Common Stock), then the holders of the Class A Common Stock shall receive Class A Common Stock (or rights to acquire shares of Class A Common Stock).
Liquidation Rights
In the event of our liquidation, dissolution or winding-up, upon the completion of the distributions required with respect to any series of redeemable convertible preferred stock that may then be outstanding, our remaining assets legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A Common Stock, unless different treatment is approved by the majority of the voting power of the outstanding shares of Class A Common Stock and Class B Common Stock.
Other Matters
No shares of Class A Common Stock are subject to redemption or have preemptive rights to purchase additional shares of Class A Common Stock. Holders of shares of our Class A Common Stock do not have subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the Class A Common Stock.
Class B Common Stock
Issuance of Class B Common Stock with LLC Units
Shares of Class B Common Stock will only be issued in the future to the extent necessary to maintain a one-to-one ratio between the number of LLC Units held by DDM LLC and the number of shares of Class B Common Stock issued to DDM LLC. Shares of Class B Common Stock are transferable only together with an equal number of LLC Units. Shares of Class B Common Stock will be cancelled on a one-for-one basis if we, at the election of DDM LLC, redeem or exchange their LLC Units pursuant to the terms of the Amended and Restated Limited Liability Agreement of DDH LLC, dated February 15, 2022, by and between us and DDM (the “DDH LLC Agreement”).
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Voting Rights
Holders of Class B Common Stock are entitled to cast one vote per share, with the number of shares of Class B Common Stock held by DDM LLC being equivalent to the number of nonvoting LLC Units held by DDM LLC. Holders of our Class B Common Stock are not entitled to cumulate their votes in the election of directors. The voting power afforded to DDM LLC by its shares of Class B Common Stock will be automatically and correspondingly reduced as it redeems its LLC Units because an equal number of their shares of Class B Common Stock will be cancelled.
Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all Class A and Class B stockholders present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments to the certificate of incorporation must be approved by a majority of the combined voting power of all shares of Class A Common Stock and Class B Common Stock, voting together as a single class. There will be a separate vote of the Class B Common Stock in the following circumstances:
•if we amend, alter or repeal any provision of the certificate of incorporation or the bylaws in a manner that modifies the voting, conversion or other powers, preferences, or other special rights or privileges, or restrictions of the Class B Common Stock;
•if we reclassify any outstanding shares of Class A Common Stock into shares having rights as to dividends or liquidation that are senior to the Class B Common Stock or, in the case of Class A Common Stock, the right to more than one vote for each share thereof; or
•if we authorize any shares of preferred stock with rights as to dividends or liquidation that are senior to the Class B Common Stock or the right to more than one vote for each share thereof.
Dividend Rights
The shares of Class B Common Stock have no economic rights. Holders of shares of our Class B Common Stock do not have any rights to receive dividends.
Liquidation Rights
On our liquidation, dissolution or winding up, holders of Class B Common Stock will not be entitled to receive any distribution of our assets.
Transfers
Pursuant to the DDH LLC Agreement, each holder of Class B Common Stock agrees that:
•the holder will not transfer any shares of Class B Common Stock to any person unless the holder transfers an equal number of LLC Units to the same person; and
•in the event the holder transfers any LLC Units to any person, the holder will transfer an equal number of shares of Class B Common Stock to the same person.
Other Matters
No shares of Class B Common Stock have preemptive rights to purchase additional shares of Class B Common Stock. Holders of shares of our Class B Common Stock do not have subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the Class B Common Stock.
Preferred Stock
Our board of directors has the authority, subject to limitations prescribed by Delaware law, to issue up to 10,000,000 shares of “blank check” preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders.
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Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our Class A Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our Company and might adversely affect the market price of our Class A Common Stock and the voting and other rights of the holders of our Class A Common Stock. We have no current plan to issue any shares of preferred stock.
Unit Purchase Option
In connection with our initial public offering consummated in February 2022 (the “IPO”), we sold to the representatives of the underwriters a unit purchase option to purchase 5% of the total number of units sold in the IPO (including 5% of any securities sold upon the underwriters’ exercise of the over-allotment option). The unit purchase option has an exercise price equal to 120% of the price per unit in the IPO or, in the event of the purchase of an uneven number of shares of Class A Common Stock or warrants pursuant to the over-allotment option, at 120% of the IPO price per share or per warrant, as applicable, subject to standard anti-dilution adjustments for share splits and similar transactions. The unit purchase option became exercisable upon issuance at any time, and from time to time, in whole or in part, during the period commencing 180 days from the commencement of sales in the IPO, and expiring five years from the commencement of sales in the IPO. The unit purchase option is also exercisable on a cashless basis. The unit purchase option has been deemed compensation by FINRA and is therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). Except as permitted by Rule 5110(e)(1), the underwriters (or permitted assignees under the Rule) were not permitted to sell, transfer, assign, pledge, or hypothecate the unit purchase option or the securities underlying the unit purchase option, nor will any of them engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the option or the underlying securities for a period of 180 days from the commencement of the IPO.
Anti-Takeover Provisions
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of Direct Digital. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include certain provisions that:
•permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
•provide that, after a removal for cause, vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
•prohibit cumulative voting in the election of directors;
•require the affirmative vote of the holders of 66 2/3% of the voting power of our outstanding common stock to amend certain provisions of our certificate of incorporation and bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•restrict the forum for certain litigation against us to Delaware or federal courts;
•permit our board of directors to alter our bylaws without obtaining stockholder approval; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law (the “DGCL”). These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time without the approval of our board of directors. In addition, our credit facility includes, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of
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certain change of control events relating to us, which also could discourage, delay or prevent a business combination transaction.
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LEGAL MATTERS
Troutman Pepper Locke LLP, Charlotte, North Carolina, will pass upon the validity of the securities being offered by this prospectus.
EXPERTS
The consolidated financial statements of Direct Digital Holdings, Inc. as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ / members’ equity (deficit) and cash flows for the year ended December 31, 2022 and the related notes have been audited by Marcum LLP, our prior independent registered public accounting firm, as set forth in its report thereon, and are included herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Direct Digital Holdings, Inc. as of December 31, 2023 and for the year then ended included in this prospectus and in the registration statement have been so included in reliance on the report of BDO USA, P.C., an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. The report on the consolidated financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. We have also filed a registration statement on Form S-1, including exhibits, under the Securities Act with respect to the securities offered by this prospectus. This prospectus is part of the registration statement, but does not contain all of the information included in the registration statement or the exhibits filed with the registration statement. For further information about us and the securities offered hereby, we refer you to the registration statement and the exhibits filed with the registration statement. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
Our SEC filings are available to the public on the internet at a website maintained by the SEC located at http://www.sec.gov. Those filings are also available to the public on, or accessible through, our website under the heading “Investors” at www.directdigitalholdings.com. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
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DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| AUDITED FINANCIAL STATEMENTS | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 243) | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688) | |||||
| INTERIM FINANCIAL STATEMENTS | |||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Direct Digital Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc. (the “Company”) as of December 31, 2023, the related consolidated statements of operations, changes in stockholders’ (deficit) equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered significant disruption in its sell-side business and, among other things, has limited funds to meet certain upcoming obligations which, collectively, raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2024.
New York, New York
October 15, 2024
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Direct Digital Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ / members’ equity (deficit) and cash flows for the year in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We served as the Company’s auditor from 2021 to 2024.
Houston, Texas
April 17, 2023, except for the effects of the revisions disclosed in Note 2 as to which the date is October 15, 2024
F-3
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | 5,116 | $ | 4,047 | |||||||
Accounts receivable, net of provision for credit losses of $344 and $4 | 37,207 | 26,354 | |||||||||
| Prepaid expenses and other current assets | 759 | 883 | |||||||||
| Total current assets | 43,082 | 31,284 | |||||||||
| Property, equipment and software, net | 599 | 673 | |||||||||
| Goodwill | 6,520 | 6,520 | |||||||||
| Intangible assets, net | 11,684 | 13,638 | |||||||||
| Deferred tax asset, net | 6,132 | 5,165 | |||||||||
| Operating lease right-of-use assets | 788 | 799 | |||||||||
| Related party receivable | 1,737 | — | |||||||||
| Other long-term assets | 130 | 47 | |||||||||
| Total assets | $ | 70,672 | $ | 58,126 | |||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | 33,926 | $ | 17,695 | |||||||
| Accrued liabilities | 3,816 | 3,778 | |||||||||
| Liability related to tax receivable agreement, current portion | 41 | 183 | |||||||||
| Current maturities of long-term debt | 1,478 | 655 | |||||||||
| Deferred revenues | 381 | 547 | |||||||||
| Operating lease liabilities, current portion | 126 | 92 | |||||||||
| Income taxes payable | 34 | 174 | |||||||||
Related party payables | — | 1,448 | |||||||||
| Total current liabilities | 39,802 | 24,572 | |||||||||
| Long-term debt, net of current portion and deferred financing cost | 28,578 | 23,064 | |||||||||
| Liability related to tax receivable agreement, net of current portion | 5,201 | 4,150 | |||||||||
| Operating lease liabilities, net of current portion | 773 | 745 | |||||||||
| Total liabilities | 74,354 | 52,531 | |||||||||
| COMMITMENTS AND CONTINGENCIES (Note 9) | |||||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | |||||||||||
Class A Common Stock, $0.001 par value per share, 160,000,000 shares authorized, 3,478,776 and 2,900,000 shares issued and outstanding, respectively | 3 | 3 | |||||||||
F-4
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
Class B Common Stock, $0.001 par value per share, 20,000,000 shares authorized, 10,868,000 and 11,278,000 shares issued and outstanding, respectively | 11 | 11 | |||||||||
| Additional paid-in capital | 3,067 | 2,611 | |||||||||
| Accumulated deficit | (2,538) | (344) | |||||||||
| Noncontrolling interest | (4,225) | 3,314 | |||||||||
| Total stockholders’ (deficit) equity | (3,682) | 5,595 | |||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | 70,672 | $ | 58,126 | |||||||
See accompanying notes to the consolidated financial statements.
F-5
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share data)
| For the Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | |||||||||||
| Sell-side advertising | $ | 122,434 | $ | 60,011 | |||||||
| Buy-side advertising | 34,676 | 29,349 | |||||||||
| Total revenues | 157,110 | 89,360 | |||||||||
| Cost of revenues | |||||||||||
| Sell-side advertising | 105,733 | 49,599 | |||||||||
| Buy-side advertising | 13,803 | 10,439 | |||||||||
| Total cost of revenues | 119,536 | 60,038 | |||||||||
| Gross profit | 37,574 | 29,322 | |||||||||
| Operating expenses | |||||||||||
| Compensation, taxes and benefits | 17,730 | 14,124 | |||||||||
| General and administrative | 13,199 | 7,219 | |||||||||
| Other expense | 8,830 | — | |||||||||
| Total operating expenses | 39,759 | 21,343 | |||||||||
| (Loss) income from operations | (2,185) | 7,979 | |||||||||
| Other income (expense) | |||||||||||
| Other income | 256 | 48 | |||||||||
| Revaluation of tax receivable agreement liability | 331 | — | |||||||||
| Loss on early termination of line of credit | (300) | — | |||||||||
| Forgiveness of Paycheck Protection Program loan | — | 287 | |||||||||
| Loss on redemption of non-participating preferred units | — | (590) | |||||||||
| Interest expense | (4,378) | (3,231) | |||||||||
| Total other expense, net | (4,091) | (3,486) | |||||||||
| (Loss) income before income taxes | (6,276) | 4,493 | |||||||||
| Income tax expense | 568 | 326 | |||||||||
| Net (loss) income | (6,844) | 4,167 | |||||||||
| Net (loss) income attributable to noncontrolling interest | (4,650) | 3,962 | |||||||||
| Net (loss) income attributable to Direct Digital Holdings, Inc. | $ | (2,194) | $ | 205 | |||||||
| Net (loss) income per share: | |||||||||||
| Basic | $ | (0.73) | $ | 0.11 | |||||||
| Diluted | $ | (0.73) | $ | 0.11 | |||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||
| Basic | 2,988 | 2,848 | |||||||||
| Diluted | 2,988 | 2,891 | |||||||||
See accompanying notes to the consolidated financial statements.
F-6
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands except share data)
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Members' / Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Units | Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | 34,182 | $ | 4,294 | — | $ | — | — | $ | — | $ | — | $ | (4,669) | $ | — | $ | (375) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss prior to Organizational Transactions | — | — | — | — | — | — | — | (464) | — | (464) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock, net of transaction costs | — | — | 2,800,000 | 3 | — | — | 11,164 | — | — | 11,167 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of member units to Class B shares | (28,545) | — | — | — | 11,378,000 | 11 | (11) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Class B shares to Class A common stock | — | — | 100,000 | — | (100,000) | — | 36 | — | (36) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of common units | (5,637) | (4,294) | — | — | — | — | (2,906) | — | — | (7,200) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of the Organizational Transactions on noncontrolling interest | — | — | — | — | — | — | (6,649) | 4,120 | 2,529 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 154 | — | — | 154 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | — | — | (3,141) | (3,141) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital related to tax receivable agreement | — | — | — | — | — | — | 823 | — | — | 823 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 669 | 3,962 | 4,631 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | — | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | ||||||||||||||||||||||||||||||||||||||||||
F-7
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ (Deficit) Equity | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 706 | — | — | 706 | |||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 90,092 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 70,801 | — | — | — | 122 | — | — | 122 | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 7,883 | — | — | — | 29 | — | — | 29 | |||||||||||||||||||||||||||||||||||||||
| Conversion of Class B to Class A common stock | 410,000 | — | (410,000) | — | 145 | — | (145) | — | |||||||||||||||||||||||||||||||||||||||
| Acquisition and redemption of warrants, including expenses and related items | — | — | — | — | (3,540) | — | — | (3,540) | |||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital related to tax receivable agreement | — | — | — | — | 250 | — | — | 250 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,194) | (4,650) | (6,844) | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest rebalancing | — | — | — | — | 2,744 | — | (2,744) | — | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 3,478,776 | $ | 3 | 10,868,000 | $ | 11 | $ | 3,067 | $ | (2,538) | $ | (4,225) | $ | (3,682) | |||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
F-8
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash Flows Provided By Operating Activities: | |||||||||||
| Net (loss) income | $ | (6,844) | $ | 4,167 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Amortization of deferred financing costs | 615 | 598 | |||||||||
| Amortization of intangible assets | 1,954 | 1,954 | |||||||||
| Reduction in carrying amount of right-of-use assets | 164 | 137 | |||||||||
| Depreciation and amortization of property, equipment and software | 253 | 34 | |||||||||
| Stock-based compensation | 706 | 154 | |||||||||
| Forgiveness of Paycheck Protection Program loan | — | (287) | |||||||||
| Deferred income taxes | 568 | 105 | |||||||||
| Loss on redemption of non-participating preferred units | — | 590 | |||||||||
| Revaluation of tax receivable agreement liability | (331) | — | |||||||||
| Loss on early termination of line of credit | 300 | — | |||||||||
| Provision for credit losses/bad debt expense | 422 | 17 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (11,275) | (18,500) | |||||||||
| Prepaid expenses and other assets | 201 | 307 | |||||||||
| Accounts payable | 16,231 | 10,966 | |||||||||
| Accrued liabilities and TRA payable | (8) | 2,618 | |||||||||
| Income taxes payable | (140) | 174 | |||||||||
| Deferred revenues | (166) | (801) | |||||||||
| Operating lease liability | (92) | (98) | |||||||||
| Related party payable | — | (71) | |||||||||
| Net cash provided by operating activities | 2,558 | 2,064 | |||||||||
| Cash Flows Used In Investing Activities: | |||||||||||
| Cash paid for capitalized software and property and equipment | (178) | (688) | |||||||||
| Net cash used in investing activities | (178) | (688) | |||||||||
| Cash Flows Used In Financing Activities: | |||||||||||
| Proceeds from note payable | 3,516 | 4,260 | |||||||||
| Payments on term loan | (677) | (576) | |||||||||
| Proceeds from lines of credit | 5,000 | — | |||||||||
| Payments on lines of credit | (2,000) | (400) | |||||||||
| Payment of deferred financing costs | (576) | (525) | |||||||||
| Proceeds from Issuance of Class A Common Stock, net of transaction costs | — | 11,167 | |||||||||
| Acquisition and redemption of warrants, including expenses | (3,540) | — | |||||||||
| Redemption of common units | — | (7,200) | |||||||||
| Redemption of non-participating preferred units | — | (7,046) | |||||||||
F-9
| For the Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Proceeds from options exercised | 29 | — | |||||||||
| Proceeds from warrants exercised | 122 | — | |||||||||
| Distributions to holders of LLC Units | (3,185) | (1,693) | |||||||||
| Net cash used in financing activities | (1,311) | (2,013) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 1,069 | (637) | |||||||||
| Cash and cash equivalents, beginning of the period | 4,047 | 4,684 | |||||||||
| Cash and cash equivalents, end of the period | $ | 5,116 | $ | 4,047 | |||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for taxes | $ | 361 | $ | 47 | |||||||
| Cash paid for interest | $ | 3,736 | $ | 2,568 | |||||||
| Non-cash Activities: | |||||||||||
| Property and equipment purchased included in accounts payable | $ | — | $ | 19 | |||||||
| Outside basis difference in partnership | $ | 1,536 | $ | 5,270 | |||||||
| Tax receivable agreement payable to Direct Digital Management, LLC | $ | 1,286 | $ | 4,332 | |||||||
| Tax benefit on tax receivable agreement | $ | 250 | $ | 823 | |||||||
| Prepaid distributions to holders of LLC Units included in related party receivable | $ | 1,737 | $ | — | |||||||
See accompanying notes to the consolidated financial statements.
F-10
Note 1 — Organization and Description of Business
Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions intended for underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem. Direct Digital Holdings, Inc. is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Colossus Media, LLC (“Colossus Media”) and Huddled Masses, LLC (“Huddled Masses®” or “Huddled Masses”). Colossus Media operates the Company’s proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSPTM (“Colossus SSP”). In late September 2020, DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products, and other sectors with particular emphasis intended for small and mid-sized businesses transitioning into digital with growing digital media budgets. In February 2022, Direct Digital Holdings, Inc. completed an initial public offering of its securities and, together with DDH LLC, effected a series of transactions (together, the “Organizational Transactions”) whereby Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, the holder of 100% of the voting interests of DDH LLC and the holder of 19.7% of the economic interests of DDH LLC, commonly referred to as an “Up-C” structure. (See Note 6 – Related Party Transactions). In these consolidated financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer (i) following the completion of the Organizational Transactions, including the initial public offering, to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC, and, unless otherwise stated, its subsidiaries, and (ii) on or prior to the completion of the Organizational Transactions, to DDH LLC and, unless otherwise stated, its subsidiaries. All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas.
The subsidiaries of Direct Digital Holdings, Inc. are as follows:
| Subsidiary | Current % Ownership | Business Segment | Date of Formation | Date of Acquisition | ||||||||||||||||||||||
| Colossus Media, LLC | 100 | % | Sell-side | September 8, 2017 | June 21, 2018 | |||||||||||||||||||||
| Orange142, LLC | 100 | % | Buy-side | March 6, 2013 | September 30, 2020 | |||||||||||||||||||||
| Huddled Masses, LLC | 100 | % | Buy-side | November 13, 2012 | June 21, 2018 | |||||||||||||||||||||
Direct Digital Holdings, LLC (1) | N/A | June 21, 2018 | February 15, 2022 | |||||||||||||||||||||||
__________________
(1)DDH owns 100% of the voting interest in Direct Digital Holding, LLC. As of December 31, 2023, DDH owns 24.2% of the economic interest in Direct Digital Holdings, LLC. See further discussion of the Up-C structure in Note 6 of our consolidated financial statements.
Colossus SSP is a stand-alone platform intended to deliver targeted advertising to diverse and multicultural audiences as well as to general audiences. Both buy-side subsidiaries, Orange 142 and Huddled Masses, offer technology-enabled advertising solutions and consulting services to clients through demand side platforms (“DSPs”).
Providing both the front-end, buy-side operations coupled with the Company’s proprietary sell-side operations enables the Company to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.
Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies
Basis of presentation and consolidation
The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The consolidated financial statements include the accounts of Direct Digital
F-11
Holdings, Inc. and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards otherwise applicable to public companies until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates discussed below reflect this election.
Revenue recognition
The Company recognizes revenue using the following five steps: 1) identification of a contract with a customer; 2) identification of the performance obligation(s) in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligation(s) in the contract; and 5) recognition of revenue when, or as, the performance obligation(s) are satisfied. The Company’s revenues are derived primarily from two sources: sell-side advertising and buy-side advertising. Thus, the Company disaggregates the revenue earned into these two segments. For additional segment disclosures, refer to Note 7 of our consolidated financial statements. The Company maintains agreements with its customers in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days) and access to its platform.
For the sell-side advertising segment, the Company generates revenue by selling advertising inventory (digital ad units) that the Company purchases from publishers to advertisers through a process of monetizing ad impressions on the Company’s proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP. For the buy-side advertising segment, the Company generates revenue from customers that enter into agreements with the Company to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features.
In connection with the Company’s analysis of principal vs agent considerations, the Company has evaluated the specified goods or services and considered whether the Company controls the goods or services before they are provided to the customer, including the three indicators of control. Based upon this analysis and the Company’s specific facts and circumstances, the Company concluded that it is a principal for the goods or services sold through both the Company’s sell-side advertising segment and buy-side advertising segment because the Company controls the specified good or service before it is transferred to the customer and the Company is the primary obligor in the agreement with customers. Therefore, the Company reports revenue on a gross basis inclusive of all supplier costs and pays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.
Sell-side advertising
The Company partners with publishers to sell advertising inventory to the Company’s Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and mobile mediums using its proprietary programmatic sell-side platform (“SSP”). The Company refers to its publishers, app developers, and channel partners collectively as its “publishers.” The Company generates revenue through the monetization of publisher ad impressions on its platform. The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. The Company recognizes revenue at a point in time when an ad is delivered or displayed in response to a winning bid request from ad buyers.
F-12
Buy-side advertising
The Company purchases media based on the budget established by its customers with a focus on leveraging data services, customer branding, real-time market analysis and micro-location advertising. The Company offers its services on a fully managed basis, which is recognized over time using the output method when the performance obligation is fulfilled. An “impression” is delivered when an advertisement appears on pages viewed by users. The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum. Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities. The Company provides digital advertising and media buying capabilities with a focus on generating measurable digital and financial life for its customers.
Revenue arrangements are evidenced by a fully executed insertion order (“IO”) and/or a master service agreement (“MSA”) covering a combination of marketing tactics. Generally, IOs specify the number and type of advertising impressions to be delivered over a specified time at an agreed upon price and performance objectives for an ad campaign. Performance objectives are generally a measure of targeting, as defined by the parties in advance, such as number of ads displayed, consumer clicks on ads or consumer actions (which may include qualified leads, registrations, downloads, inquiries or purchases). These payment models are commonly referred to as CPM (cost per impression), CPC (cost per click) and CPA (cost per action). The majority of the Company’s contracts are flat-rate, fee-based contracts.
Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $0.4 million and $0.5 million as of December 31, 2023 and 2022, respectively. Revenue recognized during 2023 and 2022 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $0.5 million and $1.3 million, respectively.
Accounting Standards Codification (“ASC”) 606 provides various optional practical expedients. The Company elected the use of the practical expedient relating to the disclosure of remaining performance obligations within a contract and will not disclose remaining performance obligations for contracts with an original expected duration of one year or less.
Goodwill
As of December 31, 2023 and 2022, goodwill was $6.5 million, which includes $2.4 million as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $4.1 million from the acquisition of Orange 142 in 2020. The Company expects to deduct goodwill for tax purposes in future years. Goodwill is attributable to entry into new markets not previously accessible and generation of future growth opportunities. Goodwill is assessed for impairment at least annually (December 31) starting with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed. Depending upon the results of the quantitative measurement, the recorded goodwill may be written down and an impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event. The Company determined that there was no impairment of goodwill during the years ended December 31, 2023 and 2022.
Intangible assets, net
Intangible assets consist of customer relationships, trademarks and non-compete agreements. Intangible assets are recorded at fair value at the time of their acquisition and are stated within the consolidated balance sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives
F-13
and recorded as amortization expense within general and administrative expenses in the consolidated statements of operations. The Company’s intangible assets are being amortized over their estimated useful lives, using the straight-line method with non-compete agreements over 5 years and other intangibles over 10 years.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets, including property, equipment and software costs and intangible assets if facts or circumstances indicate that any of those assets might be impaired. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows to determine if a write-down to fair value is necessary. No impairment loss was recognized during the years ended December 31, 2023 and 2022.
Stock-based compensation
Stock-based compensation cost for options and restricted stock units (“RSU”) awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date.
The Company estimates the fair value of RSU’s based on the closing price of the Company’s common stock on the date of the grant. The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates and the expected dividend yield. Given the Company’s short history as a public company, the expected volatility is determined based on the trading history of several unrelated public companies within the industry that the Company considers to be comparable and the expected term is determined based on a combination of terms of the stock options and peer data. The risk-free interest rate is derived using the U.S. Treasury yield curve in effect at date of grant. Other assumptions are based on historical experience and activity. The Company considers an estimated forfeiture rate for stock options based on historical experience and the anticipated forfeiture rates during the future contract life.
The fair value of the Company’s stock options was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average input assumptions used by the Company were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Grant date fair value | $ | 2.44 | $ | 1.01 | |||||||||||||
| Expected term | 6.0 | 6.0 | |||||||||||||||
| Expected volatility | 69 | % | 63 | % | |||||||||||||
| Risk-free interest rate | 3.70 | % | 3.25 | % | |||||||||||||
| Exercise price | $ | 3.78 | $ | 1.68 | |||||||||||||
| Dividend yield | — | — | |||||||||||||||
Employee benefit plans
The Company sponsors a safe harbor, defined contribution 401(k) and profit-sharing plan (the “Plan”) that allows eligible employees to contribute a percentage of their compensation. The Company matches employee contributions up to a maximum of 100% of the participant’s salary deferral, limited to 4% of the employee’s salary. For the years ended December 31, 2023 and 2022, the Company’s matching contributions were $0.2 million and $0.2 million, respectively. Although the Company may make a discretionary profit-sharing contribution to the Plan, during the years ended December 31, 2023 and 2022, no profit-sharing contributions were made.
F-14
The Company has an Employee Benefit Plan Trust (the “Trust”) to provide for the payment or reimbursement of all or a portion of covered medical, dental and prescription expenses for the employees of the Company. The Trust is funded with contributions made by the Company and participating employees at amounts sufficient to keep the Trust on an actuarially sound basis. The self-funded plan has an integrated stop loss insurance policy for the funding of the Trust benefits in excess of the full funding requirements. As of December 31, 2023 and 2022, the Company recorded an estimated liability for incurred but not recognized claims in accrued liabilities in an amount which was less than $0.1 million.
The Company also has an incentive plan for executives and employees of the Company which provides for performance based awards payable in cash or stock-based compensation as determined by the Compensation Committee of the Company’s Board of Directors. There was $2.4 million and $2.3 million recognized during the years ended December 31, 2023 and 2022, respectively, for awards pursuant to this plan. $1.4 million of the 2023 awards was recorded as stock-based compensation in compensation, taxes and benefits with the remainder of 2023 and all of 2022 recorded as compensation expense in compensation, taxes and benefits and payable in cash subsequent to the applicable year end.
Income taxes
In February 2022, concurrent with the Organizational Transactions, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM”). The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement. DDH LLC is a limited liability company, is treated as a partnership for federal income tax purposes and generally is not subject to any entity-level U.S. federal income tax and certain state and local income taxes. Any taxable income or loss generated by the Company is allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss under the LLC Agreement. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC Units are redeemed or exchanged by the members of DDH, LLC. The Company made an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurred. During the years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 shares of Class B Common Stock into shares of Class A Common Stock, respectively.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. As of December 31, 2023 and 2022, the Company recorded a valuation allowance of $0.5 million and $0, respectively.
Accounts receivable, net
Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms. The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral. Accounts receivable are stated at net realizable value. The Company insures a significant portion of its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes provision for credit losses as deemed necessary for accounts not covered by this insurance. Management periodically reviews outstanding accounts receivable for reasonableness. If warranted, the Company processes a claim with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense. The guaranteed recovery for the claim is approximately 90% of the original balance, and if the full amount is collected by the insurance company, the remaining 10% is remitted to the Company. If the insurance company is unable to collect the full amount, the Company records the remaining 10% to
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bad debt expense. The Company’s provision for credit losses reflects the current expected credit loss inherent in the accounts receivable considering the Company’s aging analysis, historical collection experience, customer creditworthiness, current and future economic conditions and market conditions. Accounts receivable balances are written off against the provision when the Company believes it is probable the receivable will not be recovered. Bad debt expense was approximately $0.4 million and less than $0.1 million for the years ended December 31, 2023 and 2022, respectively.
The following table presents the changes in the provision for credit losses (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Beginning balance | $ | 4 | $ | 41 | |||||||
| Provision for credit losses | 369 | 10 | |||||||||
| Write-offs, net of recoveries | (29) | (47) | |||||||||
| Ending balance | $ | 344 | $ | 4 | |||||||
Concentrations of customers and suppliers
There is an inherent concentration of credit risk associated with accounts receivable arising from revenue from major customers on both the sell-side and buy-side of the business. For the years ended December 31, 2023 and 2022, one customer of the sell-side of the business represented 73% and 63% of revenues, respectively. As of December 31, 2023 and 2022, one customer of the sell-side of the business accounted for 83% and 80%, respectively, of accounts receivable.
As of December 31, 2023 and 2022, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 57% and 63%, respectively, of consolidated accounts payable.
Accrued Liabilities
The components of accrued liabilities on the balance sheet as of December 31, 2023 and 2022 are as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accrued compensation and benefits | $ | 2,789 | $ | 3,129 | |||||||
| Accrued expenses | 631 | 207 | |||||||||
| Accrued severance | 189 | — | |||||||||
Accrued litigation settlement (1) | 171 | 429 | |||||||||
| Accrued interest | 36 | 13 | |||||||||
| Total accrued liabilities | $ | 3,816 | $ | 3,778 | |||||||
__________________
(1)In July 2022, the Company entered into a litigation settlement agreement with a vendor of Huddled Masses related to a delinquent balance from 2019 and agreed to pay a total of $0.5 million with monthly installment payments over 24 months beginning September 1, 2022.
Segment information
Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) for purpose of allocating resources and assessing performance. The Company’s CODM is its Chairman and Chief Executive Officer. The Company operates two reportable segments: sell-side advertising, which includes the results of Colossus Media, and buy-side advertising, which includes the results of Orange 142 and Huddled Masses. All of the Company’s revenues are attributed to the United States.
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Cost of revenues
Sell-side advertising
The Company pays publishers a fee, which is typically a percentage of the value of the ad impressions monetized through the Company’s platform. Cost of revenues consists primarily of publisher media fees and data center co-location costs. Media fees include the publishing and real-time bidding costs to secure advertising space.
Buy-side advertising
Cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to the Company’s customers.
Operating expenses
Operating expenses consist of compensation expenses related to our executive, sales, finance and administrative personnel (including salaries, commissions, stock-based compensation, bonuses, benefits and taxes); general and administrative expenses (including rent expense, professional fees, independent contractor costs, selling and marketing fees, administrative and operating system subscription costs, insurance, and amortization expense related to our intangible assets); and other expense (including transactions that are unusual in nature or which are occurring infrequently). See further discussion of Other Expenses within Operating Expenses for the year ended December 31, 2023 in Note 9 of the consolidated financial statements.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expense incurred during the years ended December 31, 2023 and 2022 was $2.2 million and $0.9 million, respectively. These costs are included in general and administrative expenses in the consolidated statements of operations.
Cash and cash equivalents
Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less. Such deposits may, at times, exceed federally insured limits. The risk of loss attributable to any uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.
Property, equipment and software, net
Property and equipment are recognized in the consolidated balance sheets at cost less accumulated depreciation and amortization. The Company capitalizes purchases and depreciates its property and equipment using the straight-line method of depreciation over the estimated useful lives of the respective assets, generally ranging from three to five years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related leases. The Company capitalizes costs related to the development of internal-use software. Costs incurred during the application development phase are capitalized and amortized using the straight-line method over the estimated useful life, estimated at three years.
The cost of repairs and maintenance are expensed as incurred. Major renewals or improvements that extend the useful lives of the assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gain or loss is recognized in the consolidated statements of operations.
Leases
The Company has operating leases for real estate. Operating leases are included in Operating Lease Right of Use ("ROU") Assets and Operating Lease Liabilities on the consolidated balance sheets. Operating lease asset and liability amounts are measured and recognized based on discounted future cash flow payment amounts the Company
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expects to make over the expected term of the underlying leases, including renewal periods the Company is reasonably certain to exercise. The lease liability for leases expected to be settled in twelve-months or less are classified as current liabilities. The general terms of the Company’s lease agreements require monthly payments. Because the Company does not generally have access to the rate implicit in its leases, the Company utilizes its incremental borrowing rate as the discount rate for measuring the lease liability. At commencement, the operating lease ROU asset and lease liability are the same, with adjustments to the ROU asset for lease incentives and initial direct costs incurred. The Company reviews all options to extend, terminate or purchase its ROU assets at the commencement of the lease and on an ongoing basis and accounts for these options when they are reasonably certain of being exercised. The Company evaluates lease modifications as they occur and records such as a separate lease or an adjustment to the existing ROU asset and lease liability as appropriate. Operating lease expense is recorded on a straight-line basis over the lease term with amortization of the ROU asset calculated as the difference between the straight-line operating lease expense and the implied interest expense on the lease liability. On the statement of cash flows, operating lease expense is included in operating cash flows.
Deferred offering costs
The Company records certain legal, accounting and other third-party fees that are directly associated with an offering to stockholders’ equity or debt in the event that the Company completes an offering. Costs associated with debt offerings are amortized to interest expense using the straight-line method over the life of the debt. As of December 31, 2023 and 2022, $1.7 million and $2.1 million, respectively, of unamortized deferred financing costs are netted against debt in the consolidated balance sheets.
Business combinations
The Company includes the results of operations of the businesses that are acquired as of the respective dates of acquisition. The Company allocates the fair value of the purchase price of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The Company estimates and records the fair value of purchased intangible assets, which primarily consists of customer relationships, trademarks, and non-compete agreements. The excess of the fair value of the purchase price over the fair values of these identifiable assets, both tangible and intangible, and liabilities is recorded as goodwill.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. The Company uses estimates to determine many reported amounts, including but not limited to gross vs net assessment in revenue recognition, recoverability of goodwill and long-lived assets, useful lives used in amortization of intangibles, income taxes and valuation allowances, stock-based compensation and fair values of assets and liabilities acquired in business combinations.
Fair value measurements
The Company employs a hierarchy which prioritizes the inputs used to measure recurring fair value into three distinct categories based on the lowest level of input that is significant to the fair value measurement. The methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest levels to unobservable inputs, summarized as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
•Level 3 – Significant unobservable inputs (including our own assumptions in determining fair value).
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We use the cost, income or market valuation approaches to estimate the fair value of our assets and liabilities when insufficient market-observable data is available to support our valuation assumptions.
Fair value of financial instruments
The Company considers the fair value of all financial instruments, including cash, accounts receivable and accounts payable to approximate their carrying values at year-end due to their short-term nature. The carrying value of the Company’s debt approximates fair value due to the market rates of interest.
Net income (loss) per share
Basic net income (loss) per share excludes dilution and is determined by dividing net income (loss) by the weighted average number of common shares outstanding including participating securities during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock.
Recent Accounting Pronouncements
Accounting pronouncements adopted in 2023
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company adopted this ASU effective January 1, 2023. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
Accounting pronouncements not yet adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for emerging growth companies for annual periods beginning after December 15, 2025. This accounting standard is effective in the first quarter of the Company's fiscal year ending December 31, 2026. The Company is currently evaluating the impact of adoption on our financial disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures. The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the CODM. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption on our financial disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements.
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Liquidity and capital resources
Going Concern
The Company evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these consolidated financial statements were issued or were available to be issued.
As discussed in Note 9, one of the Company’s sell-side customers paused its connection to the Company for a couple of weeks in May 2024, which reduced sell-side sales volumes. As of the date of this report, sell-side volumes related to this customer have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created significant disruption in the Company’s sell-side business. The Company is actively working with its partners to achieve prior volume levels. However, there can be no assurance that the Company will be able to achieve prior volume levels with its partners or on the timing of achieving such volume levels. Additionally, the Company (1) incurred a net loss of $6.8 million in 2023 primarily related to payments made to a few publishers of $8.8 million associated with a disputed short payment from a customer, (2) reported an accumulated deficit of $2.5 million as of December 31, 2023, (3) reported cash and cash equivalents of $5.1 million as of December 31, 2023, (4) has borrowed $3.0 million and $9.7 million as of December 31, 2023 and the date of this report, respectively, under the Credit Agreement which matures in July 2025, (5) was notified on April 17, 2024 that the Company’s auditor had resigned and (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024. The delay in filing the Company’s annual and quarterly reports disrupted existing capital-raising efforts and created additional audit, legal and other expenses. These factors raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months.
The Company anticipates sources of liquidity to include cash on hand and cash flow from operations and has taken several actions to address liquidity concerns. These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary relief from debt covenants (see Note 3 – Long-Term Debt) while rebuilding sell-side volumes, (3) raising capital through arrangements with various providers, and (4) regaining compliance with respect to delinquent SEC filings which will allow the Company to access the capital markets as well as other financing sources. There can be no assurance that the Company’s actions will be successful or that additional financing will be available when needed or on acceptable terms.
The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
Correction of Immaterial Errors in Prior Consolidated Financial Statements
For the quarter ended September 30, 2023, the Company identified a prior period accounting error in the Company’s previously reported unaudited interim consolidated financial statements beginning June 30, 2022 resulting from the incorrect accounting for granted but unvested restricted stock units. For the year ended December 31, 2023, the Company identified prior year accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for and presentation of noncontrolling interests (NCI), (2) recognition of an organizational transaction, and (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI. Based on management’s evaluation of the errors in consideration of the SEC Staff’s Accounting Bulletins Topic 1.M, Materiality and Topic 1.N, Considering the Effects of Misstatements when Quantifying Misstatements in the Current Year Financial Statements and
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interpretations therewith, the Company concluded these errors are not material to the Company’s previously reported financial statements included in the 2022 Form 10-K filed on April 17, 2023.
The following tables reflect the impact of the correction of these immaterial errors (in thousands):
| Consolidated Balance Sheet as of December 31, 2022 | As Reported | As Revised | ||||||||||||
| Accrued liabilities | $ | 4,778 | $ | 3,778 | ||||||||||
| Total current liabilities | $ | 25,572 | $ | 24,572 | ||||||||||
| Total liabilities | $ | 53,531 | $ | 52,531 | ||||||||||
| Class A Common Stock Units | $ | 3,253 | $ | 2,900 | ||||||||||
| Class A Common Stock Amount | $ | 3 | $ | 3 | ||||||||||
| Additional paid-in capital | $ | 8,224 | $ | 2,611 | ||||||||||
| Accumulated deficit | $ | (3,643) | $ | (344) | ||||||||||
| Total stockholders’ equity attributable to Direct Digital Holdings, Inc. | $ | 4,595 | $ | 2,281 | ||||||||||
| Noncontrolling interest | $ | — | $ | 3,314 | ||||||||||
| Total stockholders’ equity | $ | 4,595 | $ | 5,595 | ||||||||||
| Consolidated Statement of Operations for the Twelve Months Ended December 31, 2022 | As Reported | As Revised | ||||||||||||
| Net income attributable to non-controlling interests | $ | — | $ | 3,962 | ||||||||||
| Net income attributable to Direct Digital Holdings, Inc. | $ | 4,167 | $ | 205 | ||||||||||
| Basic net income per share | $ | 0.33 | $ | 0.11 | ||||||||||
| Diluted net income per share | $ | 0.33 | $ | 0.11 | ||||||||||
| Weighted-average number of shares of common stock outstanding - basic | 12,638 | 2,848 | ||||||||||||
| Weighted-average number of shares of common stock outstanding - dilutive | 12,638 | 2,891 | ||||||||||||
| Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2022 | As Reported | As Revised | ||||||||||||
| Class A Common Stock Units | 3,253 | 2,900 | ||||||||||||
| Class A Common Stock Amount | $ | 3 | $ | 3 | ||||||||||
| Additional Paid-in Capital | $ | 8,224 | $ | 2,611 | ||||||||||
| Accumulated Deficit | $ | (3,643) | $ | (344) | ||||||||||
| Noncontrolling Interest | $ | — | $ | 3,314 | ||||||||||
| Total Stockholders’ Equity | $ | 4,595 | $ | 5,595 | ||||||||||
| Consolidated Statement of Changes in Stockholders' Equity for the Twelve Months Ended December 31, 2022 | ||||||||||||||
| Distributions to members (Accumulated Deficit) | $ | (3,141) | $ | — | ||||||||||
| Distributions to holders of LLC Units (NCI) | $ | — | $ | (3,141) | ||||||||||
| Issuance of restricted stock units | 378 | — | ||||||||||||
| Restricted stock forfeitures units | (25) | — | ||||||||||||
| Net loss prior to Organizational Transactions | $ | — | $ | (464) | ||||||||||
| Net income (Accumulated Deficit) | $ | 4,167 | $ | 669 | ||||||||||
| Net income (NCI) | $ | — | $ | 3,962 | ||||||||||
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Note 3 — Long-Term Debt
At December 31, 2023 and 2022, long-term debt consisted of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| 2021 Credit Facility | $ | 28,594 | $ | 25,684 | |||||||
| Credit Agreement | 3,000 | — | |||||||||
| Economic Injury Disaster Loan | 150 | 150 | |||||||||
| Total long-term debt | 31,744 | 25,834 | |||||||||
| Less: deferred financing costs | (1,688) | (2,115) | |||||||||
| Total long-term debt, net of deferred financing costs | 30,056 | 23,719 | |||||||||
| Less: current portion | (1,478) | (655) | |||||||||
| Total long-term debt, net of current portion | $ | 28,578 | $ | 23,064 | |||||||
Lafayette Square
On December 3, 2021, the Company entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square Loan Services, LLC (“Lafayette Square”) as administrative agent, and the various lenders thereto. The term loan under the 2021 Credit Facility initially provided for a term loan in the principal amount of up to $32.0 million, consisting of a $22.0 million closing date term loan (the “Term Loan”) and an up to $10.0 million delayed draw term loan (the “Delayed Draw Loan”). The loans under the 2021 Credit Facility originally bore interest at LIBOR plus the applicable margin minus any applicable impact discount. The applicable margin under the 2021 Credit Facility was determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50% per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00% per annum if the consolidated total net leverage ratio was greater than 4.00 to 1.00. On June 1, 2023, as originally contemplated under the 2021 Credit Facility, the Company entered into an agreement with Lafayette Square to convert the existing LIBOR based rate to a Term Secured Overnight Financing Rate (“SOFR”) with a credit spread of 0.15% per annum for the interest periods of three months and providing for a credit spread adjustment of 0.10%, 0.15% or 0.25% per annum for interest periods of one month, three months or six months, respectively. The loans under the 2021 Credit Facility bear interest at SOFR plus the applicable credit spread adjustment plus the applicable margin minus any applicable impact discount. Prior to entering into the Fifth Amendment (as defined below), the applicable margin under the 2021 Credit Facility was based on the consolidated total net leverage ratio of the Company at a rate of 7.00% per annum if the consolidated total net leverage ratio was less than or equal to 1.00 to 1.00 with gradual increases as the ratio increased up to 10.00% per annum if the consolidated total net leverage ratio was greater than 3.50 to 1.00. The maturity date of the 2021 Credit Facility is December 3, 2026.
On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement and received proceeds of $4.3 million borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction.
Subsequently, on October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility (the “Fourth Amendment”) and received proceeds of $3.6 million borrowed under the Delayed Draw Loan to make payments in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred as described in Note 4 – Stockholders’ Equity and Stock-Based Compensation in the notes to the consolidated financial statements. In connection with the Fourth Amendment, the Company agreed it would not be permitted to request any additional funds under the Delayed Draw Loan, and Lafayette Square would not be obligated to fund any such requests.
Quarterly installment payments on the Term Loan and the Delayed Draw Loan, due on the last day of each fiscal quarter, began March 31, 2022 with a final installment due December 3, 2026 for remaining balances outstanding under each loan. Each quarterly installment payment under the closing date term loan was $137,000 from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $275,000. Each
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quarterly installment payment under the Delayed Draw Loan was 0.625% of the amount of the Delayed Draw Loan through December 31, 2023, and each installment payment thereafter until maturity is 1.25% of the amount of the Delayed Draw Loan.
Under the 2021 Credit Facility, dividends and distributions by DDH LLC to the Company and any shareholders of the Company are permitted so long as (i) no default or event of default is continuing or would occur after giving pro forma effect to such dividends and distributions under the 2021 Credit Facility, (ii) the Company, on a pro forma basis, maintains a consolidated senior net leverage ratio of not greater than 1.5 to 1.0, and (iii) the Company, on a pro forma basis, maintains liquidity of not less than $15,000,000.
The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of the Company. As of December 31, 2023, the Company owed a balance on the 2021 Credit Facility of $28.6 million. Additional deferred financing costs of less than $0.1 million and $0.5 million were incurred during the year ended December 31, 2023 and 2022, respectively. Unamortized deferred financing costs as of December 31, 2023 and 2022 were $1.7 million and $2.1 million, respectively. Accrued and unpaid interest was $0 as of December 31, 2023 and 2022. The 2021 Credit Facility contains customary affirmative and negative covenants. Prior to entering into the Fifth Amendment, the Company was required to maintain a net leverage ratio of no more than 3.50 to 1.00 as of December 31, 2021 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025, 3.00 to 1.00 as of June 30, 2025 and September 30, 2025, with incremental tightening of the ratio to 2.50 to 1.00 as of June 30, 2026 and thereafter through maturity. Prior to entering to the Fifth Amendment, the 2021 Credit Facility also required the Company to maintain a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries. The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of December 31, 2023. With the Fifth Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this annual report.
The components of interest expense and related fees for the 2021 Credit Facility are as follows (in thousands):
| Year Ended Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Interest expense – Lafayette Square | $ | 3,655 | $ | 2,498 | |||||||
| Amortization of deferred financing costs – Lafayette Square | 552 | 497 | |||||||||
| Total interest expense and amortization of deferred financing costs | $ | 4,207 | $ | 2,995 | |||||||
On October 15, 2024, with an effective date of June 30, 2024, the Company and Lafayette Square entered into the Fifth Amendment to the Term Loan and Security Agreement (the “Fifth Amendment”) which among other things, (1) defers quarterly installment payments on the Term Loan and the Delayed Draw Loan for the periods from June 30, 2024 through December 31, 2025, (2) requires that the Company pay a commitment fee of 50 basis points or an amount of $0.1 million to Lafayette Square, (3) allows proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provides for one-month and three-month interest periods, (5) replaces the calculation of the consolidated total net leverage ratio with a consolidated total leverage ratio for
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purposes of calculating the applicable margin and the financial covenant and (6) replaces the financial covenants under the 2021 Credit Facility (effective as of June 30, 2024) with the following:
| As of | Minimum TTM* EBITDA ($ in millions) | Minimum Liquidity ($ in millions) | Maximum Consolidated Total Leverage Ratio | Minimum Fixed Charge Coverage Ratio | ||||||||||||||||||||||
| June 30, 2024 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||
| September 30, 2024 | $5.0 | $1.5 | n/a | n/a | ||||||||||||||||||||||
| December 31, 2024 | $3.5 | $1.5 | n/a | n/a | ||||||||||||||||||||||
| March 31, 2025 | $5.5 | $2.0 | n/a | n/a | ||||||||||||||||||||||
| June 30, 2025 | $7.5 | $2.0 | n/a | 1.50 to 1.00 | ||||||||||||||||||||||
| September 30, 2025 | n/a | $2.0 | 4.25 to 1.0 | 1.50 to 1.00 | ||||||||||||||||||||||
| December 31, 2025 | n/a | $2.0 | 4.00 to 1.0 | 1.50 to 1.00 | ||||||||||||||||||||||
| March 31, 2026 | n/a | $2.0 | 3.75 to 1.0 | 1.50 to 1.00 | ||||||||||||||||||||||
| June 30, 2026 | n/a | $2.0 | 3.50 to 1.0 | 1.50 to 1.00 | ||||||||||||||||||||||
| September 30, 2026 | n/a | $2.0 | 3.25 to 1.0 | 1.50 to 1.00 | ||||||||||||||||||||||
__________________
*TTM = Trailing Twelve Months
2023 Revolving Line of Credit - East West Bank
On July 7, 2023, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”), with East West Bank (“EWB”), as lender. The Credit Agreement provides for a revolving credit facility in the principal amount of up to $10.0 million, subject to a borrowing base determined based on eligible accounts, and an up to $5.0 million uncommitted incremental revolving facility. Loans under the Credit Agreement mature on July 7, 2025 (the “Maturity Date”), unless the Credit Agreement is otherwise terminated pursuant to the terms of the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month Term SOFR rate and as determined by EWB on the first day of the applicable interest period, plus 0.10% (10 basis points), plus 3.00% per annum (the “Loan Rate”); provided, that, in no event shall the Loan Rate be less than 0.50% of the Loan Rate effective as of the date of the Credit Agreement nor more than the maximum rate of interest allowed under applicable law. Upon an event of default under the Credit Agreement, the outstanding principal amounts of any advances will accrue interest at a rate per annum equal to the Loan Rate plus five percent (5%), but in no event in excess of the maximum rate of interest allowed under applicable law.
At the Company’s option, the Company may at any time prepay the outstanding principal balance of the Credit Agreement in whole or in part, without fee, penalty or premium. All accrued but unpaid interest on outstanding advances under the Credit Agreement are payable in monthly installments on the last day of each monthly interest period until the Maturity Date when the then-outstanding principal balance of the advances and all accrued but unpaid interest thereon becomes due and payable. The obligations under the Credit Agreement are secured by all or substantially all of the borrowers’ assets.
Prior to entering into the Third Amendment (as defined below), the Company was required to maintain compliance at all times with the following financial covenants on a consolidated basis: (i) a fixed charge coverage ratio of not less than 1.25 to 1.0, beginning with the fiscal quarter ended on June 30, 2023 and at the end of each fiscal quarter thereafter; (ii) a total funded debt-to-EBITDA ratio of no more than 3.50 to 1.00 as of June 30, 2023 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025 and 3.00 to 1.00 as of June 30, 2025 and thereafter through maturity; and (iii) a liquidity covenant requiring the Company to maintain minimum liquid assets at all times (calculated in the manner provided for in the Credit Agreement), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $1,000,000. Revolving Credit Availability is defined as an amount such that the ratio of the value of eligible accounts to the aggregate amount of all outstanding advances under the credit agreement at such time is
F-24
not less than 2.0 to 1.0. The Company was in compliance with all the financial covenants under the Credit Agreement as of December 31, 2023. With the Third Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this annual report.
On October 15, 2024, with an effective date of June 30, 2024, the Company and EWB entered into the Third Amendment to the Credit Agreement (the “Third Amendment”) which, among other things, (1) provides that the Company will make prepayments of the outstanding principal balance of the Credit Agreement of $1.0 million upon execution of the Third Amendment, $1.0 million on or before January 15, 2025 and $2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the SEC to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) requires the Company to make additional prepayments in the amount by which the outstanding loans under the Credit Agreement exceed the borrowing base between the calendar months ending November 30, 2024 and April 15, 2025, and (6) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024, with the following:
| As of | Minimum TTM(1) EBITDA ($ in millions) | Minimum Liquid Assets ($ in millions) | Maximum Total Funded Debt to EBITDA Leverage Ratio | Minimum Fixed Charge Coverage Ratio | Revolving Credit Availability (as of each month end) | |||||||||||||||||||||||||||
| June 30, 2024 | n/a | $1.0 | n/a | n/a | n/a | |||||||||||||||||||||||||||
| September 30, 2024 | $5.0 | $1.5 | n/a | n/a | n/a | |||||||||||||||||||||||||||
| December 31, 2024 | $3.5 | $1.5 | n/a | n/a | 1.0 to 1.0(2) | |||||||||||||||||||||||||||
| March 31, 2025 | $5.5 | $2.0 | n/a | n/a | 1.5 to 1.0(3) | |||||||||||||||||||||||||||
| June 30, 2025 | $7.5 | $2.0 | n/a | 1.25 to 1.00 | 2.0 to 1.0(4) | |||||||||||||||||||||||||||
__________________
(1)TTM = Trailing Twelve Months
(2)Beginning November 30, 2024
(3)Beginning January 31, 2025
(4)Beginning April 15, 2025
The Credit Agreement contains customary representations and warranties and includes affirmative and negative covenants applicable to the borrowers and their respective subsidiaries. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.
The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers. During the year ended December 31, 2023, the Company incurred $0.3 million of deferred financing costs associated with the Credit Agreement. As of December 31, 2023, there was $3.0 million outstanding under the Credit Agreement. As of the date of this report, there was $9.7 million outstanding under the Credit Agreement.
The collateral securing the obligations under the 2021 Credit Facility and the Credit Agreement is subject to intercreditor agreements between Lafayette Square and EWB.
F-25
2020 Revolving Line of Credit - East West Bank
On September 30, 2020, the Company entered into a credit agreement that provided for a revolving credit facility with EWB in the amount of $4.5 million with an initial availability of $1.0 million (the “2020 Revolving Credit Facility”). On December 17, 2021, the Company amended the 2020 Revolving Credit Facility, which increased the amount of the revolving loan to $5.0 million with an initial availability of $2.5 million, and in connection with the amendment, the Company incurred additional deferred financing fees of less than $0.1 million in January 2022. The loans under the 2020 Revolving Credit Facility bore interest at the LIBOR rate plus 3.5% per annum, and as of March 31, 2022, the rate was 7.0% with a 0.50% unused fee.
On July 26, 2022, the Company terminated the 2020 Revolving Credit Facility. As of December 31, 2023 and 2022, the Company did not have any outstanding borrowings under the 2020 Revolving Credit Facility.
The components of interest expense and related fees for the Credit Agreement and 2020 Revolving Credit Facility is as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Interest Expense: | |||||||||||
| Credit Agreement | $ | 102 | $ | — | |||||||
| 2020 Revolving Credit Facility | — | 23 | |||||||||
| Amortization of deferred financing costs: | |||||||||||
| Credit Agreement | 62 | — | |||||||||
| 2020 Revolving Credit Facility | — | 101 | |||||||||
| Total interest expense and amortization of deferred financing costs | $ | 164 | $ | 124 | |||||||
Silicon Valley Bank (“SVB”) Financing
On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among SVB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange 142, as borrowers. The SVB Loan Agreement provided for a revolving credit facility (the “SVB Revolving Credit Facility”) in the original principal amount of $5 million, subject to a borrowing base determined based on eligible accounts, and up to an additional $2.5 million incremental revolving facility subject to the lender’s consent, which would increase the aggregate principal amount of the Credit Facility to $7.5 million. Loans under the SVB Revolving Credit Facility were to mature on September 30, 2024 unless the Credit Facility was otherwise terminated pursuant to the terms of the Loan Agreement.
On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation as receiver. As the Company had not yet drawn any amounts under the SVB Revolving Credit Facility, on March 13, 2023, the Company issued a notice of termination of the SVB Loan Agreement. The termination of the SVB Revolving Credit Facility became effective April 20, 2023. Prior to issuing the notice of termination, the Company received consent to terminate the SVB Revolving Credit Facility and a waiver of the terms relating to the SVB Revolving Credit Facility under its Term Loan and Security Agreement, dated as of December 3, 2021, with Lafayette Square Loan Servicing, LLC (“Lafayette Square”). The Company did not hold material cash deposits or securities at Silicon Valley Bank and did not experience any adverse impact to its liquidity or to its current and projected business operations, financial condition or results of operations as a result of the SVB closure. During the year ended December 31, 2023, the Company incurred $0.3 million of deferred financing costs. After the Company issued the notice of termination, total deferred financing costs of $0.3 million were expensed to loss on early termination of line of credit during the year ended December 31, 2023.
U.S. Small Business Administration Loans
Economic Injury Disaster Loan
In 2020, the Company applied and was approved for a loan pursuant to the Economic Injury Disaster Loan (“EIDL”), administered by the U.S. Small Business Administration (“SBA”). The Company received the loan
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proceeds of $150,000 on June 15, 2020. The loan bears interest at a rate of 3.75% and matures on June 15, 2050. Installment payments, including principal and interest, of less than $1,000 began monthly on December 15, 2022. Each payment will first be applied to pay accrued interest, then the remaining balance will be used to reduce principal. The loan is secured by substantially all assets of DDH LLC. Accrued and unpaid interest expense as of December 31, 2023 and 2022 was less than $0.1 million, and is included in accrued expenses on the consolidated balance sheets.
Paycheck Protection Program
In 2020, the Company applied and was approved for a loan pursuant to the Paycheck Protection Program (“PPP”), administered by the SBA (the “PPP-1 Loan”). In February 2021, the $10,000 of the PPP-1 loan was forgiven. The PPP was authorized in the Coronavirus Aid, Relief, and Economic Security Act and was designed to provide a direct financial incentive for qualifying business to keep their workforce employees. The SBA made PPP loans available to qualifying businesses in amounts up to 2.5 times their average monthly payroll expenses, and loans were forgivable after a “covered period” (eight or twenty-four weeks) as long as the borrower maintained its payroll and utilities. The forgiveness amount would be reduced if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period. Any unforgiven portion was payable over two years if issued before, or five years if issued after, June 5, 2020 at an interest rate of 1.0% with payments deferred until the SBA remits the borrower’s loan forgiveness amount to the lender, or if the borrower did not apply for forgiveness, then six months after the end of the covered period. In March 2021, DDH LLC applied for and received a PPP loan (the “PPP-2 Loan”) for a principal amount of $0.3 million and there were no collateral or guarantee requirements. On April 11, 2022, the balance on the PPP-2 Loan was forgiven.
Overall
As of December 31, 2023, future minimum payments related to long-term debt are as follows (in thousands):
| 2024 | $ | 1,478 | |||
| 2025 | 4,460 | ||||
| 2026 | 25,660 | ||||
| 2027 | 3 | ||||
| 2028 | 3 | ||||
| Thereafter | 140 | ||||
| Total | 31,744 | ||||
| Less current portion | (1,478) | ||||
| Less deferred financing costs | (1,688) | ||||
| Long-term debt, net | $ | 28,578 | |||
Note 4 — Stockholders’ (Deficit) Equity and Stock-Based Compensation
Stockholders’ Equity – Initial Public Offering
Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, the Company’s Chairman and Chief Executive Officer and President, and (ii) noneconomic voting units of DDH LLC, 100% of which are held by the Company. In August 2022 and December 2023, DDM tendered 100,000 and 410,000, respectively, of its limited liability company units to the Company in exchange for newly issued shares of Class A Common Stock of the Company on a one-for-one basis. In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled. As of December 31, 2023, DDM held 10,868,000 shares of Class B Common Stock.
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The Company is authorized to issue 160,000,000 shares of Class A Common Stock, par value $0.001 per share, 20,000,000 shares of Class B Common Stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.
On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of its Class A Common Stock and (ii) one warrant entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $5.50 per share. The warrants became immediately exercisable upon issuance and were exercisable for a period of five years after the issuance date. The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance. At December 31, 2023, none of these warrants were outstanding. The underwriters in our initial public offering were granted a 45-day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock. As of December 31, 2023, none of these warrants were outstanding. In connection with the Company’s initial public offering, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $6.60, which was equal to 120% of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $0.012, which was equal to 120% of the public offering price per warrant sold in the offering. A group of underwriters exercised 70,000 Units and 10,500 warrants in November 2023. At December 31, 2023, 70,000 Units and 10,500 warrants were outstanding.
The Units were sold at a price of $5.50 per Unit, and the net proceeds from the offering were $10.2 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. DDH LLC used the proceeds, together with pre-existing cash and cash equivalents, to purchase all of the remaining 5,637 common units and 7,046 Class B Preferred Units held by USDM Holdings, Inc., a former co-owner of DDH LLC, for an aggregate purchase price of approximately $14.2 million of which $10.3 million was paid on the closing date of the initial public offering. On July 28, 2022, DDH LLC entered into the Redemption Agreement Amendment with USDM Holdings, Inc. that amended the previously disclosed Redemption Agreement by and between DDH LLC and USDM Holdings, Inc. dated as of November 14, 2021 (the “Original Redemption Agreement”), as amended by the Amendment to Redemption Agreement dated as of February 15, 2022. The Redemption Agreement Amendment, among other things, amended the remainder of the principal and interest for the Common Units Redemption Price to be $4.0 million which was paid in full on July 28, 2022.
The warrants had a fair value of $0 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.94% based on the applicable U.S. Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66% based on the trading history of similar companies, and (4) zero expected dividends.
On August 29, 2023, the Company filed a Tender Offer Statement on Schedule TO pursuant to which the Company offered to purchase all of its outstanding warrants for $1.20 per warrant in cash. The Tender Offer expired at one minute after 11:59 PM, Eastern Time on September 28, 2023. The Company accepted all validly tendered warrants for purchase and settlement on October 2, 2023. As a result of the Tender Offer, a total of 2,213,652 warrants were tendered and not validly withdrawn prior to the expiration of the tender offer for a total purchase price of approximately $2.7 million. On October 23, 2023, the Company distributed a notice of redemption to the registered holders of the remaining outstanding warrants announcing the redemption of those warrants for $0.35 per warrant. The redemption closed on October 30, 2023, and all remaining 1,004,148 warrants were purchased for an aggregate price of approximately $0.4 million.
F-28
The following table summarizes the public warrant activity during the years ended December 31, 2023 and 2022:
| Warrants | |||||||||||||||||||||||
| Warrants | Weighted Average Exercise Price | Weighted Average Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2022 | — | $ | — | — | $ | — | |||||||||||||||||
| Granted | 3,220,000 | $ | 5.50 | 4.38 | $ | — | |||||||||||||||||
| Exercised | — | $ | — | — | $ | — | |||||||||||||||||
| Redeemed | — | $ | — | — | $ | — | |||||||||||||||||
| Outstanding at December 31, 2022 | 3,220,000 | $ | 5.50 | 4.13 | $ | — | |||||||||||||||||
| Granted | — | $ | — | — | $ | — | |||||||||||||||||
| Exercised | (2,200) | $ | 5.50 | — | $ | — | |||||||||||||||||
| Redeemed | (3,217,800) | $ | 5.50 | — | $ | — | |||||||||||||||||
| Outstanding at December 31, 2023 | — | $ | — | — | $ | — | |||||||||||||||||
| Exercisable at December 31, 2023 | — | ||||||||||||||||||||||
Noncontrolling Interest
Direct Digital Holdings, Inc. is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC. Therefore, Direct Digital Holdings, Inc. reports a noncontrolling interest based on the common units of DDH LLC held by DDM. While Direct Digital Holdings, Inc. retains its controlling interest in DDH LLC, changes in its ownership interest in DDH LLC are accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Units by DDM will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when DDH LLC has positive or negative net assets, respectively.
Stock-Based Compensation Plans
In connection with the initial public offering, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors. The Company’s board of directors reserved 1,500,000 shares of Class A Common Stock for issuance in equity awards under the 2022 Omnibus Plan. Information on activity for both the stock options and RSUs is detailed below. As of December 31, 2023, there were 488,646 shares available for grant under the 2022 Omnibus Plan.
During the years ended December 31, 2023 and 2022, the Company recognized $2.2 million and $0.1 million, respectively, of total stock-based compensation expense in the consolidated statements of operations in compensation, tax and benefits. The 2023 stock-based compensation expense includes $1.4 million of bonus accrued for 2023 performance by certain Company executives which was paid out via a grant of Company stock in March 2024.
F-29
Stock Options
Options to purchase shares of common stock vest annually on the grant date anniversary over a period of three years and expire 10 years following the date of grant. The following table summarizes the stock option activity under the 2022 Omnibus Plan during the years ended December 31, 2023 and 2022:
| Stock Options | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2022 | — | $ | — | — | $ | — | |||||||||||||||||
| Granted | 278,850 | $ | 1.68 | — | $ | — | |||||||||||||||||
| Exercised | — | $ | — | — | $ | — | |||||||||||||||||
| Forfeited | (24,850) | $ | 1.62 | — | $ | — | |||||||||||||||||
| Outstanding at December 31, 2022 | 254,000 | $ | 1.69 | 9.40 | $ | 193 | |||||||||||||||||
| Granted | 153,665 | $ | 3.78 | 9.24 | $ | 24 | |||||||||||||||||
| Exercised | (7,883) | $ | 1.62 | — | $ | 55 | |||||||||||||||||
| Forfeited | (28,666) | $ | 2.26 | — | $ | 41 | |||||||||||||||||
| Outstanding at December 31, 2023 | 371,116 | $ | 2.51 | 8.77 | $ | 4,591 | |||||||||||||||||
| Vested and exercisable at December 31, 2023 | 70,147 | $ | 1.70 | 8.40 | $ | 924 | |||||||||||||||||
The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $2.44 and $1.01, respectively. As of December 31, 2023, there was unrecognized stock-based compensation of $0.4 million related to 300,969 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.86 years.
Restricted Stock Units
RSUs generally vest annually on the grant date anniversary over a period of three years. A summary of RSU activity during the years ended December 31, 2023 and 2022 and related information is as follows:
| Restricted Stock Units | |||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value per Share | ||||||||||
| Unvested - January 1, 2022 | |||||||||||
| Granted | 377,614 | $ | 1.67 | ||||||||
| Vested | — | — | |||||||||
| Forfeited | (24,850) | $ | 1.62 | ||||||||
| Unvested - December 31, 2022 | 352,764 | $ | 1.67 | ||||||||
| Granted | 329,249 | $ | 3.70 | ||||||||
| Vested | (111,084) | $ | 1.67 | ||||||||
| Forfeited | (28,533) | $ | 2.26 | ||||||||
| Unvested - December 31, 2023 | 542,396 | $ | 2.87 | ||||||||
The majority of vested RSUs were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes. The total shares withheld were 20,992 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. As of December 31, 2023, there was unrecognized stock-based compensation of $1.0 million
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related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.66 years.
Note 5 — Tax Receivable Agreement and Income Taxes
Tax Receivable Agreement
The Company’s TRA with DDH LLC and DDM (together, the “TRA Holders”) provides for payment by the Company to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company retains the benefit of the remaining 15% of these net cash savings, and as a result, recorded $0.8 million during 2022 as additional paid-in capital in connection with the Organizational Transactions.
The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting impact. The blended tax rate consists of the U.S. federal income tax rate and assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the TRA, and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made. Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurs. During the years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 Class B shares into Class A shares, respectively.
The Company has recorded a liability related to the tax receivable agreement of $5.2 million and $4.3 million as of December 31, 2023 and 2022, respectively. The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $6.2 million and $5.2 million as of December 31, 2023 and 2022, respectively. Payments of less than $0.1 million were made during the years ended December 31, 2023 and 2022. The payments under the TRA will not be conditional on holder of rights under the TRA having a continued ownership interest in either DDH LLC or the Company. The Company may elect to defer payments due under the TRA if the Company does not have available cash to satisfy its payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date. The Company accounts for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies, and recognizes subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes. For the year ended December 31, 2023, $0.3 million was recorded as income in other expense, net for such change.
The term of the TRA commenced upon completion of the initial public offering and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless the Company exercises its right to terminate the TRA. If the Company elects to terminate the TRA early (or it is terminated early due to changes in control), the obligations under the TRA would accelerate and the Company would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by the Company under the TRA.
Income Taxes
Through the Organizational Transactions completed in February 2022, the Company formed an Up-C structure which allows DDM to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership for U.S. federal income tax purposes. Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes that occurred in the first and third quarters of 2022, and in the fourth quarter of 2023. As a result, the Company recorded a provision for federal and state deferred income tax of $0.6 million primarily attributed to valuation allowances of $0.5 million recorded against deferred taxes associated with loss carryforwards and interest expense for which the realization of such deferred taxes is uncertain. Prior to 2022, the Company was treated as a partnership, and therefore no income tax expense was recognized. For the year ended December 31, 2022, income taxes on the financial statements include income taxes of $0.2 million as shown in the
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following table as well as $0.1 million of non-income related franchise taxes. The components of income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | 107 | |||||||
| State | — | 34 | |||||||||
| Total current: | — | 141 | |||||||||
| Deferred: | |||||||||||
| Federal | $ | 205 | $ | 85 | |||||||
| State | 363 | 20 | |||||||||
| Total deferred: | 568 | 105 | |||||||||
| Total income tax expense | $ | 568 | $ | 246 | |||||||
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Federal income tax expense at statutory rate | 21.0 | % | 21.0 | % | |||||||
| State income tax expense | 0.6 | % | 1.1 | % | |||||||
| Partnership income not taxed | (17.0) | % | (16.6) | % | |||||||
| Valuation allowance | (7.3) | % | — | % | |||||||
| Deferred tax remeasurement | (6.5) | % | |||||||||
| Other | 0.1 | % | — | % | |||||||
| Effective income tax rate | (9.1) | % | 5.5 | % | |||||||
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. The components of deferred tax assets are as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax assets related to: | |||||||||||
| Partnership basis difference, net of valuation allowance | $ | 5,852 | $ | 5,165 | |||||||
| Net operating loss carryforwards | 280 | — | |||||||||
| Deferred tax assets, net | $ | 6,132 | $ | 5,165 | |||||||
As of December 31, 2023, the Company had federal net operating loss carryforwards of $1.1 million that can be carried forward indefinitely.
The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. In the normal course of business, the Company can be examined by various tax authorities, including the Internal Revenue Service in the United States. There are currently no federal or state audits in process. The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. Federal and various states returns for the years ended December 2022 and 2021 remain open as of December 31, 2023. The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority. As of December 31, 2023 and 2022, the
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Company had no uncertain tax positions. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.
Note 6 — Related Party Transactions
Related Party Transactions
Member Payable
As of December 31, 2023 and 2022, the Company’s balances with members related to the timing of distributions to holders of LLC Units were a receivable of $1.7 million and payable of $1.4 million, respectively, which are included as a related party receivable and payable, respectively, on the consolidated balance sheets.
Up-C Structure
In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnerships and limited liability companies and allows DDM, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“Smith”), to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S. federal income tax purposes. DDM holds economic nonvoting LLC Units in DDH LLC and holds noneconomic voting equity interests in the form of the Class B Common Stock in Direct Digital Holdings (See Note 4 – Stockholders’ Equity and Stock-Based Compensation). One of the tax benefits to DDM associated with this structure is that future taxable income of DDH LLC that is allocated to DDM will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, DDM may, from time to time, redeem or exchange its LLC Units for shares of the Company’s Class A Common Stock on a one-for-one basis. The Up-C structure also provides DDM with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. If the Company ever generates sufficient taxable income to utilize the tax benefits, DDH expects to benefit from the Up-C structure because, in general, the Company expects cash tax savings in amounts equal to 15% of certain tax benefits arising from such redemptions or exchanges of DDM's LLC Units for Class A Common Stock or cash and certain other tax benefits covered by the TRA. (See Note 5 - Tax Receivable Agreement and Income Taxes).
The aggregate balance of tax receivable liabilities as of December 31, 2023 and 2022, is as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Liability related to tax receivable agreement: | |||||||||||
| Short term | $ | 41 | $ | 183 | |||||||
| Long term | 5,201 | 4,150 | |||||||||
| Total liability related to tax receivable agreement | $ | 5,242 | $ | 4,333 | |||||||
Board Services and Consulting Agreement
On September 30, 2020, the Company entered into board services and consulting agreements with Walker, Smith and Leah Woolford (“Woolford”). Walker, Smith and Woolford were then all members of DDH LLC. Walker now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. Smith now serves as a director on the Board of Directors and President of the Company. Woolford previously served as a Manager on the Board of Managers of DDH LLC and Senior Advisor of DDH LLC. In connection with the Organizational Transactions, the consulting agreements were canceled, and, for the year end December 31, 2023, no fees were paid to Walker, Smith and Woolford. For the year end December 31, 2022, total fees paid to Walker, Smith and Woolford were $0.1 million, $0.1 million, and less than $0.1 million, respectively.
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Note 7 — Segment Information
Revenue by business segment is as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Sell-side advertising | $ | 122,434 | $ | 60,011 | |||||||
| Buy-side advertising | 34,676 | 29,349 | |||||||||
| Total revenues | $ | 157,110 | $ | 89,360 | |||||||
Operating (loss) income by business segment reconciled to (loss) income before income taxes is as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Sell-side advertising | $ | 4,874 | $ | 8,318 | |||||||
| Buy-side advertising | 7,792 | 6,992 | |||||||||
| Corporate office expenses | (14,851) | (7,331) | |||||||||
| (Loss) income from operations | (2,185) | 7,979 | |||||||||
| Corporate other expense | (4,091) | (3,486) | |||||||||
| (Loss) income before income taxes | $ | (6,276) | $ | 4,493 | |||||||
Total assets by business segment are as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Sell-side advertising | $ | 34,354 | $ | 25,512 | |||||||
| Buy-side advertising | 22,539 | 25,686 | |||||||||
| Corporate office | 13,779 | 6,928 | |||||||||
| Total assets | $ | 70,672 | $ | 58,126 | |||||||
Note 8 — Net (Loss) Income Per Share
The Company has two classes of common stock, Class A and Class B. Shares of the Company’s Class B Common Stock do not share in the earnings or losses attributable to Direct Digital Holdings, Inc. and are therefore not participating securities. The Company uses the two-class method to calculate basic and diluted earnings per share as
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a result of outstanding participating securities in the form of warrants. The following table sets forth the computation of the Company’s basic and diluted (loss) income per share (in thousands, except per share amounts).
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net (loss) income | $ | (2,194) | $ | 205 | |||||||
| Less: net loss prior to Organizational Transactions | — | (464) | |||||||||
| Net (loss) income attributable to Class A shareholders and participating securities | (2,194) | 669 | |||||||||
| Less: net income allocated to participating securities | — | 353 | |||||||||
| Net (loss) income allocated to Class A shareholders | $ | (2,194) | $ | 316 | |||||||
| Weighted average common shares outstanding - basic | 2,988 | 2,848 | |||||||||
| Options to purchase common stock | — | — | |||||||||
| Unvested restricted stock units | — | 43 | |||||||||
| Weighted average common shares outstanding - diluted | 2,988 | 2,891 | |||||||||
| Net (loss) income per share, basic | $ | (0.73) | $ | 0.11 | |||||||
| Net (loss) income per share, diluted | $ | (0.73) | $ | 0.11 | |||||||
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net (loss) income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Class B Common Stock | 11,249 | 11,330 | |||||||||
| Restricted stock units | 511 | 189 | |||||||||
| Options to purchase common stock | 347 | — | |||||||||
| Total excludable from net (loss) income per share attributable to common stockholders - diluted | 12,107 | 11,519 | |||||||||
Note 9 — Commitments and Contingencies
Litigation
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date hereof, except as set forth below, we are not a party to any material legal or administrative proceedings nor are there any proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
On May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S. District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas. The two actions have been consolidated. Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees. The Company cannot make any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these lawsuits.
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On May 10, 2024, the Company was the subject of a defamatory article / blog post. In connection with this post, one of the Company’s sell-side customers paused its connection to the Company while the allegations were investigated. This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024. The Company is actively working with its partners to achieve prior volume levels. On May 14, 2024, the Company filed a lawsuit against the author of the defamatory article and is vigorously pursuing its rights. The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof.
Other Expense (within Operating Expenses)
Typically, short payments received from our customers are charged back to our publishers, in accordance with our contracts with the publishers. In January 2024, we received notice from one of our sell-side customers that it would be short paying the Company’s invoices. The Company has requested, but has not yet received, an explanation from the customer for the short payment, and therefore the Company disputed it. Because this information has not been received, the Company paid $8.8 million to a few publishers related to these charges. As a result, for the year ended December 31, 2023, the Company has not recognized revenue related to the short payments and recognized $8.8 million in other expense related to the payments made to the publishers. Although the Company is attempting to recover these amounts, recovery is neither estimable or probable and there can be no assurance that the Company will recover any amounts associated with this matter. We do not expect these amounts to recur in any material fashion, although there is no assurance that customers will not take such action in the future.
Operating Leases
During the years ended December 31, 2023 and 2022, the Company incurred fixed rent expense associated with operating leases for real estate of $0.3 million and $0.3 million, respectively. The Company did not have any finance leases, short-term leases nor variable leases over this time period. During the years ended December 31, 2023 and 2022, the Company had the following cash and non-cash activities associated with leases (in thousands):
| Year Ended December 31, | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | 2023 | 2022 | ||||||||||||
| Operating cash outflow for operating leases | $ | 154 | $ | 152 | ||||||||||
| Non-cash changes to the operating lease ROU assets and operating lease liabilities: | ||||||||||||||
| Additions and modifications to ROU asset obtained from new operating liabilities | $ | 153 | $ | — | ||||||||||
The weighted-average remaining lease term and discount rate for the Company’s operating leases is 5.5 years and 8.3%, respectively, as of December 31, 2023. The weighted-average remaining lease term and discount rate for the Company’s operating leases is 6.6 years and 8.3%, respectively, as of December 31, 2022.
The future payments due under operating leases as of December 31, 2023 is as follows (in thousands):
| 2024 | $ | 193 | |||
| 2025 | 239 | ||||
| 2026 | 160 | ||||
| 2027 | 163 | ||||
| 2028 | 167 | ||||
| Thereafter | 200 | ||||
| Total undiscounted lease payments | 1,122 | ||||
| Less effects of discounting | (223) | ||||
| Less current lease liability | (126) | ||||
| Total operating lease liability, net of current portion | $ | 773 | |||
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Note 10 — Property, Equipment and Software, net
Property, equipment and software, net consists of the following (in thousands):
| Useful Life (Years) | December 31, | ||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Furniture and fixtures | 5 | $ | 128 | $ | 119 | ||||||||||||
| Computer equipment | 3 | 20 | 17 | ||||||||||||||
| Leasehold improvements | 15 | 36 | — | ||||||||||||||
| Capitalized software | 3 | 702 | 571 | ||||||||||||||
| Property, equipment and software, gross | 886 | 707 | |||||||||||||||
| Less: accumulated depreciation and amortization | (287) | (34) | |||||||||||||||
| Total property, equipment and software, net | $ | 599 | $ | 673 | |||||||||||||
The Company acquired the license to its proprietary Colossus SSP platform in November 2022 from its third-party developer. The Company moved headquarters in 2022 and capitalized furniture and fixtures, computer equipment and leasehold improvements related to the move. The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the years ended December 31, 2023 and 2022 (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cost of revenues | $ | 218 | $ | 28 | |||||||
| General and administrative | 35 | 6 | |||||||||
| Total depreciation and amortization | $ | 253 | $ | 34 | |||||||
Note 11 — Intangible Assets
In September 2020, the Company acquired Orange 142 for a purchase price of $26.2 million which was allocated to the fair value of the net tangible assets acquired, including goodwill and intangible assets. The purchase consideration exceeded the fair value of the net tangible assets, resulting in goodwill of $4.1 million and intangible assets of $18.0 million. The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets. For the years ended December 30, 2023 and 2022, amortization expense was $2.0 million and $2.0 million, respectively. As of December 31, 2023 and 2022, intangible assets net of accumulated amortization was $11.7 million and $13.6 million, respectively.
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As of December 31, 2023 and 2022, intangible assets consisted of the following (in thousands):
| December 31, 2023 | |||||||||||||||||||||||
| Weighted-Average Remaining Life (Years) | Original Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||
| Customer lists | 6.8 | $ | 13,028 | $ | (4,234) | $ | 8,794 | ||||||||||||||||
| Trademarks and tradenames | 6.8 | 3,501 | (1,138) | 2,363 | |||||||||||||||||||
| Non-compete agreements | 1.8 | 1,505 | (978) | 527 | |||||||||||||||||||
| Total intangible assets, net | $ | 18,034 | $ | (6,350) | $ | 11,684 | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Weighted-Average Remaining Life (Years) | Original Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||
| Customer lists | 7.8 | $ | 13,028 | $ | (2,931) | $ | 10,097 | ||||||||||||||||
| Trademarks and tradenames | 7.8 | 3,501 | (788) | 2,713 | |||||||||||||||||||
| Non-compete agreements | 2.8 | 1,505 | (677) | 828 | |||||||||||||||||||
| Total intangible assets, net | $ | 18,034 | $ | (4,396) | $ | 13,638 | |||||||||||||||||
As of December 31, 2023, future amortization of intangible assets is as follows (in thousands):
| December 31, 2023 | |||||
| 2024 | $ | 1,953 | |||
| 2025 | 1,878 | ||||
| 2026 | 1,653 | ||||
| 2027 | 1,653 | ||||
| 2028 | 1,653 | ||||
| Thereafter | 2,894 | ||||
| Total future amortization expense | $ | 11,684 | |||
Note 12 — Mandatorily Redeemable Preferred Units
In connection with the Orange 142 acquisition, DDH LLC issued 7,076 non-voting Class B Preferred Units at a purchase price of $7.1 million, and a fair value of $6.5 million. Class B Preferred Units were mandatorily redeemable for $7.1 million on September 30, 2024, with 7% preferred annual returns paid on a quarterly basis. Due to the mandatory redemption feature, the Class B Preferred Units were classified as a liability rather than as a component of equity, with the preferred annual returns being accrued and recorded as interest expense.
In February 2022, DDH LLC redeemed the Class B Preferred Units and recognized a loss on the redemption of $0.6 million in connection with the write-off of the fair value associated with the units. The Company recorded interest expense relating to the Class B Preferred Units of less than $0.1 million for the year ended December 31, 2022.
Note 13 — Restatement (Unaudited)
During the preparation of the consolidated financial statements as of and for the year ended December 31, 2023, the Company identified prior period accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for, and presentation of, NCI, (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI, and (4) timing of the recording of
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the 2023 redemption of warrants. The Company’s management and the audit committee of the Company’s Board of Directors determined that these errors in the unaudited interim consolidated financial statements for the quarterly periods ended March 31, 2023, June 30, 2023 and September 30, 2023 required a restatement of these prior period financial statements.
In addition, certain prior year amounts have been revised in the consolidated statement of cash flows. These are shown in the following statements of cash flows as “Immaterial Revisions.”
The following tables present the restated quarterly unaudited interim financial statements as of March 31, 2023, June 30, 2023 and September 30, 2023, for the three-month period ended March 31, 2023, the three- and six-month periods ended June 30, 2023 and the three- and nine-month periods ended September 30, 2023.
| (in thousands, except per share and share amounts) | March 31, 2023 | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| ASSETS | |||||||||||||||||
| CURRENT ASSETS | |||||||||||||||||
| Cash and cash equivalents | $ | 6,719 | $ | — | $ | 6,719 | |||||||||||
| Accounts receivable, net | 19,050 | — | 19,050 | ||||||||||||||
| Prepaid expenses and other current assets | 1,038 | — | 1,038 | ||||||||||||||
| Total current assets | 26,807 | — | 26,807 | ||||||||||||||
| Property, equipment, and software, net | 665 | — | 665 | ||||||||||||||
| Goodwill | 6,520 | — | 6,520 | ||||||||||||||
| Intangible assets, net | 13,149 | — | 13,149 | ||||||||||||||
| Deferred tax asset, net | 5,240 | — | 5,240 | ||||||||||||||
| Operating lease right-of-use assets | 757 | — | 757 | ||||||||||||||
| Other long-term assets | 46 | — | 46 | ||||||||||||||
| Total assets | $ | 53,184 | $ | — | $ | 53,184 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||
| Accounts payable | $ | 13,787 | $ | — | $ | 13,787 | |||||||||||
| Accrued liabilities | 4,674 | (1,000) | 3,674 | ||||||||||||||
| Current portion of liability related to tax receivable agreement | 41 | — | 41 | ||||||||||||||
| Current maturities of long-term debt | 819 | — | 819 | ||||||||||||||
| Deferred revenues | 949 | — | 949 | ||||||||||||||
| Operating lease liabilities, current portion | 70 | — | 70 | ||||||||||||||
| Income taxes payable | 183 | — | 183 | ||||||||||||||
| Related party payables | 1,448 | — | 1,448 | ||||||||||||||
| Total current liabilities | 21,971 | (1,000) | 20,971 | ||||||||||||||
| Long-term debt, net of current portion and deferred financing cost | 22,707 | — | 22,707 | ||||||||||||||
| Economic Injury Disaster Loan | 150 | — | 150 | ||||||||||||||
| Liability related to tax receivable agreement, net of current portion | 4,245 | — | 4,245 | ||||||||||||||
| Operating lease liabilities, net of current portion | 744 | — | 744 | ||||||||||||||
| Total liabilities | 49,817 | (1,000) | 48,817 | ||||||||||||||
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| (in thousands, except per share and share amounts) | March 31, 2023 | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||||||||
Class A Common Stock, $0.001 par value per share, 160,000,000 shares authorized, 2,902,200 shares issued and outstanding as of March 31, 2023 | 3 | — | 3 | ||||||||||||||
Class B Common Stock, $0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of March 31, 2023 | 11 | — | 11 | ||||||||||||||
| Additional paid-in capital | 8,330 | (5,613) | 2,717 | ||||||||||||||
| Accumulated deficit | (4,977) | 4,419 | (558) | ||||||||||||||
| Noncontrolling interest | — | 2,194 | 2,194 | ||||||||||||||
| Total stockholders’ equity | 3,367 | 1,000 | 4,367 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 53,184 | $ | — | $ | 53,184 | |||||||||||
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| June 30, 2023 | |||||||||||||||||
| (in thousands, except per share and share amounts) | As Previously Reported | Restatement Adjustments | As Restated | ||||||||||||||
| ASSETS | |||||||||||||||||
| CURRENT ASSETS | |||||||||||||||||
| Cash and cash equivalents | $ | 5,668 | $ | — | $ | 5,668 | |||||||||||
| Accounts receivable, net | 29,629 | — | 29,629 | ||||||||||||||
| Prepaid expenses and other current assets | 1,052 | — | 1,052 | ||||||||||||||
| Total current assets | 36,349 | — | 36,349 | ||||||||||||||
| Property, equipment, and software, net | 689 | — | 689 | ||||||||||||||
| Goodwill | 6,520 | — | 6,520 | ||||||||||||||
| Intangible assets, net | 12,661 | — | 12,661 | ||||||||||||||
| Deferred tax asset, net | 5,171 | — | 5,171 | ||||||||||||||
| Operating lease right-of-use assets | 714 | — | 714 | ||||||||||||||
| Other long-term assets | 47 | — | 47 | ||||||||||||||
| Total assets | $ | 62,151 | $ | — | $ | 62,151 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| CURRENT LIABILITIES | |||||||||||||||||
| Accounts payable | $ | 23,358 | $ | — | $ | 23,358 | |||||||||||
| Accrued liabilities | 3,879 | (1,000) | 2,879 | ||||||||||||||
| Liability related to tax receivable agreement, current portion | 40 | — | 40 | ||||||||||||||
| Current maturities of long-term debt | 983 | — | 983 | ||||||||||||||
| Deferred revenues | 951 | — | 951 | ||||||||||||||
| Operating lease liabilities, current portion | 48 | — | 48 | ||||||||||||||
| Income taxes payable | 22 | — | 22 | ||||||||||||||
| Related party payables | 1,197 | — | 1,197 | ||||||||||||||
| Total current liabilities | 30,478 | (1,000) | 29,478 | ||||||||||||||
| Long-term debt, net of current portion and deferred financing cost | 22,515 | — | 22,515 | ||||||||||||||
| Economic Injury Disaster Loan | 150 | — | 150 | ||||||||||||||
| Liability related to tax receivable agreement, net of current portion | 4,246 | — | 4,246 | ||||||||||||||
| Operating lease liabilities, net of current portion | 742 | — | 742 | ||||||||||||||
| Total liabilities | 58,131 | (1,000) | 57,131 | ||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||||||||
Class A Common Stock, $0.001 par value per share, 160,000,000 shares authorized, 2,988,916 shares issued and outstanding as of June 30, 2023 | 3 | — | 3 | ||||||||||||||
Class B Common Stock, $0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of June 30, 2023 | 11 | — | 11 | ||||||||||||||
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| June 30, 2023 | |||||||||||||||||
| (in thousands, except per share and share amounts) | As Previously Reported | Restatement Adjustments | As Restated | ||||||||||||||
| Additional paid-in capital | 8,540 | (5,613) | 2,927 | ||||||||||||||
| Accumulated deficit | (4,534) | 4,168 | (366) | ||||||||||||||
| Noncontrolling interest | — | 2,445 | 2,445 | ||||||||||||||
| Total stockholders’ equity | 4,020 | 1,000 | 5,020 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 62,151 | $ | — | $ | 62,151 | |||||||||||
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| (in thousands, except per share and share amounts) | September 30, 2023 | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| ASSETS | |||||||||||||||||
| CURRENT ASSETS | |||||||||||||||||
| Cash and cash equivalents | $ | 5,482 | $ | — | $ | 5,482 | |||||||||||
| Accounts receivable, net | 54,638 | — | 54,638 | ||||||||||||||
| Prepaid expenses and other current assets | 1,427 | — | 1,427 | ||||||||||||||
| Total current assets | 61,547 | — | 61,547 | ||||||||||||||
| Property, equipment, and software, net | 625 | — | 625 | ||||||||||||||
| Goodwill | 6,520 | — | 6,520 | ||||||||||||||
| Intangible assets, net | 12,172 | — | 12,172 | ||||||||||||||
| Deferred tax asset, net | 5,082 | — | 5,082 | ||||||||||||||
| Operating lease right-of-use assets | 675 | — | 675 | ||||||||||||||
| Other long-term assets | 127 | — | 127 | ||||||||||||||
| Total assets | $ | 86,748 | $ | — | $ | 86,748 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| CURRENT LIABILITIES | |||||||||||||||||
| Accounts payable | $ | 45,021 | $ | — | $ | 45,021 | |||||||||||
| Accrued liabilities | 4,071 | (1,000) | 3,071 | ||||||||||||||
| Liability related to tax receivable agreement, current portion | 41 | — | 41 | ||||||||||||||
| Current maturities of long-term debt | 1,146 | — | 1,146 | ||||||||||||||
| Deferred revenues | 1,044 | — | 1,044 | ||||||||||||||
| Operating lease liabilities, current portion | 50 | — | 50 | ||||||||||||||
| Income taxes payable | 113 | — | 113 | ||||||||||||||
| Warrant liability | — | 3,540 | 3,540 | ||||||||||||||
| Related party payables | 1,428 | — | 1,428 | ||||||||||||||
| Total current liabilities | 52,914 | 2,540 | 55,454 | ||||||||||||||
| Long-term debt, net of current portion and deferred financing cost | 22,324 | — | 22,324 | ||||||||||||||
| Economic Injury Disaster Loan | 150 | — | 150 | ||||||||||||||
| Liability related to tax receivable agreement, net of current portion | 4,245 | — | 4,245 | ||||||||||||||
| Operating lease liabilities, net of current portion | 718 | — | 718 | ||||||||||||||
| Total liabilities | 80,351 | 2,540 | 82,891 | ||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||||||||
Class A Common Stock, $0.001 par value per share, 160,000,000 shares authorized, 2,991,792 shares issued and outstanding as of September 30, 2023 | 3 | — | 3 | ||||||||||||||
Class B Common Stock, $0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of September 30, 2023 | 11 | — | 11 | ||||||||||||||
| Additional paid-in capital | 8,782 | (9,153) | (371) | ||||||||||||||
F-43
| (in thousands, except per share and share amounts) | September 30, 2023 | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Retained earnings | (2,399) | 2,604 | 205 | ||||||||||||||
| Noncontrolling interest | — | 4,009 | 4,009 | ||||||||||||||
| Total stockholders’ equity | 6,397 | (2,540) | 3,857 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 86,748 | $ | — | $ | 86,748 | |||||||||||
F-44
| (in thousands, except per share data) | For the Three Months Ended March 31, | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Revenues | |||||||||||||||||
| Buy-side advertising | $ | 7,440 | $ | — | $ | 7,440 | |||||||||||
| Sell-side advertising | 13,783 | — | 13,783 | ||||||||||||||
| Total revenues | 21,223 | — | 21,223 | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| Buy-side advertising | 2,949 | — | 2,949 | ||||||||||||||
| Sell-side advertising | 11,841 | — | 11,841 | ||||||||||||||
| Total cost of revenues | 14,790 | — | 14,790 | ||||||||||||||
| Gross profit | 6,433 | — | 6,433 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Compensation, taxes and benefits | 3,634 | — | 3,634 | ||||||||||||||
| General and administrative | 2,940 | — | 2,940 | ||||||||||||||
| Total operating expenses | 6,574 | — | 6,574 | ||||||||||||||
| Loss from operations | (141) | — | (141) | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Other income | 50 | — | 50 | ||||||||||||||
| Loss on redemption of non-participating preferred units | — | — | — | ||||||||||||||
| Loss on early termination of line of credit | (300) | — | (300) | ||||||||||||||
| Interest expense | (1,017) | — | (1,017) | ||||||||||||||
| Total other expense, net | (1,267) | — | (1,267) | ||||||||||||||
| Loss before taxes | (1,408) | — | (1,408) | ||||||||||||||
| Income tax (benefit) | (74) | — | (74) | ||||||||||||||
| Net loss | (1,334) | — | (1,334) | ||||||||||||||
| Net loss attributable to noncontrolling interest | — | (1,120) | (1,120) | ||||||||||||||
| Net loss attributable to Direct Digital Holdings, Inc. | $ | (1,334) | $ | 1,120 | $ | (214) | |||||||||||
| Net loss per common share: | |||||||||||||||||
| Basic | $ | (0.09) | $ | 0.02 | $ | (0.07) | |||||||||||
| Diluted | $ | (0.09) | $ | 0.02 | $ | (0.07) | |||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||
| Basic | 14,576 | (11,675) | 2,901 | ||||||||||||||
| Diluted | 14,576 | (11,675) | 2,901 | ||||||||||||||
F-45
| (in thousands, except per share data) | For the Three Months Ended June 30, | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Revenues | |||||||||||||||||
| Buy-side advertising | $ | 11,803 | $ | — | $ | 11,803 | |||||||||||
| Sell-side advertising | 23,601 | — | 23,601 | ||||||||||||||
| Total revenues | 35,404 | — | 35,404 | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| Buy-side advertising | 4,588 | — | 4,588 | ||||||||||||||
| Sell-side advertising | 20,743 | — | 20,743 | ||||||||||||||
| Total cost of revenues | 25,331 | — | 25,331 | ||||||||||||||
| Gross profit | 10,073 | — | 10,073 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Compensation, taxes and benefits | 4,553 | — | 4,553 | ||||||||||||||
| General and administrative | 3,265 | — | 3,265 | ||||||||||||||
| Total operating expenses | 7,818 | — | 7,818 | ||||||||||||||
| Income from operations | 2,255 | — | 2,255 | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Other income | 42 | — | 42 | ||||||||||||||
| Loss on redemption of non-participating preferred units | — | — | — | ||||||||||||||
| Loss on early termination of line of credit | — | — | — | ||||||||||||||
| Interest expense | (1,028) | — | (1,028) | ||||||||||||||
| Total other expense, net | (986) | — | (986) | ||||||||||||||
| Income before taxes | 1,269 | — | 1,269 | ||||||||||||||
| Income tax expense | 74 | — | 74 | ||||||||||||||
| Net income | 1,195 | — | 1,195 | ||||||||||||||
| Net income attributable to noncontrolling interest | — | 1,003 | 1,003 | ||||||||||||||
| Net income attributable to Direct Digital Holdings, Inc. | $ | 1,195 | $ | (1,003) | $ | 192 | |||||||||||
| Net income per common share: | |||||||||||||||||
| Basic | $ | 0.08 | $ | (0.05) | $ | 0.03 | |||||||||||
| Diluted | $ | 0.08 | $ | (0.05) | $ | 0.03 | |||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||
| Basic | 14,773 | (11,851) | 2,922 | ||||||||||||||
| Diluted | 14,834 | (11,721) | 3,113 | ||||||||||||||
F-46
| (in thousands, except per share data) | For the Three Months Ended September 30, | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Revenues | |||||||||||||||||
| Buy-side advertising | $ | 7,850 | $ | — | $ | 7,850 | |||||||||||
| Sell-side advertising | 51,622 | — | 51,622 | ||||||||||||||
| Total revenues | 59,472 | — | 59,472 | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| Buy-side advertising | 3,113 | — | 3,113 | ||||||||||||||
| Sell-side advertising | 44,606 | — | 44,606 | ||||||||||||||
| Total cost of revenues | 47,719 | — | 47,719 | ||||||||||||||
| Gross profit | 11,753 | — | 11,753 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Compensation, taxes and benefits | 4,747 | — | 4,747 | ||||||||||||||
| General and administrative | 2,512 | — | 2,512 | ||||||||||||||
| Total operating expenses | 7,259 | — | 7,259 | ||||||||||||||
| Income from operations | 4,494 | — | 4,494 | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Other income | 83 | — | 83 | ||||||||||||||
| Loss on redemption of non-participating preferred units | — | — | — | ||||||||||||||
| Loss on early termination of line of credit | — | — | — | ||||||||||||||
| Interest expense | (1,060) | — | (1,060) | ||||||||||||||
| Total other expense, net | (977) | — | (977) | ||||||||||||||
| Income before income taxes | 3,517 | — | 3,517 | ||||||||||||||
| Income tax expense | 166 | — | 166 | ||||||||||||||
| Net income | 3,351 | — | 3,351 | ||||||||||||||
| Net income attributable to noncontrolling interest | — | 2,780 | 2,780 | ||||||||||||||
| Net income attributable to Direct Digital Holdings, Inc. | $ | 3,351 | $ | (2,780) | $ | 571 | |||||||||||
| Net income per share: | |||||||||||||||||
| Basic | $ | 0.23 | $ | (0.14) | $ | 0.09 | |||||||||||
| Diluted | $ | 0.23 | $ | (0.14) | $ | 0.09 | |||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||
| Basic | 14,268 | (11,278) | 2,990 | ||||||||||||||
| Diluted | 14,827 | (11,783) | 3,044 | ||||||||||||||
F-47
| (in thousands, except per share data) | For the Six Months Ended June 30, | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Revenues | |||||||||||||||||
| Buy-side advertising | $ | 19,243 | $ | — | $ | 19,243 | |||||||||||
| Sell-side advertising | 37,384 | — | 37,384 | ||||||||||||||
| Total revenues | 56,627 | — | 56,627 | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| Buy-side advertising | 7,537 | — | 7,537 | ||||||||||||||
| Sell-side advertising | 32,584 | — | 32,584 | ||||||||||||||
| Total cost of revenues | 40,121 | — | 40,121 | ||||||||||||||
| Gross profit | 16,506 | — | 16,506 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Compensation, taxes and benefits | 8,187 | — | 8,187 | ||||||||||||||
| General and administrative | 6,205 | — | 6,205 | ||||||||||||||
| Total operating expenses | 14,392 | — | 14,392 | ||||||||||||||
| Income from operations | 2,114 | — | 2,114 | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Other income | 92 | — | 92 | ||||||||||||||
| Loss on redemption of non-participating preferred units | — | — | — | ||||||||||||||
| Loss on early termination of line of credit | (300) | — | (300) | ||||||||||||||
| Interest expense | (2,045) | — | (2,045) | ||||||||||||||
| Total other expense, net | (2,253) | — | (2,253) | ||||||||||||||
| Loss before taxes | (139) | — | (139) | ||||||||||||||
| Income tax expense | — | — | — | ||||||||||||||
| Net loss | (139) | — | (139) | ||||||||||||||
| Net loss attributable to noncontrolling interest | — | (117) | (117) | ||||||||||||||
| Net loss attributable to Direct Digital Holdings, Inc. | $ | (139) | $ | 117 | $ | (22) | |||||||||||
| Net loss per common share: | |||||||||||||||||
| Basic | $ | (0.01) | $ | 0.00 | $ | (0.01) | |||||||||||
| Diluted | $ | (0.01) | $ | 0.00 | $ | (0.01) | |||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||
| Basic | 14,676 | (11,764) | 2,912 | ||||||||||||||
| Diluted | 14,676 | (11,764) | 2,912 | ||||||||||||||
F-48
| (in thousands, except per share data) | For the Nine Months Ended September 30, | ||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | |||||||||||||||
| Revenues | |||||||||||||||||
| Buy-side advertising | $ | 27,093 | $ | — | $ | 27,093 | |||||||||||
| Sell-side advertising | 89,006 | — | 89,006 | ||||||||||||||
| Total revenues | 116,099 | — | 116,099 | ||||||||||||||
| Cost of revenues | |||||||||||||||||
| Buy-side advertising | 10,650 | — | 10,650 | ||||||||||||||
| Sell-side advertising | 77,190 | — | 77,190 | ||||||||||||||
| Total cost of revenues | 87,840 | — | 87,840 | ||||||||||||||
| Gross profit | 28,259 | — | 28,259 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Compensation, taxes and benefits | 12,934 | — | 12,934 | ||||||||||||||
| General and administrative | 8,718 | — | 8,718 | ||||||||||||||
| Total operating expenses | 21,652 | — | 21,652 | ||||||||||||||
| Income from operations | 6,607 | — | 6,607 | ||||||||||||||
| Other income (expense) | |||||||||||||||||
| Other income | 175 | — | 175 | ||||||||||||||
| Loss on early termination of line of credit | (300) | — | (300) | ||||||||||||||
| Loss on redemption of non-participating preferred units | — | — | — | ||||||||||||||
| Interest expense | (3,104) | — | (3,104) | ||||||||||||||
| Total other expense, net | (3,229) | — | (3,229) | ||||||||||||||
| Income before income taxes | 3,378 | — | 3,378 | ||||||||||||||
| Income tax expense | 166 | — | 166 | ||||||||||||||
| Net income | 3,212 | — | 3,212 | ||||||||||||||
| Net income attributable to noncontrolling interest | — | 2,663 | 2,663 | ||||||||||||||
| Net income attributable to Direct Digital Holdings, Inc. | $ | 3,212 | $ | (2,663) | $ | 549 | |||||||||||
| Net income per share: | |||||||||||||||||
| Basic | $ | 0.23 | $ | (0.14) | $ | 0.09 | |||||||||||
| Diluted | $ | 0.22 | $ | (0.13) | $ | 0.09 | |||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||
| Basic | 14,216 | -11,278 | 2,938 | ||||||||||||||
| Diluted | 14,818 | -11,738 | 3,080 | ||||||||||||||
F-49
| (in thousands, except per share data) | Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 3,252,764 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,224 | $ | (3,643) | $ | — | $ | 4,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 94 | — | — | 94 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 236,754 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | (400) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,334) | — | (1,334) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 3,491,318 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,330 | $ | (4,977) | $ | — | $ | 3,367 | ||||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | (352,764) | $ | — | — | $ | — | $ | (5,613) | $ | 3,299 | $ | 3,314 | $ | 1,000 | ||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | (236,754) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | 400 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | 1,120 | (1,120) | — | ||||||||||||||||||||||||||||||||||||||||||
| Total Adjustments | (589,118) | $ | — | — | $ | — | $ | (5,613) | $ | 4,419 | $ | 2,194 | $ | 1,000 | ||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 94 | — | — | 94 | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (214) | (1,120) | (1,334) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 - As Restated | 2,902,200 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,717 | $ | (558) | $ | 2,194 | $ | 4,367 | ||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 3,491,318 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,330 | $ | (4,977) | $ | — | $ | 3,367 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 210 | — | — | 210 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock net of shares withheld for vested awards | 54,277 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | (25,815) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | (752) | — | (752) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 1,195 | — | 1,195 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 3,519,780 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,540 | $ | (4,534) | $ | — | $ | 4,020 | ||||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | (589,118) | — | — | — | (5,613) | 4,419 | 2,194 | 1,000 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock net of shares withheld for vested awards | (54,277) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | 25,815 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 86,716 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | 752 | (752) | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | (1,003) | 1,003 | — | ||||||||||||||||||||||||||||||||||||||||||
| Total Adjustments | (530,864) | $ | — | — | $ | — | $ | (5,613) | $ | 4,168 | $ | 2,445 | $ | 1,000 | ||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 2,902,200 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,717 | $ | (558) | $ | 2,194 | $ | 4,367 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 210 | — | — | 210 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 86,716 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (752) | (752) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 192 | 1,003 | 1,195 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 - As Restated | 2,988,916 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,927 | $ | (366) | $ | 2,445 | $ | 5,020 | ||||||||||||||||||||||||||||||||||||
F-50
| (in thousands, except per share data) | Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 2,988,916 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,540 | $ | (4,534) | $ | — | $ | 4,020 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 242 | — | — | 242 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 2,743 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | (1,216) | — | (1,216) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 3,351 | — | 3,351 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,782 | $ | (2,399) | $ | — | $ | 6,397 | ||||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | — | — | — | — | (5,613) | 4,168 | 2,445 | 1,000 | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and redemption of warrants including expenses | — | — | — | — | (3,540) | — | — | (3,540) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | 1,216 | (1,216) | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | (2,780) | 2,780 | — | ||||||||||||||||||||||||||||||||||||||||||
| Total Adjustments | — | $ | — | — | $ | — | $ | (9,153) | $ | 2,604 | $ | 4,009 | $ | (2,540) | ||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 2,988,916 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,927 | $ | (366) | $ | 2,445 | $ | 5,020 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 242 | — | — | 242 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 2,743 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and redemption of warrants including expenses | — | — | — | — | (3,540) | — | — | (3,540) | ||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (1,216) | (1,216) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 571 | 2,780 | 3,351 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 - As Restated | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | (371) | $ | 205 | $ | 4,009 | $ | 3,857 | ||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 3,252,764 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,224 | $ | (3,643) | $ | — | $ | 4,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 304 | — | — | 304 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock net of shares withheld for vested awards | 291,031 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | (26,215) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | (752) | — | (752) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (139) | — | (139) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 3,519,780 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,540 | $ | (4,534) | $ | — | $ | 4,020 | ||||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | (352,764) | — | — | — | (5,613) | 3,299 | 3,314 | 1,000 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock net of shares withheld for vested awards | (291,031) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeitures | 26,215 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 86,716 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | 752 | (753) | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | 117 | (117) | — | ||||||||||||||||||||||||||||||||||||||||||
| Total Adjustments | (530,864) | $ | — | — | $ | — | $ | (5,613) | $ | 4,168 | $ | 2,445 | $ | 1,000 | ||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 304 | — | — | 304 | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 86,716 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (752) | (752) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (22) | (117) | (139) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 - As Restated | 2,988,916 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,927 | $ | (366) | $ | 2,445 | $ | 5,020 | ||||||||||||||||||||||||||||||||||||
F-51
| (in thousands, except per share data) | Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||
| As Previously Reported | Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,224 | $ | (3,643) | $ | — | $ | 4,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 546 | — | — | 546 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 89,459 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | (1,968) | — | (1,968) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 3,212 | — | 3,212 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | 8,782 | $ | (2,399) | $ | — | $ | 6,397 | ||||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | — | — | — | (5,613) | 3,299 | 3,314 | 1,000 | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and redemption of warrants including expenses | — | — | — | — | (3,540) | — | — | (3,540) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to members | — | — | — | — | — | 1,968 | (1,968) | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | (2,663) | 2,663 | — | ||||||||||||||||||||||||||||||||||||||||||
| Total Adjustments | — | $ | — | — | $ | — | $ | (9,153) | $ | 2,604 | $ | 4,009 | $ | (2,540) | ||||||||||||||||||||||||||||||||||||
| As Restated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 546 | — | — | 546 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 89,459 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and redemption of warrants including expenses | 2,200 | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Warrant redemption | — | — | — | — | (3,540) | — | — | (3,540) | ||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (1,968) | (1,968) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 549 | 2,663 | 3,212 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 As Restated | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | (371) | $ | 205 | $ | 4,009 | $ | 3,857 | ||||||||||||||||||||||||||||||||||||
F-52
| (in thousands) | For the Three Months Ended March 31, 2023 | ||||||||||||||||
| As Previously Reported | Immaterial Revisions | As Revised | |||||||||||||||
| Cash Flows Provided By Operating Activities: | |||||||||||||||||
| Net loss | $ | (1,334) | $ | — | $ | (1,334) | |||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||
| Amortization of deferred financing costs | 136 | — | 136 | ||||||||||||||
| Amortization of intangible assets | 489 | — | 489 | ||||||||||||||
| Reduction in carrying amount of right-of-use assets | 42 | — | 42 | ||||||||||||||
| Depreciation and amortization of property, equipment and software | 57 | — | 57 | ||||||||||||||
| Stock-based compensation | 94 | — | 94 | ||||||||||||||
| Deferred income taxes | (74) | — | (74) | ||||||||||||||
| Payment on tax receivable agreement | (46) | 46 | — | ||||||||||||||
| Loss on early termination of line of credit | 300 | — | 300 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | 7,304 | — | 7,304 | ||||||||||||||
| Prepaid expenses and other assets | (242) | — | (242) | ||||||||||||||
| Accounts payable | (3,909) | — | (3,909) | ||||||||||||||
| Accrued liabilities and TRA payable | (40) | (110) | (150) | ||||||||||||||
| Income taxes payable | 8 | — | 8 | ||||||||||||||
| Deferred revenues | 403 | — | 403 | ||||||||||||||
| Operating lease liability | (24) | — | (24) | ||||||||||||||
| Net cash provided by operating activities | 3,164 | (64) | 3,100 | ||||||||||||||
| Cash Flows Used In Investing Activities: | |||||||||||||||||
| Cash paid for capitalized software and property and equipment | (48) | — | (48) | ||||||||||||||
| Net cash used in investing activities | (48) | — | (48) | ||||||||||||||
| Cash Flows Used In Financing Activities: | |||||||||||||||||
| Payments on term loan | (164) | — | (164) | ||||||||||||||
| Payments of litigation settlement | (64) | 64 | — | ||||||||||||||
| Payment of deferred financing costs | (228) | — | (228) | ||||||||||||||
| Proceeds from warrants exercised | 12 | — | 12 | ||||||||||||||
| Net cash used in financing activities | (444) | 64 | (380) | ||||||||||||||
| Net increase in cash and cash equivalents | 2,672 | — | 2,672 | ||||||||||||||
| Cash and cash equivalents, beginning of the period | 4,047 | — | 4,047 | ||||||||||||||
| Cash and cash equivalents, end of the period | $ | 6,719 | $ | — | $ | 6,719 | |||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||||||||
| Cash paid for interest | $ | 879 | $ | — | $ | 879 | |||||||||||
F-53
| (in thousands) | For the Six Months Ended June 30, 2023 | ||||||||||||||||
| As Previously Reported | Immaterial Revisions | As Revised | |||||||||||||||
| Cash Flows Provided By Operating Activities: | |||||||||||||||||
| Net loss | $ | (139) | $ | — | $ | (139) | |||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||
| Amortization of deferred financing costs | 272 | — | 272 | ||||||||||||||
| Amortization of intangible assets | 977 | — | 977 | ||||||||||||||
| Reduction in carrying amount of right-of-use assets | 85 | — | 85 | ||||||||||||||
| Depreciation and amortization of property, equipment and software | 121 | — | 121 | ||||||||||||||
| Stock-based compensation | 304 | — | 304 | ||||||||||||||
| Deferred income taxes | (6) | — | (6) | ||||||||||||||
| Payment on tax receivable agreement | (46) | 46 | — | ||||||||||||||
| Loss on early termination of line of credit | 300 | — | 300 | ||||||||||||||
| Bad debt expense | 52 | — | 52 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | (3,326) | — | (3,326) | ||||||||||||||
| Prepaid expenses and other assets | (257) | — | (257) | ||||||||||||||
| Accounts payable | 5,662 | — | 5,662 | ||||||||||||||
| Accrued liabilities and TRA payable | (769) | (175) | (944) | ||||||||||||||
| Income taxes payable | (152) | — | (152) | ||||||||||||||
| Deferred revenues | 404 | — | 404 | ||||||||||||||
| Operating lease liability | (48) | — | (48) | ||||||||||||||
| Related party payable | (251) | — | (251) | ||||||||||||||
| Net cash provided by operating activities | 3,183 | (129) | 3,054 | ||||||||||||||
| Cash Flows Used In Investing Activities: | |||||||||||||||||
| Cash paid for capitalized software and property and equipment | (137) | — | (137) | ||||||||||||||
| Net cash used in investing activities | (137) | — | (137) | ||||||||||||||
| Cash Flows Used In Financing Activities: | |||||||||||||||||
| Payments on term loan | (328) | — | (328) | ||||||||||||||
| Payments of litigation settlement | (129) | 129 | — | ||||||||||||||
| Payment of deferred financing costs | (228) | — | (228) | ||||||||||||||
| Proceeds from warrants exercised | 12 | — | 12 | ||||||||||||||
| Distributions to holders of LLC Units | (752) | — | (752) | ||||||||||||||
| Net cash used in financing activities | (1,425) | 129 | (1,296) | ||||||||||||||
| Net increase in cash and cash equivalents | 1,621 | — | 1,621 | ||||||||||||||
| Cash and cash equivalents, beginning of the period | 4,047 | — | 4,047 | ||||||||||||||
| Cash and cash equivalents, end of the period | $ | 5,668 | $ | — | $ | 5,668 | |||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||||||||
| Cash paid for taxes | $ | 349 | $ | — | $ | 349 | |||||||||||
| Cash paid for interest | $ | 1,769 | $ | — | $ | 1,769 | |||||||||||
F-54
| (in thousands) | For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | Immaterial Revisions | As Revised | |||||||||||||||||||||||||
| Cash Flows Provided By Operating Activities: | |||||||||||||||||||||||||||||
| Net income | $ | 3,212 | $ | — | $ | 3,212 | $ | — | $ | 3,212 | |||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||
| Amortization of deferred financing costs | 435 | — | 435 | — | 435 | ||||||||||||||||||||||||
| Amortization of intangible assets | 1,465 | — | 1,465 | — | 1,465 | ||||||||||||||||||||||||
| Reduction in carrying amount of right-of-use assets | 124 | — | 124 | — | 124 | ||||||||||||||||||||||||
| Depreciation and amortization of property, equipment and software | 185 | — | 185 | — | 185 | ||||||||||||||||||||||||
| Stock-based compensation | 546 | — | 546 | — | 546 | ||||||||||||||||||||||||
| Deferred income taxes | 82 | — | 82 | — | 82 | ||||||||||||||||||||||||
| Payment on tax receivable agreement | (46) | — | (46) | 46 | — | ||||||||||||||||||||||||
| Loss on early termination of line of credit | 300 | — | 300 | — | 300 | ||||||||||||||||||||||||
| Bad debt expense | 98 | — | 98 | — | 98 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||||||||
| Accounts receivable | (28,381) | — | (28,381) | — | (28,381) | ||||||||||||||||||||||||
| Prepaid expenses and other assets | (524) | — | (524) | — | (524) | ||||||||||||||||||||||||
| Accounts payable | 27,326 | — | 27,326 | — | 27,326 | ||||||||||||||||||||||||
| Accrued liabilities and TRA payable | (513) | — | (513) | (240) | (753) | ||||||||||||||||||||||||
| Income taxes payable | (61) | — | (61) | — | (61) | ||||||||||||||||||||||||
| Deferred revenues | 497 | — | 497 | — | 497 | ||||||||||||||||||||||||
| Operating lease liability | (70) | — | (70) | — | (70) | ||||||||||||||||||||||||
| Net cash provided by operating activities | 4,675 | — | 4,675 | (194) | 4,481 | ||||||||||||||||||||||||
| Cash Flows Used In Investing Activities: | |||||||||||||||||||||||||||||
| Cash paid for capitalized software and property and equipment | (137) | — | (137) | — | (137) | ||||||||||||||||||||||||
| Net cash used in investing activities | (137) | — | (137) | — | (137) | ||||||||||||||||||||||||
| Cash Flows Used In Financing Activities: | |||||||||||||||||||||||||||||
| Payments on term loan | (491) | — | (491) | — | (491) | ||||||||||||||||||||||||
| Payments of litigation settlement | (194) | — | (194) | 194 | — | ||||||||||||||||||||||||
| Payment of deferred financing costs | (442) | — | (442) | — | (442) | ||||||||||||||||||||||||
| Proceeds from warrants exercised | 12 | — | 12 | — | 12 | ||||||||||||||||||||||||
| Distributions to members | (1,988) | — | (1,988) | — | (1,988) | ||||||||||||||||||||||||
| Net cash used in financing activities | (3,103) | — | (3,103) | 194 | (2,909) | ||||||||||||||||||||||||
| Net increase in cash and cash equivalents | 1,435 | — | 1,435 | — | 1,435 | ||||||||||||||||||||||||
| Cash and cash equivalents, beginning of the period | 4,047 | — | 4,047 | — | 4,047 | ||||||||||||||||||||||||
F-55
| (in thousands) | For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| As Previously Reported | Restatement Adjustments | As Restated | Immaterial Revisions | As Revised | |||||||||||||||||||||||||
| Cash and cash equivalents, end of the period | $ | 5,482 | $ | — | $ | 5,482 | $ | — | $ | 5,482 | |||||||||||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||||||||||||||||||||
| Cash paid for taxes | $ | 349 | $ | — | $ | 349 | $ | — | $ | 349 | |||||||||||||||||||
| Cash paid for interest | $ | 2,667 | $ | — | $ | 2,667 | $ | — | $ | 2,667 | |||||||||||||||||||
| Non-cash Financing Activities: | |||||||||||||||||||||||||||||
| Accrual of warrant redemption liability | $ | — | $ | 3,540 | $ | 3,540 | $ | — | $ | 3,540 | |||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | $ | 90 | $ | — | $ | 90 | $ | — | $ | 90 | |||||||||||||||||||
F-56
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | 4,087 | $ | 5,116 | |||||||
Accounts receivable, net of provision for credit losses of $385 and $344 | 6,287 | 37,207 | |||||||||
| Prepaid expenses and other current assets | 1,112 | 759 | |||||||||
| Total current assets | 11,486 | 43,082 | |||||||||
| Property, equipment and software, net | 409 | 599 | |||||||||
| Goodwill | 6,520 | 6,520 | |||||||||
| Intangible assets, net | 10,219 | 11,684 | |||||||||
| Deferred tax asset, net | — | 6,132 | |||||||||
| Operating lease right-of-use assets | 873 | 788 | |||||||||
| Related party receivable | 1,737 | 1,737 | |||||||||
| Other long-term assets | 47 | 130 | |||||||||
| Total assets | $ | 31,291 | $ | 70,672 | |||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | 6,452 | $ | 33,926 | |||||||
| Accrued liabilities | 881 | 3,816 | |||||||||
| Liability related to tax receivable agreement, current portion | 41 | 41 | |||||||||
| Current maturities of long-term debt | 36,667 | 1,478 | |||||||||
| Deferred revenues | 976 | 381 | |||||||||
| Operating lease liabilities, current portion | 183 | 126 | |||||||||
| Income taxes payable | 99 | 34 | |||||||||
| Total current liabilities | 45,299 | 39,802 | |||||||||
| Long-term debt, net of current portion | 150 | 28,578 | |||||||||
| Liability related to tax receivable agreement, net of current portion | — | 5,201 | |||||||||
| Operating lease liabilities, net of current portion | 832 | 773 | |||||||||
| Total liabilities | 46,281 | 74,354 | |||||||||
| COMMITMENTS AND CONTINGENCIES (Note 9) | |||||||||||
| STOCKHOLDERS’ DEFICIT | |||||||||||
Class A Common Stock, $0.001 par value per share, 160,000,000 shares authorized, 3,795,199 and 3,478,776 shares issued and outstanding, respectively | 4 | 3 | |||||||||
Class B Common Stock, $0.001 par value per share, 20,000,000 shares authorized, 10,868,000 shares issued and outstanding | 11 | 11 | |||||||||
| Additional paid-in capital | 3,481 | 3,067 | |||||||||
| Accumulated deficit | (6,593) | (2,538) | |||||||||
| Noncontrolling interest | (11,893) | (4,225) | |||||||||
| Total stockholders’ deficit | (14,990) | (3,682) | |||||||||
| Total liabilities and stockholders’ deficit | $ | 31,291 | $ | 70,672 | |||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
F-57
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per-share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Sell-side advertising | $ | 2,202 | $ | 51,622 | $ | 33,001 | $ | 89,006 | |||||||||||||||
| Buy-side advertising | 6,873 | 7,850 | 20,204 | 27,093 | |||||||||||||||||||
| Total revenues | 9,075 | 59,472 | 53,205 | 116,099 | |||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Sell-side advertising | 2,654 | 44,606 | 30,670 | 77,190 | |||||||||||||||||||
| Buy-side advertising | 2,907 | 3,113 | 8,091 | 10,650 | |||||||||||||||||||
| Total cost of revenues | 5,561 | 47,719 | 38,761 | 87,840 | |||||||||||||||||||
| Gross profit | 3,514 | 11,753 | 14,444 | 28,259 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Compensation, taxes and benefits | 3,526 | 4,747 | 12,216 | 12,934 | |||||||||||||||||||
| General and administrative | 3,646 | 2,512 | 10,757 | 8,718 | |||||||||||||||||||
| Total operating expenses | 7,172 | 7,259 | 22,973 | 21,652 | |||||||||||||||||||
| (Loss) income from operations | (3,658) | 4,494 | (8,529) | 6,607 | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Other income | 99 | 83 | 190 | 175 | |||||||||||||||||||
| Loss on early termination of line of credit | — | — | — | (300) | |||||||||||||||||||
| Derecognition of tax receivable agreement liability | 5,201 | — | 5,201 | — | |||||||||||||||||||
| Interest expense | (1,413) | (1,060) | (4,068) | (3,104) | |||||||||||||||||||
| Total other income (expense), net | 3,887 | (977) | 1,323 | (3,229) | |||||||||||||||||||
| Income (loss) before income taxes | 229 | 3,517 | (7,206) | 3,378 | |||||||||||||||||||
| Income tax expense | 6,606 | 166 | 6,132 | 166 | |||||||||||||||||||
| Net (loss) income | (6,377) | 3,351 | (13,338) | 3,212 | |||||||||||||||||||
| Net (loss) income attributable to noncontrolling interest | (3,687) | 2,780 | (9,283) | 2,663 | |||||||||||||||||||
| Net (loss) income attributable to Direct Digital Holdings, Inc. | $ | (2,690) | $ | 571 | $ | (4,055) | $ | 549 | |||||||||||||||
| Net (loss) income per common share: | |||||||||||||||||||||||
| Basic | $ | (0.71) | $ | 0.09 | $ | (1.11) | $ | 0.09 | |||||||||||||||
| Diluted | $ | (0.71) | $ | 0.09 | $ | (1.11) | $ | 0.09 | |||||||||||||||
| Weighted-average number of shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | 3,793 | 2,990 | 3,667 | 2,938 | |||||||||||||||||||
| Diluted | 3,793 | 3,044 | 3,667 | 3,080 | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
(in thousands except share data)
Nine Months Ended September 30, 2024
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 3,478,776 | $ | 3 | 10,868,000 | $ | 11 | $ | 3,067 | $ | (2,538) | $ | (4,225) | $ | (3,682) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 811 | — | — | 811 | |||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 195,088 | 1 | — | — | (1) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 39,101 | — | — | — | 215 | — | — | 215 | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 12,557 | — | — | — | 92 | — | — | 92 | |||||||||||||||||||||||||||||||||||||||
| Issuance of stock in lieu of cash bonus, net of tax withholdings | 69,677 | — | — | — | 912 | — | — | 912 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (4,055) | (9,283) | (13,338) | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest rebalancing | — | — | — | — | (1,615) | — | 1,615 | — | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | 3,795,199 | $ | 4 | 10,868,000 | $ | 11 | $ | 3,481 | $ | (6,593) | $ | (11,893) | $ | (14,990) | |||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2024
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | 3,788,446 | $ | 4 | 10,868,000 | $ | 11 | $ | 3,444 | $ | (3,903) | $ | (8,328) | $ | (8,772) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 149 | — | — | 149 | |||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 2,950 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 3,803 | — | — | — | 10 | — | — | 10 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,690) | (3,687) | (6,377) | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest rebalancing | — | — | — | — | (122) | — | 122 | — | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | 3,795,199 | $ | 4 | 10,868,000 | $ | 11 | $ | 3,481 | $ | (6,593) | $ | (11,893) | $ | (14,990) | |||||||||||||||||||||||||||||||||
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Nine Months Ended September 30, 2023
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 2,900,000 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,611 | $ | (344) | $ | 3,314 | $ | 5,595 | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 546 | — | — | 546 | |||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 89,459 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,200 | — | — | — | 12 | — | — | 12 | |||||||||||||||||||||||||||||||||||||||
| Warrant redemption accrual | — | — | — | — | (3,540) | — | — | (3,540) | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (1,968) | (1,968) | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 549 | 2,663 | 3,212 | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | (371) | $ | 205 | $ | 4,009 | $ | 3,857 | |||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2023
| Common Stock | APIC | Accumulated Deficit | Noncontrolling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 2,988,916 | $ | 3 | 11,278,000 | $ | 11 | $ | 2,927 | $ | (366) | $ | 2,445 | $ | 5,020 | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 242 | — | — | 242 | |||||||||||||||||||||||||||||||||||||||
| Issuance related to vesting of restricted stock units, net of tax withholdings | 2,743 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Warrant redemption accrual | — | — | — | — | (3,540) | — | — | (3,540) | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 133 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Distributions to holders of LLC Units | — | — | — | — | — | — | (1,216) | (1,216) | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 571 | 2,780 | 3,351 | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 2,991,792 | $ | 3 | 11,278,000 | $ | 11 | $ | (371) | $ | 205 | $ | 4,009 | $ | 3,857 | |||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows (Used In) Provided By Operating Activities: | |||||||||||
| Net (loss) income | $ | (13,338) | $ | 3,212 | |||||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
| Amortization of deferred financing costs | 558 | 435 | |||||||||
| Amortization of intangible assets | 1,465 | 1,465 | |||||||||
| Reduction in carrying amount of right-of-use assets | 115 | 124 | |||||||||
| Depreciation and amortization of property, equipment and software | 205 | 185 | |||||||||
| Stock-based compensation | 811 | 546 | |||||||||
| Deferred income tax expense | 6,132 | 82 | |||||||||
| Loss on early termination of line of credit | — | 300 | |||||||||
| Derecognition of tax receivable agreement liability | (5,201) | — | |||||||||
| Provision for credit losses/bad debt expense, net of recoveries | 36 | 98 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 30,884 | (28,381) | |||||||||
| Prepaid expenses and other assets | (394) | (524) | |||||||||
| Accounts payable | (27,474) | 27,326 | |||||||||
| Accrued liabilities and tax receivable agreement payable | (1,471) | (753) | |||||||||
| Income taxes payable | 65 | (61) | |||||||||
| Deferred revenues | 595 | 497 | |||||||||
| Operating lease liability | (83) | (70) | |||||||||
| Net cash (used in) provided by operating activities | (7,095) | 4,481 | |||||||||
| Cash Flows Used In Investing Activities: | |||||||||||
| Cash paid for capitalized software and property and equipment | (17) | (137) | |||||||||
| Net cash used in investing activities | (17) | (137) | |||||||||
| Cash Flows Provided by (Used In) Financing Activities: | |||||||||||
| Payments on term loan | (373) | (491) | |||||||||
| Proceeds from lines of credit | 6,700 | — | |||||||||
| Payments on shares withheld for taxes | (551) | — | |||||||||
| Payment of deferred financing costs | — | (442) | |||||||||
| Proceeds from options exercised | 92 | — | |||||||||
| Proceeds from warrants exercised | 215 | 12 | |||||||||
| Distributions to holders of LLC Units | — | (1,988) | |||||||||
| Net cash provided by (used in) financing activities | 6,083 | (2,909) | |||||||||
| Net (decrease) increase in cash and cash equivalents | (1,029) | 1,435 | |||||||||
| Cash and cash equivalents, beginning of the period | 5,116 | 4,047 | |||||||||
| Cash and cash equivalents, end of the period | $ | 4,087 | $ | 5,482 | |||||||
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| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for taxes | $ | 263 | $ | 349 | |||||||
| Cash paid for interest | $ | 3,472 | $ | 2,667 | |||||||
| Non-cash Financing Activities: | |||||||||||
| Accrual of warrant redemption liability | $ | — | $ | 3,540 | |||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
F-62
DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Organization and Description of Business
Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions intended for underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem. Direct Digital Holdings, Inc. is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Colossus Media, LLC (“Colossus Media”) and Huddled Masses, LLC (“Huddled Masses®” or “Huddled Masses”). Colossus Media operates the Company’s proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSPTM (“Colossus SSP”). In late September 2020, DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products, and other sectors with particular emphasis intended for small and mid-sized businesses transitioning into digital with growing digital media budgets. In February 2022, Direct Digital Holdings, Inc. completed an initial public offering of its securities and, together with DDH LLC, effected a series of transactions (together, the “Organizational Transactions”) whereby Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, the holder of 100% of the voting interests of DDH LLC and the holder of 19.7% of the economic interests of DDH LLC, commonly referred to as an “Up-C” structure. (See Note 6 — Related Party Transactions). In these condensed consolidated financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC and its subsidiaries. All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas.
Direct Digital Holdings, Inc. owns 100% of the voting interest in Direct Digital Holdings, LLC. As of September 30, 2024, DDH owns 25.9% of the economic interest in Direct Digital Holdings, LLC. See further discussion of the Up-C structure in Note 6 of our condensed consolidated financial statements. Direct Digital Holdings, LLC was formed on June 21, 2018 and acquired by DDH on February 15, 2022 in connection with the Organizational Transactions. Direct Digital Holdings, LLC’s wholly-owned subsidiaries are as follows:
| Subsidiary | Current % Ownership | Business Segment | Date of Formation | Date of Acquisition | ||||||||||||||||||||||
| Colossus Media, LLC | 100% | Sell-side | September 8, 2017 | June 21, 2018 | ||||||||||||||||||||||
| Orange142, LLC | 100% | Buy-side | March 6, 2013 | September 30, 2020 | ||||||||||||||||||||||
| Huddled Masses, LLC | 100% | Buy-side | November 13, 2012 | June 21, 2018 | ||||||||||||||||||||||
Colossus SSP is a stand-alone platform intended to deliver targeted advertising to diverse and multicultural audiences as well as to general audiences. Both buy-side subsidiaries, Orange 142 and Huddled Masses, offer technology-enabled advertising solutions and consulting services to clients through demand side platforms (“DSPs”).
Providing both the front-end, buy-side operations coupled with the Company’s proprietary sell-side operations enables the Company to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.
Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies
Basis of presentation and consolidation
The accompanying condensed unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial
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reporting and as required by Rule 8-03 of Regulation S-X. Accordingly, the condensed unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2024, the results of its operations for the three and nine months ended September 30, 2024 and 2023, cash flows for the nine months ended September 30, 2024 and 2023, and stockholders’ deficit for the three and nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024, respectively, are not necessarily indicative of the results to be expected for the full year. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenues and expenses reported during the period. Actual results could differ from estimates. The accompanying condensed unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the accompanying notes for the year ended December 31, 2023, which was included in Form 10-K filed with the SEC on October 15, 2024.
The condensed consolidated financial statements include the accounts of Direct Digital Holdings, Inc. and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards otherwise applicable to public companies until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates discussed below reflect this election.
Revenue recognition
The Company recognizes revenue using the following five steps: 1) identification of a contract with a customer; 2) identification of the performance obligation(s) in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligation(s) in the contract; and 5) recognition of revenue when, or as, the performance obligation(s) are satisfied. The Company’s revenues are derived primarily from two sources: sell-side advertising and buy-side advertising. Thus, the Company disaggregates the revenue earned into these two segments. For additional segment disclosures, refer to Note 7 — Segment Information of our condensed consolidated financial statements. The Company maintains agreements with its customers in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days).
For the sell-side advertising segment, the Company generates revenue by selling advertising inventory (digital ad units) that the Company purchases from publishers to advertisers through a process of monetizing ad impressions on the Company’s proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP. For the buy-side advertising segment, the Company generates revenue from customers that enter into agreements with the Company to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features.
In connection with the Company’s analysis of principal vs agent considerations, the Company has evaluated the specified goods or services and considered whether the Company controls the goods or services before they are provided to the customer, including the three indicators of control. Based upon this analysis and the Company’s specific facts and circumstances, the Company concluded that it is a principal for the goods or services sold through both the Company’s sell-side advertising segment and buy-side advertising segment because the Company controls the specified good or service before it is transferred to the customer and the Company is the primary obligor in the
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agreement with customers. Therefore, the Company reports revenue on a gross basis inclusive of all supplier costs and pays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.
In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing while, in our buy-side segment, the second and third quarters of the year reflect our highest levels of advertising activity and the first quarter reflects the lowest level of such activity.
Sell-side advertising
The Company partners with publishers to sell advertising inventory to the Company’s Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and mobile mediums using its proprietary programmatic sell-side platform (“SSP”). The Company refers to its publishers, app developers, and channel partners collectively as its "publishers." The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. The Company recognizes revenue at a point in time when an ad is delivered or displayed in response to a winning bid request from ad buyers.
Buy-side advertising
The Company purchases media based on the budget established by its customers with a focus on leveraging data services, customer branding, real-time market analysis and micro-location advertising. The Company offers its services on a fully managed basis, which is recognized over time using the output method when the performance obligation is fulfilled. An “impression” is delivered when an advertisement appears on pages viewed by users. The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum. Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities. The Company provides digital advertising and media buying capabilities with a focus on generating measurable digital and financial life for its customers.
Revenue arrangements are evidenced by a fully executed insertion order (“IO”) and/or a master service agreement (“MSA”) covering a combination of marketing tactics. Generally, IOs specify the number and type of advertising impressions to be delivered over a specified time at an agreed upon price and performance objectives for an ad campaign. Performance objectives are generally a measure of targeting, as defined by the parties in advance, such as number of ads displayed, consumer clicks on ads or consumer actions (which may include qualified leads, registrations, downloads, inquiries or purchases). These payment models are commonly referred to as CPM (cost per impression), CPC (cost per click) and CPA (cost per action). The majority of the Company’s contracts are flat-rate, fee-based contracts.
Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $1.0 million and $0.4 million as of September 30, 2024 and December 31, 2023, respectively. Revenue recognized during the nine months ended September 30, 2024 and 2023 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $0.4 million and $0.5 million, respectively.
Accounting Standards Codification ("ASC") 606 provides various optional practical expedients. The Company elected the use of the practical expedient relating to the disclosure of remaining performance obligations within a contract and will not disclose remaining performance obligations for contracts with an original expected duration of one year or less.
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Goodwill
As of September 30, 2024 and December 31, 2023, goodwill was $6.5 million, which includes $2.4 million as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $4.1 million from the acquisition of Orange 142 in 2020. The Company expects to deduct goodwill for tax purposes in future years. Goodwill is attributable to entry into new markets not previously accessible and generation of future growth opportunities. Goodwill is assessed for impairment at least annually (December 31) starting with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed. Depending upon the results of the quantitative measurement, the recorded goodwill may be written down and an impairment expense is recorded in the condensed consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event. The Company determined that there was no impairment of goodwill during the nine months ended September 30, 2024 and 2023.
Intangible assets, net
Intangible assets consist of customer relationships, trademarks and non-compete agreements. Intangible assets are recorded at fair value at the time of their acquisition and are stated within the condensed consolidated balance sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives and recorded as amortization expense within general and administrative expenses in the condensed consolidated statements of operations. The Company’s intangible assets are being amortized over their estimated useful lives, using the straight-line method with non-compete agreements over 5 years and other intangibles over 10 years.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets, including property, equipment and software costs and intangible assets if facts or circumstances indicate that any of those assets might be impaired. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows to determine if a write-down to fair value is necessary. No impairment loss was recognized during the nine months ended September 30, 2024 and 2023.
Stock-based compensation
Stock-based compensation cost for options and restricted stock units (“RSU”) awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date.
The Company estimates the fair value of RSU’s based on the closing price of the Company’s common stock on the date of the grant. The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates and the expected dividend yield. Given the Company's short history as a public company, the expected volatility is determined based on the trading history of several unrelated public companies within the industry that the Company considers to be comparable and the expected term is determined based on a combination of the terms of stock options and peer data. The risk-free interest rate is derived using the U.S. Treasury yield curve in effect at date of grant. Other assumptions are based on historical experience and activity. The Company considers an estimated forfeiture rate for stock options based on historical experience and the anticipated forfeiture rates during the future contract life.
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Income taxes
In February 2022, concurrent with the Organizational Transactions, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM”). The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement. DDH LLC is a limited liability company, is treated as a partnership for federal income tax purposes and generally is not subject to any entity-level U.S. federal income tax and certain state and local income taxes. Any taxable income or loss generated by the Company is allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss under the LLC Agreement. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC Units are redeemed or exchanged by the members of DDH, LLC. The Company made an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurred. During the nine months ended September 30, 2024 and 2023, members of DDM exchanged no shares of Class B Common Stock into shares of Class A Common Stock.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. As of September 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $7.3 million and $0.5 million, respectively.
Accounts receivable, net
Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms. The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral. Accounts receivable are stated at net realizable value. The Company insures a significant portion of its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes provision for credit losses as deemed necessary for accounts not covered by this insurance. Management periodically reviews outstanding accounts receivable for reasonableness. If warranted, the Company processes a claim with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense. The guaranteed recovery for the claim is approximately 90% of the original balance, and if the full amount is collected by the insurance company, the remaining 10% is remitted to the Company. If the insurance company is unable to collect the full amount, the Company records the remaining 10% to bad debt expense. The Company’s provision for credit losses reflects the current expected credit loss inherent in the accounts receivable considering the Company’s aging analysis, historical collection experience, customer creditworthiness, current and future economic conditions and market conditions. Accounts receivable balances are written off against the provision when the Company believes it is probable the receivable will not be recovered. For the nine months ended September 30, 2024 and 2023, the Company's provision for credit losses net of recoveries, as reflected in the condensed consolidated statements of cash flows was less than $0.1 million.
Concentrations of customers and suppliers
There is an inherent concentration of credit risk associated with accounts receivable arising from revenue from major customers on both the sell-side and buy-side of the business. For the three months ended September 30, 2024 and 2023, one buy-side customer represented 12% and one sell-side customer represented 82% of revenues, respectively. For the nine months ended September 30, 2024 and 2023, one sell-side customer represented 52% and 72% of revenues, respectively. As of September 30, 2024 and December 31, 2023, three customers and one customer accounted for 35% and 83%, respectively, of accounts receivable.
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As of September 30, 2024 and December 31, 2023, one vendor and three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 17% and 77%, respectively, of consolidated accounts payable.
Accrued Liabilities
The components of accrued liabilities on the balance sheet as of September 30, 2024 and December 31, 2023 are as follows (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Accrued compensation and benefits | $ | 277 | $ | 2,789 | |||||||
| Accrued expenses | 534 | 631 | |||||||||
| Accrued severance | — | 189 | |||||||||
Accrued litigation settlement (1) | — | 171 | |||||||||
| Accrued interest | 70 | 36 | |||||||||
| Total accrued liabilities | $ | 881 | $ | 3,816 | |||||||
__________________
(1)In July 2022, the Company entered into a litigation settlement agreement with a vendor of Huddled Masses related to a delinquent balance from 2019 and agreed to pay a total of $0.5 million with monthly installment payments over 24 months beginning September 1, 2022.
Cash and cash equivalents
Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less. Such deposits may, at times, exceed federally insured limits. The risk of loss attributable to any uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.
Deferred offering costs
The Company records certain legal, accounting and other third-party fees that are directly associated with an offering to stockholders’ equity or debt in the event that the Company completes an offering. Costs associated with debt offerings are amortized to interest expense using the straight-line method over the life of the debt. As of September 30, 2024 and December 31, 2023, $1.3 million and $1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, $0.1 million and $0.2 million, respectively, of unamortized deferred issuance costs are classified as prepaid expenses and other current assets in the condensed consolidated balance sheets.
Fair value measurements
The Company employs a hierarchy which prioritizes the inputs used to measure recurring fair value into three distinct categories based on the lowest level of input that is significant to the fair value measurement. The methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest levels to unobservable inputs, summarized as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).
•Level 3 – Significant unobservable inputs (including our own assumptions in determining fair value).
We use the cost, income or market valuation approaches to estimate the fair value of our assets and liabilities when insufficient market-observable data is available to support our valuation assumptions.
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Fair value of financial instruments
The Company considers the fair value of all financial instruments, including cash, accounts receivable and accounts payable to approximate their carrying values at year-end due to their short-term nature. The carrying value of the Company’s debt approximates fair value due to the market rates of interest.
Net income (loss) per share
Basic net income (loss) per share excludes dilution and is determined by dividing net income (loss) by the weighted average number of common shares outstanding including participating securities during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock.
Recent Accounting Pronouncements
Accounting pronouncements adopted
No standards have been adopted which have had a material impact on the Company’s condensed consolidated financial statements.
Accounting pronouncements not yet adopted
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for emerging growth companies for annual periods beginning after December 15, 2025. This accounting standard is effective in the first quarter of the Company's fiscal year ending December 31, 2026. The Company is currently evaluating the impact of adoption on our financial disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the Company's chief operating decision maker ("CODM"). The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption on our financial disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements.
Liquidity and capital resources
Going Concern
The Company evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these condensed consolidated financial statements were issued or were available to be issued.
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As discussed in Note 9, one of the Company’s sell-side customers paused its connection to the Company for a couple of weeks in May 2024, which reduced sell-side sales volumes. As of the date of this report, sell-side volumes related to this customer have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created significant disruption in the Company’s sell-side business. The Company is actively working with its partners to achieve prior volume levels. However, there can be no assurance that the Company will be able to achieve prior volume levels with its partners or on the timing of achieving such volume levels. Additionally, the Company (1) incurred a net loss of $13.3 million for the nine months ended September 30, 2024 reflecting the impact of the sell-side disruption described above and a decrease in customer spend on the buy-side, (2) reported an accumulated deficit of $6.6 million as of September 30, 2024, (3) reported cash and cash equivalents of $4.1 million as of September 30, 2024, (4) has borrowed $9.7 million and $8.7 million, respectively, as of September 30, 2024 and the date of this report, under the Credit Agreement which matures in July 2025, (5) was notified on April 17, 2024 that the Company’s auditor had resigned, (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024 and (7) was notified by Nasdaq on October 18, 2024 that it was not in compliance with Nasdaq's minimum stockholders' equity requirements. The delay in filing the Company’s annual and quarterly reports disrupted existing capital-raising efforts and created additional audit, legal and other expenses. These factors raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months.
The Company anticipates sources of liquidity to include cash on hand and cash flow from operations and has taken several actions to address liquidity concerns. These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary various relief from debt covenants (see Note 3 — Long-Term Debt) while rebuilding sell-side volumes, (3) putting in place a program to raise capital through an equity reserve facility (see Note 4 — Stockholders’ Deficit and Stock-Based Compensation), (4) regaining compliance with respect to delinquent SEC filings on October 15, 2024 which will allow the Company to access the capital markets as well as other financing sources and (5) a plan to achieve compliance with Nasdaq's minimum stockholders' equity requirements. There can be no assurance that the Company’s actions will be successful or that additional financing will be available when needed or on acceptable terms.
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
Note 3 — Long-Term Debt
At September 30, 2024 and December 31, 2023, long-term debt consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| 2021 Credit Facility | $ | 28,221 | $ | 28,594 | |||||||
| Credit Agreement | 9,700 | 3,000 | |||||||||
| Economic Injury Disaster Loan | 150 | 150 | |||||||||
| Total debt | 38,071 | 31,744 | |||||||||
| Less: deferred financing costs | (1,254) | (1,688) | |||||||||
| Total debt, net of deferred financing costs | 36,817 | 30,056 | |||||||||
| Less: current portion | (36,667) | (1,478) | |||||||||
| Total long-term debt, net of current portion | $ | 150 | $ | 28,578 | |||||||
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The components of interest expense and related fees for long-term debt is as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Interest expense – Lafayette Square | $ | 1,020 | $ | 896 | $ | 2,975 | $ | 2,665 | |||||||||||||||
| Interest expense – East West Bank | 206 | — | 531 | — | |||||||||||||||||||
| Interest expense – other | 1 | 1 | 4 | 4 | |||||||||||||||||||
| Amortization of deferred financing costs | 186 | 163 | 558 | 435 | |||||||||||||||||||
| Total interest expense and amortization of deferred financing costs | $ | 1,413 | $ | 1,060 | $ | 4,068 | $ | 3,104 | |||||||||||||||
Lafayette Square
On December 3, 2021, the Company entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square Loan Services, LLC ("Lafayette Square") as administrative agent, and the various lenders thereto. The term loan under the 2021 Credit Facility initially provided for a term loan in the principal amount of up to $32.0 million, consisting of a $22.0 million closing date term loan (the "Term Loan") and an up to $10.0 million delayed draw term loan (the “Delayed Draw Loan”). The loans under the 2021 Credit Facility originally bore interest at LIBOR plus the applicable margin minus any applicable impact discount. The applicable margin under the 2021 Credit Facility was determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50% per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00% per annum if the consolidated total net leverage ratio was greater than 4.00 to 1.00. On June 1, 2023, as originally contemplated under the 2021 Credit Facility, the Company entered into an agreement with Lafayette Square to convert the existing LIBOR based rate to a Term Secured Overnight Financing Rate ("SOFR") with a credit spread of 0.15% per annum for the interest periods of three months and providing for a credit spread adjustment of 0.10%, 0.15% or 0.25% per annum for interest periods of one month, three months or six months, respectively. The loans under the 2021 Credit Facility bear interest at SOFR plus the applicable credit spread adjustment plus the applicable margin minus any applicable impact discount. Prior to entering into the Fifth Amendment as defined below, the applicable margin under the 2021 Credit Facility was based on the consolidated total net leverage ratio of the Company at a rate of 7.00% per annum if the consolidated total net leverage ratio was less than or equal to 1.00 to 1.00 with gradual increases as the ratio increased up to 10.00% per annum if the consolidated total net leverage ratio was greater than 3.50 to 1.00. The maturity date of the 2021 Credit Facility is December 3, 2026.
On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement and received proceeds of $4.3 million borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction.
Subsequently, on October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility (the “Fourth Amendment”) and received proceeds of $3.6 million borrowed under the Delayed Draw Loan to make payments in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred as described in Note 4 — Stockholders’ Deficit and Stock-Based Compensation in the notes to the condensed consolidated financial statements. In connection with the Fourth Amendment, the Company agreed it would not be permitted to request any additional funds under the Delayed Draw Loan, and Lafayette Square would not be obligated to fund any such requests.
Quarterly installment payments on the Term Loan and the Delayed Draw Loan, due on the last day of each fiscal quarter, began March 31, 2022 with a final installment due December 3, 2026 for remaining balances outstanding under each loan. Each quarterly installment payment under the closing date term loan was $0.1 million from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $0.3 million. Each quarterly installment payment under the Delayed Draw Loan was 0.625% of the amount of the Delayed Draw Loan through December 31, 2023, and each installment payment thereafter until maturity is 1.25% of the amount of the Delayed Draw Loan.
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Under the 2021 Credit Facility, dividends and distributions by DDH LLC to the Company and any shareholders of the Company are permitted so long as (i) no default or event of default is continuing or would occur after giving pro forma effect to such dividends and distributions under the 2021 Credit Facility, (ii) the Company, on a pro forma basis, maintains a consolidated senior net leverage ratio of not greater than 1.5 to 1.0, and (iii) the Company, on a pro forma basis, maintains liquidity of not less than $15.0 million. The Company did not meet these conditions as of September 30, 2024 and therefore DDH LLC assets are considered restricted and no dividends or distributions to the Company and any shareholders is permitted while these conditions are not met.
The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of the Company. As of September 30, 2024, the Company owed a balance on the 2021 Credit Facility of $28.2 million. No additional deferred financing costs were incurred during the nine months ended September 30, 2024 and less than $0.1 million of additional deferred financing costs were incurred during the nine months ended September 30, 2023. Unamortized deferred financing costs as of September 30, 2024 and December 31, 2023 were $1.3 million and $1.7 million respectively. Accrued and unpaid interest was less than $0.1 million as of September 30, 2024 and December 31, 2023. The 2021 Credit Facility contains customary affirmative and negative covenants. Prior to entering into the Fifth Amendment, the Company was required to maintain a net leverage ratio of no more than 3.50 to 1.00 as of December 31, 2021 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025, 3.00 to 1.00 as of June 30, 2025 and September 30, 2025, with incremental tightening of the ratio to 2.50 to 1.00 as of June 30, 2026 and thereafter through maturity. Prior to entering into the Fifth Amendment, the 2021 Credit Facility also required the Company to maintain a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries.
On October 15, 2024, with an effective date of June 30, 2024, the Company and Lafayette Square entered into the Fifth Amendment to the Term Loan and Security Agreement (the “Fifth Amendment”) which among other things, (1) defers quarterly installment payments on the Term Loan and the Delayed Draw Loan for the periods from June 30, 2024 through December 31, 2025, (2) requires that the Company pay a commitment fee of 50 basis points or an amount of $0.1 million to Lafayette Square, (3) allows proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provides for one-month and three-month interest periods, (5) replaces the calculation of the consolidated total net leverage ratio with a consolidated total leverage ratio for purposes of calculating the applicable margin and the financial covenant and (6) replaces the financial covenants under the 2021 Credit Facility (effective as of June 30, 2024) with the following:
| As of | Minimum TTM* EBITDA ($ in millions) | Minimum Liquidity ($ in millions) | Maximum Consolidated Total Leverage Ratio | Minimum Fixed Charge Coverage Ratio | ||||||||||||||||||||||
| June 30, 2024 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||
| September 30, 2024 | $5.0 | $1.5 | n/a | n/a | ||||||||||||||||||||||
| December 31, 2024 | $3.5 | $1.5 | n/a | n/a | ||||||||||||||||||||||
| March 31, 2025 | $5.5 | $2.0 | n/a | n/a | ||||||||||||||||||||||
| June 30, 2025 | $7.5 | $2.0 | n/a | 1.50 to 1.00 | ||||||||||||||||||||||
| September 30, 2025 | n/a | $2.0 | 4.25 to 1.00 | 1.50 to 1.00 | ||||||||||||||||||||||
| December 31, 2025 | n/a | $2.0 | 4.00 to 1.00 | 1.50 to 1.00 | ||||||||||||||||||||||
| March 31, 2026 | n/a | $2.0 | 3.75 to 1.00 | 1.50 to 1.00 | ||||||||||||||||||||||
| June 30, 2026 | n/a | $2.0 | 3.50 to 1.00 | 1.50 to 1.00 | ||||||||||||||||||||||
| September 30, 2026 | n/a | $2.0 | 3.25 to 1.00 | 1.50 to 1.00 | ||||||||||||||||||||||
__________________
*TTM = Trailing Twelve Months
The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of September 30, 2024 after giving effect to the amendments to the 2021 Credit Facility under the Fifth Amendment, except for the
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minimum trailing twelve months EBITDA covenant. The Company is in discussion with Lafayette Square to waive the current non-compliance with the financial covenant. While the Company expects to negotiate an acceptable resolution, there can be no assurance that it will be able to negotiate a waiver or an amendment, or that such waiver or amendment will be on terms acceptable to the Company. If the Company is unable to obtain a waiver from or enter into an amendment with Lafayette Square, it could have a material adverse effect on our financial position and our ability to execute our business plan. Because of the non-compliance, the debt under the 2021 Credit Facility is classified as current as of September 30, 2024.
2023 Revolving Line of Credit - East West Bank
On July 7, 2023, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”), with East West Bank (“EWB”), as lender. The Credit Agreement provides for a revolving credit facility in the principal amount of up to $10 million, subject to a borrowing base determined based on eligible accounts, and an up to $5 million uncommitted incremental revolving facility. Loans under the Credit Agreement mature on July 7, 2025 (the “Maturity Date”), unless the Credit Agreement is otherwise terminated pursuant to the terms of the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month Term SOFR rate and as determined by EWB on the first day of the applicable interest period, plus 0.10% (10 basis points), plus 3.00% per annum (the “Loan Rate”); provided, that, in no event shall the Loan Rate be less than 0.50% of the Loan Rate effective as of the date of the Credit Agreement nor more than the maximum rate of interest allowed under applicable law. Upon an event of default under the Credit Agreement, the outstanding principal amounts of any advances will accrue interest at a rate per annum equal to the Loan Rate plus five percent (5%), but in no event in excess of the maximum rate of interest allowed under applicable law.
At the Company’s option, the Company may at any time prepay the outstanding principal balance of the Credit Agreement in whole or in part, without fee, penalty or premium. All accrued but unpaid interest on outstanding advances under the Credit Agreement are payable in monthly installments on the last day of each monthly interest period until the Maturity Date when the then-outstanding principal balance of the advances and all accrued but unpaid interest thereon becomes due and payable. The obligations under the Credit Agreement are secured by all or substantially all of the borrowers’ assets.
Prior to entering into the Third Amendment as defined below, the Company was required to maintain compliance at all times with the following financial covenants on a consolidated basis: (i) a fixed charge coverage ratio of not less than 1.25 to 1.0, beginning with the fiscal quarter ended on June 30, 2023 and at the end of each fiscal quarter thereafter; (ii) a total funded debt-to-EBITDA ratio of no more than 3.50 to 1.00 as of June 30, 2023 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025 and 3.00 to 1.00 as of June 30, 2025 and thereafter through maturity; and (iii) a liquidity covenant requiring the Company to maintain minimum liquid assets at all times (calculated in the manner provided for in the Credit Agreement), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $1.0 million. Revolving Credit Availability is defined as an amount such that the ratio of the value of eligible accounts to the aggregate amount of all outstanding advances under the credit agreement at such time is not less than 2.0 to 1.0. Additionally, the amounts outstanding under the Credit Agreement exceeded the Company’s borrowing base as of June 30, 2024 by $0.5 million which was addressed in the Third Amendment, requiring a $1.0 million principal payment on the outstanding loans under the Credit Agreement as of the date of the Third Amendment.
On October 15, 2024, with an effective date of June 30, 2024, the Company and EWB entered into the Third Amendment to the Credit Agreement (the “Third Amendment”) which, among other things, (1) provides that the Company will make prepayments of the outstanding principal balance of the Credit Agreement of $1.0 million upon execution of the Third Amendment, $1.0 million on or before January 15, 2025 and $2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the SEC to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of
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eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) requires the Company to make additional prepayments in the amount by which the outstanding loans under the Credit Agreement exceed the borrowing base between the calendar months ending November 30, 2024 and April 15, 2025, and (6) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024, with the following:
| As of | Minimum TTM(1) EBITDA ($ in millions) | Minimum Liquid Assets ($ in millions) | Maximum Total Funded Debt to EBITDA Leverage Ratio | Minimum Fixed Charge Coverage Ratio | Revolving Credit Availability (as of each month end) | |||||||||||||||||||||||||||
| June 30, 2024 | n/a | $1.0 | n/a | n/a | n/a | |||||||||||||||||||||||||||
| September 30, 2024 | $5.0 | $1.5 | n/a | n/a | n/a | |||||||||||||||||||||||||||
| December 31, 2024 | $3.5 | $1.5 | n/a | n/a | 1.00 to 1.00(2) | |||||||||||||||||||||||||||
| March 31, 2025 | $5.5 | $2.0 | n/a | n/a | 1.50 to 1.00(3) | |||||||||||||||||||||||||||
| June 30, 2025 | $7.5 | $2.0 | n/a | 1.25 to 1.00 | 2.00 to 1.00(4) | |||||||||||||||||||||||||||
__________________
(1)TTM = Trailing Twelve Months
(2)Beginning November 30, 2024
(3)Beginning January 31, 2025
(4)Beginning April 15, 2025
The Company was in compliance with all the financial covenants under the Credit Agreement as of September 30, 2024 after giving effect to the amendments to the Credit Agreement under the Third Amendment, except for the minimum trailing twelve months EBITDA covenant. The Company is in discussion with EWB to waive the current non-compliance with the financial covenant. While the Company expects to negotiate an acceptable resolution, there can be no assurance that it will be able to negotiate a waiver or an amendment, or that such waiver or amendment will be on terms acceptable to the Company. If the Company is unable to obtain a waiver from or enter into an amendment with EWB, it could have a material adverse effect on our financial position and our ability to execute our business plan. Because of the maturity date, the debt under the Credit Agreement is classified as current as of September 30, 2024.
The Credit Agreement contains customary representations and warranties and includes affirmative and negative covenants applicable to the borrowers and their respective subsidiaries. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.
The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers. During the nine months ended September 30, 2024, the Company did not incur any deferred financing costs associated with the Credit Agreement. As of September 30, 2024, there was $9.7 million outstanding under the Credit Agreement which was classified as short term due to the Maturity Date being within twelve months of the reporting period.
The collateral securing the obligations under the 2021 Credit Facility and the Credit Agreement is subject to intercreditor agreements between Lafayette Square and EWB.
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Silicon Valley Bank (“SVB”) Financing
On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among SVB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange 142, as borrowers. The SVB Loan Agreement provided for a revolving credit facility (the “SVB Revolving Credit Facility”) in the original principal amount of $5 million, subject to a borrowing base determined based on eligible accounts, and up to an additional $2.5 million incremental revolving facility subject to the lender’s consent, which would increase the aggregate principal amount of the Credit Facility to $7.5 million. Loans under the SVB Revolving Credit Facility were to mature on September 30, 2024 unless the Credit Facility was otherwise terminated pursuant to the terms of the Loan Agreement.
On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation as receiver. As the Company had not yet drawn any amounts under the SVB Revolving Credit Facility, on March 13, 2023, the Company issued a notice of termination of the SVB Loan Agreement. The termination of the SVB Revolving Credit Facility became effective April 20, 2023. Prior to issuing the notice of termination, the Company received consent to terminate the SVB Revolving Credit Facility and a waiver of the terms relating to the SVB Revolving Credit Facility under its Term Loan and Security Agreement, dated as of December 3, 2021, with Lafayette Square Loan Servicing, LLC (“Lafayette Square”). The Company did not hold material cash deposits or securities at Silicon Valley Bank and did not experience any adverse impact to its liquidity or to its current and projected business operations, financial condition or results of operations as a result of the SVB closure. During the nine months ended September 30, 2023, the Company incurred $0.4 million of deferred financing costs. After the Company issued the notice of termination, total deferred financing costs of $0.3 million were expensed to loss on early termination of line of credit during the nine months ended September 30, 2023.
U.S. Small Business Administration Loans
Economic Injury Disaster Loan
In 2020, the Company applied and was approved for a loan pursuant to the Economic Injury Disaster Loan (“EIDL”), administered by the U.S. Small Business Administration (“SBA”). The Company received the loan proceeds of $0.2 million on June 15, 2020. The loan bears interest at a rate of 3.75% and matures on June 15, 2050. Installment payments, including principal and interest, of less than $0.1 million began monthly on December 15, 2022. Each payment will first be applied to pay accrued interest, then the remaining balance will be used to reduce principal. The loan is secured by substantially all assets of DDH LLC.
Accrued and unpaid interest expense as of September 30, 2024 and December 31, 2023 was less than $0.1 million and is included in accrued liabilities on the condensed consolidated balance sheets.
Overall
As of September 30, 2024, future minimum payments related to long-term debt are as follows (in thousands):
| Remaining 2024 | $ | 1,109 | |||
| 2025 | 11,160 | ||||
| 2026 | 25,656 | ||||
| 2027 | 3 | ||||
| 2028 | 3 | ||||
| Thereafter | 140 | ||||
| Total | 38,071 | ||||
| Less current portion | (36,667) | ||||
| Less deferred financing costs | (1,254) | ||||
| Long-term debt, net | $ | 150 | |||
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Note 4 — Stockholders’ Deficit and Stock-Based Compensation
Stockholders’ Equity – Initial Public Offering
Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, the Company's Chairman and Chief Executive Officer and President, and (ii) noneconomic voting units of DDH LLC, 100% of which are held by the Company. In August 2022 and December 2023, DDM tendered 100,000 and 410,000, respectively, of its limited liability company units to the Company in exchange for newly issued shares of Class A Common Stock of the Company on a one-for-one basis. In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled. As of September 30, 2024, DDM held 10,868,000 shares of Class B Common Stock.
The Company is authorized to issue 160,000,000 shares of Class A Common Stock, par value $0.001 per share, 20,000,000 shares of Class B Common Stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.
On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of its Class A Common Stock and (ii) one warrant entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $5.50 per share. The warrants became immediately exercisable upon issuance and were exercisable for a period of five years after the issuance date. The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance. As of September 30, 2024, none of these warrants were outstanding. The underwriters in our initial public offering were granted a 45-day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock. As of September 30, 2024, none of these warrants were outstanding. In connection with the Company’s initial public offering, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $6.60, which was equal to 120% of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $0.012, which was equal to 120% of the public offering price per warrant sold in the offering. A group of underwriters exercised 70,000 Units and 10,500 warrants in November 2023 and exercised 70,000 Units and 10,500 warrants in February 2024.
The warrants had a fair value of $0 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.94% based on the applicable U.S. Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66% based on the trading history of similar companies, and (4) zero expected dividends.
On August 29, 2023, the Company filed a Tender Offer Statement on Schedule TO pursuant to which the Company offered to purchase all of its outstanding warrants for $1.20 per warrant in cash. The Tender Offer expired at one minute after 11:59 PM, Eastern Time on September 28, 2023. The Company accepted all validly tendered warrants for purchase and settlement on October 2, 2023. As a result of the Tender Offer, a total of 2,213,652 warrants were tendered and not validly withdrawn prior to the expiration of the tender offer for a total purchase price of approximately $2.7 million. On October 23, 2023, the Company distributed a notice of redemption to the registered holders of the remaining outstanding warrants announcing the redemption of those warrants for $0.35 per warrant. The redemption closed on October 30, 2023, and all remaining 1,004,148 warrants were purchased for an aggregate price of approximately $0.4 million.
Equity Reserve Facility
On October 18, 2024, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with New Circle Principal Investments LLC, a Delaware limited liability company (“New Circle”), pursuant to which New Circle has committed to purchase, subject to certain limitations, up to $20 million (the “Total Commitment”) of the Company’s Class A common stock, par value $0.001 per share (the “Class A Common Stock”). Under the
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applicable Nasdaq rules, the Company may not issue to New Circle under the Purchase Agreement more than 19.99% of the shares of all classes of the Company’s common stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of its Class A Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average purchase price per share paid by New Circle for all shares of the Company’s Class A Common Stock, if any, that the Company elects to sell to New Circle under the Purchase Agreement equals or exceeds certain minimums permitted under the rules of the Nasdaq Stock Market. The purchase price of the shares that may be sold to New Circle under the Purchase Agreement will be based on an agreed upon fixed discount to the market price of our Class A Common Stock as computed under the Purchase Agreement.
As consideration for New Circle’s irrevocable commitment to purchase shares of the Company’s Class A Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, the Company paid New Circle structuring and legal fees of less than $0.1 million. In addition, the Company will pay a commitment fee of $150,000 to New Circle, which we may issue in the form of the Company’s Class A Common Stock (the “Commitment Fee”), the market value of which shall be determined based on the closing price of the Class A Common Stock on the date the Registration Statement is declared effective by the SEC; provided, however, that the Company may, in its sole discretion, elect to pay any portion of the Commitment Fee in cash, so long as such amount is paid on or prior to the day of filing of the Registration Statement filed in order to register the Company’s Class A Common Stock sold under the Purchase Agreement.
The Purchase Agreement will automatically terminate on the earliest of (i) the 36-month anniversary of the of the Purchase Agreement, (ii) the date on which New Circle shall have made payment to the Company for Class A Common Stock equal to the Total Commitment or (iii) the date any statute, rule, regulation, executive order, decree, ruling or injunction that would prohibit any of the transactions contemplated by the Purchase Agreement goes into effect. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty, upon five trading days’ prior written notice to New Circle so long as (a) there are no outstanding purchase notices under which our Class A Common Stock have yet to be issued and (b) the Company has paid all amounts owed to New Circle pursuant to the Purchase Agreement. The Company and New Circle may also agree to terminate the Purchase Agreement by mutual written consent.
Noncontrolling Interest
Direct Digital Holdings, Inc. is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC. Therefore, Direct Digital Holdings, Inc. reports a noncontrolling interest ("NCI") based on the common units of DDH LLC held by DDM. While Direct Digital Holdings, Inc. retains its controlling interest in DDH LLC, changes in its ownership interest in DDH LLC are accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Units by DDM will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when DDH LLC has positive or negative net assets, respectively.
Stock-Based Compensation Plans
In connection with the initial public offering, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors. The Company’s board of directors reserved 1,500,000 shares of Class A Common Stock for issuance in equity awards under the 2022 Omnibus Plan. Information on activity for both the stock options and RSUs is detailed below.
During the nine months ended September 30, 2024 and 2023, the Company recognized $0.8 million and $0.5 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.
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Stock Options
Options to purchase shares of common stock vest annually on the grant date anniversary over a period of three years and expire 10 years following the date of grant. The following table summarizes the stock option activity under the 2022 Omnibus Plan as of September 30, 2024:
| Stock Options | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2024 | 371,116 | $ | 2.51 | 8.77 | $ | 4,591 | |||||||||||||||||
| Granted | — | $ | — | — | $ | — | |||||||||||||||||
| Exercised | (12,557) | $ | 2.39 | — | $ | 179 | |||||||||||||||||
| Forfeited | (17,701) | $ | 2.98 | — | $ | 36 | |||||||||||||||||
| Outstanding at September 30, 2024 | 340,858 | $ | 2.49 | 7.92 | $ | 97 | |||||||||||||||||
| Vested and exercisable at September 30, 2024 | 172,543 | $ | 2.17 | 7.64 | $ | 63 | |||||||||||||||||
As of September 30, 2024, unrecognized stock-based compensation of $0.2 million related to 168,315 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.20 year.
Restricted Stock Units
RSUs generally vest annually on the grant date anniversary over a period of three years. A summary of RSU activity during the nine months ended September 30, 2024 and related information is as follows:
| Restricted Stock Units | |||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value per Share | ||||||||||
| Unvested- January 1, 2024 | 542,396 | $ | 2.87 | ||||||||
| Granted | 99,474 | $ | 16.90 | ||||||||
| Vested | (362,799) | $ | 6.76 | ||||||||
| Forfeited | (14,111) | $ | 3.01 | ||||||||
| Unvested- September 30, 2024 | 264,960 | $ | 2.79 | ||||||||
The majority of vested RSUs were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes. The total shares withheld were 98,036 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. As of September 30, 2024, there was unrecognized stock-based compensation of $0.5 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.23 years.
Note 5 — Tax Receivable Agreement and Income Taxes
Tax Receivable Agreement
The Company's TRA with DDH LLC and DDM (together, the “TRA Holders”) provides for payment by the Company to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company retains the benefit of the remaining 15% of these net cash savings.
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The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting impact. The blended tax rate consists of the U.S. federal income tax rate and assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the LLC Agreement and the TRA, and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made. Pursuant to the Company’s election under Section 754 of the Code in 2022, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC. In August 2022 and December 2023, members of DDM exchanged 100,000 and 410,000 Class B shares into Class A shares, respectively.
The Company has recorded a liability related to the tax receivable agreement of less than $0.1 million and $5.2 million as of September 30, 2024 and December 31, 2023, respectively. The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $0.0 million and $6.1 million as of September 30, 2024 and December 31, 2023, respectively. The deferred tax asset is net of a valuation allowance of $7.3 million and $0.5 million as of September 30, 2024 and December 31, 2023, respectively. TRA payments of $0 and less than $0.1 million were made during the nine months ended September 30, 2024 and 2023, respectively. The payments under the TRA will not be conditional on holder of rights under the TRA having a continued ownership interest in either DDH LLC or the Company. The Company may elect to defer payments due under the TRA if the Company does not have available cash to satisfy its payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date. The Company accounts for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies, and recognizes subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes. For the three and nine months ended September 30, 2024, $5.2 million was recognized as income under other income (expense) due to the derecognition of the TRA liability, as a valuation allowance was recorded against the deferred taxes associated with the TRA.
The term of the TRA commenced upon completion of the initial public offering and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless the Company exercises its right to terminate the TRA. If the Company elects to terminate the TRA early (or it is terminated early due to changes in control), the obligations under the TRA would accelerate and the Company would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by the Company under the TRA.
Income Taxes
Through the Organizational Transactions completed in February 2022, the Company formed an Up-C structure which allows DDM to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership for U.S. federal income tax purposes. Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes. The ownership was 20.45% as of January 1, 2023 and increased to 23.35% in the fourth quarter of 2023. There was no exchange of shares of Class B common stock for shares of Class A common stock in the nine months ended September 30, 2024.
The Company recorded a tax benefit for federal and state income tax for which the components and the effective income tax rates are as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Income tax expense | $ | 6,606 | $ | 166 | $ | 6,132 | $ | 166 | |||||||||||||||
| Effective income tax rate | 2884.7 | % | 4.7 | % | (85.1 | %) | 4.9 | % | |||||||||||||||
The effective tax rates were lower than the statutory tax rates for the three and nine months ended September 30, 2023 primarily due to the Company’s partnership loss that is not subject to federal and state taxes. The effective tax rates were different from the statutory rates for the three and nine months ended September 30, 2024 primarily due to recording a valuation allowance against deferred taxes.
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As of September 30, 2024, the Company had federal net operating loss carryforwards of $4.4 million that can be carried forward indefinitely.
The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. In the normal course of business, the Company can be examined by various tax authorities, including the Internal Revenue Service in the United States. There are currently no federal or state audits in process. The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. Federal and various states returns for the years ended December 2022 and 2021 remain open as of September 30, 2024. The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority. As of September 30, 2024 and December 31, 2023, the Company had no uncertain tax positions. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.
Note 6 — Related Party Transactions
Related Party Transactions
Member Payable
As of September 30, 2024 and December 31, 2023, the Company had a net receivable from members that totaled $1.7 million, which is included as a related party receivable on the condensed consolidated balance sheets.
Up-C Structure
In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnerships and limited liability companies and allows DDM, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“Smith”), to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S. federal income tax purposes. DDM holds economic nonvoting LLC Units in DDH LLC and holds noneconomic voting equity interests in the form of the Class B Common Stock in Direct Digital Holdings (See Note 4 — Stockholders’ Deficit and Stock-Based Compensation). One of the tax benefits to DDM associated with this structure is that future taxable income of DDH LLC that is allocated to DDM will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, DDM may, from time to time, redeem or exchange its LLC Units for shares of the Company’s Class A Common Stock on a one-for-one basis. The Up-C structure also provides DDM with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. If the Company ever generates sufficient taxable income to utilize the tax benefits, DDH expects to benefit from the Up-C structure because, in general, the Company expects cash tax savings in amounts equal to 15% of certain tax benefits arising from such redemptions or exchanges of DDM's LLC Units for Class A Common Stock or cash and certain other tax benefits covered by the TRA. As described in Note 5 — Tax Receivable Agreement and Income Taxes, for the three and nine months ended September 30, 2024, $5.2 million was recorded as income in other income (expense) for such change as the deferred taxes giving rise to the TRA have a valuation allowance recorded to offset the deferred tax assets.
The aggregate balance of tax receivable liabilities as of September 30, 2024 and December 31, 2023, is as follows (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Liability related to tax receivable agreement | |||||||||||
| Short term | $ | 41 | $ | 41 | |||||||
| Long term | — | 5,201 | |||||||||
| Total liability related to tax receivable agreement | $ | 41 | $ | 5,242 | |||||||
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Note 7 — Segment Information
Revenue by business segment is as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Sell-side advertising | $ | 2,202 | $ | 51,622 | $ | 33,001 | $ | 89,006 | |||||||||||||||
| Buy-side advertising | 6,873 | 7,850 | 20,204 | 27,093 | |||||||||||||||||||
| Total revenues | $ | 9,075 | $ | 59,472 | $ | 53,205 | $ | 116,099 | |||||||||||||||
Operating loss by business segment reconciled to loss before income taxes is as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Sell-side advertising | $ | (873) | $ | 6,206 | $ | 536 | $ | 9,657 | |||||||||||||||
| Buy-side advertising | 1,349 | 1,551 | 3,490 | 6,980 | |||||||||||||||||||
| Corporate office expenses | (4,134) | (3,263) | (12,555) | (10,030) | |||||||||||||||||||
| Total operating (loss) income | (3,658) | 4,494 | (8,529) | 6,607 | |||||||||||||||||||
| Corporate other expense | 3,887 | (977) | 1,323 | (3,229) | |||||||||||||||||||
| Income (loss) before income taxes | $ | 229 | $ | 3,517 | $ | (7,206) | $ | 3,378 | |||||||||||||||
Total assets by business segment are as follows (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Sell-side advertising | $ | 3,807 | $ | 34,354 | |||||||
| Buy-side advertising | 20,604 | 22,539 | |||||||||
| Corporate office | 6,880 | 13,779 | |||||||||
| Total assets | $ | 31,291 | $ | 70,672 | |||||||
Note 8 — Net (Loss) Income Per Share
The Company has two classes of common stock, Class A and Class B. Shares of the Company’s Class B Common Stock do not share in the earnings or losses attributable to Direct Digital Holdings, Inc. and are therefore not participating securities. The Company uses the two-class method to calculate basic and diluted earnings per share as a result of outstanding participating securities in the form of warrants for the three and nine months ended
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September 30, 2023. The following table sets forth the computation of the Company’s basic and diluted net (loss) income per share (in thousands, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net (loss) income attributable to Class A shareholders and participating securities | $ | (2,690) | $ | 571 | $ | (4,055) | $ | 549 | |||||||||||||||
| Less: net income allocated to participating securities | — | 296 | — | 285 | |||||||||||||||||||
| Net (loss) income allocated to Class A shareholders | $ | (2,690) | $ | 275 | $ | (4,055) | $ | 264 | |||||||||||||||
| Weighted average common shares outstanding - basic | 3,793 | 2,990 | 3,667 | 2,938 | |||||||||||||||||||
| Class B Common Stock | — | — | — | — | |||||||||||||||||||
| Options to purchase common stock | — | 20 | — | 24 | |||||||||||||||||||
| Unvested restricted stock units | — | 34 | — | 118 | |||||||||||||||||||
| Weighted average common shares outstanding - diluted | 3,793 | 3,044 | 3,667 | 3,080 | |||||||||||||||||||
| Net (loss) income per common share, basic | $ | (0.71) | $ | 0.09 | $ | (1.11) | $ | 0.09 | |||||||||||||||
| Net (loss) income per common share, diluted | $ | (0.71) | $ | 0.09 | $ | (1.11) | $ | 0.09 | |||||||||||||||
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net (loss) income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Class B Common Stock | 10,868 | 11,278 | 10,868 | 11,278 | |||||||||||||||||||
| Options to purchase common stock | 346 | 343 | 362 | 365 | |||||||||||||||||||
| Unvested restricted stock units | 268 | 495 | 402 | 382 | |||||||||||||||||||
| Total excludable from net loss per share attributable to common stockholders - diluted | 11,482 | 12,116 | 11,632 | 12,025 | |||||||||||||||||||
Note 9 — Commitments and Contingencies
Litigation
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date hereof, except as set forth below, we are not a party to any material legal or administrative proceedings nor are there any proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
On May 10, 2024, the Company was the subject of a defamatory article / blog post. In connection with this post, one of the Company’s sell-side customers paused its connection to the Company while the allegations were investigated. This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024. The Company is actively working with its partners to achieve prior volume levels. On May 14, 2024, the Company filed a lawsuit against the author of the defamatory article and is vigorously pursuing its rights. The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof.
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On May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S. District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas. The two actions have been consolidated. Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees. The Company cannot make any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these lawsuits.
Operating Leases
During the nine months ended September 30, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of $0.2 million. The Company did not have any finance leases, short-term leases nor variable leases over this time period. During the three and nine months ended September 30, 2024 and 2023, the Company had the following cash and non-cash activities associated with leases (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
| Operating cash outflow for operating leases | $ | 71 | $ | 41 | $ | 142 | $ | 121 | |||||||||||||||
| Non-cash changes to the operating lease ROU assets and operating lease liabilities | |||||||||||||||||||||||
| Additions and modifications to ROU asset obtained from new operating liabilities | $ | — | $ | — | $ | 200 | $ | — | |||||||||||||||
The weighted-average remaining lease term and discount rate for the Company’s operating leases is 4.8 years and 8.3%, respectively, as of September 30, 2024. The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.1 years and 8.4%, respectively, as of September 30, 2023.
The future payments due under operating leases as of September 30, 2024 are as follows (in thousands):
| 2024 | $ | 64 | |||
| 2025 | 258 | ||||
| 2026 | 265 | ||||
| 2027 | 269 | ||||
| 2028 | 167 | ||||
| Thereafter | 200 | ||||
| Total undiscounted lease payments | 1,223 | ||||
| Less effects of discounting | (208) | ||||
| Less current lease liability | (183) | ||||
| Total operating lease liability, net of current portion | $ | 832 | |||
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Note 10 — Property, Equipment and Software, net
Property, equipment and software, net consists of the following (in thousands):
| Useful Life (Years) | September 30, 2024 | December 31, 2023 | |||||||||||||||
| Furniture and fixtures | 5 | $ | 137 | $ | 128 | ||||||||||||
| Computer equipment | 3 | 20 | 20 | ||||||||||||||
| Leasehold improvements | 15 | 42 | 36 | ||||||||||||||
| Capitalized software | 3 | 702 | 702 | ||||||||||||||
| Property, equipment and software, gross | 901 | 886 | |||||||||||||||
| Less: accumulated depreciation and amortization | (492) | (287) | |||||||||||||||
| Total property, equipment and software, net | $ | 409 | $ | 599 | |||||||||||||
The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Cost of revenue | $ | 41 | $ | 42 | $ | 125 | $ | 125 | |||||||||||||||
| General and administrative | 26 | 22 | 80 | 60 | |||||||||||||||||||
| Total depreciation and amortization | $ | 67 | $ | 64 | $ | 205 | $ | 185 | |||||||||||||||
Note 11 — Intangible Assets, net
The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets related to an acquisition in September 2020. For the three months ended September 30, 2024 and 2023, amortization expense of $0.5 million and for the nine months ended September 30, 2024 and 2023, amortization expense of $1.5 million, respectively, was recognized. As of September 30, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $10.2 million and $11.7 million, respectively.
F-84
As of September 30, 2024, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:
| September 30, 2024 | |||||||||||||||||||||||
| Weighted-Average | Original | Accumulated | Net | ||||||||||||||||||||
| Remaining Life (Years) | Amount | Amortization | Total | ||||||||||||||||||||
| Customer Lists | 6.0 | $ | 13,028 | $ | (5,211) | $ | 7,817 | ||||||||||||||||
| Trademarks and tradenames | 6.0 | 3,501 | (1,400) | 2,101 | |||||||||||||||||||
| Non-compete agreements | 1.0 | 1,505 | (1,204) | 301 | |||||||||||||||||||
| Total intangible assets, net | $ | 18,034 | $ | (7,815) | $ | 10,219 | |||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Weighted-Average | Original | Accumulated | Net | ||||||||||||||||||||
| Remaining Life (Years) | Amount | Amortization | Total | ||||||||||||||||||||
| Customer Lists | 6.8 | $ | 13,028 | $ | (4,234) | $ | 8,794 | ||||||||||||||||
| Trademarks and tradenames | 6.8 | 3,501 | (1,138) | 2,363 | |||||||||||||||||||
| Non-compete agreements | 1.8 | 1,505 | (978) | 527 | |||||||||||||||||||
| Total intangible assets, net | $ | 18,034 | $ | (6,350) | $ | 11,684 | |||||||||||||||||
| Total | |||||
| 2024 | $ | 488 | |||
| 2025 | 1,879 | ||||
| 2026 | 1,653 | ||||
| 2027 | 1,653 | ||||
| 2028 | 1,653 | ||||
| Thereafter | 2,893 | ||||
| Total future amortization expense | $ | 10,219 | |||
F-85
8,500,000 Shares of Class A Common Stock
PROSPECTUS
January 28, 2025