What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-11 · 99 added, 87 removed, 291 unchanged (39% of the section changed)

75 unchanged sentences

We are technology, DSP and media agnostic, and we believe 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 90% client retention amongst the clients that represent approximately 80% of our revenue on an annual basis during the six months ended June 30, 2023.

In addition, we cultivate client relationships through our pipeline of managed and moderate/self-serve clients that conduct campaigns through our platform.

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.

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The buyers on our platform include DSPs, agencies and individual advertisers.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 136,000 advertisers per month in the six months ended June 30, 2023, an increase of 72% over the 79,000 advertisers per month in the six months ended June 30, 2022.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 125,000 advertisers per month in the nine months ended September 30, 2023, an increase of 31% over the 95,000 advertisers per month in the nine months ended September 30, 2022.

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.

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In the advertising industry, inventory quality is assessed in terms of invalid traffic (“IVT”) which can be impacted by fraud such as “fake eyeballs” generated by automated technologies set up to artificially inflate impression counts.

As a result of our platform design and proactive IVT mitigation efforts, in the six months ended June 30, 2023, we determined that approximately 1% of inventory was invalid, resulting in minimal financial impact to our customers.

As a result of our platform design and proactive IVT mitigation efforts, in the nine months ended September 30, 2023, we determined that approximately 1% of inventory was invalid, resulting in minimal financial impact to our customers.

We address IVT on a number of fronts, including sophisticated technology, which detects and avoids IVT on the front end;

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Interest expense.

Interest expense is mainly related to our debt as further described below in “ - Liquidity and Capital Resources .” In connection with the acquisition of Orange142, we issued mandatorily redeemable non-participating preferred A and B units, and the value of these units was classified as a liability, and the corresponding distributions were recognized as interest expense for the six months ended June 30, 2022.

The preferred A and B units were fully redeemed as of March 31, 2022.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

The following tables set forth our consolidated results of operations for the periods presented.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Buy-side advertising

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Other expense

Income (loss) before taxes

Tax expense (benefit)

Net income (loss)

Income before taxes

Adjusted EBITDA (1)

(1) Adjusted EBITDA is a non-GAAP financial measure.

For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of Adjusted EBITDA to net income (loss) see “ – Non-GAAP Financial Measures .”

Our revenues increased from $21.3 million for the three months ended June 30, 2022 to $35.4 million for the three months ended June 30, 2023, an increase of $14.1 million or 67%.

Buy-side advertising revenue increased $2.5 million, or 27%, primarily due to expanded spending from our existing customer base as well as new middle market client spending.

Sell-side advertising revenue increased $11.7 million, or 98% over the 2022 three-month results, due to a continued increase in impression inventory, as well as increased publisher engagement across general market and underrepresented publisher communities.

Our revenues increased from $32.6 million for the six months ended June 30, 2022 to $56.6 million for the six months ended June 30, 2023, an increase of $24.0 million or 74%.

Buy-side advertising revenue increased $4.1 million, or 27%, primarily due to expanded spending from our existing customer base as well as new middle market client spending.

Sell-side advertising revenue increased $19.9 million, or 114% over the 2022 six-month results, due to a continued increase in impression inventory, as well as increased publisher engagement across general market and underrepresented publisher communities.

For a definition of Adjusted EBITDA, an explanation of our management’s use of this measure, and a reconciliation of Adjusted EBITDA to net income see “ – Non-GAAP Financial Measures .”

Our revenues increased from $26.0 million for the three months ended September 30, 2022 to $59.5 million for the three months ended September 30, 2023, an increase of $33.5 million or 129%.

Buy-side advertising revenue increased $0.7 million, or 10%.

The increase in our buy-side advertising revenue was due to expanded spending from our existing customer base.

Sell-side advertising revenue increased $32.8 million, or 174% over the 2022 three-month results.

The increase in our sell-side advertising revenue was primarily due to a continued increase in impression inventory.

The Company sold approximately 6.9 billion average monthly impressions over the three months ended September 30, 2023, an increase of 273% from the prior period.

For the three months ended September 30, 2023, the Company processed approximately 400 billion average monthly impressions through its sell-side advertising segment, an increase of 220% from the prior period.

Our revenues increased from $58.6 million for the nine months ended September 30, 2022 to $116.1 million for the nine months ended September 30, 2023, an increase of $57.5 million or 98%.

Buy-side advertising revenue increased $4.8 million, or 22%.

The increase in our buy-side advertising revenue was due to expanded spending from our existing customer base.

Sell-side advertising revenue increased $52.7 million, or 145% over the 2022 nine-month results.

The increase in our sell-side advertising revenue was primarily due to a continued increase in impression inventory, as well as increased publisher engagement across general market and underrepresented publisher communities.

The Company sold approximately 3.8 billion average monthly impressions over the nine months ended September 30, 2023, an increase of 249% from the prior period.

The Company increased its reach across the ecosystem of buyers from an average of approximately 125,000 advertisers per month in the nine months ended September 30, 2023, an increase of 31% over the 95,000 advertisers per month in the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, the Company processed approximately 303 billion average monthly impressions through its sell-side advertising segment, an increase of 189% from the prior period.

Cost of revenues

Along with the increase in revenues across both segments, we correspondingly experienced an increase in cost of revenues from $12.9 million for the three months ended June 30, 2022 to $25.3 million for the three months ended June 30, 2023, an increase of

$12.4 million, or 96%.

Buy-side advertising cost of revenues increased $1.4 million to $4.6 million, or 39% of revenue, for the three months ended June 30, 2023, compared to $3.2 million, or 34% of revenue, for the three months ended June 30, 2022.

Sell-side advertising cost of revenues increased $11.0 million, to $20.7 million, or 88% of revenue for the three months ended June 30, 2023, compared to $9.8 million, or 82% of revenue, for the same period in 2022.

Along with the increase in revenues across both segments, we correspondingly experienced an increase in cost of revenues from $18.5 million for the three months ended September 30, 2022 to $47.7 million for the three months ended September 30, 2023, an increase of $29.2 million, or 158%.

Buy-side advertising cost of revenues increased $0.6 million to $3.1 million, or 40% of revenue, for the three months ended September 30, 2023, compared to $2.5 million, or 35% of revenue, for the three months ended September 30, 2022.

Sell-side advertising cost of revenues increased $28.6 million to $44.6 million, or 86% of revenue for the three months ended September 30, 2023, compared to $16.1 million, or 85% of revenue, for the same period in 2022.

The increase in sell-side advertising costs was primarily due to the related increase in revenue, while the 1% increase as a percentage of revenue was due to an increase in fixed costs of approximately $0.5 million related to an increase in server capacity to support the growth as well as the mix and concentration of publishers and the related costs.

Cost of revenues increased from $19.5 million for the six months ended June 30, 2022 to $40.1 million for the six months ended June 30, 2023, an increase of $20.6 million, or 106%.

Buy-side advertising cost of revenues increased $2.3 million to $7.5 million, or 39% of revenue, for the six months ended June 30, 2023, compared to $5.2 million, or 34% of revenue, for the six months ended June 30, 2022.

Sell-side advertising cost of revenues increased $18.3 million, to $32.6 million, or 87% of revenue for the six months ended June 30, 2023, compared to $14.3 million, or 82% of revenue, for the same period in 2022.

Cost of revenues increased from $38.0 million for the nine months ended September 30, 2022 to $87.8 million for the nine months ended September 30, 2023, an increase of $49.8 million, or 131%.

Buy-side advertising cost of revenues increased $3.0 million to $10.7 million, or 39% of revenue, for the nine months ended September 30, 2023, compared to $7.7 million, or 35% of revenue, for the nine months ended September 30, 2022.

Sell-side advertising cost of revenues increased $46.8 million to $77.2 million, or 87% of revenue for the nine months ended September 30, 2023, compared to $30.3 million, or 84% of revenue, for the same period in 2022.

The increase in costs was primarily due to the related increase in revenue, while the 3% increase as a percentage of revenue was due to an increase in fixed costs of approximately $1.1 million related to an increase in server capacity to support the growth as well as the mix and concentration of publishers and the related costs.

We expect these higher costs to continue in future fiscal periods.

Gross profit also increased in the three months ended June 30, 2023 to $10.1 million, or 28% of revenue, compared to $8.3 million, or 39% of revenue, for the three months ended June 30, 2022, an increase of $1.7 million or 21%.

Gross profit increased in the six months ended June 30, 2023 to $16.5 million, or 29% of revenue, compared to $13.1 million, or 40% of revenue, for the six months ended June 30, 2022, an increase of $3.4 million or 26%.

The change in margin for the three and six months ended June 30, 2023 is attributable to the mix in revenue between our business segments as well as the additional fixed costs related to an increase in server capacity.

Gross profit also increased in the three months ended September 30, 2023 to $11.8 million, or 20% of revenue, compared to $7.5 million, or 29% of revenue, for the three months ended September 30, 2022, an increase of $4.3 million or 58%.

Gross profit increased in the nine months ended September 30, 2023 to $28.3 million, or 24% of revenue, compared to $20.6 million, or 35% of revenue, for the nine months ended September 30, 2022, an increase of $7.7 million or 37%.

The change in margin for the three and nine months ended September 30, 2023 is attributable to the mix in revenue between our business segments as well as the additional fixed costs related to an increase in server capacity.

Our sell-side segment, whose revenues grew as a percentage of our overall revenue, has a lower gross margin than our buy-side segment.

Buy-side advertising gross profit increased $1.0 million and $1.8 million for the three and six months ended June 30, 2023, respectively, as compared to the same period in the prior year, primarily due to higher revenue.

Buy-side advertising gross margin was 61% for the three and six months ended June 30, 2023 compared to gross margin of 66% for the three and six months ended June 30, 2022.

Buy-side advertising gross profit increased $0.1 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, as compared to the same period in the prior year, primarily due to higher revenue.

Buy-side advertising gross margin was 60% and 61% for the three and nine months ended September 30, 2023, respectively, compared to gross margin of 65% for each of the three and nine months ended September 30, 2022.

Buy-side gross margin decreased in 2023 to a level the Company believes is sustainable reflecting strategic efforts by the Company to ensure customer retention and increase revenue per customer.

Sell-side advertising gross profit increased $0.7 million and $1.6 million for the three and six months ended June 30, 2023, respectively, as compared to prior year, primarily due to the increase in revenue.

Sell-side advertising gross margin was 12% and 13% for the three and six months ended June 30, 2023 compared to gross margin of 18% for the three and six months ended June 30, 2022.

Sell-side gross margin in 2023 was negatively impacted by additional fixed costs of approximately $0.6 million incurred in the three months ended June 30, 2023 related to an increase in server capacity to support our growth.

Sell-side advertising gross profit increased $4.2 million and $5.8 million for the three and nine months ended September 30, 2023, respectively, as compared to prior year, primarily due to the increase in revenue.

Sell-side advertising gross margin was 14% and 13% for the three and nine months ended September 30, 2023 compared to gross margin of 15% and 16% for the three and nine months ended September 30, 2022, respectively.

Sell-side gross margin in 2023 was negatively impacted by additional fixed costs of approximately $0.5 million and $1.1 million incurred in the three months and nine months ended September 30, 2023, respectively, related to an increase in server capacity to support our growth.

About half of these incremental costs are expected to continue each quarter through March 2024.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Compensation, tax and benefits

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Compensation, taxes and benefits

Compensation, taxes and benefits increased from $3.5 million for the three months ended June 30, 2022 to $4.6 million in for the three months ended June 30, 2023, an increase of $1.1 million, or 30%.

The increase is due to headcount additions primarily in shared services to support our public company infrastructure and growth as well as $0.3 million for severance.

Compensation, taxes and benefits increased from $6.0 million for the six months ended June 30, 2022 to $8.2 million in for the six months ended June 30, 2023, an increase of $2.1 million, or 35%.

Compensation, taxes and benefits increased from $3.8 million for the three months ended September 30, 2022 to $4.7 million for the three months ended September 30, 2023, an increase of $0.9 million, or 23%.

The increase is due to headcount additions primarily in shared services to support our public company infrastructure and growth.

Compensation, taxes and benefits increased from $9.9 million for the nine months ended September 30, 2022 to $12.9 million in for the nine months ended September 30, 2023, an increase of $3.0 million, or 31%.

The increase is due to headcount additions primarily in our operations area to support our growth as well as in our shared services to support our public company infrastructure, bonus expense and severance of $0.3 million.

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On June 10, 2022, March 20, 2023 and June 10, 2023, our board of directors granted stock options and restricted stock units (“RSUs”) to certain of our employees and non-employee directors.

The increase in compensation, taxes and benefits expense related to stock options and RSUs granted was $0.2 million and $0.3 million for the three and six months ended June 30, 2023, respectively.

The increase in compensation, taxes and benefits expense related to stock options and RSUs granted was $0.2 million and $0.5 million for the three and nine months ended September 30, 2023, respectively.

We expect to continue to invest in corporate infrastructure and incur additional expenses associated with our transition to and operation as a public company, including increased compensation associated with additional headcount to support our sales initiatives.

General and administrative expenses

General and administrative (“G&A”) expenses increased from $1.8 million for the three months ended June 30, 2022 to $3.3 million for the three months ended June 30, 2023.

G&A expenses as a percentage of revenue was 9% and 8%, respectively, for the three months ended June 30, 2023 and 2022.

The increase in G&A costs during the three months ended June 30, 2023 was primarily due to costs associated with supporting our growth and ongoing marketing initiatives.

During the three months ended June 30, 2023, we incurred higher professional fees, sales and marketing expenses including investor and public relations costs and travel expenses.

General and administrative (“G&A”) expenses increased from $1.8 million for the three months ended September 30, 2022 to $2.5 million for the three months ended September 30, 2023.

G&A expenses as a percentage of revenue were 4% and 7%, respectively, for the three months ended September 30, 2023 and 2022.

The increase in G&A costs during the three months ended September 30, 2023 was primarily due to costs associated with supporting our growth and ongoing marketing initiatives.

During the three months ended September 30, 2023, we incurred higher professional fees and sales and marketing expenses.

We expect to continue to invest in and incur additional expenses as we grow, including increased professional fees, investment in automation and compliance costs associated with developing the requisite infrastructure required for internal controls.

G&A expenses increased from $3.4 million for the six months ended June 30, 2022 to $6.2 million for the six months ended June 30, 2023.

G&A expenses as a percentage of revenue was 11% and 10%, respectively, for the six months ended June 30, 2023 and 2022.

The increase in G&A costs during the six months ended June 30, 2023 was primarily due to costs associated with our transition to and operation as a public company as of February 2022.

During the six months ended June 30, 2023, we incurred higher professional fees, sales and marketing expenses including investor and public relations costs, travel expenses and insurance.

G&A expenses increased from $5.2 million for the nine months ended September 30, 2022 to $8.7 million for the nine months ended September 30, 2023.

G&A expenses as a percentage of revenue was 8% and 9%, respectively, for the nine months ended September 30, 2023 and 2022.

The increase in G&A costs during the nine months ended September 30, 2023 was primarily due to costs associated with our transition to and operation as a public company as of February 2022.

During the nine months ended September 30, 2023, we incurred higher professional fees, sales and marketing expenses, travel expenses and insurance costs.

We also completed the transition of our servers for Colossus Media to HPE Greenlake and incurred higher consulting and transition costs for this one-time project.

This project contributed to $0.3 million of the increase in G&A costs during the nine months ended September 30, 2023.

We expect to continue to invest in and incur additional expenses associated with our transition to operating as a public company, including increased professional fees, investment in automation and compliance costs associated with developing the requisite infrastructure required for internal controls.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Interest expense

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nm – not meaningful

Other expense for the three months ended June 30, 2023 primarily consists of $1.0 million of interest expense.

Other expense for the three months ended June 30, 2022 is comprised of $0.7 million of interest expense, partially offset by forgiveness of the PPP loan.

Other expense for the six months ended June 30, 2023 primarily consists of $2.0 million of interest expense and $0.3 million related to the contingent loss on early termination of the line of credit with SVB.

Other expense for the six months ended June 30, 2022 is comprised of $1.4 million of interest expense and $0.6 million associated with the loss on the early redemption of DDH LLC’s previously outstanding Class B Preferred Units partially offset by other income and forgiveness of the PPP loan.

Interest expense increased for the three months ended June 30, 2023 to $1.0 million compared to $0.7 million for the three months ended June 30, 2022.

Interest expense increased for the six months ended June 30, 2023 to $2.0 million compared to $1.4 million for the six months ended June 30, 2022.

The increase in interest expense in the three and six months period is due to an additional $4.3 million in borrowings in July 2022 under the 2021 Credit Facility, as amended by the Term Loan Amendment, as well as higher interest rates.

Other expense for the three months ended September 30, 2023 and 2022 primarily consists of $1.1 million and $0.9 million of interest expense, respectively.

Other expense for the nine months ended September 30, 2023 primarily consists of $3.1 million of interest expense and $0.3 million related to the contingent loss on early termination of the line of credit with SVB partially offset by other income.

Other expense for the nine months ended September 30, 2022 is comprised of $2.3 million of interest expense and $0.6 million associated with the loss on the early redemption of DDH LLC’s previously outstanding Class B Preferred Units partially offset by other income and forgiveness of the PPP loan.

Interest expense increased for the three months ended September 30, 2023 to $1.1 million, compared to $0.9 million for the three months ended September 30, 2022.

Interest expense increased for the nine months ended September 30, 2023 to $3.1 million, compared to $2.3 million for the nine months ended September 30, 2022.

The increase in interest expense in the three and nine months period is due to an additional $4.3 million in borrowings in July 2022 under the 2021 Credit Facility, as amended by the Term Loan Amendment, as well as higher interest rates.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents, working capital, and availability under our Revolving Credit Facility (as defined below) on June 30, 2023 and December 31, 2022:

June 30, 2023

The following table summarizes our cash and cash equivalents, working capital, and availability under our Revolving Credit Facility (as defined below) on September 30, 2023 and December 31, 2022:

September 30, 2023

December 31, 2022

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Working capital

We anticipate funding our operations for the next twelve months using available cash and cash flow generated from operations and borrowings under the 2023 Credit Facility, as defined below.

As of June 30, 2023 and December 31, 2022, we had cash and cash equivalents of approximately $5.7 million and $4.0 million, respectively.

We anticipate funding our operations for the next twelve months using available cash, cash flow generated from operations and borrowings under the 2023 Credit Facility, as defined below.

As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents of approximately $5.5 million and $4.0 million, respectively.

On July 7, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”), by and among East West Bank (“EWB”), as lender, and the Company and its subsidiaries, as borrowers.

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Our ability to do so will be subject to future economic, financial, business and other factors, many of which are beyond our control.

Credit Agreement entered into on July 7, 2023

2023 Credit Facility

On July 7, 2023, the Company entered into the Credit Agreement which provides for a revolving credit facility (the “2023 Credit Facility”) in the original principal amount of up to $5 million, subject to a borrowing base determined based on eligible accounts, and an up to $5 million uncommitted incremental revolving facility.

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All accrued but unpaid interest on outstanding advances under the Credit Agreement is 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 2023 Credit Facility are secured by all or substantially all of the borrowers’ assets.

The Company and the other borrowers are required to maintain compliance at all times with the following financial covenants on a consolidated basis:

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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.

The obligations under the 2023 Credit Facility are secured by all or substantially all of the borrowers’ assets.

The Credit Agreement contains customary representations and warranties and includes affirmative and negative covenants applicable to the borrowers thereto and their respective subsidiaries.

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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.

Credit Facilities as of June 30, 2023

2021 Credit Facility

On December 3, 2021, DDH LLC entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square Loan Servicing, LLC (“Lafayette Square”), as administrative agent, and the various lenders thereto.

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The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of DDH LLC and its subsidiaries and are guaranteed by the subsidiaries of DDH LLC and include a pledge and guarantee by the Company.

As of June 30, 2023, the Company owed a balance on the 2021 Credit Facility of $25,356,250.

As of September 30, 2023, the Company owed a balance on the 2021 Credit Facility of $25,192,500.

The 2021 Credit Facility contains affirmative and negative covenants that, among other things, require the Company to maintain a net leverage ratio of no more than 3.50 to 1.00 as of the last day of each fiscal quarter through December 31, 2023, as adjusted thereafter, and 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 June 30, 2023.

The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of September 30, 2023.

On October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility and received proceeds of $3.6 million borrowed under the Delayed Draw Term Loan to make payments to warrant holders in connection with the consummation of the Company’s tender offer and fees and expenses incurred as described in Note 16 – Subsequent Events.

Consolidated Statement of Cash Flow Data:

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

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In addition, we expect seasonality to impact cash flows from operating activities on a quarterly basis.

For the Six Months Ended June 30, 2023 and 2022

Cash flows from operating activities increased from $0.1 million for the six months ended June 30, 2022 to $3.2 million for the six months ended June 30, 2023.

The period-over-period increase in cash from operations of $3.1 million was primarily due to a $3.7 million increase for changes in accounts receivable, a $2.3 million increase related to changes in accounts payable, and a $1.3 million increase for changes in deferred revenue related to the increase in revenue and timing of payments received and made.

This is partially offset by a $2.1 million decrease in net income and a $1.4 million decrease related to changes in accrued liabilities.

Cash Flows from Investing Activities

For the Six Months Ended June 30, 2023 and 2022

During the six months ended June 30, 2023, the Company acquired property, equipment and software for $136,979.

Cash Flows Provided by (Used in) Financing Activities

For the Six Months Ended June 30, 2023 and 2022

For the Nine Months Ended September 30, 2023 and 2022

Cash flows from operating activities increased from $3.4 million for the nine months ended September 30, 2022 to $4.7 million for the nine months ended September 30, 2023.

The period-over-period increase in cash from operations of $1.3 million was primarily due to a $17.3 million increase for changes in accounts payable, a $0.7 million increase related to changes in deferred revenues related to the increase in revenue and timing of payments received and made, a $0.5 increase in net income and a $0.5 million increase for changes in stock compensation.

This is partially offset by a $14.9 million decrease for changes in accounts receivable, a $2.1 million decrease for changes in accrued liabilities and a $1.0 million decrease related to changes in prepaid expenses and other assets.

Cash Flows Used in Investing Activities

For the Nine Months Ended September 30, 2023 and 2022

During the nine months ended September 30, 2023, the Company acquired property, equipment and software for $136,978.

Cash Flows Used in Financing Activities

For the Nine Months Ended September 30, 2023 and 2022

Our financing activities consist primarily of distributions to DDH LLC members, payments under our notes payable, and during 2022, net proceeds from our IPO as well as the redemption payments for DDH LLC’s common units and Class B Units held by USDM Holdings, Inc.

Net cash provided by financing activities has been and will be used to finance our operations, including our investment in people and infrastructure, to support our growth.

During the six months ended June 30, 2023, net cash used in financing activities increased by $1.6 million, from $0.2 million provided by financing activities for the six months ended June 30, 2022 to $1.4 million used in financing activities for the six months ended June 30, 2023.

During the six months ended June 30, 2023, we made distributions to members of $0.8 million, payments on the Revolving Credit Facility of $0.3 million, and payments of $0.2 million in deferred financing costs.

During the six months ended June 30, 2022, we received net proceeds of $11.2 million related to our issuance of Class A common stock in our initial public offering and used a portion of the proceeds to redeem the common units and Preferred B units held by USDM Holdings, Inc.

During the nine months ended September 30, 2023, net cash used in financing activities was $3.1 million, compared to $1.1 million used in financing activities for the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we made distributions to members of $2.0 million, payments on the Revolving Credit Facility of $0.5 million, and payments of $0.4 million in deferred financing costs.

During the nine months ended September 30, 2022, we received net proceeds of $11.2 million related to our issuance of Class A common stock in our initial public offering and used a portion of the proceeds to redeem the common units and Preferred B units held by USDM Holdings, Inc.

for approximately $14.2 million.

Also, during the six months ended June 30, 2022, we made payments of $0.3 million on the 2021 Credit Facility, distributions to members of $0.3 million and payments of $0.2 million in deferred financing costs.

We also borrowed $4.3 million under the Delayed Draw Loan during the nine months ended September 30, 2022.

Also, during the nine months ended September 30, 2022, we made payments of $0.4 million on the 2021 Credit Facility, distributions to members of $0.9 million and payments of $0.5 million in deferred financing costs.

Contractual Obligations and Future Cash Requirements

As of June 30, 2023, our principal contractual obligations expected to give rise to material cash requirements consist of non-cancelable leases for our various facilities and the 2021 Credit Facility.

As of September 30, 2023, our principal contractual obligations expected to give rise to material cash requirements consist of non-cancelable leases for our various facilities and the 2021 Credit Facility.

We lease furniture and office space in Houston and Austin from an unrelated party under non-cancelable operating leases dating through February 2030.

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We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $163,750 in 2023, $1.3 million in 2024, $1.3 million in 2025, $22.4 million in 2026, $3,337 in 2027 and $142,975 thereafter, assuming we do not refinance our indebtedness.

We believe our cash on hand in addition to our cash generated by operations will be sufficient to cover these obligations as well as the future cash requirements of being a public company.

We believe our cash on hand and the amounts we may borrow under the Credit Agreement executed in July 2023, in addition to our cash generated by operations, will be sufficient to cover these obligations as well as the future cash requirements of being a public company.

Non-GAAP Financial Measures

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The following table presents a reconciliation of Adjusted EBITDA to net income for each of the periods presented:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Net income (loss)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Add back (deduct):

Interest expense

Stock-based compensation

Amortization of intangible assets

Depreciation and amortization of property and equipment

Stock-based compensation

Depreciation and amortization of capitalized software, property and equipment

Contingent loss on early termination of line of credit

Tax expense (benefit)

Forgiveness of PPP loan

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Adjusted EBITDA

In addition to operating income and net income (loss), we use Adjusted EBITDA as a measure of operational efficiency.

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:

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Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2023, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”).

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2023, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”).

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis