What changed in this filing

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Item 1. Financial Statements

2024-10-15 compared with 2024-10-15 · 131 added, 155 removed, 630 unchanged (31% of the section changed)

4 unchanged sentences

(in thousands, except share and par value amounts)

June 30, 2024 December 31, 2023

March 31, 2024 December 31, 2023

CURRENT ASSETS

36 unchanged sentences

See accompanying notes to the unaudited condensed consolidated financial statements.

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DIRECT DIGITAL HOLDINGS, INC.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 16,500 $ 13,783

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Total operating expenses 7,805 6,574

(Loss) income from operations ( 2,065 ) 2,255 ( 4,873 ) 2,114

Loss from operations ( 2,807 ) ( 141 )

Other income (expense)

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Total other expense, net ( 1,212 ) ( 1,267 )

(Loss) income before income taxes ( 3,415 ) 1,269 ( 7,436 ) ( 139 )

Income tax (benefit) expense ( 274 ) 74 ( 475 ) —

Net (loss) income ( 3,141 ) 1,195 ( 6,961 ) ( 139 )

Net (loss) income attributable to noncontrolling interest ( 2,551 ) 1,003 ( 5,596 ) ( 117 )

Net (loss) income attributable to Direct Digital Holdings, Inc.

Loss before income taxes ( 4,019 ) ( 1,408 )

Income tax benefit ( 200 ) ( 74 )

Net loss ( 3,819 ) ( 1,334 )

Net loss attributable to noncontrolling interest ( 3,044 ) ( 1,120 )

Net loss attributable to Direct Digital Holdings, Inc.

$ ( 775 ) $ ( 214 )

Net (loss) income per common share:

Net loss per common share:

Basic $ ( 0.22 ) $ ( 0.07 )

4 unchanged sentences

See accompanying notes to the unaudited condensed consolidated financial statements.

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DIRECT DIGITAL HOLDINGS, INC.

2 unchanged sentences

(in thousands except share data)

Six Months Ended June 30, 2024

Three Months Ended March 31, 2024

Common Stock APIC Accumulated

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Noncontrolling interest rebalancing $ ( 1,336 ) $ 1,336 —

Balance, June 30, 2024 3,788,446 $ 4 10,868,000 $ 11 $ 3,444 $ ( 3,903 ) $ ( 8,328 ) $ ( 8,772 )

Three Months Ended June 30, 2024

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

Balance, March 31, 2024 3,684,278 $ 4 10,868,000 $ 11 $ 3,441 $ ( 3,313 ) $ ( 5,933 ) $ ( 5,790 )

Stock-based compensation — — — — 158 — — 158

Issuance related to vesting of restricted stock units, net of tax withholdings 103,752 — — — — — — —

Stock options exercised 416 — — — 2 — — 2

Net loss — — — — — ( 590 ) ( 2,551 ) ( 3,141 )

Noncontrolling interest rebalancing — — — — ( 157 ) — 157 —

Balance, June 30, 2024 3,788,446 $ 4 10,868,000 $ 11 $ 3,444 $ ( 3,903 ) $ ( 8,328 ) $ ( 8,772 )

Six Months Ended June 30, 2023

Three Months Ended March 31, 2023

Common Stock APIC Accumulated

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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 — — — — — ( 214 ) ( 1,120 ) ( 1,334 )

Balance, June 30, 2023 2,988,916 $ 3 11,278,000 $ 11 $ 2,927 $ ( 366 ) $ 2,445 $ 5,020

Three Months Ended June 30, 2023

Common Stock APIC Accumulated

Deficit Noncontrolling Interest Stockholders’

Class A Class B

Units Amount Units Amount

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 (loss) — — — — — 192 1,003 1,195

Balance, June 30, 2023 2,988,916 $ 3 11,278,000 $ 11 $ 2,927 $ ( 366 ) $ 2,445 $ 5,020

See accompanying notes to the unaudited condensed consolidated financial statements.

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DIRECT DIGITAL HOLDINGS, INC.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Three Months Ended March 31,

Cash Flows (Used In) Provided By Operating Activities:

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Operating lease liability ( 20 ) ( 24 )

Related party payable — ( 251 )

Net cash (used in) provided by operating activities ( 5,704 ) 3,100

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Proceeds from lines of credit 4,000 —

Payments on shares withheld for taxes ( 551 ) —

Payment of deferred financing costs — ( 228 )

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Proceeds from warrants exercised 215 12

Distributions to holders of LLC Units — ( 752 )

Net cash provided by (used in) financing activities 3,922 ( 380 )

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See accompanying notes to the unaudited condensed consolidated financial statements.

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DIRECT DIGITAL HOLDINGS, INC.

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(1) DDH owns 100 % of the voting interest in Direct Digital Holding, LLC.

As of June 30, 2024, DDH owns 25.8 % of the economic interest in Direct Digital Holdings, LLC.

As of March 31, 2024, DDH owns 25.3 % 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.

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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 June 30, 2024, the results of its operations for the three and six months ended June 30, 2024 and 2023, cash flows for the six months ended June 30, 2024 and 2023, and stockholders’ deficit for the three and six months ended June 30, 2024 and 2023.

The results of operations for the three and six months ended June 30, 2024, respectively, are not necessarily indicative of the results to be expected for the full year.

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position as of March 31, 2024, the results of operations, changes in stockholders’ deficit and cash flows for the three-months ended March 31, 2024 and 2023, respectively.

The results of operations for the three-months ended March 31, 2024 and 2023, 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.

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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.

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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”).

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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 $ 0.7 million and $ 0.4 million as of June 30, 2024 and December 31, 2023, respectively.

Revenue recognized during the six months ended June 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.

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 $ 0.6 million and $ 0.4 million as of March 31, 2024 and December 31, 2023, respectively.

Revenue recognized during the three months ended March 31, 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.

As of June 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.

As of March 31, 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.

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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 six months ended June 30, 2024 and 2023.

The Company determined that there was no impairment of goodwill during the three months ended March 31, 2024 and 2023.

Intangible assets, net

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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.

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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.

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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 six months ended June 30, 2024 and 2023.

No impairment loss was recognized during the three months ended March 31, 2024 and 2023.

Stock-based compensation

18 unchanged sentences

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 six months ended June 30, 2024 and 2023, members of DDM exchanged no shares of Class B Common Stock into shares of Class A Common Stock.

During the three months ended March 31, 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.

1 unchanged sentence

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 June 30, 2024 and December 31, 2023, the Company recorded a valuation allowance of $ 0.5 million and $ 0.5 million, respectively.

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 March 31, 2024 and December 31, 2023, the Company recorded a valuation allowance of $ 0.5 million and $ 0.5 million, respectively.

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Accounts receivable, net

9 unchanged sentences

Accounts receivable balances are written off against the provision when the Company believes it is probable the receivable will not be recovered.

For the six months ended June 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.

For the three months ended March 31, 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 June 30, 2024 and 2023, one customer of the sell-side of the business represented 28 % and 63 % of revenues, respectively.

For the six months ended June 30, 2024 and 2023, one customer of the sell-side of the business represented 62 % and 62 % of revenues, respectively.

As of June 30, 2024 and December 31, 2023, one customer of the sell-side of the business accounted for 64 % and 83 %, respectively, of accounts receivable.

As of June 30, 2024 and December 31, 2023, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 36 % and 77 %, respectively, of consolidated accounts payable.

For the three months ended March 31, 2024 and 2023, one customer of the sell-side of the business represented 68 % and 60 % of revenues, respectively.

As of March 31, 2024 and December 31, 2023, one customer of the sell-side of the business accounted for 71 % and 83 %, respectively, of accounts receivable.

As of March 31, 2024 and December 31, 2023, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 57 % and 77 %, respectively, of consolidated accounts payable.

Accrued Liabilities

The components of accrued liabilities on the balance sheet as of June 30, 2024 and December 31, 2023 are as follows (in thousands):

The components of accrued liabilities on the balance sheet as of March 31, 2024 and December 31, 2023 are as follows (in thousands):

2024 December 31,

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The risk of loss attributable to any uninsured balances is mitigated by depositing funds only in high credit quality financial institutions.

Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.

The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash.

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Deferred offering costs

1 unchanged sentence

Costs associated with debt offerings are amortized to interest expense using the straight-line method over the life of the debt.

As of June 30, 2024 and December 31, 2023, $ 1.4 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, $ 1.5 million and $ 1.7 million, respectively, of unamortized deferred financing costs are netted against debt in the condensed consolidated balance sheets.

Fair value measurements

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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.

In December 2023, the Financial Accounting Standards Board (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.

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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 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.

The amendments in this ASU are required to be adopted for fiscal years beginning after December

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15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

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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 discussed in Note 9 to the condensed consolidated financial statements, 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.

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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 and a net loss of $ 7.0 million in the six months ended June 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 $ 3.9 million as of June 30, 2024, (3) reported cash and cash equivalents of $ 1.1 million as of June 30, 2024, (4) has borrowed $ 9.7 million as of June 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 and (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024.

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 and a net loss of $ 3.8 million in the three months ended March 31, 2024 consistent with seasonal historical trends for the Company, (2) reported an accumulated deficit of $ 3.3 million as of March 31, 2024, (3) reported cash and cash equivalents of $ 3.3 million as of March 31, 2024, (4) has borrowed $ 7.0 million and $ 9.7 million as of March 31, 2024 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.

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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) 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.

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 in the condensed consolidated financial statements) 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.

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Note 3 — Long-Term Debt

At June 30, 2024 and December 31, 2023, long-term debt consisted of the following (in thousands):

June 30, 2024 December 31, 2023

At March 31, 2024 and December 31, 2023, long-term debt consisted of the following (in thousands):

March 31, 2024 December 31, 2023

2021 Credit Facility $ 28,221 $ 28,594

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Interest expense – Lafayette Square $ 974 $ 879

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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.

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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.

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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 the Company.

As of June 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 six months ended June 30, 2024 and less than $ 0.1 million of additional deferred financing costs were incurred during the six months ended June 30, 2023.

Unamortized deferred financing costs as of June 30, 2024 and December 31, 2023 were $ 1.4 million and $ 1.7 million respectively.

Accrued and unpaid interest was less than $ 0.1 million and $ 0.1 million as of June 30, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the Company owed a balance on the 2021 Credit Facility of $ 28.2 million.

No additional deferred financing costs were incurred during the three months ended March 31, 2024 and less than $ 0.1 million of additional deferred financing costs were incurred during the three months ended March 31, 2023.

Unamortized deferred financing costs as of March 31, 2024 and December 31, 2023 were $ 1.5 million and $ 1.7 million respectively.

Accrued and unpaid interest was less than $ 0.1 million and $ 0.1 million as of March 31, 2024 and December 31, 2023, respectively.

The 2021 Credit Facility contains customary affirmative and negative covenants.

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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.

The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of June 30, 2024 after giving effect to the amendments to the 2021 Credit Facility under the Fifth Amendment.

T he Company was in compliance with all the financial covenants under the 2021 Credit Facility as of March 31, 2024 .

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 quarterly report.

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September 30, 2026 n/a $ 2.0 3.25 to 1.00

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*TTM = Trailing Twelve Months

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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 Company was in compliance with all the financial covenants under the Credit Agreement as of June 30, 2024 after giving effect to the amendments to the Credit Agreement under the Third Amendment.

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.

The Company was in compliance with all the financial covenants under the Credit Agreement as of March 31, 2024.

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 quarterly report.

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:

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:

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As of Minimum TTM (1) EBITDA ($ in millions)

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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.

During the six months ended June 30, 2024, the Company did not incur any deferred financing costs associated with the Credit Agreement.

As of June 30, 2024, there was $ 9.7 million outstanding under the Credit Agreement.

During the three months ended March 31, 2024, the Company did not incur any deferred financing costs associated with the Credit Agreement.

As of March 31, 2024, there was $ 7.0 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.

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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 b usiness operations, financial condition or results of operations as a result of the SVB closure.

During the six months ended June 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 six months ended June 30, 2023 .

During the three months ended March 31, 2023, the Company incurred $ 0.2 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 three months ended March 31, 2023 .

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Small Business Administration Loans

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The loan is secured by substantially all assets of DDH LLC.

Accrued and unpaid interest expense as of June 30, 2024 and December 31, 2023 was less than $ 0.1 million and is included in accrued expenses on the condensed consolidated balance sheets.

As of June 30, 2024, future minimum payments related to long-term debt are as follows (in thousands):

Accrued and unpaid interest expense as of March 31, 2024 and December 31, 2023 was less than $ 0.1 million and is included in accrued expenses on the condensed consolidated balance sheets.

As of March 31, 2024, future minimum payments related to long-term debt are as follows (in thousands):

Thereafter 140

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In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled.

As of June 30, 2024, DDM held 10,868,000 shares of Class B Common Stock.

As of March 31, 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.

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The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance.

At June 30, 2024, none of these warrants were outstanding.

At March 31, 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 June 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.

As of March 31, 2024, none of these warrants were outstanding.

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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.

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Information on activity for both the stock options and RSUs is detailed below.

During the six months ended June 30, 2024 and 2023, the Company recognized $ 0.7 million and $ 0.3 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

During the three months ended March 31, 2024 and 2023, the Company recognized $ 0.5 million and $ 0.1 million, respectively, of total stock-based compensation expense in the condensed consolidated statement of operations in compensation, tax and benefits.

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 June 30, 2024:

The following table summarizes the stock option activity under the 2022 Omnibus Plan as of March 31, 2024:

Stock Options

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Forfeited ( 1,416 ) $ 2.69 — $ 15

Outstanding at June 30, 2024 359,979 $ 2.51 8.09 $ 549

Vested and exercisable at June 30, 2024 175,405 $ 2.17 7.99 $ 327

As of June 30, 2024, unrecognized stock-based compensation of $ 0.3 million related to 184,574 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.09 years.

Outstanding at March 31, 2024 361,362 $ 2.51 8.53 $ 4,596

Vested and exercisable at March 31, 2024 103,072 $ 2.55 8.48 $ 1,308

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As of March 31, 2024, unrecognized stock-based compensation of $ 0.3 million related to 258,290 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.02 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 six months ended June 30, 2024 and related information is as follows:

A summary of RSU activity during the three months ended March 31, 2024 and related information is as follows:

Restricted Stock Units

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Forfeited ( 917 ) $ 3.28

Unvested- June 30, 2024 281,220 $ 2.81

Unvested- March 31, 2024 412,055 $ 2.53

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 70,835 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 June 30, 2024, there was unrecognized stock-based compensation of $ 0.7 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.13 years.

As of March 31, 2024, there was unrecognized stock-based compensation of $ 0.8 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.01 years.

Note 5 — Tax Receivable Agreement and Income Taxes

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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 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.

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 if the Code for each taxable year in which a redemption or exchange of LLC interest occurs.

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 $ 5.2 million as of June 30, 2024 and December 31, 2023.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.6 million and $ 6.1 million as of June 30, 2024 and December 31, 2023, respectively.

The deferred tax asset is net of a valuation allowance of $ 0.5 million as of June 30, 2024 and December 31, 2023.

Payments of less than $ 0.1 million and $ 0.8 million were made during the six months ended June 30, 2024 and 2023, respectively.

The Company has recorded a liability related to the tax receivable agreement of $ 5.2 million as of March 31, 2024 and December 31, 2023.

The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.3 million and $ 6.2 million as of March 31, 2024 and December 31, 2023, respectively.

The deferred tax asset is net of a valuation allowance of $ 0.5 million as of March 31, 2024 and December 31, 2023.

Payments of less than $ 0.1 million were made during the three months ended March 31, 2024 and 2023.

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.

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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 six months ended June 30, 2024 and 2023, no amounts were recorded as income in other income (expense) for such change.

For the three months ended March 31, 2024 and 2023, no amounts were recorded as income in other income (expense) 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.

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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.

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.

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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 six months ended June 30, 2024.

The Company's 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 first three months ended March 31, 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

June 30, Six Months Ended

2024 2023 2024 2023

Income tax expense (benefit) $ ( 274 ) $ 74 $ ( 475 ) $ —

Income tax benefit $ ( 200 ) $ ( 74 )

Effective income tax rate 5.0 % 5.3 %

The effective tax rates were lower than the statutory tax rates for the three and six months ended June 30, 2024 and 2023 primarily due to the Company’s partnership loss that is not subject to federal and state taxes.

As of June 30, 2024, the Company had federal net operating loss carryforwards of $ 3.3 million that can be carried forward indefinitely.

The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2024 and 2023 primarily due to the Company’s partnership loss that is not subject to federal and state taxes.

As of March 31, 2024, the Company had federal net operating loss carryforwards of $ 2.5 million that can be carried forward indefinitely.

The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.

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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 June 30, 2024.

Federal and various states returns for the years ended December 2022 and 2021 remain open as of March 31, 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 June 30, 2024 and December 31, 2023, the Company had no uncertain tax positions.

As of March 31, 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.

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Member Payable

As of June 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.

As of March 31, 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

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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.

If the Company ever generates sufficient taxable income to utilize the tax

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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 June 30, 2024 and December 31, 2023, is as follows (in thousands):

The aggregate balance of tax receivable liabilities as of March 31, 2024 and December 31, 2023 , is as follows (in thousands):

2024 December 31,

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 16,500 $ 13,783

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Sell-side advertising $ 962 $ 1,278

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Total assets $ 52,770 $ 70,672

Note 8 — Net (Loss) Income Per Share

Note 8 — Net Loss Per Share

The Company has two classes of common stock, Class A and Class B.

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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 six months ended June 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):

The Company uses the two-class method to calculate basic and diluted earnings per share as a result of

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outstanding participating securities in the form of warrants for the three months ended March 31, 2023.

The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share amounts):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Net (loss) income attributable to Class A shareholders and participating securities $ ( 590 ) $ 192 $ ( 1,365 ) $ ( 22 )

net income allocated to participating securities — 99 — —

Net (loss) income allocated to Class A shareholders $ ( 590 ) $ 93 $ ( 1,365 ) $ ( 22 )

Net loss $ ( 775 ) $ ( 214 )

Weighted average common shares outstanding - basic 3,509 2,901

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Weighted average common shares outstanding - diluted 3,509 2,901

Net (loss) income per common share, basic $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

Net (loss) income per common share, diluted $ ( 0.16 ) $ 0.03 $ ( 0.38 ) $ ( 0.01 )

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):

Net loss per common share, basic $ ( 0.22 ) $ ( 0.07 )

Net loss per common share, diluted $ ( 0.22 ) $ ( 0.07 )

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Class B Common Stock 10,868 11,278

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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.

On May 14, 2024, the Company filed a lawsuit against the author of the defamatory article and is vigorously

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pursuing its rights.

The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof.

Operating Leases

During the six months ended June 30, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of $ 0.1 million.

During the three months ended March 31, 2024 and 2023, the Company incurred fixed rent expense associated with operating leases for real estate of less than $ 0.1 million.

The Company did not have any finance leases, short-term leases nor variable leases over this time period.

During the three and six months ended June 30, 2024 and 2023, the Company had the following cash and non-cash activities associated with leases (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

During the three months ended March 31, 2024 and 2023, the Company had the following cash and non-cash activities associated with leases (in thousands):

Three-Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflow for operating leases $ 37 $ 42

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 $ — $ 200 $ —

The weighted-average remaining lease term and discount rate for the Company’s operating lease is 5.0 years and 8.4 %, respectively, as of June 30, 2024.

The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.3 years and 8.4 %, respectively, as of June 30, 2023 .

The future payments due under operating leases as of June 30, 2024 us as follows (in thousands):

The weighted-average remaining lease term and discount rate for the Company’s operating lease is 5.3 years and 8.3 %, respectively, as of March 31, 2024.

The weighted-average remaining lease term and discount rate for the Company's operating leases is 6.5 years and 8.4 %, respectively, as of March 31, 2023 .

The future payments due under operating leases as of March 31, 2024 us as follows (in thousands):

Thereafter 200

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Property, equipment and software, net consists of the following (in thousands):

Useful Life (Years) June 30,

Useful Life (Years) March 31,

2024 December 31,

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Total property, equipment and software, net $ 529 $ 599

The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three and six months ended June 30, 2024 and 2023 (in thousands):

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The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Cost of revenue $ 62 $ 48

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The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets.

For the three months ended June 30, 2024 and 2023, amortization expense of $ 0.5 million and for the six months ended June 30, 2024 and 2023, amortization expense of $ 1.0 million, respectively, was recognized.

As of June 30, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $ 10.7 million and $ 11.7 million, respectively.

As of June 30, 2024, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:

June 30, 2024

For the three months ended March 31, 2024 and 2023, amortization expense of $ 0.5 million was recognized.

As of March 31, 2024 and December 31, 2023, intangible assets net of accumulated amortization was $ 11.2 million and $ 11.7 million, respectively.

As of March 31, 2024, intangible assets and the related accumulated amortization, weighted-average remaining life and future amortization expense are as follows:

March 31, 2024

Weighted-Average Original Accumulated Net

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Total future amortization expense $ 11,195

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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 1. Financial Statements