What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-15 compared with 2024-10-15 · 88 added, 106 removed, 285 unchanged (41% of the section changed)

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• our failure to manage our growth effectively;

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• the difficulty in identifying and integrating any future acquisitions or strategic investments;

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N/A June 21, 2018 February 15, 2022

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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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The Company submitted a plan to Nasdaq to regain compliance with respect to the Delinquent Filings, and Nasdaq granted the Company an exception until October 14, 2024 to evidence compliance with the rule requiring filing of our periodic reports.

Neither the notices from Nasdaq nor the Company’s non-compliance with the rule has an immediate effect on the listing or trading of the Company’s securities on Nasdaq, which currently continues to trade on The Nasdaq Capital Market under the symbol “DRCT.” We have since filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 on October 15, 2024, making this Quarterly Report for the fiscal quarter ended June 30, 2024 the final Delinquent Report left to file.

Upon the filing of this report, the Company believes it will have evidenced compliance with Nasdaq’s rules;

however, the Company is awaiting a formal compliance determination from the Staff of the Listing Qualifications Department of Nasdaq.

The Company will provide an update upon receipt of such determination.

Neither the notices from Nasdaq nor the Company’s non-compliance with the rule has an immediate effect on the listing or trading of the Company’s securities on Nasdaq, which currently continues to trade on The Nasdaq Capital Market under the symbol “DRCT.” We have since filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 on October 15, 2024 and are filing this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 on the date hereof, leaving only one Delinquent Report left to file.

The Company continues to work diligently to complete and file the remaining Delinquent Filing with the SEC and thereby regain compliance with the Rule as soon as practicable.

Restatement of 2023 Quarterly Financial Information.

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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 pursuing its rights.

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

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Key Factors Affecting Our Performance

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Our customers (or buyers) include ad exchanges, DSPs, agencies and individual advertisers.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 156,000 advertisers per month in the three months ended June 30, 2024, an increase of 31% over the 119,000 advertisers per month in the three months ended June 30, 2023.

We have broad exposure to the ecosystem of buyers, reaching on average approximately 141,000 advertisers per month in the three months ended March 31, 2024, a decrease of 8% over the 153,000 advertisers per month in the three months ended March 31, 2023.

As spending on programmatic advertising increasingly becomes a larger share of the overall ad spend, advertisers and agencies are seeking greater control of their digital advertising supply chains.

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Our recent growth has been driven by a variety of factors including increased access to mobile web (display and video) and mobile app (display and video) impressions and desktop video impressions.

Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships

with publishers.

For the three months ended June 30, 2024, we processed over 721.2 billion average monthly bid requests, up 20% from 2023.

Our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers.

For the three months ended March 31, 2024, we processed over 830.0 billion average monthly bid requests, up 107% from 2023.

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Expanding and managing investments

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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 during the six months ended June 30, 2024.

In addition, we cultivate client relationships through our pipeline of managed and

moderate serve clients that conduct campaigns through our platform.

As a result, our clients have been loyal, with approximately 90% client retention amongst the clients that represent approximately 80% of our revenue during the three months ended March 31, 2024.

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

The managed services delivery model allows us to combine our technology with a highly personalized offering to strategically design and manage advertising campaigns.

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Shift to Digital Advertising

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Operating expenses consist of compensation expenses related to our executive, sales, finance and administrative personnel (including salaries, commissions, stock-based compensation, bonuses, benefits and taxes);

general and administrative expenses (including rent expense, professional fees, independent contractor costs, selling and marketing fees, administrative and operating system subscription costs, insurance, amortization expense related to our intangible assets);

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administrative expenses (including rent expense, professional fees, independent contractor costs, selling and marketing fees, administrative and operating system subscription costs, insurance, amortization expense related to our intangible assets);

and other expenses (including transactions that are unusual in nature or which are occurring infrequently).

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Comparison of the Three Months Ended March 31, 2024 and 2023

The following tables set forth our condensed consolidated results of operations for the periods presented (in thousands).

The period-to-period comparison of results is not necessarily indicative of results for future periods.

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

2024 2023 Amount % 2024 2023 Amount %

Three Months Ended March 31, Change

2024 2023 Amount %

Sell-side advertising $ 16,500 $ 13,783 $ 2,717 20 %

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Operating expenses 7,805 6,574 1,231 19 %

Loss from operations (2,065) 2,255 (4,320) (192) % (4,873) 2,114 (6,987) (331) %

Loss from operations (2,807) (141) (2,665) *nm

Other expense, net (1,212) (1,267) 55 (4) %

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$ (1,659) $ 549 $ (2,208) (402) %

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(1) 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 of $21.9 million for the three months ended June 30, 2024 decreased by $13.5 million, or 38%, from $35.4 million for the three months ended June 30, 2023.

Sell-side advertising revenue decreased $9.3 million, or 39%, primarily due to a decrease in impression inventory.

This decrease was primarily caused by one of the Company’s sell-side customers pausing its connection to the Company while it investigated allegations made against the Company in a defamatory article / blog post which the Company believes was part of a coordinated misinformation campaign.

This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024.

The Company sold approximately 2.0 billion average monthly impressions over the three months ended June 30, 2024, a decrease of 27% from the prior period.

Buy-side revenue decreased $4.2 million, or 36%, over the three months ended June 30, 2023 due to a $3.0 million decrease in spending from our existing customer base, a $1.6 million decrease from completion of certain one-time campaigns in 2023 partially offset by a shift in timing of spend among quarters.

Our revenues of $44.1 million for the six months ended June 30, 2024 decreased by $12.5 million, or 22%, from $56.6 million for the six months ended June 30, 2023.

Sell-side advertising revenue decreased $6.6 million, or 18%, primarily due to a decrease in impression inventory, including as a result of the customer suspension that occurred during May 2024.

The Company sold approximately 2.0 billion average monthly impressions over the six months ended June 30, 2024, a decrease of 14% from the prior period.

Buy-side revenue decreased $5.9 million, or 31%, over the six months ended June 30, 2023 due to a $3.8 million decrease in spending from our existing customer base, a $3.0 million decrease from completion of certain one-time campaigns in 2023 partially offset by growth from existing and new customers.

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Our revenues of $22.3 million for the three months ended March 31, 2024 increased by $1.1 million, or 5%, from $21.2 million for the three months ended March 31, 2023.

Sell-side advertising revenue increased $2.7 million, or 20%, primarily due to a continued increase in impression inventory, as well as increased publisher engagement across both general market and underrepresented publisher communities.

The Company sold approximately 1.9 billion average monthly impressions over the three months ended March 31, 2024, an increase of 7% from the prior period.

For the three months ended March 31, 2024, the Company processed over 248 billion average monthly impressions through its sell-side advertising segment, an increase of 20% over the same period of 2023.

In addition, the Company’s sell-side advertising platforms processed over 830 billion average monthly bid requests and received approximately 13 billion average monthly bid responses in the first quarter of 2024, an increase of 107% over the same period in 2023.

Sell-side revenue per advertiser for the first quarter of 2024 increased 30% compared to the same period of 2023.

Buy-side revenue decreased $1.7 million, or 22%, over the three months ended March 31, 2023 due to a decrease in spending from our existing customer base, completion of certain one-time campaigns in 2023 as well as a shift in timing of spend among quarters.

Cost of revenues

Consistent with the overall decrease in revenues, cost of revenues of $15.9 million for the three months ended June 30, 2024 decreased by $9.4 million, or 37% from $25.3 million for the three months ended June 30, 2023.

Sell-side advertising cost of revenues decreased $7.5 million, to $13.2 million, or 92% of revenue for the three months ended June 30, 2024, compared to $20.7 million, or 88% of revenue, for the same period in 2023.

The decrease in costs was primarily due to the related decrease in revenue, while the 4% increase as a percentage of revenue was due to an increase in fixed costs of approximately $0.6 million related to new analytic costs to support the growth as well as the mix and concentration of publishers and the related costs.

Buy-side advertising cost of revenues decreased $1.9 million, to $2.7 million, or 36% of revenue for the three months ended June 30, 2024, compared to $4.6 million, or 39% of revenue, for the same period in 2023.

Consistent with the overall decrease in revenues, cost of revenues of $33.2 million for the six months ended June 30, 2024 decreased by $6.9 million, or 17% from $40.1 million for the six months ended June 30, 2023.

Sell-side advertising cost of revenues decreased $4.6 million, to $28.0 million, or 91% of revenue for the six months ended June 30, 2024, compared to $32.6 million, or 87% of revenue, for the same period in 2023.

The decrease in costs was primarily due to the related decrease in revenue, while the 4% increase as a percentage of revenue was due to an increase in fixed costs of approximately $0.6 million related to an increase in server capacity and approximately $0.7 million related to new analytic costs to support the growth as well as the mix and concentration of publishers and the related costs.

Buy-side advertising cost of revenues decreased $2.4 million, to $5.2 million, or 39% of revenue for the six months ended June 30, 2024, compared to $7.5 million, or 39% of revenue, for the same period in 2023.

Gross profit was $5.9 million, or 27% of revenue, for the three months ended June 30, 2024, compared to $10.1 million, or 28% of revenue, for the same period in 2023, reflecting a decrease of $4.1 million or 41%.

The change in margin for the three months ended June 30, 2024 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the additional fixed costs related to an increase in server capacity.

Sell-side advertising gross profit decreased $1.8 million for the three months ended June 30, 2024 as compared to the same period in 2023, primarily due an increase in fixed costs related to our servers and the decrease in revenues.

Sell-side advertising gross margin was 8% and 12% for the three months ended June 30, 2024 and 2023, respectively.

Sell-side gross margin in 2024 was negatively impacted by additional fixed costs of approximately $0.2 million incurred in the three months ended June 30, 2024, related to an increase in server capacity to support our growth.

Buy-side advertising gross profit decreased $2.4 million for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to the decrease in revenue.

Buy-side advertising gross margin was 64% and 61% for the three months ended June 30, 2024 and 2023, respectively.

Gross profit was $10.9 million, or 25% of revenue, for the six months ended June 30, 2024, compared to $16.5 million, or 29% of revenue, for the same period in 2023, reflecting a decrease of $5.6 million or 34%.

The change in margin for the six months ended June 30, 2024 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the additional fixed costs related to an increase in server capacity.

Sell-side advertising gross profit decreased $2.0 million for the six months ended June 30, 2024 as compared to the same period in 2023, primarily due the increase in temporary fixed costs related to our servers partially and the decrease in revenues.

Sell-side advertising gross margin was 9% and 13% for the six months ended June 30, 2024 and 2023, respectively.

Sell-side gross margin in 2024 was negatively impacted by additional fixed costs of approximately $0.8 million incurred in the six months ended June 30, 2024, related to an increase in server capacity to support our growth.

Buy-side advertising gross profit decreased $3.6 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to the decrease in revenue.

Buy-side advertising gross margin was 61% and 61% for the six months ended June 30, 2024 and 2023, respectively.

Consistent with the overall increase in revenues, cost of revenues of $17.3 million for the three months ended March 31, 2024 increased by $2.5 million, or 17% from $14.8 million for the three months ended March 31, 2023.

Sell-side advertising cost of revenues increased $3.0 million, to $14.8 million, or 90% of revenue for the three months ended March 31, 2024, compared to $11.8 million, or 86% of revenue, for the same period in 2023.

The increase in costs was primarily due to the related increase in revenue, while the 4% increase as a percentage of revenue was due to a short-term increase in fixed costs of approximately $0.6 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.

Buy-side advertising cost of revenues decreased $0.5 million, to $2.5 million, or 43% of revenue for the three months ended March 31, 2024, compared to $2.9 million, or 40% of revenue, for the same period in 2023.

Gross profit was $5.0 million, or 22% of revenue, for the three months ended March 31, 2024, compared to $6.4 million, or 30% of revenue, for the same period in 2023, reflecting a decrease of $1.4 million or 22%.

The change in margin for the three months ended March 31, 2024 is attributable to the mix in revenue between our business segments as our sell-side segment has higher cost of revenues compared to our buy-side segment, as well as the additional fixed costs related to an increase in server capacity.

Sell-side advertising gross profit decreased $0.2 million for the three months ended March 31, 2024 as compared to the same period in 2023, primarily due the increase in temporary fixed costs related to our servers partially offset by the increase in revenues.

Sell-side advertising gross margin was 10% and 14% for the three months ended March 31, 2024 and 2023, respectively.

Sell-side gross margin in 2024 was negatively impacted by additional fixed costs of approximately $0.6 million incurred in the three months ended March 31, 2024, related to an increase in server capacity to support our growth.

Buy-side advertising gross profit decreased $1.2 million for the three months ended March 31, 2024, as compared to the same period in the prior year, primarily due to the decrease in revenue.

Buy-side advertising gross margin was 57% and 60% for the three months ended March 31, 2024 and 2023, respectively.

Buy-side gross margin in 2024 was negatively impacted by reduced leverage due to lower revenue associated with the same level of fixed costs, which the Company expects to recover with the shift of a portion of revenue to the second quarter of 2024.

Operating expenses

The following table sets forth the components of operating expenses for the periods presented (in thousands).

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

2024 2023 Amount % 2024 2023 Amount %

Three Months Ended March 31, Change

2024 2023 Amount %

Compensation, tax and benefits $ 4,524 $ 3,634 $ 890 24 %

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Compensation, taxes and benefits

Compensation, taxes and benefits of $4.2 million, decreased by $0.4 million, or 8%, for the three months ended June 30, 2024 from $4.6 million for the same period in 2023.

The decrease is due to a decrease in bonus expense, severance costs and commissions expense, partially offset by headcount additions made throughout 2023 primarily in our operations area to support our growth as well as in our shared services to support our public company infrastructure.

Sequentially, compensation, taxes and benefits decreased by $0.4 million, or 8%, from $4.5 million for the three months ended March 31, 2024 primarily due to lower bonus and stock compensation expense.

Compensation, taxes and benefits of $8.7 million, increased by $0.5 million, or 6%, for the six months ended June 30, 2024 from $8.2 million for the same period in 2023.

The increase is due to headcount additions made throughout 2023 primarily in our operations area to support our growth as well as in our shared services to support our public company infrastructure and increased stock compensation, partially offset by a decrease bonus and severance expense.

We expect to continue to invest in corporate infrastructure and incur additional expenses associated with our transition to and operation as a public company.

However, on July 1, 2024, we executed an internal reorganization plan that included a staff reduction, a pause on hiring and cost savings measures, which we anticipate will lower certain ongoing expenses, especially as the Company incurs additional one-time expenses to regain compliance with respect to delinquent SEC filings.

Compensation, taxes and benefits of $4.5 million, increased by $0.9 million, or 24%, for the three months ended March 31, 2024 from $3.6 million for the same period in 2023.

The increase is due to headcount additions made throughout

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2023 primarily in our operations area to support our growth as well as in our shared services to support our public company infrastructure and increased stock compensation, partially offset by a decrease bonus expense.

Sequentially, compensation, taxes and benefits decreased by $0.3 million, or 6%, from $4.8 million for the three months ended December 31, 2023 primarily due to lower bonus accrual.

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 of $3.8 million for the three months ended June 30, 2024 increased from $3.3 million for the same period in 2023.

G&A expenses as a percentage of revenue was 18% and 9% for the three months ended June 30, 2024 and 2023, respectively.

During the three months ended June 30, 2024, we incurred higher professional fees, corporate expenses, sales and marketing expenses and software licenses.

Sequentially, G&A expenses increased by $0.6 million, or 17%, from $3.3 million for the three months ended March 31, 2024 primarily due to higher professional fees, sales and marketing costs, corporate expenses and software licenses.

General and administrative (“G&A”) expenses of $7.1 million for the six months ended June 30, 2024 increased from $6.2 million for the same period in 2023.

G&A expenses as a percentage of revenue was 16% and 11% for the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024, we incurred higher professional fees, corporate expenses, sales and marketing expenses and software licenses.

General and administrative (“G&A”) expenses of $3.3 million for the three months ended March 31, 2024 increased from $2.9 million for the same period in 2023.

G&A expenses as a percentage of revenue was 15% and 14% for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, we incurred higher professional fees and software licenses.

Sequentially, G&A expenses decreased by $1.2 million, or 27%, from $4.5 million for the three months ended December 31, 2023 primarily due to lower professional fees, sales and marketing costs and travel expense.

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

Other expense, net

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Three Months Ended

June 30, Change Six Months Ended June 30, Change

2024 2023 Amount % 2024 2023 Amount %

March 31, Change

2024 2023 Amount %

Interest expense $ (1,297) $ (1,017) $ (280) 27 %

Other income 85 50 35 70 %

Loss on early termination of line of credit — — — nm — (300) 300 nm

Loss on early termination of line of credit — (300) 300 nm

Total other expense, net $ (1,212) $ (1,267) $ 55 (4) %

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Other expense, net for the three months ended June 30, 2024 primarily consists of $1.4 million of interest expense.

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

Interest expense increased for the three months ended June 30, 2024 to $1.4 million, compared to $1.0 million for the three months ended June 30, 2023.

The increase in interest expense in the period is due to additional net borrowings of $12.6 million under the Company’s credit facilities, as well as higher interest rates.

Other expense, net for the six months ended June 30, 2024 primarily consists of $2.7 million of interest expense.

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

Interest expense increased for the six months ended June 30, 2024 to $2.7 million, compared to $2.0 million for the six months ended June 30, 2023.

Other expense, net for the three months ended March 31, 2024 primarily consists of $1.3 million of interest expense.

Other expense, net for the three months ended March 31, 2023 is primarily consists of $1.0 million of interest expense and $0.3 million related to the loss on early termination of the line of credit with Silicon Valley Bank.

Interest expense increased for the three months ended March 31, 2024 to $1.3 million, compared to $1.0 million for the three months ended March 31, 2023.

The increase in interest expense in the period is due to additional net borrowings of $10.2 million under the Company’s credit facilities, as well as higher interest rates.

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Going Concern

As discussed in Note 9 to the condensed consolidated financial statements, on May 10, 2024, the Company was the subject of a defamatory article / blog post which the Company believes was part of a coordinated misinformation campaign.

In connection with this post, 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.

On May 10, 2024, the Company was the subject of a defamatory article / blog post which the Company believes was part of a coordinated misinformation campaign.

As discussed in Note 9, one of the Company’s sell-side customers paused its connection to the Company for a couple of weeks in May 2024, which reduced sell-side sales volumes.

As of the date of this report, sell-side volumes related to this customer have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created significant disruption in the Company’s sell-side business.

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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.

The delay in filing the Company’s annual and quarterly reports disrupted existing capital-raising efforts and created additional audit, legal and other expenses.

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,

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legal and other expenses.

These factors raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months.

The Company anticipates sources of liquidity to include cash on hand and cash flow from operations and has taken several actions to address liquidity concerns.

These actions include (1) a plan to reduce expenses through a staff reduction,

a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary relief from debt covenants (see Note 3 – Long-Term Debt 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.

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 to the Company's unaudited 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.

Sources of Liquidity

The following table summarizes our cash and cash equivalents, working capital, and availability under our Credit Agreement (as defined below) on June 30, 2024 and December 31, 2023 (in thousands):

June 30, 2024 December 31, 2023

The following table summarizes our cash and cash equivalents, working capital, and availability under our Credit Agreement (as defined below) on March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 3,334 $ 5,116

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Historical Cash Flows:

The following table sets forth our cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended June 30,

The following table sets forth our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

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

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Net (decrease) increase in cash and cash equivalents $ (1,782) $ 2,672

Our cash and cash equivalents at June 30, 2024 were held for working capital and general corporate purposes.

The decrease in cash and cash equivalents compared with June 30, 2023, primarily resulted from $10.1 million in cash flows used in operating activities partially offset by $6.1 million in cash flows provided by financing activities.

Our cash and cash equivalents at March 31, 2024 were held for working capital and general corporate purposes.

The decrease in cash and cash equivalents compared with March 31, 2023, primarily resulted from $5.7 million in cash flows used in operating activities partially offset by $3.9 million in cash flows provided by financing activities.

Operating Activities

For the Six Months Ended June 30, 2024 and 2023

For the Three Months Ended March 31, 2024 and 2023

Cash provided by operating activities has typically been generated from net income and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable and accounts payable and accrued expenses, adjusted for certain non-cash and non-operating expense items such as depreciation, amortization, stock-based compensation and deferred income taxes.

For the six months ended June 30, 2024, net cash flows used in operating activities were $10.1 million and consisted of net loss of $7.0 million, $1.7 million in adjustments for non-cash and non-operating items and $4.9 million of cash out flows from working capital.

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For the three months ended March 31, 2024, net cash flows used in operating activities were $5.7 million and consisted of net loss of $3.8 million, $1.1 million in adjustments for non-cash and non-operating items and $3.0 million of cash out flows from working capital.

Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $0.8 million and stock-based compensation expense of $0.5 million partially offset by $0.2 million of deferred tax benefit.

The $3.0 million decrease in cash resulting from changes in working capital primarily consisted of a $18.1 million decrease in accounts payable and a $0.7 million decrease in accrued expenses such as payroll and payroll related expenses partially offset by a $15.8 million decrease in accounts receivable.

The decrease in accounts payable and accounts receivable is mainly due to the May 2024 temporary disconnection by a significant customer as a result of a customer investigating a defamatory article / blog post against the Company, as well as a payment of $8.8 million to a few publishers associated with a charge recorded in 2023 related to a disputed short pay from a customer.

For the six months ended June 30, 2023, net cash flows provided by operating activities were $3.1 million and mainly consisted of net loss of $0.1 million, $2.1 million in adjustments for noncash and non-operating items and $1.1 million of cash inflows from working capital.

The decrease in accounts payable and accounts receivable is mainly due to the seasonal nature of the sell-side segment of the business as well as a payment of $8.8 million to a few publishers associated with a charge recorded in 2023 related to a disputed short pay from a customer.

For the three months ended March 31, 2023, net cash flows provided by operating activities were $3.1 million and mainly consisted of net loss of $1.3 million, $1.0 million in adjustments for noncash and non-operating items and $3.4 million of cash inflows from working capital.

Adjustments for non-cash and non-operating items primarily consisted of depreciation and amortization expense of $0.7 million, stock-based compensation expense of $0.1 million and loss on early termination of line of credit of $0.3 million.

The $1.1 million increase in cash resulting from changes in working capital consisted primarily of a $5.7 million increase in accounts payable and a $0.4 million increase in deferred revenues, partially offset by a $3.3 million increase in accounts receivable, a $0.9 million decrease in accrued liabilities and a $0.3 million increase in prepaid expenses.

The increase in accounts receivable and accounts payable is mainly due to the seasonal nature of the sell-side segment of the business.

The $3.4 million increase in cash resulting from changes in working capital consisted primarily of a $7.3 million decrease in accounts receivable and a $0.4 million increase in deferred revenues partially offset by a $3.9 million decrease in accounts payable.

The decrease in accounts receivable and accounts payable is mainly due to the seasonal nature of the sell-side segment of the business.

Investing Activities

For the Six Months Ended June 30, 2024 and 2023

For the Three Months Ended March 31, 2024 and 2023

Our investing activities to date have consisted primarily of purchases of software, office furniture and leasehold improvements.

For the six months ended June 30, 2024 and 2023, net cash flows used in investing activities of less than $0.1 million were primarily related to leasehold improvements and office furniture.

For the three months ended March 31, 2023, net cash flows used in investing activities of less than $0.1 million were primarily related to leasehold improvements and office furniture.

Financing Activities

For the Six Months Ended June 30, 2024 and 2023

For the six months ended June 30, 2024, net cash provided by financing activities was $6.1 million mainly resulting from $6.7 million of proceeds from line of credit and $0.2 million proceeds from warrants exercised partially offset by $0.4 million paid on term loan.

For the six months ended June 30, 2023, net cash used in financing activities was $1.3 million mainly resulting from $0.8 million for distributions paid to LLC holders, $0.3 million paid on term loan and $0.2 million deferred financing costs.

For the Three Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, net cash provided by financing activities was $3.9 million mainly resulting from $4.0 million of proceeds from line of credit and $0.2 million proceeds from warrants exercised partially offset by $0.4 million paid on term loan.

For the three months ended March 31, 2023, net cash used in financing activities was $0.4 million mainly resulting from $0.2 million paid on term loan and $0.2 million deferred financing costs.

Contractual Obligations and Future Cash Requirements

As of June 30, 2024, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility, the Credit Agreement and non-cancelable leases for our various facilities.

As of March 31, 2024, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility, the Credit Agreement and non-cancelable leases for our various facilities.

We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $1.1 million in 2024, $8.5 million in 2025, $25.7 million in 2026, less than $0.1 million in 2027, less than $0.1 million in 2028, and $0.1 million thereafter, assuming we do not refinance our indebtedness, enter into a new revolving credit facility or make any further draws under the revolving facility.

The leases will require minimum payments of $0.2 million in 2024, $0.2 million in 2025, $0.2 million in 2026, $0.2 million in 2027, $0.2 million in 2028, and $0.2 million thereafter.

As of June 30, 2024, we had cash and cash equivalents of $1.1 million.

As of March 31, 2024, we had cash and cash equivalents of $3.3 million.

Based on projections of revenue and operating results in the coming year, the available cash held by the Company and the amounts the Company may borrow under the Credit Agreement, the Company believes that it will have sufficient cash resources to finance its operations and service any maturing debt obligations for at least the next twelve months following the issuance of these financial statements.

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Non-GAAP Financial Measures

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

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

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The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

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There have been no material changes to our critical accounting estimates and related policies as compared to the critical accounting estimates and related policies described in our "Management’s Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

4 unchanged sentences

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