What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-15 compared with 2023-11-09 · 277 added, 276 removed, 114 unchanged (83% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

12 unchanged sentences

We believe these factors include, but are not limited to, the following:

● our dependence on the overall demand for advertising, which could be influenced by economic downturns;

● any slow-down or unanticipated development in the market for programmatic advertising campaigns;

● the effects of health epidemics;

• the restrictions and covenants imposed upon us by our credit facilities;

• the substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing;

• our ability to secure additional financing to meet our capital needs;

• ineligibility to file short-form registration statements on Form S-3, which may impair our ability to raise capital;

• failure to satisfy applicable listing standards of the Nasdaq Capital Market resulting in a potential delisting of our common stock;

• costs, risks and uncertainties related to the restatement of certain prior period financial statements;

• any significant fluctuations caused by our high customer concentration;

• risks related to non-payment by our clients;

• reputational and other harms caused by our failure to detect advertising fraud;

• operational and performance issues with our platform, whether real or perceived, including a failure to respond to technological changes or to upgrade our technology systems;

● any significant inadvertent disclosure or breach of confidential and/or personal information we hold, or of the security of our or our customers’, suppliers’ or other partners’ computer systems;

● any unavailability or non-performance of the non-proprietary technology, software, products and services that we use;

● unfavorable publicity and negative public perception about our industry, particularly concerns regarding data privacy and security relating to our industry’s technology and practices, and any perceived failure to comply with laws and industry self-regulation;

• restrictions on the use of third-party “cookies,” mobile device IDs or other tracking technologies, which could diminish our platform’s effectiveness;

● any inability to compete in our intensely competitive market;

● any significant fluctuations caused by our high customer concentration;

● our limited operating history, which could result in our past results not being indicative of future operating performance;

● any violation of legal and regulatory requirements or any misconduct by our employees, subcontractors, agents or business partners;

● any strain on our resources, diversion of our management’s attention or impact on our ability to attract and retain qualified board members as a result of being a public company;

● as a holding company, we depend on distributions from Direct Digital Holdings, LLC (“DDH LLC”) to pay our taxes, expenses (including payments under the Tax Receivable Agreement) and dividends;

● DDH LLC may make distributions of cash to us substantially in excess of the amounts we use to make distributions to our stockholders and pay our expenses (including our taxes and payments under the Tax Receivable Agreement), which, to the extent not distributed as dividends on our Class A common stock, would benefit Direct Digital Management, LLC, the entity indirectly owned by our Chairman and Chief Executive Officer and President, as a result of its ownership of Class A common stock upon an exchange or redemption of its LLC Units;

• unfavorable publicity and negative public perception about our industry, particularly concerns regarding data privacy and security relating to our industry’s technology and practices, and any perceived failure to comply with laws and industry self-regulation;

• our failure to manage our growth effectively;

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

• any changes or developments in legislative, judicial, regulatory or cultural environments related to information collection, use and processing;

• challenges related to our buy-side clients that are destination marketing organizations and that operate as public/private partnerships;

• any strain on our resources or diversion of our management’s attention as a result of being a public company;

• the intense competition of the digital advertising industry and our ability to effectively compete against current and future competitors;

• any significant inadvertent disclosure or breach of confidential and/or personal information we hold, or of the security of our or our customers’, suppliers’ or other partners’ computer systems;

• as a holding company, we depend on distributions from Direct Digital Holdings, LLC (“DDH LLC”) to pay our taxes, expenses (including payments under the Tax Receivable Agreement) and any amount of any dividends we may pay to the holders of our common stock;

• the fact that DDH LLC is controlled by DDM, whose interest may differ from those of our public stockholders;

• any failure by us to maintain or implement effective internal controls or to detect fraud;

• other factors and assumptions discussed under “ Risk Factors ” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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Direct Digital Holdings, Inc.

and its subsidiaries (collectively the “Company,” “DDH,” “we,” “us” and “our”), headquartered in Houston, Texas, is an end-to-end, full-service programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to underserved and less efficient markets on both the buy- and sell-side of the digital advertising ecosystem.

and its subsidiaries (collectively the “Company,” “DDH,” “we,” “us” and “our”), headquartered in Houston, Texas, is an end-to-end, full-service programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions intended for underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem.

Direct Digital Holdings, Inc.

is the holding company that, since the completion of our initial public offering on February 15, 2022, owns certain common units, and serves as the manager, of DDH LLC, which operates the business formed in 2018 through the acquisition of Huddled Masses, LLC (“Huddled Masses™” or, “Huddled Masses”), a buy-side marketing platform, and Colossus Media, LLC (“Colossus Media”), a sell-side marketing platform.

On September 30, 2020, DDH LLC acquired Orange142, LLC (“Orange142”) to further bolster its overall programmatic buy-side advertising platform and enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products and other sectors, with particular emphasis on small- and mid-sized businesses transitioning into digital with growing digital media budgets.

is the holding company that, since the completion of our initial public offering on February 15, 2022, owns certain common units, and serves as the manager of DDH LLC, which operates the business formed in 2018 through the acquisition of Colossus Media, LLC ("Colossus Media"), a sell-side marketing platform, and Huddled Masses, LLC (“Huddled Masses™” or “Huddled Masses”), a buy-side marketing platform.

In late September 2020, DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and enhance its offerings across multiple industry verticals such as travel, education, healthcare, financial services, consumer products and other sectors, with particular emphasis on small- and mid-sized businesses transitioning into digital with growing digital media budgets.

The subsidiaries of Direct Digital Holdings, Inc.

are as follows:

Date of Formation

Subsidiary Current %

Ownership Business

Segment Date of Formation Date of

Colossus Media, LLC 100% Sell-side September 8, 2017 June 21, 2018

Orange142, LLC 100% Buy-side March 6, 2013 September 30, 2020

Huddled Masses, LLC 100% Buy-side November 13, 2012 June 21, 2018

Direct Digital Holdings, LLC (1)

June 21, 2018

August 26, 2021

Huddled Masses, LLC

November 13, 2012

June 21, 2018

Colossus Media, LLC

September 8, 2017

June 21, 2018

Orange142, LLC

March 6, 2013

September 30, 2020

Both buy-side advertising businesses, Huddled Masses and Orange142, offer technology-enabled advertising solutions and consulting services to clients through multiple leading demand side platforms (“DSPs”).

Colossus Media is our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP™ (“Colossus SSP”).

Colossus SSP is a stand-alone tech-enabled, data-driven sell-side platform (“SSP”) that helps deliver targeted advertising to diverse and multicultural audiences, including African Americans, Latin Americans, Asian Americans and LGBTQIA+ customers, as well as other specific audiences.

Providing both the front-end, buy-side advertising businesses coupled with our proprietary sell-side business, enables us to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and assessing performance.

Our chief operating decision maker is our Chairman and Chief Executive Officer.

We view our business as two reportable segments, buy-side advertising, which includes the results of Huddled Masses and Orange142, and sell-side advertising, which includes the results of Colossus Media.

N/A June 21, 2018 February 15, 2022

(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.

See further discussion of the Up-C structure in Note 6 of our condensed consolidated financial statements.

Colossus Media operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP™ (“Colossus SSP”).

Colossus SSP is a stand-alone sell-side platform ("SSP") intended to deliver targeted advertising to diverse and multicultural audiences as well as to general audiences, including African Americans, Latin Americans, Asian Americans and LGBTQIA+ customers, as well as general audiences.

Both buy-side advertising businesses, Orange 142 and Huddled Masses, offer technology-enabled advertising solutions and consulting services to clients through demand side platforms (“DSPs”).

Providing both the front-end, buy-side advertising businesses coupled with our proprietary sell-side operations enables us to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results.

Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by our chief operating decision maker (“CODM”) for purpose of allocating resources and assessing performance.

Our CODM is our Chairman and Chief Executive Officer.

We operate as two reportable segments:

sell-side advertising, which includes the results of Colossus Media, and buy-side advertising, which includes the results of Orange 142 and Huddled Masses.

All our revenues are attributable to the United States.

Recent Developments

Nasdaq Rule Noncompliance.

On April 17, 2024, May 21, 2024 and August 21, 2024, we received notices from the Listing Qualifications Department of Nasdaq regarding the Company’s failure to timely file its Annual Report on Form 10-K for the year ended December 31, 2023, its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, respectively, with the SEC.

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.

Restatement of 2023 Quarterly Financial Information.

On October 14, 2024, the Company's management and the audit committee of the Company’s Board of Directors determined that interim financial statements (collectively, the “Prior Period Financial Statements”) as of the periods ended March 31, 2023, June 30, 2023 and September 30, 2023, and for the three months ended March 31, 2023, the three and six months ended June 30, 2023 and the three and nine months ended September 30, 2023, could no longer be relied upon.

During the preparation of Company’s consolidated financial statements as of and for the year ended December 31, 2023, the Company identified prior-period accounting errors resulting from the incorrect (1) accounting for, and presentation of, noncontrolling interests ("NCI"), (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI and (4) timing of the recording of the 2023 redemption of warrants.

As a result, on October 14, 2024, the Audit Committee, in consultation with management, determined that the Prior Period Financial Statements could no longer be relied upon and the Company included a restatement of the Prior Period Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2023 it filed on October 15, 2024.

Relationship with Sell-Side Customer.

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 while the allegations were investigated.

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

The Company is actively working with its partners to achieve prior volume levels.

On May 14, 2024, the Company filed a

lawsuit against the author of the defamatory article and is vigorously pursuing its rights.

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

Key Factors Affecting Our Performance

We believe our growth and financial performance are dependent on many factors, including those described below.

Buy-side advertising business

New Customer Acquisitions

On the buy-side of our business, our customers consist of purchasers of programmatic advertising inventory (ad space) looking to place their advertisements.

We serve the needs of approximately 228 small and mid-sized clients annually, consisting of advertising space buyers, including small and mid-sized companies, large advertising holding companies (which may manage several agencies), independent advertising agencies and mid-market advertising service organizations.

We serve a variety of customers across multiple industries including travel/tourism (including destination marketing organizations (“DMOs”)), energy, consumer packaged goods, healthcare, education, financial services (including cryptocurrency technologies) and other industries.

We are focused on increasing the number of customers that use our buy-side advertising businesses as their advertising partner.

Our long-term growth and results of operations will depend on our ability to attract more customers, including DMOs, across multiple geographies.

Expand Sales to Existing Customers

Our customers understand the independent nature of our platform and our relentless focus on driving results based on return on investment (“ROI”).

Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out.

We are technology, DSP and media agnostic, and we believe our clients trust us to provide the best opportunity for success of their brands and businesses.

As a result, our clients have been loyal, with approximately 90% client retention amongst the clients that represent approximately 80% of our revenue on an annual basis during the nine months ended September 30, 2023.

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.

Shift to Digital Advertising

Media has increasingly become more digital as a result of three key ongoing developments:

● Advances in technology with more sophisticated digital content delivery across multiple platforms;

● Changes in consumer behavior, including spending longer portions of the day using mobile and other devices;

● Better audience segmentation with more efficient targeting and measurable results.

The resulting shift has enabled a variety of options for advertisers to efficiently target and measure their advertising campaigns across nearly every media channel and device.

These efforts have been led by big-budgeted, large, multi-national corporations incentivized to cast a broad advertising net to support national brands.

Increased Adoption of Digital Advertising by Small-and Mid-Sized Companies

Only recently have small and mid-sized businesses begun to leverage the power of digital media in meaningful ways, as emerging technologies have enabled advertising across multiple channels in a highly localized nature.

Campaign efficiencies yielding measurable results and higher advertising ROI, as well as the needs necessitated by the COVID-19 pandemic, have prompted these companies to begin utilizing digital advertising on an accelerated pace.

We believe this market is rapidly expanding, and that small-to-mid-sized advertisers will continue to increase their digital spend.

In general, the advertising industry experiences seasonal trends that affect the vast majority of participants in the digital marketing ecosystem.

Our buy-side advertising revenue is weighted to DMOs and historically, marketing spend is higher in the second and third quarters of our fiscal year with the increase in marketing spend taking place over the summer months.

As a result, the fourth and first quarters tend to reflect lower activity levels and lower revenue.

We generally expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect our operating results.

Sell-side advertising business

Increasing revenue from publishers and advertising spend from buyers

Increasing revenue from customers through increased advertising spend from buyers

Colossus Media operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP.

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

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

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.

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

To take advantage of this industry shift, we have entered into Supply Path Optimization agreements directly with buyers.

To take advantage of this industry shift, we have entered into Supply Path Optimization agreements directly with customers which address acceptable advertisements and data usage.

As part of these agreements, we provide advertisers and agencies with benefits ranging from custom data and workflow integrations, product features, volume-based business terms, and visibility into campaign performance data and methodology.

As a result of these direct relationships, our existing advertisers and agencies are incentivized to allocate an increasing percentage of their advertising budgets to our platform.

We have broad exposure to the ecosystem of buyers, which has generally increased since the formation of Colossus Media in September 2017.

Our growing sales team seeks to increase our business with the addition of new and existing publishers as well as by increasing our universe of buyers.

In addition, establishing multiple header bidding integrations by leveraging our technology capabilities allows us to maximize our access to publishers’ ad formats, devices and various properties that a publisher may own.

We may also up-sell additional products to publisher customers including our header bidding management, identity, and audience solutions.

Our business strategy on the sell-side advertising business represents growth potential, and we believe we are well positioned to be able to bring underserved multicultural publishers into the advertising ecosystem, thereby increasing our value proposition across all clients, including our large clients.

We also strive to retain existing publishers and add new publishers.

Establishing multiple header bidding integrations by leveraging our technology capabilities allows us to maximize our access to publishers’ ad formats, devices and various properties that a publisher may own.

We may also up-sell additional products including our header bidding management, identity, and audience solutions.

We enter into master service agreements with our publishers which, among other terms, set a fixed rate for content to be sold on Colossus SSP.

Our strategy on the sell-side advertising business represents growth potential, and we believe we are well positioned to be able to bring underserved multicultural publishers into the advertising ecosystem, thereby increasing our value proposition across all customers, including large advertisers and agencies.

Monetizing ad impressions for publishers and buyers

We curate advertisers and increase access to publishers with valuable ad impressions.

We focus on monetizing digital impressions by coordinating daily real-time auctions and bids.

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

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

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

Through our platform design and proactive IVT mitigation efforts, we address and minimize IVT on a number of fronts, including sophisticated technology, which detects and avoids IVT on the front end;

direct publisher and inventory relationships, for supply path optimization;

2 unchanged sentences

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.

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.

Expanding and managing investments

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We automate workflow processes whenever feasible to drive predictable and value-added outcomes for our customers and increase productivity of our organization.

In the first quarter of 2023, we transitioned our server platform to HPE Greenlake, which provides increased capacity, faster response time, and expansion capabilities to align with growth in our business.

In the first half of 2023, we transitioned our server platform to HPE Greenlake, which provides increased capacity, faster response time, and expansion capabilities to align with growth in our business.

Managing industry dynamics

6 unchanged sentences

Our performance depends on our ability to keep pace with industry changes such as header bidding and the evolving needs of our publishers and buyers while continuing our cost efficiency.

In general, the advertising industry experiences seasonal trends that affect the vast majority of participants in the digital marketing ecosystem.

In our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing.

As a result, the first quarter tends to reflect lower activity levels and lower revenue.

We generally expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect our operating results.

In the advertising industry, companies commonly experience seasonal fluctuations in revenue.

For example, in our sell-side advertising segment, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing.

We expect our sell-side revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Buy-side advertising business

New Customer Acquisitions

On the buy-side of our business, our customers consist of purchasers of programmatic advertising inventory (ad space) looking to place their advertisements.

We serve the needs of over 215 small and mid-sized clients, consisting of advertising space buyers, including small and mid-sized companies, large advertising holding companies (which may manage several agencies), independent advertising agencies and mid-market advertising service organizations.

We serve a variety of customers across multiple industries including travel/tourism (including destination marketing organizations (“DMOs”)), education, energy, consumer packaged goods, healthcare, financial services (including cryptocurrency technologies) and other industries.

We are focused on increasing the number of customers that use our buy-side advertising businesses as their advertising partner.

Our long-term growth and results of operations will depend on our ability to attract more customers, including DMOs, across multiple geographies.

Expand Sales to Existing Customers

Our customers understand the independent nature of our platform and relentless focus on driving results based on return on investment (“ROI”).

Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out.

We are technology, 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.

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

Shift to Digital Advertising

Media has increasingly become more digital as a result of three key ongoing developments:

• Advances in technology with more sophisticated digital content delivery across multiple platforms;

• Changes in consumer behavior, including spending longer portions of the day using mobile and other devices;

• Better audience segmentation with more efficient targeting and measurable results.

The resulting shift has enabled a variety of options for advertisers to efficiently target and measure their advertising campaigns across nearly every media channel and device.

These efforts have been led by big-budgeted, large, multi-national corporations incentivized to cast a broad advertising net to support national brands.

Increased Adoption of Digital Advertising by Small-and Mid-Sized Companies

Campaign efficiencies yielding measurable results and higher advertising ROI have prompted these companies to begin utilizing digital advertising on an accelerated pace.

We believe this market is rapidly expanding, and that small-to-mid-sized advertisers will continue to increase their digital spend.

In the advertising industry, companies commonly experience seasonal fluctuations in revenue.

Historically, for our buy-side advertising segment, the second and third quarters of the year reflect our highest levels of advertising activity and the first quarter reflects the lowest level of such activity.

We expect our buy-side revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Components of Our Results of Operations

On the buy-side advertising segment, we generate revenue from clients that enter into agreements with us to provide digital marketing and media services to purchase digital advertising space, data, and other add-on features.

On the sell-side advertising segment, we generate revenue from publishing clients by selling their advertising inventory to national and local advertisers.

We report revenue on a gross basis inclusive of all supplier costs because we bear the full obligation of any costs to provide our services.

For the sell-side advertising segment, we generate revenue by selling advertising inventory (digital ad units) that we purchase from publishers to advertisers through a process of monetizing ad impressions on our proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP.

For the buy-side advertising segment, we generate revenue from customers that enter into agreements with us to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features.

In connection with our analysis of principal vs agent considerations, we have evaluated the specified goods or services and we considered whether we control the goods or services before they are provided to the customer including the three indicators of control.

Based upon this analysis and our specific facts and circumstances, we concluded that we are a principal for the goods or services sold through both our sell-side advertising segment and our buy-side segment because we control the specified good or service before it is transferred to the customer and we are the primary obligor in the agreement with the customer.

Therefore, we report revenue on a gross basis inclusive of all supplier costs.

We pay suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.

Our revenue recognition policies are discussed in more detail under “—Critical Accounting Policies and Estimates.”

Our revenue recognition policies are discussed in more detail under “ —Critical Accounting Estimates and Related Policies .”

Cost of revenues

Cost of revenues for our buy-side advertising segment consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to our customers.

For the sell-side advertising segment, we pay publishers a fee, which is typically a percentage of the value of the ad impressions monetized through our platform.

Cost of revenues consists

primarily of publisher media fees and data center co-location costs.

For cost of revenues for our sell-side advertising segment, we pay publishers a fee, which is typically a percentage of the value of the ad impressions monetized through our platform.

Cost of revenues consists primarily of publisher media fees and data center co-location costs.

Media fees include the publishing and real time bidding costs to secure advertising space.

For the buy-side advertising segment, cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to our customers.

Operating expenses

Operating expenses consist of compensation expenses related to our executive, sales, finance, and administrative personnel (including salaries, commissions, bonuses, stock-based compensation, benefits, and taxes), general and administrative expenses for rent expense, professional fees, independent contractor costs, selling and marketing fees, and administrative and operating system subscription costs, insurance, as well as amortization expense related to our intangible assets.

Other income (expense)

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);

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

Other expense, net

Other income.

1 unchanged sentence

Interest expense.

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

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

Contingent loss on early termination of line of credit.

Interest expense is mainly related to our debt as further described below in “ —Liquidity and Capital Resources.

Loss on early termination of line of credit.

In January 2023, we entered into a Loan and Security Agreement (the “Loan Agreement”), by and among Silicon Valley Bank (“SVB”), which provided for a revolving credit facility (the “Credit Facility”).

In March 2023, we issued a notice of termination and recognized a loss on the write-off of the deferred financing fees.

Loss on early redemption of non-participating preferred units.

In February 2022, we redeemed the non-participating Class B Preferred Units and recognized a loss on the redemption of $590,689 in connection with the write-off of the fair value associated with the units.

Results of Operations

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

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

Comparison of the Three and Six Months Ended June 30, 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.

For the Three Months Ended

For the Nine Months Ended

September 30,

Buy-side advertising

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

2024 2023 Amount % 2024 2023 Amount %

Sell-side advertising $ 14,298 $ 23,601 $ (9,303) (39) % $ 30,799 $ 37,384 $ (6,585) (18) %

Buy-side advertising 7,557 11,803 (4,246) (36) % 13,331 19,243 (5,912) (31) %

Total revenues 21,855 35,404 (13,549) (38) % 44,130 56,627 (12,497) (22) %

Cost of revenues

Buy-side advertising

Sell-side advertising 13,209 20,743 (7,534) (36) % 28,016 32,584 (4,568) (14) %

Buy-side advertising 2,715 4,588 (1,873) (41) % 5,185 7,537 (2,352) (31) %

Total cost of revenues 15,924 25,331 (9,407) (37) % 33,201 40,121 (6,920) (17) %

Gross profit 5,931 10,073 (4,142) (41) % 10,929 16,506 (5,577) (34) %

Operating expenses 7,996 7,818 178 2 % 15,802 14,392 1,410 10 %

Income from operations

Other expense

Income before taxes

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

Other expense, net (1,350) (986) (364) (8) % (2,563) (2,253) (310) (8) %

Loss before income taxes (3,415) 1,269 (4,684) (369) % (7,436) (139) (7,297) 5250 %

Income tax benefit (274) 74 (348) (470) % (475) — (475) 100 %

Net loss $ (3,141) $ 1,195 $ (4,336) (363) % $ (6,961) $ (139) $ (6,822) 4908 %

Adjusted EBITDA (1)

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

$ (1,343) $ 3,061 $ (4,404) (144) % $ (3,005) $ 3,608 $ (6,613) (183) %

_______________________________________________________

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Cost of revenues

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Operating expenses

The following table sets forth the components of operating expenses for the periods presented.

For the Three Months Ended

For the Nine Months Ended

September 30,

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 %

Compensation, tax and benefits $ 4,166 $ 4,553 $ (387) (8) % $ 8,690 $ 8,187 $ 503 6 %

2 unchanged sentences

Compensation, taxes and benefits

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

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

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

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

In connection with our IPO, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to our employees, consultants and non-employee directors.

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

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

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

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.

General and administrative expenses

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

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

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

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

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

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

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

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

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

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

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

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

Other income (expense)

The following table sets forth the components of other income (expense) for the periods presented.

For the Three Months Ended

For the Nine Months Ended

September 30,

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.

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

The following table sets forth the components of other expense, net for the periods presented (in thousands).

Three Months Ended

June 30, Change Six Months Ended June 30, Change

2024 2023 Amount % 2024 2023 Amount %

Interest expense $ (1,358) $ (1,028) $ (330) 32 % $ (2,655) $ (2,045) $ (610) 30 %

Contingent loss on early termination of line of credit

Loss on early redemption of non-participating preferred units

Forgiveness of Paycheck Protection Program loan

Total other expense

Other income 8 42 (34) (81) % 92 92 — — %

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

Total other expense, net $ (1,350) $ (986) $ (364) 37 % $ (2,563) $ (2,253) $ (310) 14 %

nm – not meaningful

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

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

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

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

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

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

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.

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.

Liquidity and Capital Resources

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

September 30, 2023

December 31, 2022

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.

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

The Company is actively working with its partners to achieve prior volume levels.

However, there can be no assurance that the Company will be able to achieve prior volume levels with its partners or on the timing of achieving such volume levels.

Additionally, the Company (1) incurred a net loss of $6.8 million in 2023 primarily related to payments made to a few publishers of $8.8 million associated with a disputed short payment from a customer 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.

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.

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

Cash and cash equivalents $ 1,069 $ 5,116

Working capital $ 5,140 $ 3,280

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

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

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

Based on our expectations of continued growth in revenue and cash generated from operations in the coming year, the available cash held by us, and the amounts we may borrow under the Credit Agreement executed in July 2023, we believe that we will have sufficient cash resources to finance our operations and service any maturing debt for at least the next twelve months following the issuance of this Quarterly Report on Form 10-Q.

To fund our operations and service our debt thereafter, depending on our growth and results of operations, we may have to raise additional capital through the issuance of additional equity and/or debt, which could have the effect of diluting our stockholders.

Any equity or debt financings, if available at all, may be on terms which are not favorable to us.

As our debt or credit facilities become due, we will need to repay, extend or replace such indebtedness.

Availability under Credit Agreement $ 300 $ 7,000

To fund our operations and service our debt thereafter and depending on our growth and results of operations, we may raise additional capital through the issuance of additional equity and/or debt, which could have the effect of diluting our stockholders.

Any future equity or debt financings may be on terms which are not favorable to us.

As our credit facilities become due, we will need to repay, extend or replace such indebtedness.

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

2023 Credit Facility

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

Loans under the 2023 Credit Facility mature on July 7, 2025 (the “Maturity Date”), unless the 2023 Credit Facility is otherwise terminated pursuant to the terms of the Credit Agreement.

Borrowings under the 2023 Credit Facility bear interest at a rate per annum equal to the one-month Term Secured Overnight Financing Rate, as administered by the CME Group Benchmark Administration Limited (“CBA”) (or a successor administrator of the secured overnight financing rate) and displayed by Bloomberg LP (or any successor thereto, or replacement thereof, as approved by EWB) and as determined by EWB on the first day of the applicable interest period, plus 0.10% (10 basis points), plus 3.00% per annum (the “Loan Rate”);

provided, that, in no event shall the Loan Rate be less than 0.50% of the Loan Rate effective as of the date of the Credit Agreement nor more than the maximum rate of interest allowed under applicable law.

Upon an event of default under the Credit Agreement, the outstanding principal amounts of any advances will accrue interest at a rate per annum equal to the Loan Rate plus five percent (5%), but in no event in excess of the maximum rate of interest allowed under applicable law.

At the Company’s option, the Company may at any time prepay the outstanding principal balance of the 2023 Credit Facility in whole or in part, without fee, penalty or premium.

All accrued but unpaid interest on outstanding advances under the Credit Agreement is payable in monthly installments on the last day of each monthly interest period until the Maturity Date when the then-outstanding principal balance of the advances and all accrued but unpaid interest thereon becomes due and payable.

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

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

(i) a fixed charge coverage ratio of not less than 1.25 to 1.0, beginning with the fiscal quarter ended on June 30, 2023 and at the end of each fiscal quarter thereafter;

(ii) a total funded debt-to-EBITDA ratio of 3.50 to 1.00 as of the last day of each fiscal quarter from June 30, 2023 through December 31, 2023, 3.25 to 1.00 as of the last day of each fiscal quarter from March 31, 2024 through March 31, 2025 and 3.00 to 1.00 as of the last day of each fiscal quarter from June 30, 2025 and thereafter;

and (iii) a liquidity covenant requiring the Company and the other borrowers to maintain minimum liquid assets at all times (calculated using unencumbered cash and cash equivalents and marketable securities), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $1,000,000.

Revolving Credit Availability is defined as an amount such that the ratio of the value of eligible accounts to the aggregate amount of all outstanding advances under the credit agreement at such time is not less than 2.0 to 1.0.

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

The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports and maintain insurance coverage.

The negative covenants include, among others, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods.

The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers.

2021 Credit Facility

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

The term loan under the 2021 Credit Facility provides for a term loan in the principal amount of up to $32.0 million, consisting of a $22.0 million closing date term loan and an up to $10.0 million delayed draw term loan (the “Delayed Draw Loan”).

The loans under the 2021 Credit Facility bear interest at a rate per annum equal to LIBOR plus the applicable margin minus any applicable impact discount.

The applicable margin under the 2021 Credit Facility as amended by the Term Loan Amendment (as defined below) is determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 7.00% per annum if the consolidated total net leverage ratio is less than 1.00 to 1.00 and up to 10.00% per annum if the consolidated total net leverage ratio is greater than 3.50 to

The applicable impact discount under the 2021 Credit Facility is a discount of 0.05% per annum based upon DDH LLC’s participation in each of certain services intended to improve overall employee satisfaction and retention plus an additional discount of 0.05% per annum to the extent that DDH LLC maintains a B Corp certification by Standards Analysts at the non-profit B Lab (or a successor certification or administrator).

On June 1, 2023, the Company entered into an agreement with Lafayette Square to convert the existing LIBOR-based rate to a Term SOFR Rate with a credit spread of 0.15% per annum for the interest periods of three months and provides for a credit spread adjustment of 0.10%, 0.15% or 0.25% per annum for interest periods of one month, three months or six months, respectively.

The maturity date of the 2021 Credit Facility is December 3, 2026.

On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement (the “Term Loan Amendment”) and received proceeds of $4,260,000 borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction.

Pursuant to the Term Loan Amendment, DDH LLC will indemnify the Company from and against any claims, losses, expenses and other liabilities incurred by the Company arising from the Company’s guarantor obligations under the 2021 Credit Facility and related term loan documents.

The Delayed Draw Loan is required to be repaid in quarterly installments payable on the last day of each fiscal quarter in an amount equal to (i) commencing with the fiscal quarter ending December 31, 2022 through and including the fiscal quarter ending December 31, 2023, $26,250, and (ii) commencing March 31, 2024 and continuing on the last day of each fiscal quarter thereafter, $52,500, with a final installment due December 3, 2026 in an amount equal to the remaining entire principal balance thereof.

After giving effect to the Delayed Draw Loan on the effective date of the Term Loan Amendment, no additional delayed draw loans will be available under the 2021 Credit Facility.

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

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

The 2021 Credit Facility contains affirmative and negative covenants that, among other things, require the Company to maintain a net leverage ratio of no more than 3.50 to 1.00 as of the last day of each fiscal quarter through December 31, 2023, as adjusted thereafter, and a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries.

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

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

Consolidated Statement of Cash Flow Data:

For the Nine Months Ended September 30,

Net cash provided by operating activities

Credit Facilities

The terms and conditions of the various credit facilities we entered into are further described in Note 3 – Long-Term Debt in the notes to the condensed consolidated financial statements.

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,

Net cash (used in) provided by operating activities $ (10,111) $ 3,054

Net cash used in investing activities (10) (137)

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash Flows Provided by Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our customers and related payments to our buyers and suppliers of advertising media and data.

Cash flows from operating activities have been affected by changes in our working capital, particularly changes in accounts receivable, accounts payable and accrued liabilities.

The timing of cash receipts from customers and payments to suppliers can significantly impact our cash flows from operating activities.

We typically pay suppliers in advance of collections from our customers, but our collection and payment cycles can vary from period to period.

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

For the Nine Months Ended September 30, 2023 and 2022

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

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

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

Cash Flows Used in Investing Activities

For the Nine Months Ended September 30, 2023 and 2022

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

Cash Flows Used in Financing Activities

For the Nine Months Ended September 30, 2023 and 2022

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

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

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

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

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

for approximately $14.2 million.

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

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

Net cash provided by (used in) financing activities 6,074 (1,296)

Net (decrease) increase in cash and cash equivalents $ (4,047) $ 1,621

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.

Operating Activities

For the Six Months Ended June 30, 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.

Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $1.5 million and stock-based compensation expense of $0.7 million partially offset by $0.5 million of deferred tax benefit.

The $4.9 million decrease in cash resulting from changes in working capital primarily consisted of a $21.6 million decrease in accounts payable and a $1.2 million decrease in accrued expenses such as payroll and payroll related expenses partially offset by a $17.7 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.

Adjustments for non-cash and non-operating items primarily consisted of depreciation and amortization expense of $1.4 million, stock-based compensation expense of $0.3 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.

Investing Activities

For the Six Months Ended June 30, 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.

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.

Contractual Obligations and Future Cash Requirements

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

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

These leases will require minimum payments of $37,251 in 2023, $110,215 in 2024, $156,077 in 2025, $159,755 in 2026, $163,474 in 2027 and $366,830 thereafter.

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

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

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.

We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $1.1 million in 2024, $11.2 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 $0.1 million in 2024, $0.3 million in 2025, $0.3 million in 2026, $0.3 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.

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.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S.

generally accepted accounting principles (“GAAP”), including, in particular operating income, net cash provided by operating activities, and net income, we believe that earnings before interest, taxes, depreciation and amortization, as adjusted for contingent loss on early termination of line of credit, loss on early redemption of non-participating preferred units, stock-based compensation and forgiveness of PPP loan (“Adjusted EBITDA”), a non-GAAP measure, is useful in evaluating our operating performance.

generally accepted accounting principles (“GAAP”), including, in particular operating income, net cash provided by operating activities, and net income, we believe that earnings before interest, taxes, depreciation and amortization, as adjusted for loss on early termination of line of credit and stock-based compensation (“Adjusted EBITDA”), a non-GAAP measure, is useful in evaluating our operating performance.

The most directly comparable GAAP measure to Adjusted EBITDA is net income.

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

The following table presents a reconciliation of Adjusted EBITDA to net loss for each of the periods presented (in thousands):

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

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

Add back (deduct):

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Stock-based compensation 158 210 662 304

Depreciation and amortization of capitalized software, property and equipment

Contingent loss on early termination of line of credit

Forgiveness of PPP loan

Loss on early redemption of non-participating preferred units

Depreciation and amortization of property, equipment and software 68 65 137 121

Loss on early termination of line of credit — — — 300

Income tax benefit (274) 74 (475) —

Adjusted EBITDA $ (1,343) $ 3,061 $ (3,005) $ 3,608

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We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

● Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, and certain one-time items such as acquisition transaction costs and gains from settlements or loan forgiveness that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

• Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, revaluation of tax receivable agreement liability, and certain one-time items such as acquisition transaction costs, losses from early termination or redemption of credit agreements or preferred units and gains from settlements or loan forgiveness that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

• Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance;

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Our use of this non-GAAP financial measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP.

Critical Accounting Policies and Estimates

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

Critical Accounting Estimates and Related Policies

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from these estimates.

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

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.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

See Note 2 to our condensed consolidated financial statements for accounting pronouncements recently adopted and accounting pronouncements not yet adopted.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis