Exhibit 99.1 Direct Digital Holdings Reports Q3 2024 Financial Results Company Launches Colossus Connections to Accelerate Direct Integration Ef orts with Leading Demand-Side Platforms New Unified Buy-Side Operating Structure Creates Additional Business Lines and Revenue Opportunities Company to Host Conference Call at 5:00 PM ET Today Houston, November 12, 2024 -- Direct Digital Holdings, Inc. (Nasdaq: DRCT) ("Direct Digital Holdings" or the "Company"), a leading advertising and marketing technology platfo ...

Company Launches Colossus Connections to Accelerate Direct Integration Efforts with Leading Demand-Side Platforms New Unified Buy-Side Operating Structure Creates Additional Business Lines and Revenue Opportunities Company to Host Conference Call at 5:00 PM ET Today HOUSTON, Nov. 12, 2024 /PRNewswire/ -- Direct Digital Holdings, Inc. (Nasdaq: DRCT) ("Direct Digital Holdings" or the "Company"), a leading advertising and marketing technology platform operating through its companies Colossus Media, LLC ("Colos ...

Core Insights - Direct Digital Holdings, Inc. will report its financial results for Q3 of fiscal year 2024 on November 12, 2024, after the U.S. stock market closes [1] - A conference call and webcast will be held on the same day at 5:00 PM ET to discuss the results, accessible via their investor relations website [2] Company Overview - Direct Digital Holdings operates as a leading advertising and marketing technology platform, encompassing sell-side and buy-side advertising solutions through its subsidiaries Colossus Media, LLC and Orange 142, LLC [3] - The sell-side platform, Colossus SSP, provides extensive reach for advertisers across general and multicultural media properties [3] - The buy-side platform, Orange 142, focuses on delivering significant ROI for middle-market advertisers through data-optimized programmatic solutions across various sectors, including energy, healthcare, travel, and financial services [3] - Collectively, the company's platforms generate billions of impressions monthly across multiple media channels, including display, CTV, in-app, and others [3]

Core Viewpoint - Direct Digital Holdings has entered into a $20 million Equity Reserve Facility with New Circle Principal Investments to enhance its technology and strategic capabilities, aiming to create growth opportunities and increase shareholder value [1][3]. Group 1: Financial Arrangement - The Equity Reserve Facility allows New Circle to purchase up to $20 million of Class A common stock over 36 months, with proceeds intended for general corporate purposes, including debt reduction and growth initiatives [1][3]. - The company anticipates using the proceeds to strengthen its balance sheet and drive key growth initiatives across its subsidiaries [1][2]. Group 2: Technological Advancements - Funding will support technological advancements for Colossus SSP, including the development of new segment-based products and direct integrations with leading demand-side platforms to optimize supply path efficiency [2]. - The company aims to bring underrepresented publishers into the programmatic ecosystem, enhancing inventory availability [2]. Group 3: Demand-Side Growth - The funding will facilitate the unification of the advertising consultancy groups, Orange142 and Huddled Masses, enabling the delivery of new capabilities in navigating emerging technologies like AI and ML [3]. - The company plans to enhance its offerings in emerging channels such as connected TV, social media, and retail media [3]. Group 4: Company Overview - Direct Digital Holdings operates through its subsidiaries Colossus SSP, Huddled Masses, and Orange142, providing comprehensive advertising solutions across various media channels [8]. - The company generates billions of impressions monthly across display, CTV, in-app, and other media channels, targeting a wide range of sectors from energy to healthcare [8].

Core Viewpoint - Direct Digital Holdings has filed its 2023 Annual Report and the first two quarterly reports for 2024, aiming to regain compliance with Nasdaq listing rules and restore normal reporting cadence [1][2][3] Group 1: Company Actions and Challenges - The company faced challenges due to the unexpected resignation of its previous auditor and misinformation attacks that disrupted business operations and capital-raising efforts [3] - Actions taken to address these challenges include staff reductions, cost-saving measures, and engaging a new independent accounting firm, BDO, USA, P.C. [3][4] - The company is awaiting a formal compliance determination from Nasdaq after filing the necessary reports [2][4] Group 2: Financial Outlook - Direct Digital Holdings is currently unable to provide guidance for the full-year 2024 due to the challenges faced [5] - The company expects to regain compliance with Nasdaq, which will facilitate access to capital markets and financing sources [4] Group 3: Company Overview - Direct Digital Holdings operates through subsidiaries Colossus SSP, Huddled Masses, and Orange 142, providing advanced advertising solutions across various media channels [11] - The company generates billions of impressions per month, serving a diverse range of sectors including energy, healthcare, travel, and financial services [11]

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [ITEM 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's organization, accounting policies, debt, equity, tax agreements, segment performance, and commitments for the periods ended June 30, 2024, and December 31, 2023 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' deficit as of June 30, 2024, and December 31, 2023 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | | :-------------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $1,069 | $5,116 | | Accounts receivable, net | $19,517 | $37,207 | | Total current assets | $21,475 | $43,082 | | Total assets | $48,476 | $70,672 | | Accounts payable | $12,372 | $33,926 | | Total current liabilities | $16,335 | $39,802 | | Total liabilities | $57,248 | $74,354 | | Total stockholders' deficit | ($8,772) | ($3,682) | - Total assets decreased by **$22.196 million** from **$70.672 million** at December 31, 2023, to **$48.476 million** at June 30, 2024, primarily due to significant reductions in cash and accounts receivable[6](index=6&type=chunk) - Total stockholders' deficit worsened by **$5.090 million**, increasing from **($3.682) million** at December 31, 2023, to **($8.772) million** at June 30, 2024[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, presenting revenues, expenses, and net loss for the three and six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Operations (in thousands, except per-share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $21,855 | $35,404 | $44,130 | $56,627 | | Gross profit | $5,931 | $10,073 | $10,929 | $16,506 | | Total operating expenses | $7,996 | $7,818 | $15,802 | $14,392 | | (Loss) income from operations | ($2,065) | $2,255 | ($4,873) | $2,114 | | Net (loss) income attributable to Direct Digital Holdings, Inc. | ($590) | $192 | ($1,365) | ($22) | | Basic Net (loss) income per common share | ($0.16) | $0.03 | ($0.38) | ($0.01) | - Total revenues decreased by **38%** for the three months and **22%** for the six months ended June 30, 2024, compared to the same periods in 2023[7](index=7&type=chunk) - The company reported a net loss attributable to Direct Digital Holdings, Inc. of **($590) thousand** for the three months and **($1,365) thousand** for the six months ended June 30, 2024, a significant decline from net income of **$192 thousand** and net loss of **($22) thousand**, respectively, in the prior year[7](index=7&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Deficit) This section details the changes in the company's stockholders' deficit, reflecting the impact of net loss, stock-based compensation, and equity transactions for the period Condensed Consolidated Statements of Changes in Stockholders' Deficit (in thousands) | Metric (in thousands) | Balance, December 31, 2023 | Stock-based compensation | Warrants exercised | Stock options exercised | Issuance of stock in lieu of cash bonus | Net loss | Noncontrolling interest rebalancing | Balance, June 30, 2024 | | :------------------------------ | :------------------------- | :----------------------- | :----------------- | :---------------------- | :-------------------------------------- | :------- | :---------------------------------- | :--------------------- | | Class A Common Stock Amount | $3 | $0 | $0 | $0 | $0 | $0 | $0 | $4 | | Class B Common Stock Amount | $11 | $0 | $0 | $0 | $0 | $0 | $0 | $11 | | Additional paid-in capital | $3,067 | $662 | $215 | $82 | $912 | $0 | ($1,493) | $3,444 | | Accumulated Deficit | ($2,538) | $0 | $0 | $0 | $0 | ($1,365) | $0 | ($3,903) | | Noncontrolling Interest | ($4,225) | $0 | $0 | $0 | $0 | ($5,596) | $1,493 | ($8,328) | | Total Stockholders' Deficit | ($3,682) | $662 | $215 | $82 | $912 | ($6,961) | $0 | ($8,772) | - The total stockholders' deficit increased from **($3,682) thousand** at December 31, 2023, to **($8,772) thousand** at June 30, 2024, primarily driven by a net loss of **($6,961) thousand**[8](index=8&type=chunk) - Additional paid-in capital increased due to stock-based compensation, warrant exercises, stock option exercises, and issuance of stock in lieu of cash bonus, partially offset by noncontrolling interest rebalancing[8](index=8&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | ($10,111) | $3,054 | | Net cash used in investing activities | ($10) | ($137) | | Net cash provided by (used in) financing activities | $6,074 | ($1,296) | | Net (decrease) increase in cash and cash equivalents | ($4,047) | $1,621 | | Cash and cash equivalents, beginning of the period | $5,116 | $4,047 | | Cash and cash equivalents, end of the period | $1,069 | $5,668 | - Net cash used in operating activities was **($10,111) thousand** for the six months ended June 30, 2024, a significant decrease from **$3,054 thousand** provided in the prior year, primarily due to the net loss and changes in working capital[13](index=13&type=chunk) - Net cash provided by financing activities was **$6,074 thousand** for the six months ended June 30, 2024, mainly from proceeds from lines of credit and warrant exercises[13](index=13&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, debt, equity, and segment information [Note 1 — Organization and Description of Business](index=8&type=section&id=Note%201%20%E2%80%94%20Organization%20and%20Description%20of%20Business) This note describes Direct Digital Holdings, Inc.'s business as an end-to-end programmatic advertising platform and its corporate structure - Direct Digital Holdings, Inc. operates an end-to-end programmatic advertising platform, focusing on underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem[15](index=15&type=chunk) - The company is the holding company for Direct Digital Holdings, LLC, which includes Colossus Media, LLC (sell-side programmatic platform, Colossus SSP) and buy-side subsidiaries Huddled Masses, LLC and Orange142, LLC[15](index=15&type=chunk)[16](index=16&type=chunk) - Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, holding **100%** of voting interests and **25.8%** of economic interests as of June 30, 2024, through an 'Up-C' structure[15](index=15&type=chunk)[16](index=16&type=chunk) [Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies](index=8&type=section&id=Note%202%20%E2%80%94%20Basis%20of%20Presentation%20and%20Consolidation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the financial statement preparation basis, revenue recognition policies, and other significant accounting estimates and judgments - The condensed unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial reporting, and the company, as an emerging growth company, has elected the extended transition period for new accounting standards[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk) - Revenue is recognized on a gross basis for both sell-side and buy-side advertising segments, as the company acts as a principal, controlling the specified good or service before transfer to the customer[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - The company experiences seasonal fluctuations in revenue, with sell-side advertising typically seeing the largest portion of budgets in **Q4**, while buy-side advertising peaks in **Q2** and **Q3** and is lowest in **Q1**[25](index=25&type=chunk) - Goodwill (totaling **$6.5 million** from acquisitions) and intangible assets are assessed for impairment annually, with no impairment recognized during the six months ended June 30, 2024 and 2023[32](index=32&type=chunk)[35](index=35&type=chunk) - A valuation allowance of **$0.5 million** was recorded on deferred tax assets as of June 30, 2024, and December 31, 2023, due to uncertainty regarding realization[39](index=39&type=chunk)[40](index=40&type=chunk) - A significant concentration of credit risk exists with one sell-side customer accounting for **64%** of accounts receivable as of June 30, 2024, and **62%** of revenues for the six months ended June 30, 2024[42](index=42&type=chunk) [Note 3 — Long-Term Debt](index=15&type=section&id=Note%203%20%E2%80%94%20Long-Term%20Debt) This note details the company's long-term debt obligations, including credit facilities and their associated terms, covenants, and interest expenses Long-Term Debt (in thousands) | Long-Term Debt (in thousands) | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | 2021 Credit Facility | $28,221 | $28,594 | | Credit Agreement (EWB) | $9,700 | $3,000 | | Economic Injury Disaster Loan | $150 | $150 | | Total long-term debt | $38,071 | $31,744 | Interest Expense and Amortization of Deferred Financing Costs (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense – Lafayette Square | $981 | $890 | $1,955 | $1,769 | | Interest expense – East West Bank | $189 | $0 | $324 | $0 | | Amortization of deferred financing costs | $186 | $136 | $372 | $272 | | Total interest expense and amortization of deferred financing costs | $1,358 | $1,028 | $2,655 | $2,045 | - The Fifth Amendment to the 2021 Credit Facility (Lafayette Square) defers quarterly installment payments until **December 31, 2025**, and revises financial covenants, including minimum TTM EBITDA and liquidity requirements[66](index=66&type=chunk)[68](index=68&type=chunk) - The Third Amendment to the Credit Agreement (East West Bank) requires prepayments of **$1.0 million** upon execution, **$1.0 million** by **January 15, 2025**, and **$2.0 million** by **April 15, 2025**, and mandates filing a registration statement for an equity line of credit[73](index=73&type=chunk)[74](index=74&type=chunk) [Note 4 — Stockholders' Deficit and Stock-Based Compensation](index=19&type=section&id=Note%204%20%E2%80%94%20Stockholders'%20Deficit%20and%20Stock-Based%20Compensation) This note provides information on the company's stockholders' deficit, authorized and outstanding shares, and stock-based compensation expense - As of June 30, 2024, the company's total stockholders' deficit was **($8,772) thousand**[8](index=8&type=chunk) - The company is authorized to issue **160,000,000** shares of Class A Common Stock and **20,000,000** shares of Class B Common Stock. As of June 30, 2024, Direct Digital Management, LLC (DDM) held **10,868,000** shares of Class B Common Stock[83](index=83&type=chunk) Stock-Based Compensation Expense (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $662 | $304 | - Unrecognized stock-based compensation as of June 30, 2024, was **$0.3 million** for unvested stock options (weighted-average vesting period of **1.09 years**) and **$0.7 million** for unvested Restricted Stock Units (RSUs) (weighted-average vesting period of **1.13 years**)[91](index=91&type=chunk)[92](index=92&type=chunk) [Note 5 — Tax Receivable Agreement and Income Taxes](index=21&type=section&id=Note%205%20%E2%80%94%20Tax%20Receivable%20Agreement%20and%20Income%20Taxes) This note explains the Tax Receivable Agreement, deferred tax assets, valuation allowances, and the company's income tax expense and effective tax rates - The company has a Tax Receivable Agreement (TRA) with DDH LLC and DDM, obligating it to pay **85%** of net cash tax savings from certain tax benefits, while retaining **15%**[93](index=93&type=chunk) Tax Receivable Agreement and Deferred Tax Assets (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :---------------- | | TRA Liability (Total) | $5,242 | $5,242 | | Deferred tax asset, net | $6,607 | $6,132 | | Valuation allowance | $500 | $500 | Income Tax Expense (Benefit) and Effective Tax Rate (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense (benefit) | ($274) | $74 | ($475) | $0 | | Effective income tax rate | 8.0% | 5.8% | 6.4% | 0% | - The effective tax rates were lower than statutory rates primarily due to the company's partnership loss not subject to federal and state taxes under the Up-C structure[98](index=98&type=chunk) [Note 6 — Related Party Transactions](index=23&type=section&id=Note%206%20%E2%80%94%20Related%20Party%20Transactions) This note discloses transactions and balances with related parties, primarily concerning the Up-C structure and member receivables Related Party Receivable (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Net receivable from members | $1,737 | $1,737 | - The Up-C structure allows DDM to retain equity ownership in DDH LLC and realize tax benefits associated with owning interests in a pass-through entity, including potential liquidity through exchanges of LLC Units for Class A Common Stock[103](index=103&type=chunk) [Note 7 — Segment Information](index=23&type=section&id=Note%207%20%E2%80%94%20Segment%20Information) This note presents financial data segmented by the company's sell-side and buy-side advertising operations, including revenues, operating loss, and assets Revenue by Business Segment (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sell-side advertising | $14,298 | $23,601 | $30,799 | $37,384 | | Buy-side advertising | $7,557 | $11,803 | $13,331 | $19,243 | | Total revenues | $21,855 | $35,404 | $44,130 | $56,627 | Operating Loss by Business Segment (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sell-side advertising | $447 | $2,172 | $1,409 | $3,450 | | Buy-side advertising | $1,848 | $3,924 | $2,141 | $5,429 | | Corporate office expenses | ($4,360) | ($3,841) | ($8,423) | ($6,765) | | Total operating loss | ($2,065) | $2,255 | ($4,873) | $2,114 | Total Assets by Business Segment (in thousands) | Segment | June 30, 2024 | December 31, 2023 | | :---------------------- | :------------ | :---------------- | | Sell-side advertising | $15,302 | $34,354 | | Buy-side advertising | $22,560 | $22,539 | | Corporate office | $10,614 | $13,779 | | Total assets | $48,476 | $70,672 | [Note 8 — Net (Loss) Income Per Share](index=24&type=section&id=Note%208%20%E2%80%94%20Net%20(Loss)%20Income%20Per%20Share) This note details the calculation of basic and diluted net loss per common share, including the weighted-average shares outstanding Net (Loss) Income Per Common Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic Net (loss) income per common share | ($0.16) | $0.03 | ($0.38) | ($0.01) | | Diluted Net (loss) income per common share | ($0.16) | $0.03 | ($0.38) | ($0.01) | Weighted-Average Number of Shares of Common Stock Outstanding (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 3,701 | 2,921 | 3,604 | 2,912 | | Diluted | 3,701 | 3,113 | 3,604 | 2,912 | - Class B Common Stock (**10,868 thousand** shares), warrants, and unvested restricted stock units were excluded from diluted net loss per share calculations for the six months ended June 30, 2024, as their inclusion would have been anti-dilutive[111](index=111&type=chunk) [Note 9 — Commitments and Contingencies](index=25&type=section&id=Note%209%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the company's legal proceedings, including a class action lawsuit and a defamation lawsuit, and future operating lease obligations - The company is a defendant in a consolidated putative class action lawsuit alleging violations of federal securities laws related to alleged false or misleading disclosures[113](index=113&type=chunk) - A defamatory article/blog post in May 2024 led to a temporary pause in connection with a sell-side customer, impacting volumes. The customer reconnected on **May 22, 2024**, but volumes have not yet returned to prior levels. The company filed a lawsuit against the author[114](index=114&type=chunk) Future Operating Lease Payments (in thousands) | Year | Total Undiscounted Lease Payments | | :--------- | :-------------------------------- | | 2024 | $128 | | 2025 | $258 | | 2026 | $265 | | 2027 | $269 | | 2028 | $167 | | Thereafter | $200 | | Total | $1,287 | [Note 10 — Property, Equipment and Software, net](index=26&type=section&id=Note%2010%20%E2%80%94%20Property,%20Equipment%20and%20Software,%20net) This note provides details on the company's property, equipment, and software, including gross amounts, accumulated depreciation, and related expenses Property, Equipment and Software, Net (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :---------------- | | Property, equipment and software, gross | $895 | $886 | | Less: accumulated depreciation and amortization | ($424) | ($287) | | Total property, equipment and software, net | $471 | $599 | Depreciation and Amortization Expense (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total depreciation and amortization | $68 | $65 | $137 | $121 | [Note 11 — Intangible Assets, net](index=27&type=section&id=Note%2011%20%E2%80%94%20Intangible%20Assets,%20net) This note presents the company's intangible assets, such as customer lists and trademarks, along with their net book value and amortization schedules Intangible Assets, Net (in thousands) | Intangible Asset | June 30, 2024 | December 31, 2023 | | :------------------------ | :------------ | :---------------- | | Customer Lists | $8,143 | $8,794 | | Trademarks and tradenames | $2,188 | $2,363 | | Non-compete agreements | $376 | $527 | | Total intangible assets, net | $10,707 | $11,684 | Amortization Expense for Intangible Assets (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization expense | $500 | $500 | $1,000 | $1,000 | Future Amortization Expense for Intangible Assets (in thousands) | Year | Amount | | :--------- | :----- | | 2024 | $977 | | 2025 | $1,879 | | 2026 | $1,653 | | 2027 | $1,653 | | 2028 | $1,653 | | Thereafter | $2,892 | | Total | $10,707 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the three and six months ended June 30, 2024, covering performance drivers, revenue, expenses, liquidity, and going concern issues [Cautionary Note Regarding Forward-Looking Statements](index=28&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements that involve estimates and uncertainties, which could cause actual results to differ materially from projections[126](index=126&type=chunk) - Key risk factors include restrictions from credit facilities, substantial doubt about the company's ability to continue as a going concern, challenges in securing additional financing, Nasdaq listing compliance, high customer concentration, and operational issues[127](index=127&type=chunk)[128](index=128&type=chunk) [Overview](index=29&type=section&id=Overview) This section introduces Direct Digital Holdings, Inc. as an end-to-end programmatic advertising platform operating sell-side and buy-side segments - Direct Digital Holdings, Inc. operates an end-to-end, full-service programmatic advertising platform headquartered in Houston, Texas, specializing in advertising technology and data-driven campaign optimization for underserved and less efficient markets[130](index=130&type=chunk) - The company operates two reportable segments: sell-side advertising (Colossus Media/Colossus SSP) and buy-side advertising (Orange 142 and Huddled Masses), providing technology-enabled advertising solutions and consulting services[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) This section highlights recent events including Nasdaq non-compliance, financial restatements, and the impact of a defamatory article on sell-side volumes - The company received Nasdaq notices for failing to timely file its 2023 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for **Q1** and **Q2 2024**, but expects to regain compliance upon filing the current report[135](index=135&type=chunk) - Interim financial statements for **Q1, Q2, and Q3 2023** were restated due to accounting errors concerning noncontrolling interests, organizational transactions, EPS presentation, and the timing of 2023 warrant redemption[136](index=136&type=chunk) - A defamatory article in **May 2024** caused a key sell-side customer to temporarily pause its connection, impacting sell-side volumes. The customer reconnected, but volumes have not returned to prior levels, and the company has initiated a lawsuit against the author[137](index=137&type=chunk)[138](index=138&type=chunk) [Key Factors Affecting Our Performance](index=31&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) This section discusses the drivers of growth for both sell-side and buy-side advertising segments, including customer acquisition, impression monetization, and client retention - Sell-side advertising growth is driven by increasing revenue from customers through direct Supply Path Optimization agreements, reaching a broad ecosystem of buyers (**156,000** average monthly advertisers in **Q2 2024**, up **31% YoY**)[139](index=139&type=chunk) - The company focuses on monetizing digital impressions by coordinating real-time auctions and bids, ensuring ad inventory quality by mitigating invalid traffic (IVT) through technology and direct publisher relationships[141](index=141&type=chunk)[142](index=142&type=chunk) - Buy-side advertising growth relies on acquiring new small and mid-sized clients across various industries and expanding sales to existing customers, leveraging a high client retention rate (approximately **90%** for top **80%** revenue clients)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Both sell-side and buy-side segments experience seasonal revenue fluctuations, with **Q4** typically highest for sell-side and **Q2/Q3** highest for buy-side[147](index=147&type=chunk)[154](index=154&type=chunk) [Components of Our Results of Operations](index=33&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section explains the sources of revenue from sell-side and buy-side advertising and the composition of cost of revenues and operating expenses - Revenue is generated from sell-side advertising (selling ad inventory from publishers) and buy-side advertising (managed campaigns for purchasing digital ad space)[155](index=155&type=chunk) - The company reports revenue on a gross basis, inclusive of all supplier costs, as it acts as a principal in both sell-side and buy-side advertising segments[156](index=156&type=chunk) - Cost of revenues for sell-side includes publisher media fees and data center costs, while for buy-side, it includes digital media fees and third-party platform access fees. Operating expenses encompass compensation, general and administrative costs, and other net expenses[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenue, gross profit, operating expenses, and net loss for the current and prior periods Revenue Performance (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $21,855 | $35,404 | $44,130 | $56,627 | | Sell-side advertising revenue | $14,298 | $23,601 | $30,799 | $37,384 | | Buy-side advertising revenue | $7,557 | $11,803 | $13,331 | $19,243 | Profitability and Expenses (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | $5,931 | $10,073 | $10,929 | $16,506 | | Operating expenses | $7,996 | $7,818 | $15,802 | $14,392 | | Loss from operations | ($2,065) | $2,255 | ($4,873) | $2,114 | | Net loss | ($3,141) | $1,195 | ($6,961) | ($139) | - Sell-side advertising revenue decreased by **39%** for the three months and **18%** for the six months ended June 30, 2024, primarily due to a customer pausing its connection in **May 2024**, leading to a **27%** decrease in average monthly impressions sold[162](index=162&type=chunk)[163](index=163&type=chunk) - Interest expense increased by **32%** for the three months and **30%** for the six months ended June 30, 2024, due to additional net borrowings of **$12.6 million** under credit facilities and higher interest rates[179](index=179&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section addresses the company's financial liquidity, capital resources, going concern issues, and management's plans to improve its financial position - The company faces substantial doubt about its ability to continue as a going concern due to a **$7.0 million** net loss in **H1 2024**, a **$3.9 million** accumulated deficit, **$1.1 million** in cash, **$9.7 million** borrowed under the Credit Agreement, auditor resignation, and delayed SEC filings[55](index=55&type=chunk)[180](index=180&type=chunk) - Management's actions to address liquidity include staff reductions, hiring freezes, cost savings measures (effective **July 1, 2024**), working with lenders for debt covenant relief, raising capital, and regaining SEC filing compliance[56](index=56&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) Liquidity Metrics (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,069 | $5,116 | | Working capital | $5,140 | $3,280 | | Availability under Credit Agreement | $300 | $7,000 | - Net cash used in operating activities was **($10.1) million** for the six months ended June 30, 2024, primarily due to the net loss and a **$21.6 million** decrease in accounts payable, partially offset by a **$17.7 million** decrease in accounts receivable[185](index=185&type=chunk)[186](index=186&type=chunk) - Net cash provided by financing activities was **$6.1 million** for the six months ended June 30, 2024, mainly from **$6.7 million** in line of credit proceeds and **$0.2 million** from warrant exercises[189](index=189&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) This section presents Adjusted EBITDA as a non-GAAP financial measure used by management to assess operating performance and efficiency - The company uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance and operational efficiency, providing comparability with past performance and peer companies[191](index=191&type=chunk)[192](index=192&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | ($3,141) | $1,195 | ($6,961) | ($139) | | Adjusted EBITDA | ($1,343) | $3,061 | ($3,005) | $3,608 | [Critical Accounting Estimates and Related Policies](index=40&type=section&id=Critical%20Accounting%20Estimates%20and%20Related%20Policies) This section highlights the significant accounting estimates and assumptions made in preparing the financial statements and notes no material changes from the prior annual report - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses[194](index=194&type=chunk) - There have been no material changes to the critical accounting estimates and related policies compared to the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[194](index=194&type=chunk) [Recent Accounting Pronouncements](index=40&type=section&id=Recent%20Accounting%20Pronouncements) This section outlines recently issued accounting standards updates by the FASB, including those related to income tax disclosures and segment reporting - The FASB issued ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective for emerging growth companies for annual periods beginning after **December 15, 2025**[51](index=51&type=chunk) - The FASB issued ASU 2023-07, 'Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures,' effective for fiscal years beginning after **December 15, 2023**, and interim periods within fiscal years beginning after **December 15, 2024**[52](index=52&type=chunk)[53](index=53&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Direct Digital Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this quarterly report - As a 'smaller reporting company,' the registrant is not required to provide quantitative and qualitative disclosures about market risk[196](index=196&type=chunk) [ITEM 4. Controls and Procedures](index=41&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and internal controls over financial reporting, concluding they were not effective due to material weaknesses and outlining remediation plans [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports that the company's disclosure controls and procedures were deemed ineffective as of June 30, 2024, due to identified material weaknesses - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of **June 30, 2024**, due to identified material weaknesses[197](index=197&type=chunk) [Management's Annual Report on Internal Controls Over Financial Reporting](index=41&type=section&id=Management's%20Annual%20Report%20on%20Internal%20Controls%20Over%20Financial%20Reporting) This section states that management concluded the company's internal controls over financial reporting were ineffective due to material weaknesses, leading to prior financial statement restatements - Management concluded that the company's internal controls over financial reporting were not effective as of **June 30, 2024**[201](index=201&type=chunk) - Material weaknesses were identified in controls over journal entry processes, information technology general controls (ITGC), and the technical evaluation of accounting matters[202](index=202&type=chunk) - These material weaknesses resulted in prior-period accounting errors and the restatement of unaudited interim consolidated financial statements for **Q1, Q2, and Q3 2023**[202](index=202&type=chunk)[203](index=203&type=chunk) [Management's Plan to Remediate the Previously Reported Material Weaknesses](index=42&type=section&id=Management's%20Plan%20to%20Remediate%20the%20Previously%20Reported%20Material%20Weaknesses) This section outlines management's ongoing remediation efforts to address identified material weaknesses in internal controls, including engaging consultants and enhancing control designs - Management has implemented remediation steps, including engaging consultants to identify and test control designs over business processes and ITGC[204](index=204&type=chunk) - Remediation efforts include enhancing controls over segregation of duties in journal entry processes, access to IT program and change management, and the evaluation of technical accounting matters[204](index=204&type=chunk) - While remediation steps are in progress, the material weaknesses are not considered fully remediated until the improved controls have operated for a sufficient period and been tested for effectiveness[205](index=205&type=chunk) [Changes in Internal Controls Over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Controls%20Over%20Financial%20Reporting) This section confirms no other material changes in internal controls over financial reporting occurred during the period, apart from the identified weaknesses and remediation - No other material changes in internal controls over financial reporting occurred during the six months ended June 30, 2024, beyond the identified material weaknesses and remediation efforts[206](index=206&type=chunk) [Part II. Other Information](index=42&type=section&id=Part%20II.%20Other%20Information) This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [ITEM 1. Legal Proceedings](index=42&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is involved in a class action lawsuit and a defamation lawsuit, the latter impacting sell-side customer volumes, with management intending to vigorously defend all claims - The company is a defendant in a consolidated putative class action lawsuit alleging violations of federal securities laws related to alleged false or misleading disclosures[208](index=208&type=chunk) - The company filed a lawsuit against the author of a defamatory article/blog post from **May 2024**, which caused a temporary pause in connection with a sell-side customer and impacted volumes[209](index=209&type=chunk)[114](index=114&type=chunk) [ITEM 1A. Risk Factors](index=43&type=section&id=ITEM%201A.%20Risk%20Factors) This section states that risk factors are 'Not applicable' for this quarterly report, implying no new material changes from the annual report - Risk Factors are 'Not applicable'[210](index=210&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds from such sales during the period - There were no unregistered sales of equity securities or use of proceeds from such sales[210](index=210&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=43&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[211](index=211&type=chunk) [ITEM 4. Mine Safety Disclosures](index=43&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are 'Not applicable' - Mine Safety Disclosures are 'Not applicable'[211](index=211&type=chunk) [ITEM 5. Other Information](index=43&type=section&id=ITEM%205.%20Other%20Information) During the six months ended June 30, 2024, no director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the six months ended June 30, 2024[211](index=211&type=chunk) [ITEM 6. Exhibits](index=44&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and Inline XBRL documents - The report includes certifications from the CEO and CFO (Exhibits **31.1, 31.2, 32.1, 32.2**) and various Inline XBRL documents (Exhibits **101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104**)[213](index=213&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) The report is duly signed on behalf of Direct Digital Holdings, Inc. by Diana P. Diaz, Chief Financial Officer, on October 15, 2024 - The report was signed by Diana P. Diaz, Chief Financial Officer of Direct Digital Holdings, Inc., on **October 15, 2024**[215](index=215&type=chunk)

Part I. Financial Information This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Direct Digital Holdings, Inc. and its subsidiaries, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows for the three months ended March 31, 2024 and 2023. It also includes detailed notes explaining the company's organization, significant accounting policies, debt, equity, tax agreements, segment information, and commitments [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and stockholders' deficit at specific reporting dates Table: Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total Assets | $52,770 | $70,672 | | Total Liabilities | $58,560 | $74,354 | | Total Stockholders' Deficit | $(5,790) | $(3,682) | - Total assets decreased by **$17.9 million** (**25.3%**) from December 31, 2023, to March 31, 2024, primarily driven by a significant reduction in accounts receivable and cash[7](index=7&type=chunk) - Total liabilities decreased by **$15.8 million** (**21.3%**) over the same period, mainly due to a decrease in accounts payable and accrued liabilities[7](index=7&type=chunk) - Stockholders' deficit worsened by **$2.1 million**, increasing from **$(3,682) thousand** to **$(5,790) thousand**[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net loss over the reporting periods Table: Condensed Consolidated Statements of Operations (in thousands, except per-share) | Metric (in thousands, except per-share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total Revenues | $22,275 | $21,223 | | Sell-side advertising revenue | $16,500 | $13,783 | | Buy-side advertising revenue | $5,775 | $7,440 | | Total Cost of Revenues | $17,277 | $14,790 | | Gross Profit | $4,998 | $6,433 | | Loss from Operations | $(2,807) | $(141) | | Net Loss | $(3,819) | $(1,334) | | Net Loss Attributable to DDH, Inc. | $(775) | $(214) | | Basic Net Loss Per Common Share | $(0.22) | $(0.07) | | Diluted Net Loss Per Common Share | $(0.22) | $(0.07) | - Total revenues increased by **5%** year-over-year, driven by a **20%** increase in sell-side advertising revenue, partially offset by a **22%** decrease in buy-side advertising revenue[9](index=9&type=chunk) - Gross profit decreased by **22%** due to a higher increase in cost of revenues (**17%**) compared to revenue growth, leading to a lower gross margin[9](index=9&type=chunk) - Net loss significantly widened by **186%** from **$(1,334) thousand** in Q1 2023 to **$(3,819) thousand** in Q1 2024, primarily due to increased operating expenses and interest expense[9](index=9&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Deficit) This statement tracks changes in the company's equity components, including net loss and stock-based transactions Table: Condensed Consolidated Statements of Changes in Stockholders' Deficit (in thousands, except share data) | Metric (in thousands, except share data) | Balance, Dec 31, 2023 | Stock-based Compensation | Warrants Exercised | Stock Options Exercised | Issuance of Stock in lieu of cash bonus | Net Loss | Noncontrolling Interest Rebalancing | Balance, Mar 31, 2024 | | :--------------------------------------- | :-------------------- | :----------------------- | :----------------- | :---------------------- | :-------------------------------------- | :------- | :---------------------------------- | :-------------------- | | Class A Common Stock Amount | $3 | — | — | — | — | — | — | $4 | | Class B Common Stock Amount | $11 | — | — | — | — | — | — | $11 | | Additional Paid-in Capital | $3,067 | $504 | $215 | $79 | $913 | — | $(1,336) | $3,441 | | Accumulated Deficit | $(2,538) | — | — | — | — | $(775) | — | $(3,313) | | Noncontrolling Interest | $(4,225) | — | — | — | — | $(3,044) | $1,336 | $(5,933) | | Total Stockholders' Deficit | $(3,682) | $504 | $215 | $79 | $913 | $(3,819) | — | $(5,790) | - The total stockholders' deficit increased from **$(3,682) thousand** at December 31, 2023, to **$(5,790) thousand** at March 31, 2024, primarily due to a net loss of **$(3,819) thousand**[10](index=10&type=chunk) - Additional paid-in capital increased by **$374 thousand**, driven by stock-based compensation, warrant exercises, stock option exercises, and stock issuance in lieu of cash bonuses, partially offset by noncontrolling interest rebalancing[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Table: Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net Cash (Used In) Provided By Operating Activities | $(5,704) | $3,100 | | Net Cash Used In Investing Activities | $0 | $(48) | | Net Cash Provided By (Used In) Financing Activities | $3,922 | $(380) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(1,782) | $2,672 | | Cash and Cash Equivalents, End of Period | $3,334 | $6,719 | - Operating activities used **$5.7 million** in cash in Q1 2024, a significant decrease from **$3.1 million** provided in Q1 2023, primarily due to a larger net loss and changes in working capital, including a substantial decrease in accounts payable[12](index=12&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - Financing activities provided **$3.9 million** in Q1 2024, mainly from proceeds from lines of credit and warrant exercises, contrasting with **$0.4 million** used in Q1 2023[12](index=12&type=chunk)[178](index=178&type=chunk) - Overall cash and cash equivalents decreased by **$1.8 million** in Q1 2024, resulting in an end-of-period balance of **$3.3 million**, down from **$6.7 million** in Q1 2023[12](index=12&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1 — Organization and Description of Business](index=7&type=section&id=Note%201%20%E2%80%94%20Organization%20and%20Description%20of%20Business) This note describes the company's business operations, organizational structure, and key subsidiaries - Direct Digital Holdings, Inc. operates an end-to-end programmatic advertising platform focusing on underserved markets, with subsidiaries Colossus Media (sell-side) and Orange142 and Huddled Masses (buy-side)[14](index=14&type=chunk)[16](index=16&type=chunk) - The company utilizes an 'Up-C' structure, where Direct Digital Holdings, Inc. is the sole managing member of DDH LLC, holding **100%** of voting interests and **25.3%** of economic interests as of March 31, 2024[14](index=14&type=chunk)[15](index=15&type=chunk) [Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies](index=7&type=section&id=Note%202%20%E2%80%94%20Basis%20of%20Presentation%20and%20Consolidation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the financial statement preparation basis, consolidation principles, and critical accounting policies - The company is an emerging growth company and has elected to use the extended transition period for new accounting standards, which may affect comparability[20](index=20&type=chunk) - Revenue is recognized on a gross basis as the company acts as a principal in both sell-side and buy-side advertising segments, controlling goods/services before transfer to customers[23](index=23&type=chunk) - The company experiences seasonal fluctuations in revenue, with Q4 typically highest for sell-side and Q2/Q3 highest for buy-side, while Q1 is the lowest for buy-side[24](index=24&type=chunk) - Goodwill of **$6.5 million** (unchanged from Dec 31, 2023) was not impaired during the three months ended March 31, 2024 and 2023[31](index=31&type=chunk) - Stock-based compensation expense was **$0.5 million** in Q1 2024, up from **$0.1 million** in Q1 2023[87](index=87&type=chunk) - One sell-side customer represented **68%** of revenues and **71%** of accounts receivable as of March 31, 2024, indicating high customer concentration[41](index=41&type=chunk) - The company has identified substantial doubt about its ability to continue as a going concern due to a net loss, accumulated deficit, low cash, increased borrowings, auditor resignation, and delayed SEC filings, exacerbated by a temporary pause from a key sell-side customer[53](index=53&type=chunk) - Management is implementing expense reductions, seeking debt covenant relief, raising capital, and working to regain SEC filing compliance to address going concern issues[54](index=54&type=chunk) [Note 3 — Long-Term Debt](index=14&type=section&id=Note%203%20%E2%80%94%20Long-Term%20Debt) This note details the company's long-term debt obligations, including credit facilities and interest expenses Table: Debt Component (in thousands) | Debt Component (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | 2021 Credit Facility | $28,221 | $28,594 | | Credit Agreement (EWB) | $7,000 | $3,000 | | EIDL | $150 | $150 | | Total Long-Term Debt | $35,371 | $31,744 | | Less: Deferred Financing Costs | $(1,542) | $(1,688) | | Less: Current Portion | $(1,473) | $(1,478) | | Total Long-Term Debt, net of current portion | $32,356 | $28,578 | - Total long-term debt increased by **$3.6 million** from December 31, 2023, to March 31, 2024, primarily due to increased borrowings under the East West Bank Credit Agreement[57](index=57&type=chunk) Table: Interest Expense Component (in thousands) | Interest Expense Component (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest expense – Lafayette Square | $974 | $879 | | Interest expense – East West Bank | $136 | $0 | | Amortization of deferred financing costs | $186 | $136 | | Total Interest Expense | $1,297 | $1,017 | - Interest expense increased by **27%** year-over-year, driven by additional net borrowings and higher interest rates[58](index=58&type=chunk)[166](index=166&type=chunk) - The company entered into the Fifth Amendment to the 2021 Credit Facility (Lafayette Square) and the Third Amendment to the Credit Agreement (East West Bank) with effective dates of June 30, 2024, to defer installment payments, adjust covenants, and require prepayments from potential equity raises[64](index=64&type=chunk)[71](index=71&type=chunk) [Note 4 — Stockholders' Deficit and Stock-Based Compensation](index=18&type=section&id=Note%204%20%E2%80%94%20Stockholders%27%20Deficit%20and%20Stock-Based%20Compensation) This note provides information on the company's equity structure, stock-based awards, and related compensation expenses - As of March 31, 2024, there were **3,684,278** shares of Class A Common Stock and **10,868,000** shares of Class B Common Stock outstanding[7](index=7&type=chunk) - The company completed a warrant tender offer and redemption in Q4 2023, resulting in all initial public offering warrants no longer outstanding as of March 31, 2024[85](index=85&type=chunk) - Stock-based compensation expense recognized was **$0.5 million** for Q1 2024, up from **$0.1 million** in Q1 2023[87](index=87&type=chunk) Table: Stock Option Activity (in thousands, except price) | Stock Option Activity (in thousands, except price) | Shares | Weighted Average Exercise Price | | :------------------------------------------------- | :----- | :------------------------------ | | Outstanding at January 1, 2024 | 371 | $2.51 | | Exercised | (8) | $2.62 | | Forfeited | (1) | $2.69 | | Outstanding at March 31, 2024 | 361 | $2.51 | | Vested and exercisable at March 31, 2024 | 103 | $2.55 | Table: Restricted Stock Units Activity (in thousands, except value) | Restricted Stock Units Activity (in thousands, except value) | Number of Shares | Weighted Average Grant Date Fair Value per Share | | :----------------------------------------------------------- | :--------------- | :----------------------------------------------- | | Unvested - January 1, 2024 | 542 | $2.87 | | Granted | 99 | $16.90 | | Vested | (229) | $11.83 | | Forfeited | (1) | $3.28 | | Unvested - March 31, 2024 | 412 | $2.53 | [Note 5 — Tax Receivable Agreement and Income Taxes](index=20&type=section&id=Note%205%20%E2%80%94%20Tax%20Receivable%20Agreement%20and%20Income%20Taxes) This note explains the Tax Receivable Agreement and the company's income tax positions and deferred tax assets - The company has a Tax Receivable Agreement (TRA) with DDH LLC and DDM, obligating it to pay **85%** of net cash tax savings from certain tax benefits[91](index=91&type=chunk) - The TRA liability remained at **$5.2 million** as of March 31, 2024, and December 31, 2023[93](index=93&type=chunk)[101](index=101&type=chunk) - A deferred tax asset of **$6.3 million** (net of **$0.5 million** valuation allowance) was recorded as of March 31, 2024[93](index=93&type=chunk) - The company recorded an income tax benefit of **$(200) thousand** in Q1 2024, with an effective tax rate of **5.0%**, lower than statutory rates due to partnership loss not subject to federal and state taxes[96](index=96&type=chunk) [Note 6 — Related Party Transactions](index=21&type=section&id=Note%206%20%E2%80%94%20Related%20Party%20Transactions) This note discloses transactions and balances with related parties, including members and the Up-C structure - A net receivable from members totaled **$1.7 million** as of March 31, 2024, and December 31, 2023[99](index=99&type=chunk) - The Up-C structure allows DDM to retain tax benefits from partnership treatment and provides liquidity through LLC Unit exchanges for Class A Common Stock[100](index=100&type=chunk) [Note 7 — Segment Information](index=22&type=section&id=Note%207%20%E2%80%94%20Segment%20Information) This note presents financial data broken down by the company's operating segments: sell-side and buy-side advertising Table: Metric (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Sell-side advertising revenue | $16,500 | $13,783 | | Buy-side advertising revenue | $5,775 | $7,440 | | Total Revenues | $22,275 | $21,223 | Table: Operating Loss by Segment (in thousands) | Operating Loss by Segment (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Sell-side advertising | $962 | $1,278 | | Buy-side advertising | $293 | $1,505 | | Corporate office expenses | $(4,062) | $(2,924) | | Total Operating Loss | $(2,807) | $(141) | Table: Total Assets by Segment (in thousands) | Total Assets by Segment (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Sell-side advertising | $17,934 | $34,354 | | Buy-side advertising | $22,569 | $22,539 | | Corporate office | $12,267 | $13,779 | | Total Assets | $52,770 | $70,672 | - Sell-side advertising revenue increased by **20%** while buy-side advertising revenue decreased by **22%** year-over-year[102](index=102&type=chunk) - Corporate office expenses significantly increased, contributing to a higher total operating loss[102](index=102&type=chunk) [Note 8 — Net Loss Per Share](index=22&type=section&id=Note%208%20%E2%80%94%20Net%20Loss%20Per%20Share) This note provides the calculation of basic and diluted net loss per common share for the reporting periods Table: Metric (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss Attributable to DDH, Inc. | $(775) | $(214) | | Weighted Average Common Shares - Basic | 3,509 | 2,901 | | Weighted Average Common Shares - Diluted | 3,509 | 2,901 | | Basic Net Loss Per Common Share | $(0.22) | $(0.07) | | Diluted Net Loss Per Common Share | $(0.22) | $(0.07) | - Basic and diluted net loss per common share increased from **$(0.07)** in Q1 2023 to **$(0.22)** in Q1 2024[105](index=105&type=chunk) - Class B Common Stock, warrants, options, and unvested restricted stock units were excluded from diluted EPS calculation as they were anti-dilutive[106](index=106&type=chunk) [Note 9 — Commitments and Contingencies](index=23&type=section&id=Note%209%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the company's legal proceedings, customer-related issues, and operating lease obligations - The company is facing two consolidated putative class action lawsuits alleging federal securities law violations related to false or misleading disclosures[108](index=108&type=chunk) - A key sell-side customer paused its connection in May 2024 due to a defamatory article/blog post, impacting sell-side volumes, which have resumed but not to prior levels. The company has filed a lawsuit against the author[109](index=109&type=chunk)[110](index=110&type=chunk) Table: Operating Lease Future Payments (in thousands) | Operating Lease Future Payments (in thousands) | Amount | | :--------------------------------------------- | :----- | | 2024 | $156 | | 2025 | $239 | | 2026 | $160 | | 2027 | $163 | | 2028 | $167 | | Thereafter | $200 | | Total Undiscounted Lease Payments | $1,085 | | Less Effects of Discounting | $(206) | | Less Current Lease Liability | $(151) | | Total Operating Lease Liability, net of current portion | $728 | [Note 10 — Property, Equipment and Software, net](index=24&type=section&id=Note%2010%20%E2%80%94%20Property%2C%20Equipment%20and%20Software%2C%20net) This note details the company's property, equipment, and software assets, including depreciation and amortization Table: Asset Category (in thousands) | Asset Category (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Furniture and fixtures | $128 | $128 | | Computer equipment | $20 | $20 | | Leasehold improvements | $36 | $36 | | Capitalized software | $702 | $702 | | Gross Property, Equipment and Software | $886 | $886 | | Less: Accumulated Depreciation and Amortization | $(357) | $(287) | | Total Property, Equipment and Software, net | $529 | $599 | - Net property, equipment, and software decreased by **$70 thousand** from December 31, 2023, to March 31, 2024, primarily due to increased accumulated depreciation and amortization[113](index=113&type=chunk) - Total depreciation and amortization expense for property, equipment, and software was **$71 thousand** in Q1 2024, up from **$57 thousand** in Q1 2023[115](index=115&type=chunk) [Note 11 — Intangible Assets, net](index=25&type=section&id=Note%2011%20%E2%80%94%20Intangible%20Assets%2C%20net) This note provides information on the company's intangible assets, their net book value, and amortization schedule Table: Intangible Asset (in thousands) | Intangible Asset (in thousands) | March 31, 2024 Net Total | December 31, 2023 Net Total | | :------------------------------ | :----------------------- | :-------------------------- | | Customer Lists | $8,468 | $8,794 | | Trademarks and Tradenames | $2,276 | $2,363 | | Non-compete agreements | $451 | $527 | | Total Intangible Assets, net | $11,195 | $11,684 | - Net intangible assets decreased by **$489 thousand** from December 31, 2023, to March 31, 2024, due to ongoing amortization[117](index=117&type=chunk) - Amortization expense for intangible assets was **$0.5 million** for both Q1 2024 and Q1 2023[116](index=116&type=chunk) Table: Future Amortization Expense (in thousands) | Future Amortization Expense (in thousands) | Amount | | :----------------------------------------- | :----- | | 2024 | $1,464 | | 2025 | $1,879 | | 2026 | $1,653 | | 2027 | $1,653 | | 2028 | $1,653 | | Thereafter | $2,893 | | Total | $11,195| [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2024, compared to the same period in 2023. It highlights recent developments, key performance drivers, detailed financial comparisons, liquidity challenges including a going concern warning, and non-GAAP financial measures [Cautionary Note Regarding Forward-Looking Statements](index=26&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially from projections[119](index=119&type=chunk)[120](index=120&type=chunk) - Key risk factors include restrictions from credit facilities, substantial doubt about going concern, inability to secure additional financing, potential Nasdaq delisting, costs of financial restatement, high customer concentration, and operational issues[120](index=120&type=chunk)[121](index=121&type=chunk) [Overview](index=27&type=section&id=Overview) This section provides a high-level description of Direct Digital Holdings' business model and operating segments - Direct Digital Holdings operates an end-to-end programmatic advertising platform, focusing on underserved markets for both sell-side (Colossus Media) and buy-side (Huddled Masses, Orange142) advertising[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - The company operates two reportable segments: sell-side advertising (Colossus Media) and buy-side advertising (Orange142 and Huddled Masses), with all revenues attributable to the United States[126](index=126&type=chunk) [Recent Developments](index=28&type=section&id=Recent%20Developments) This section outlines significant events impacting the company, including Nasdaq compliance, financial restatements, and customer issues - The company received Nasdaq notices for failing to timely file its 2023 Annual Report and Q1/Q2 2024 Quarterly Reports, but has since filed the 2023 Annual Report and Q1 2024 Quarterly Report, with one remaining delinquent filing[128](index=128&type=chunk) - Interim financial statements for Q1, Q2, and Q3 2023 were restated due to errors in accounting for noncontrolling interests, organizational transactions, earnings per share, and warrant redemption timing[129](index=129&type=chunk) - A key sell-side customer temporarily paused its connection in May 2024 following a defamatory article, impacting sell-side volumes, which have resumed but not yet to prior levels. The company has filed a lawsuit against the article's author[130](index=130&type=chunk) [Key Factors Affecting Our Performance](index=29&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) This section discusses the primary drivers influencing the performance of the company's sell-side and buy-side advertising segments - Sell-side performance is driven by increasing advertising spend from buyers (reaching **141,000** advertisers/month in Q1 2024), monetizing ad impressions for publishers and buyers, enhancing ad inventory quality, growing access to valuable ad impressions (**830 billion** average monthly bid requests in Q1 2024, up **107%** YoY), expanding investments in platform technology, and adapting to industry dynamics like header bidding[132](index=132&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - Buy-side performance relies on new customer acquisitions (serving over **230** small and mid-sized clients), expanding sales to existing customers (**90%** client retention for **80%** of revenue), and capitalizing on the shift to digital advertising and increased adoption by small- and mid-sized companies[140](index=140&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - Both segments experience seasonality, with Q4 being strongest for sell-side and Q2/Q3 strongest for buy-side, while Q1 is the lowest for buy-side[139](index=139&type=chunk)[146](index=146&type=chunk) [Components of Our Results of Operations](index=31&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section defines the key revenue, cost of revenue, operating expense, and other expense components of the company's financial results - Revenue is generated from sell-side advertising (selling ad inventory from publishers) and buy-side advertising (managed advertising campaigns for customers), recognized on a gross basis as the company acts as a principal[147](index=147&type=chunk)[148](index=148&type=chunk) - Cost of revenues primarily includes publisher media fees and data center costs for sell-side, and digital media fees, third-party platform access fees for buy-side[149](index=149&type=chunk) - Operating expenses comprise compensation, taxes and benefits, general and administrative expenses (including amortization of intangibles), and other unusual/infrequent expenses[150](index=150&type=chunk)[151](index=151&type=chunk) - Other expense, net, includes other income (e.g., recovery of receivables), interest expense, and loss on early termination of lines of credit[152](index=152&type=chunk) [Results of Operations (Comparison of the Three Months Ended March 31, 2024 and 2023)](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's financial performance for the three months ended March 31, 2024 and 2023 Consolidated Results of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | Change Amount | Change % | | :----------------------------- | :------ | :------ | :------------ | :------- | | Revenues | $22,275 | $21,223 | $1,052 | 5% | | Sell-side advertising | $16,500 | $13,783 | $2,717 | 20% | | Buy-side advertising | $5,775 | $7,440 | $(1,665) | (22)% | | Cost of revenues | $17,277 | $14,790 | $2,487 | 17% | | Gross profit | $4,998 | $6,433 | $(1,435) | (22)% | | Operating expenses | $7,805 | $6,574 | $1,231 | 19% | | Loss from operations | $(2,807)| $(141) | $(2,665) | *nm | | Other expense, net | $(1,212)| $(1,267)| $55 | (4)% | | Loss before income taxes | $(4,019)| $(1,408)| $(2,611) | 185% | | Net loss | $(3,819)| $(1,334)| $(2,485) | 186% | | Adjusted EBITDA | $(1,659)| $549 | $(2,208) | (402)% | - Sell-side advertising revenue increased by **20%** due to higher impression inventory and publisher engagement, with average monthly impressions sold up **7%** and bid requests up **107%**[155](index=155&type=chunk) - Buy-side advertising revenue decreased by **22%** due to reduced spending from existing customers and a shift in campaign timing[155](index=155&type=chunk) - Gross profit declined by **22%** and gross margin decreased from **30%** to **22%**, primarily due to the revenue mix shift towards lower-margin sell-side and increased fixed costs for server capacity[157](index=157&type=chunk)[158](index=158&type=chunk) - Operating expenses increased by **19%**, driven by a **24%** rise in compensation, taxes, and benefits (due to headcount additions and stock compensation) and a **12%** rise in general and administrative expenses (higher professional fees and software licenses)[160](index=160&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk) - Interest expense increased by **27%** to **$1.3 million** due to additional net borrowings and higher interest rates[165](index=165&type=chunk)[166](index=166&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and funding sources - The company faces substantial doubt about its ability to continue as a going concern due to a net loss, accumulated deficit, low cash (**$3.3 million** as of March 31, 2024), increased debt, auditor resignation, and delayed SEC filings, compounded by a key customer's temporary pause[167](index=167&type=chunk)[168](index=168&type=chunk) - Management's actions to address liquidity include expense reduction (staff reduction, hiring pause), seeking debt covenant relief, raising capital, and regaining SEC filing compliance[169](index=169&type=chunk) Table: Metric (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $3,334 | $5,116 | | Working capital | $5,343 | $3,280 | | Availability under Credit Agreement | $3,000 | $7,000 | - Net cash used in operating activities was **$5.7 million** in Q1 2024, a significant decline from **$3.1 million** provided in Q1 2023, primarily due to a net loss and a large decrease in accounts payable[172](index=172&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - Net cash provided by financing activities was **$3.9 million** in Q1 2024, mainly from proceeds from lines of credit (**$4.0 million**) and warrant exercises (**$0.2 million**)[178](index=178&type=chunk) Table: Future Minimum Debt Payments (in thousands) | Future Minimum Debt Payments (in thousands) | Amount | | :------------------------------------------ | :----- | | 2024 | $1,105 | | 2025 | $8,460 | | 2026 | $25,660| | 2027 | $3 | | 2028 | $3 | | Thereafter | $140 | | Total | $35,371| [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) This section presents and reconciles non-GAAP financial measures used by management to evaluate operational performance - Adjusted EBITDA is presented as a non-GAAP measure to evaluate operating performance, excluding items like depreciation, amortization, interest, taxes, stock-based compensation, and one-time items[181](index=181&type=chunk) Table: Adjusted EBITDA Reconciliation (in thousands) | Adjusted EBITDA Reconciliation (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(3,819) | $(1,334) | | Add back (deduct): | | | | Interest expense | $1,297 | $1,017 | | Amortization of intangible assets | $488 | $489 | | Stock-based compensation | $504 | $94 | | Depreciation and amortization of property, equipment and software | $71 | $57 | | Loss on early termination of line of credit | $0 | $300 | | Income tax benefit | $(200) | $(74) | | Adjusted EBITDA | $(1,659) | $549 | - Adjusted EBITDA decreased significantly from **$549 thousand** in Q1 2023 to **$(1,659) thousand** in Q1 2024, reflecting a deterioration in operational efficiency[181](index=181&type=chunk) [Critical Accounting Estimates and Related Policies](index=37&type=section&id=Critical%20Accounting%20Estimates%20and%20Related%20Policies) This section discusses the significant accounting estimates and policies that require management's judgment and assumptions - No material changes to critical accounting estimates and related policies were reported compared to the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[184](index=184&type=chunk) [Recent Accounting Pronouncements](index=38&type=section&id=Recent%20Accounting%20Pronouncements) This section outlines the potential impact of recently issued accounting standards on the company's financial disclosures - The company is evaluating the impact of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2023-07 (Segment Reporting) on its financial disclosures, with effective dates in fiscal years 2026 and 2025, respectively[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Direct Digital Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this quarterly report - The company is exempt from providing market risk disclosures as it qualifies as a 'smaller reporting company'[186](index=186&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section details the company's evaluation of its disclosure controls and internal controls over financial reporting, concluding that both were ineffective as of March 31, 2024, due to identified material weaknesses. It also outlines management's plan to remediate these weaknesses [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as assessed by management - The CEO and CFO concluded that the company's disclosure controls were not effective as of March 31, 2024, due to material weaknesses[187](index=187&type=chunk) [Management's Annual Report on Internal Controls Over Financial Reporting](index=38&type=section&id=Management%27s%20Annual%20Report%20on%20Internal%20Controls%20Over%20Financial%20Reporting) This section presents management's assessment of the effectiveness of the company's internal controls over financial reporting - Management assessed internal controls over financial reporting as ineffective as of March 31, 2024[191](index=191&type=chunk)[194](index=194&type=chunk) - Material weaknesses were identified in controls over journal entry processes, information technology general controls (ITGC), and the technical evaluation of accounting matters, leading to the restatement of prior interim financial statements[193](index=193&type=chunk) [Management's Plan to Remediate the Previously Reported Material Weaknesses](index=39&type=section&id=Management%27s%20Plan%20to%20Remediate%20the%20Previously%20Reported%20Material%20Weaknesses) This section outlines the specific actions management plans to take to address and resolve identified material weaknesses - Remediation steps include enhancing controls over segregation of duties in journal entry processes, access to program and change management in IT, and technical accounting evaluations, with assistance from consultants[195](index=195&type=chunk) - The material weaknesses are not considered fully remediated until improved controls have been in place and operating effectively for a sufficient period[196](index=196&type=chunk) [Changes in Internal Controls Over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Controls%20Over%20Financial%20Reporting) This section reports on any changes in the company's internal controls over financial reporting during the period - No other changes in internal controls over financial reporting materially affected or are reasonably likely to materially affect the company's internal controls system during the three months ended March 31, 2024, beyond the discussed material weaknesses[197](index=197&type=chunk) Part II. Other Information This section provides additional information not covered in the financial statements, including legal matters and exhibits [Item 1. Legal Proceedings](index=39&type=section&id=ITEM%201.%20Legal%20Proceedings) This section outlines the material legal proceedings the company is currently involved in, including two consolidated putative class action lawsuits and a lawsuit filed by the company against the author of a defamatory article - The company is a defendant in two consolidated putative class action lawsuits alleging violations of federal securities laws related to false or misleading disclosures[199](index=199&type=chunk)[200](index=200&type=chunk) - The company filed a lawsuit against the author of a defamatory article/blog post published in May 2024, which led to a temporary pause in connection with a key sell-side customer[201](index=201&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=ITEM%201A.%20Risk%20Factors) This section indicates that the company's risk factors are not applicable for this quarterly report, referring to the Annual Report on Form 10-K for a comprehensive discussion of risks - Risk factors are not applicable for this quarterly report; readers are directed to the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for a full discussion[202](index=202&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[202](index=202&type=chunk) [Item 3. Defaults Upon Senior Securities](index=40&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[202](index=202&type=chunk) [Item 5. Other Information](index=40&type=section&id=ITEM%205.%20Other%20Information) This section reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[202](index=202&type=chunk) [Item 6. Exhibits](index=41&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL interactive data files - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications (Rule 13a-14(a) and 13a-14(b)), and Inline XBRL documents[204](index=204&type=chunk)[205](index=205&type=chunk) [Signatures](index=42&type=section&id=SIGNATURES) This section contains the duly authorized signature for the Form 10-Q report - The report is signed by Diana P. Diaz, Chief Financial Officer, on October 15, 2024[207](index=207&type=chunk)

Financial Performance - Total revenues for 2023 increased to $157.11 million, up from $89.36 million in 2022, representing a 75.8% growth[363] - Sell-side advertising revenue grew to $122.43 million in 2023, a 104% increase compared to $60.01 million in 2022[363] - Buy-side advertising revenue rose to $34.68 million in 2023, an 18.2% increase from $29.35 million in 2022[363] - Gross profit for 2023 was $37.57 million, up 28.1% from $29.32 million in 2022[363] - Net loss attributable to Direct Digital Holdings, Inc. was $2.19 million in 2023, compared to a net income of $205 thousand in 2022[363] - Basic and diluted net loss per share was $0.73 in 2023, compared to a net income per share of $0.11 in 2022[363] - Net loss for the year ended December 31, 2023 was $6.844 million, compared to a net income of $4.167 million in 2022[367] - Net income (Accumulated Deficit) for the period was $4,167 thousand, compared to $669 thousand in the previous period[423] - Net loss per share for 2023 was $0.73, compared to a net income per share of $0.11 in 2022[478] - Net loss attributable to Direct Digital Holdings, Inc. for the six months ended June 30 was $22 thousand, with basic and diluted loss per share of $0.01[513] - Net income attributable to Direct Digital Holdings, Inc. for the three months ended June 30 was $192 thousand, with basic and diluted earnings per share of $0.03[510] - Net income attributable to Direct Digital Holdings, Inc. for the three months ended September 30 was $571 thousand, with basic and diluted earnings per share of $0.09[511] - Net income attributable to Direct Digital Holdings, Inc. was $549 thousand[514] - Basic net income per share was $0.09[514] - Diluted net income per share was $0.09[514] - Net loss for Q1 2023 was $1.334 million, reducing stockholders' equity to $3.367 million[516] - Net income for the quarter ended September 30, 2023, was $3.351 million[518] - Net income for the period ending September 30, 2023, was $3.212 million, reflecting a positive financial performance[520] - Net loss for the six months ended June 30, 2023, was $139 thousand[524] - Net income for the nine months ended September 30, 2023, was $3,212 thousand[526] Assets and Liabilities - Cash and cash equivalents increased to $5.116 million in 2023 from $4.047 million in 2022[360] - Accounts receivable, net of provision for credit losses, rose to $37.207 million in 2023 from $26.354 million in 2022[360] - Total current assets grew to $43.082 million in 2023 from $31.284 million in 2022[360] - Intangible assets, net decreased to $11.684 million in 2023 from $13.638 million in 2022[360] - Total liabilities increased to $74.354 million in 2023 from $52.531 million in 2022[360] - Accumulated deficit worsened to $(2.538) million in 2023 from $(344) million in 2022[360] - Noncontrolling interest shifted to $(4.225) million in 2023 from $3.314 million in 2022[360] - Total stockholders' (deficit) equity declined to $(3.682) million in 2023 from $5.595 million in 2022[360] - Total assets increased to $70.672 million as of December 31, 2023, from $58.126 million in 2022[476] - Total long-term debt as of December 31, 2023, was $31,744 thousand, an increase from $25,834 thousand in 2022[424] - Total long-term debt, net of current portion, was $28,578 thousand as of December 31, 2023[424] - Total assets increased from $62.151 million as of June 30, 2023, to $86.748 million as of September 30, 2023[501][506] - Total current liabilities decreased from $30.478 million as of June 30, 2023, to $29.478 million after restatement adjustments[502] - Total stockholders' equity increased from $4.020 million as of June 30, 2023, to $5.020 million after restatement adjustments[503] - Long-term debt remained stable at $22.515 million as of June 30, 2023, and $22.324 million as of September 30, 2023[502][505] - Total undiscounted lease payments amount to $1,122 million, with a net operating lease liability of $773 million after discounting and current portion adjustments[485] - Future payments due under operating leases as of December 31, 2023, are $97 thousand[486] - Property, equipment, and software, net, increased to $599 thousand in 2023 from $673 thousand in 2022[487] - Intangible assets, net of accumulated amortization, decreased to $11.7 million in 2023 from $13.6 million in 2022[489] - Customer lists, trademarks, and non-compete agreements make up the majority of intangible assets, with net amounts of $8.8 million, $2.4 million, and $527 thousand, respectively[492] - Future amortization of intangible assets is projected at $11.7 million, with $1.95 million due in 2024[493] - Total adjustments in Q2 2023 amounted to $530.864 thousand, impacting the restated balance sheet[516] - Stockholders' equity as of September 30, 2023, was $6.397 million[518] - APIC (Additional Paid-In Capital) as of September 30, 2023, was $8.782 million[518] - Noncontrolling interest as of September 30, 2023, was $0[518] Operating Expenses and Costs - Total operating expenses rose to $39.76 million in 2023, up 86.3% from $21.34 million in 2022[363] - Compensation, taxes, and benefits increased to $17.73 million in 2023, a 25.5% rise from $14.12 million in 2022[363] - General and administrative expenses grew to $13.20 million in 2023, an 82.8% increase from $7.22 million in 2022[363] - Advertising expenses increased to $2.2 million in 2023 from $0.9 million in 2022, reflecting a 144% year-over-year growth[400] - Depreciation and amortization expenses for 2023 totaled $253 thousand, up from $34 thousand in 2022[488] - Total operating expenses were $21,652 thousand[514] - Income from operations was $6,607 thousand[514] - Total other expense, net was $(3,229) thousand[514] - Total operating expenses for the three months ended March 31 were $6.574 million, with compensation, taxes, and benefits accounting for $3.634 million[508] - Gross profit for the three months ended March 31 was $6.433 million, with a total cost of revenues of $14.790 million[508] - Gross profit for the three months ended June 30 was $10.1 million, with a gross margin of 28.5%[510] - Gross profit for the three months ended September 30 was $11.8 million, with a gross margin of 19.8%[511] - Gross profit for the six months ended June 30 was $16.5 million, with a gross margin of 29.2%[513] - Gross profit for the period was $28,259 thousand[514] - Gross profit for the three months ended March 31 was $6.433 million, with a total cost of revenues of $14.790 million[508] - Gross profit for the three months ended June 30 was $10.1 million, with a gross margin of 28.5%[510] - Gross profit for the three months ended September 30 was $11.8 million, with a gross margin of 19.8%[511] - Gross profit for the six months ended June 30 was $16.5 million, with a gross margin of 29.2%[513] - Gross profit for the period was $28,259 thousand[514] Cash Flow and Liquidity - Net cash provided by operating activities increased to $2.558 million in 2023 from $2.064 million in 2022[367] - Accounts receivable decreased by $11.275 million in 2023 compared to a decrease of $18.500 million in 2022[367] - Accounts payable increased by $16.231 million in 2023 compared to an increase of $10.966 million in 2022[367] - Cash paid for interest increased to $3.736 million in 2023 from $2.568 million in 2022[367] - Cash and cash equivalents stood at $5.1 million as of December 31, 2023[417] - Cash and cash equivalents decreased slightly from $5.668 million as of June 30, 2023, to $5.482 million as of September 30, 2023[501][506] - Cash flows provided by operating activities for the three months ended March 31, 2023, were $3.1 million, indicating strong operational cash generation[522] - Cash and cash equivalents at the end of the period stood at $6.719 million, showing a net increase of $2.672 million from the beginning of the period[522] - Payments on term loan amounted to $164 thousand, reducing the company's debt obligations[522] - Net cash provided by operating activities for the six months ended June 30, 2023, was $3,054 thousand[524] - Cash and cash equivalents at the end of the period for the six months ended June 30, 2023, were $5,668 thousand[524] - Net cash provided by operating activities for the nine months ended September 30, 2023, was $4,481 thousand[526] - Cash and cash equivalents at the end of the period for the nine months ended September 30, 2023, were $5,482 thousand[527] - Cash paid for interest for the nine months ended September 30, 2023, was $2,667 thousand[527] - Accrual of warrant redemption liability for the nine months ended September 30, 2023, was $3,540 thousand[527] - Cash paid for taxes for the nine months ended September 30, 2023, was $349 thousand[527] - Net cash used in financing activities for the nine months ended September 30, 2023, was $2,909 thousand[527] Debt and Financing - Total debt under the Credit Agreement increased to $9.7 million as of the report date from $3.0 million at the end of 2023[417] - The 2021 Credit Facility has a maturity date of December 3, 2026, with quarterly installment payments of $275,000 starting from January 1, 2024[427] - The Company borrowed $3.6 million under the Delayed Draw Loan in October 2023 to fund the 2023 warrant tender offer[426] - Interest expense for the 2021 Credit Facility was $3,655 thousand in 2023, up from $2,498 thousand in 2022[430] - The Fifth Amendment to the 2021 Credit Facility defers quarterly installment payments from June 30, 2024, through December 31, 2025[432] - The Company entered into a Credit Agreement with East West Bank on July 7, 2023, providing a revolving credit facility of up to $10.0 million[434] - The Company was in compliance with all financial covenants under the 2021 Credit Facility as of December 31, 2023[429] - The Company's liquidity covenant requires maintaining minimum liquid assets of $1,000,000 at all times[437] - The Company will make prepayments of $1.0 million upon execution of the Third Amendment, $1.0 million by January 15, 2025, and $2.0 million by April 15, 2025[438] - The Company's minimum TTM EBITDA is projected to increase from $5.0 million as of September 30, 2024, to $7.5 million by June 30, 2025[439] - The Company's minimum liquid assets are required to increase from $1.0 million as of June 30, 2024, to $2.0 million by March 31, 2025[439] - The Company's revolving credit availability ratio is set to increase from 1.0 to 1.0 by December 31, 2024, to 2.0 to 1.0 by June 30, 2025[439] - As of December 31, 2023, the Company had $9.7 million outstanding under the Credit Agreement, up from $3.0 million at the end of 2023[441] - The Company incurred $0.3 million of deferred financing costs during the year ended December 31, 2023[441] - The Company received a $150,000 Economic Injury Disaster Loan in 2020, bearing an interest rate of 3.75% and maturing on June 15, 2050[448] - The Company's PPP-2 Loan of $0.3 million was fully forgiven on April 11, 2022[449] - Future minimum payments related to long-term debt as of December 31, 2023, total $31.744 million, with $1.478 million due in 2024[450] - The Company completed its initial public offering on February 15, 2022, raising $10.2 million in net proceeds[454] - The company tendered 2,213,652 warrants at $1.20 per warrant, totaling approximately $2.7 million, and redeemed 1,004,148 warrants at $0.35 per warrant, totaling approximately $0.4 million[456] Stock-Based Compensation and Equity - Stock-based compensation cost for options and RSUs is measured at grant date based on fair value and recognized over the vesting period[383] - The fair value of stock options was estimated using the Black-Scholes model with expected volatility of 69% and 63% for 2023 and 2022, respectively[385] - The Company's matching contributions to the 401(k) plan were $0.2 million for both 2023 and 2022[386] - Incentive plan awards recognized were $2.4 million and $2.3 million for 2023 and 2022, respectively[388] - The company recognized $2.2 million in stock-based compensation expense for 2023, including $1.4 million in bonuses paid via stock grants in March 2024[458] - As of December 31, 2023, there were 488,646 shares available for grant under the 2022 Omnibus Incentive Plan[458] - The company granted 153,665 stock options in 2023 with a weighted average exercise price of $3.78 and a weighted average fair value of $2.44[460] - The company granted 329,249 RSUs in 2023 with a weighted average grant date fair value of $3.70 per share[461] - Stock-based compensation increased by $94 thousand in Q1 2023, contributing to a total equity adjustment of $94 thousand[516] - Stock-based compensation for the quarter was $242 thousand[518] - Stock-based compensation amounted to $546 thousand, contributing to the overall equity increase[520] - Stock options exercised resulted in a $12 thousand increase in equity[520] - Issuance related to vesting of restricted stock units, net of tax withholdings, was $2.743 thousand[518] - Balance of common stock as of September 30, 2023, was $3 thousand[518] - APIC (Additional Paid-In Capital) as of September 30, 2023, was $8.782 million[518] - Noncontrolling interest as of September 30, 2023, was $0[518] Revenue Recognition and Deferred Revenue - Revenue is recognized when an ad is delivered or displayed in response to a winning bid request from ad buyers[376] - Deferred revenue (contract liabilities) recorded as $0.4 million and $0.5 million as of December 31, 2023 and 2022, respectively[379] - Revenue recognized from deferred revenue balances amounted to $0.5 million and $1.3 million in 2023 and 2022, respectively[379] - Deferred revenues increased by $403 thousand, indicating potential future revenue recognition[522] Goodwill and Intangible Assets - Goodwill remained at $6.5 million as of December 31, 2023 and 2022, with no impairment recognized during these years[380] - Intangible assets are amortized over 5 years for non-compete agreements and 10 years for other intangibles[381] - The company acquired Orange 142 for $26.2 million, resulting in $4.1 million in goodwill and $18.0 million in intangible assets[489] Legal and Contingencies - The company is involved in a consolidated securities class action lawsuit filed in the U.S. District Court for the Southern District of Texas[481] Restatements and Adjustments - Basic net income per share for 2022 was revised downward from $0.33 to $0.11 due to accounting corrections[420] - Total stockholders' equity for 2022 was revised upward from $4.595 million to $5.595 million after accounting corrections[422] - Restatement adjustments for prior period accounting errors included a $1,000 reduction in accrued liabilities and a $5,613 reduction in additional paid-in capital[498] - As of March 31, 2023, the company's restated balance showed a net loss of $1.334 million, with stockholders' equity at $4.367 million[516] - Adjustments in Q2 2023 included a net income adjustment of $1.

Securities Litigation Partner James (Josh) Wilson Encourages Investors Who Suffered Losses In Direct Digital To Contact Him Directly To Discuss Their Options If you purchased or acquired securities in Direct Digital between April 17, 2023 and March 25, 2024 and would like to discuss your legal rights, call Faruqi & Faruqi partner Josh Wilson directly at 877-247-4292 or 212-983-9330 (Ext. 1310). You may also click here for additional information: www.faruqilaw.com/DRCT. NEW YORK, July 19, 2024 /PRNewswire/ - ...

Core Viewpoint - A class action lawsuit has been filed against Direct Digital Holdings, Inc. for allegedly making false and misleading statements regarding its transition to a cookie-less advertising environment, which is expected to impact revenue in 2024 [3]. Group 1: Class Action Details - The class action pertains to purchasers of Direct Digital common stock between April 17, 2023, and March 25, 2024, with a lead plaintiff deadline set for July 22, 2024 [1][2]. - Investors who wish to join the class action can do so without incurring out-of-pocket fees through a contingency fee arrangement [6]. Group 2: Allegations Against Direct Digital - The lawsuit claims that Direct Digital's transition to a cookie-less advertising environment was accelerated and would negatively affect revenue in 2024 [3]. - It is alleged that the company's alternatives to third-party cookies, including investments in AI and machine learning, would not be viable solutions [3]. - The defendants are accused of lacking adequate solutions to address the phase-out of third-party cookies by Google, undermining their positive statements about the company's platform and financial prospects [3].