Direct Digital Holdings(DRCT) - 2023 Q4 - Annual Report

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.