DRCT Direct Digital Holdings Inc

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 14, 2024

 

Direct Digital Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		001-41261		87-2306185
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

1177 West Loop South, Suite 1310 Houston, Texas		77027
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (832) 402-1051

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, par value $0.001 per share		DRCT		The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) (§240.12b-2 of this chapter).

 

Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

  

Item 1.01

Entry into a Material Definitive Agreement.

 

The “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries.

 

On October 15, 2024, with an effective date of June 30, 2024, the Company and Lafayette Square Loan Services, LLC (“Lafayette Square”), as administrative agent, and the various lenders party thereto, entered into the Fifth Amendment (the “Fifth Amendment”) to the Term Loan and Security Agreement, dated December 3, 2021 (as amended, the “Lafayette Square Credit Facility”). The Fifth Amendment, among other things, (1) defers quarterly installment payments on the existing term loan in the principal amount of up to $32.0 million and the existing $10.0 million delayed draw term loan for the periods from June 30, 2024 through December 31, 2025, (2) requires that the Company pay a commitment fee of 50 basis points, or an amount of $0.1 million, to Lafayette Square, (3) allows proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provides for one-month and three-month interest periods, (5) replaces the calculation of the consolidated total net leverage ratio with a consolidated total leverage ratio for purposes of calculating the applicable margin and the financial covenant and (6) replaces the financial covenants under the Lafayette Square Credit Facility (effective as of June 30, 2024).

 

On October 15, 2024, with an effective date of June 30, 2024, the Company and East West Bank (“EWB”) entered into the Third Amendment (the “Third Amendment”) to the Credit Agreement, dated July 7, 2023 (as amended, the “East West Bank Credit Facility”), between EWB and the Company. The Third Amendment, among other things, (1) requires the Company to prepay the outstanding principal balance of the Credit Agreement of $1.0 million upon execution of the Third Amendment, $1.0 million on or before January 15, 2025 and $2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the Securities and Exchange Commission to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, and (5) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024.

 

Item 4.02

Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

 

On October 14, 2024, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, in consultation with Company management, determined that the Company’s interim financial statements (collectively, the “Prior Period Financial Statements”) as of the periods ended March 31, 2023, June 30, 2023, September 30, 2023, and for the three months ended March 31, 2023, the three and six months ended June 30, 2023 and the three and nine months ended September 30, 2023 (collectively, the “Non-Reliance Periods”) should no longer be relied upon. Management and the Audit Committee have determined that the errors described below in the unaudited interim consolidated financial statements for the Non-Reliance Periods noted above require a restatement of the Prior Period Financial Statements (the “Restatement”). Previously filed quarterly reports on Form 10-Q for the Prior Period Financial Statements have not been amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods.

 

During the preparation of Company’s consolidated financial statements as of and for the year ended December 31, 2023, the Company identified prior period accounting errors resulting from the incorrect (1) accounting for, and presentation of, noncontrolling interests (“NCI”), (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI, and (4) timing of the recording of the 2023 redemption of warrants. The errors in the unaudited condensed consolidated financial statements for the Non-Reliance Periods noted above will be corrected in restated financial statements for the Non-Reliance Periods in the Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). For the Non-Reliance Period ended March 31, 2023, the estimated impact of the restatement of the Company’s consolidated balance sheets is expected to decrease accrued liabilities by $1.0 million, decrease additional paid-in capital by $5.6 million, increase accumulated deficit by $4.4 million and increase noncontrolling interest by $2.2 million. For the Non-Reliance Period ended June 30, 2023, the estimated impact of the restatement of the Company’s consolidated balance sheets is expected to decrease accrued liabilities by $1.0 million, decrease additional paid-in capital by $5.6 million, increase accumulated deficit by $4.2 million and increase noncontrolling interest by $2.4 million. For the Non-Reliance Period ended September 30, 2023, the estimated impact of the restatement of the Company’s consolidated balance sheets is expected to decrease accrued liabilities by $1.0 million, increase warrant liability by $3.5 million, decrease additional paid-in capital by $9.1 million, increase retained earnings by $2.6 million and increase noncontrolling interest by $4.0 million.

 

 

For the Non-Reliance Period ended March 31, 2023, the estimated impact of the restatements of the Company’s consolidated statements of operations is expected to increase net loss attributable to noncontrolling interest by $1.1 million and decrease net loss attributable to Direct Digital Holdings, Inc. by the same amount and to reduce the weighted average number of shares of common stock outstanding by 11.7 million shares (basic and diluted), thereby impacting net loss per common share, basic and diluted. For the Non-Reliance Period ended June 30, 2023, the estimated impact of the restatements of the Company’s consolidated statements of operations is expected to increase net income attributable to noncontrolling interest by $1.0 million and decrease net income attributable to Direct Digital Holdings, Inc. by the same amount and to reduce the weighted average number of shares of common stock outstanding by 11.9 million shares (basic) and 11.7 million shares (diluted), thereby impacting net income per common share, basic and diluted. For the Non-Reliance Period ended September 30, 2023, the estimated impact of the restatements of the Company’s consolidated statements of operations is expected to increase net income attributable to noncontrolling interest by $2.8 million and decrease net income attributable to Direct Digital Holdings, Inc. by the same amount and to reduce the weighted average number of shares of common stock outstanding by 11.3 million shares (basic) and 11.8 million shares (diluted), thereby impacting net income per common share, basic and diluted.

 

The Audit Committee and management of the Company have discussed the matters disclosed in this Item 4.02(a) with BDO USA, P.C. (“BDO”), the Company’s independent registered public accounting firm.

 

Item 8.01

Other Events

 

As previously disclosed, the Company was notified by the Staff of the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that the Company was not in compliance with Nasdaq Rule 5250(c)(1) (the “Rule”), which requires Nasdaq-listed companies to timely file all required periodic financial reports with the U.S. Securities and Exchange Commission (the “SEC”), due to the Company’s failure to timely file with the SEC its Annual Report on Form 10-K for the year ended December 31, 2023, its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024 (together, the “Delayed Reports”). The Company previously submitted a plan to file the Delayed Reports with the SEC and thereby evidence compliance with the Rule, and Nasdaq subsequently granted the Company an exception through October 14, 2024, to do so. On October 15, 2024, the first business day following the exception date established by the Nasdaq, the Company filed the Delayed Reports with the SEC and believes it has evidenced compliance with the Rule; however, the Company is awaiting a formal compliance determination from the Staff. The Company will provide an update upon receipt of such determination.

 

On October 15, 2024, the Company issued a press release regarding, among other things, the filing of the Delayed Reports. A copy of the press release is filed herewith as Exhibit 99.1 to this report and is incorporated herein by reference.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Current Report on Form 8-K may contain forward-looking statements within the meaning of federal securities laws that are subject to certain risks, trends and uncertainties.

 

  

As used below, “we,” “us,” and “our” refer to the Company. We use words such as “could,” “would,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption “Risk Factors” and elsewhere in our most recent Annual Report on Form 10-K (the “Form 10-K”) and subsequent periodic and or current reports filed with the Securities and Exchange Commission.

  

The forward-looking statements contained in this Current Report on Form 8-K are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Current Report on Form 8-K, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance expressed in or implied by the forward-looking statements. We believe these factors include, but are not limited to, the following: the restrictions and covenants imposed upon us by our credit facilities; our ability to secure additional financing to meet our capital needs, including the establishment of any equity line of credit facility; our ineligibility to file short-form registration statements with the SEC; a potential delisting of our common stock from the Nasdaq Capital Market; costs and uncertainties related to the restatement of prior period financial statements, including the non-reliance and material weaknesses in internal control over financial reporting identified by the Company; any significant fluctuations caused by our high customer concentration; risks related to non-payment by our clients; reputational and other harms caused by our failure to detect advertising fraud; operational and performance issues with our platform, whether real or perceived, including a failure to respond to technological changes or to upgrade our technology systems; restrictions on the use of third-party “cookies,” mobile device IDs or other tracking technologies, which could diminish our platform’s effectiveness; unfavorable publicity and negative public perception about our industry, particularly concerns regarding data privacy and security relating to our industry’s technology and practices, and any perceived failure to comply with laws and industry self-regulation; our failure to manage our growth effectively; the difficulty in identifying and integrating any future acquisitions or strategic investments; any changes or developments in legislative, judicial, regulatory or cultural environments related to information collection, use and processing; challenges related to our buy-side clients that are destination marketing organizations and that operate as public/private partnerships; any strain on our resources or diversion of our management’s attention as a result of being a public company; the intense competition of the digital advertising industry and our ability to effectively compete against current and future competitors; any significant inadvertent disclosure or breach of confidential and/or personal information we hold, or of the security of our or our customers’, suppliers’ or other partners’ computer systems; as a holding company, we depend on distributions from Direct Digital Holdings, LLC (“DDH LLC”) to pay our taxes, expenses (including payments under the Tax Receivable Agreement) and any amount of any dividends we may pay to the holders of our common stock; the fact that DDH LLC is controlled by DDM, whose interest may differ from those of our public stockholders; any risks associated with the material weakness that was identified in our review of internal control over financial reporting as of December 31, 2022; any failure by us to maintain or implement effective internal controls or to detect fraud; our ability to complete the audit of our financial statements for the fiscal year ended December 31, 2023; and other factors and assumptions discussed in our Form 10-K and subsequent periodic and current reports we may file with the SEC. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Current Report on Form 8-K to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

 

Item 9.01

Financial Statements and Exhibits.

 

(d)

Exhibits

 

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press release, dated October 15, 2024.
104		Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).

  

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

October 15, 2024 (Date)	Direct Digital Holdings, Inc. (Registrant)
	/s/ Diana P. Diaz
	Diana P. Diaz
	Chief Financial Officer

 

 

 

Exhibit 99.1

 

 

Direct Digital Holdings Reports Filings for Full-Year 2023,
Q1 2024 and Q2 2024

 

Houston, October 15, 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 ("Colossus SSP"), Orange142, LLC ("Orange 142") and Huddled Masses LLC ("Huddled Masses"), today announced the Company has filed its Form 10-K for the full-year ended December 31, 2023 (the “2023 Annual Report”), as well as its Form 10-Q for the first quarter ended March 31, 2024 (the “March 2024 Quarterly Report”) and its Form 10-Q for the second quarter ended June 30, 2024 (the “June 2024 Quarterly Report”).

 

Upon the filing of the 2023 Annual Report, the March 2024 Quarterly Report and the June 2024 Quarterly Report with the SEC, Direct Digital Holdings believes it has evidenced compliance with Nasdaq Listing Rule 5250(c)(1). However, the Company is awaiting a formal compliance determination from the Nasdaq Stock Market staff. The Company will provide an update upon receipt of such determination.

 

Mark D. Walker, CEO and Co-Founder of Direct Digital Holdings, commented, “We are pleased to complete these filings, which we believe will allow us to regain compliance with Nasdaq, and put us on the path back to our regular reporting cadence. At Direct Digital Holdings, we remain excited to return to the normal execution of our industry-leading business model and company mission.”

 

Keith Smith, President and Co-Founder of Direct Digital Holdings, commented, “Since we last reported earnings, Direct Digital Holdings has encountered challenges due to two factors: first, the unexpected resignation of our previous auditor; and second, a series of coordinated and malicious misinformation attacks against the company, including the publication of false and defamatory articles and blog posts by a third party, which, we believe, have been comprehensively refuted. The proximity of these two events was then used to create a disparaging narrative which disrupted our business and existing capital-raising efforts, as well as creating additional audit, legal and other expenses. We have been fully engaged in addressing the issues, and I am proud of our team’s resilience during this time.”

 

The Company has taken several actions to address these challenges including (i) the execution on July 1, 2024 of a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures, (ii) working with lenders to provide temporary relief from debt covenants while rebuilding sell-side volumes via debt amendments executed on October 15, 2024, (iii) engaging BDO, USA, P.C. as the Company's independent registered public accounting firm for the audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2023 and (iv) filing its 2023 Annual Report, March 2024 Quarterly Report and June 2024 Quarterly Report.

 

Going forward, Direct Digital Holdings expects to (i) receive notification from Nasdaq that by filing the Annual and Quarterly Reports, the Company has regained compliance with respect to the delinquent SEC filings, which will allow the Company to access the capital markets as well as other financing sources, (ii) raise capital through arrangements with various providers, and (iii) continue to work with the Company’s partners to rebuild sell-side volumes.

 

 

Financial Outlook Update

 

Due to the aforementioned challenges, Direct Digital Holdings is unable to provide guidance for the full-year 2024 at this time.

 

Diana Diaz, Chief Financial Officer, stated, “As we move forward, we are committed to reestablishing a normal cadence of reporting our financial results which will provide our investors with the timely and accurate information they deserve. We remain dedicated to creating long-term value for our shareholders and will continue to provide best-in-class advertising solutions to our partners.”

 

Cautionary Note Regarding Forward Looking Statements

 

This press release contains forward-looking statements within the meaning of federal securities laws that are subject to certain risks, trends and uncertainties. We use words such as “could,” “would,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption “Risk Factors” and elsewhere in our most recent Annual Report on Form 10 K (the “Form 10-K”) and subsequent periodic and or current reports filed with the Securities and Exchange Commission (the “SEC”).

 

The forward-looking statements contained in this press release are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions.

 

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance expressed in or implied by the forward-looking statements. We believe these factors include, but are not limited to, the following: the restrictions and covenants imposed upon us by our credit facilities; the substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing; our ability to secure additional financing to meet our capital needs, including the establishment of any equity line of credit facility; our ineligibility to file short-form registration statements on Form S-3, which may impair our ability to raise capital; our failure to satisfy applicable listing standards of the Nasdaq Capital Market resulting in a potential delisting of our common stock; any significant fluctuations caused by our high customer concentration; risks related to non-payment by our clients; reputational and other harms caused by our failure to detect advertising fraud; operational and performance issues with our platform, whether real or perceived, including a failure to respond to technological changes or to upgrade our technology systems; restrictions on the use of third-party “cookies,” mobile device IDs or other tracking technologies, which could diminish our platform’s effectiveness; unfavorable publicity and negative public perception about our industry, particularly concerns regarding data privacy and security relating to our industry’s technology and practices, and any perceived failure to comply with laws and industry self-regulation; our failure to manage our growth effectively; the difficulty in identifying and integrating any future acquisitions or strategic investments; any changes or developments in legislative, judicial, regulatory or cultural environments related to information collection, use and processing; challenges related to our buy-side clients that are destination marketing organizations and that operate as public/private partnerships; any strain on our resources or diversion of our management’s attention as a result of being a public company; the intense competition of the digital advertising industry and our ability to effectively compete against current and future competitors; any significant inadvertent disclosure or breach of confidential and/or personal information we hold, or of the security of our or our customers’, suppliers’ or other partners’ computer systems; any failure by us to maintain or implement effective internal controls or to detect fraud; and other factors and assumptions discussed in our Form 10-K and subsequent periodic and current reports we may file with the SEC.

 

 

Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this press release to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, and we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

About Direct Digital Holdings

 

Direct Digital Holdings (Nasdaq: DRCT), owner of operating companies Colossus SSP, Huddled Masses, and Orange 142, brings state-of-the-art sell- and buy-side advertising platforms together under one umbrella company. Direct Digital Holdings' sell-side platform, Colossus SSP, offers advertisers of all sizes extensive reach within general market and multicultural media properties. The Company's subsidiaries Huddled Masses and Orange142 deliver significant ROI for middle market advertisers by providing data-optimized programmatic solutions at scale for businesses in sectors that range from energy to healthcare to travel to financial services. Direct Digital Holdings' sell- and buy-side solutions generate billions of impressions per month across display, CTV, in-app and other media channels. 

 

Contacts:

Investors:

Brett Milotte, ICR

Brett.Milotte@icrinc.com

 

 

v3.24.3

Cover	Oct. 14, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Oct. 14, 2024
Entity File Number	001-41261
Entity Registrant Name	Direct Digital Holdings, Inc.
Entity Central Index Key	0001880613
Entity Tax Identification Number	87-2306185
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	1177 West Loop South
Entity Address, Address Line Two	Suite 1310
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77027
City Area Code	832
Local Phone Number	402-1051
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Class A common stock, par value $0.001 per share
Trading Symbol	DRCT
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	false

---