Direct Digital Holdings Inc.

08/14/2026 | Press release | Distributed by Public on 08/14/2026 14:05

Quarterly Report for Quarter Ending JUNE 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled "Risk Factors" in our Annual Report on Form 10-K or in other parts of this Quarterly Report on Form 10-Q (including in Item 1A herein). See "- Cautionary Note Regarding Forward-Looking Statements" below. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and which 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" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and elsewhere in this Quarterly Report on Form 10-Q (including in Item 1A herein).
The forward-looking statements contained in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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;
•our ability to regain and maintain compliance with the listing standards of the Nasdaq Capital Market;
•our ability to realize the benefit of our strategic shift to focusing on driving digital marketing spend among historical buyers of managed advertising campaigns and new enterprise customers;
•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 clients that are destination marketing organizations ("DMOs") 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;
•any failure by us to maintain or implement effective internal controls or to detect fraud; and
•other factors and assumptions discussed under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
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 Quarterly Report on Form 10-Q 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.
Overview
Direct Digital Holdings, Inc. and its subsidiaries (collectively the "Company," "DDH," "we," "us" and "our"), headquartered in Houston, Texas, is an end-to-end, full-service advertising and marketing platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions to help brands, agencies and middle market businesses deliver successful marketing results that drive return on investment ("ROI") across the entire digital advertising ecosystem. Direct Digital Holdings, Inc. is the holding company for DDH LLC the business formed by the Company's founders in 2018 through acquisitions of Colossus Media, LLC ("Colossus Media") and Huddled Masses, LLC ("Huddled Masses™" or "Huddled Masses"). Colossus Media operates the Company's proprietary programmatic platform under the trademarked banner of Colossus SSP. In September 2020, DDH LLC acquired Orange142, LLC to further bolster its overall programmatic advertising platform and to enhance its offerings across multiple industry verticals. In February 2022, the Company completed an initial public offering and certain organizational transactions which resulted in the Company's current "Up-C" structure as described in Note 6 - Related Party Transactions to our condensed consolidated financial statements. During the first quarter of 2026, the Company shifted its focus to driving intentional digital marketing spend with current and future customers historically classified by the Company as buy-side customers as well as new enterprise customers accessing the digital advertising market through its recently launched product - Ignition+. In connection with this shift in focus, the Company reassessed its reportable segments and determined that it has one reportable segment that is managed on a consolidated basis - digital advertising. The new focus to streamline operations is expected to enhance the customer experience and better reflects the economics of the Company's current business where revenues reflect primarily contracts for managed advertising campaigns which may or may not access curated publisher audiences managed by the Company's sell side platform. All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas.
Direct Digital Holdings, Inc. owns 100% of the voting interest in DDH LLC and as of June 30, 2026, DDH owns 94.6% of the economic interest in DDH LLC. DDH LLC was formed on June 21, 2018 and acquired by the Company on
February 15, 2022 in connection with its organizational transactions. DDH LLC's wholly-owned subsidiaries are as follows:
Subsidiary Date of Formation Date of
Acquisition
Colossus Media, LLC September 8, 2017 June 21, 2018
Orange142, LLC March 6, 2013 September 30, 2020
Huddled Masses, LLC November 13, 2012 June 21, 2018
The Company provides technology-enabled advertising solutions and consulting services to clients either through multiple leading demand side platforms ("DSPs") or through its own programmatic platform (Colossus SSP), across multiple industry verticals such as travel and tourism, higher education, energy, healthcare, financial services, consumer products and other sectors with particular emphasis on small and mid-sized businesses transitioning into digital with growing digital media budgets. In the digital advertising space, buyers, particularly small and mid-sized businesses, can potentially achieve significantly higher ROI on their advertising spend compared to traditional media advertising by leveraging data-driven over-the-top/connected TV ("OTT/CTV"), video and display, in-app, native including programmatic, search, social, influencer marketing and audio advertisements that are delivered both at scale and on a highly targeted basis.
Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by our chief operating decision maker ("CODM") for purpose of assessing performance and allocating resources. Our CODM is our Chairman and Chief Executive Officer. Revenues and operating income (loss) are used by our CODM to assess performance of our operating segment and allocate resources. We operate in one reportable segment - digital advertising. All our revenues are attributable to the United States.
All share and per share amounts of our common stock listed in this Quarterly Report on Form 10-Q have been adjusted to give effect to our 55-to-1 reverse stock split and 4-to-1 reverse stock split effective on January 12, 2026 and April 27, 2026, respectively.
Recent Developments
Nasdaq Compliance Status.
On November 7, 2025, we received a decision (the "Panel Decision") from the Nasdaq Hearings Panel (the "Panel") regarding our continued listing on Nasdaq. The Panel Decision indicated that we had evidenced compliance with the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the "Stockholders' Equity Rule") and, as such, that matter had been closed. However, the Panel Decision indicated that we would remain subject to a discretionary Panel Monitor pursuant to Listing Rule 5815(d)(4)(A) (the "Panel Monitor") with respect to the Stockholders' Equity Rule for a period of one year from the date of the Panel Decision.
The Panel Decision also indicated that the Panel had granted us an exception through January 30, 2026, to demonstrate compliance with Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule"). On January 12, 2026, we effected a 55-to-1 reverse stock split of all classes of our common stock, including the Class A Common Stock listed on The Nasdaq Capital Market, which was intended to bring us into compliance with the Bid Price Rule. On February 12, 2026, we were notified by Nasdaq that we had evidenced compliance with the Bid Price Rule, due to the closing bid price for our Class A Common Stock having closed at or above $1.00 per share for over 20 consecutive business days (the "Compliance Notice").
The Compliance Notice also indicated that we would remain subject to a Panel Monitor with respect to the Bid Price Rule for a period of one year from the date of the Compliance Notice. Under the terms of the Panel Monitor, if Nasdaq determines that we fail any listing standard during the one-year monitoring period, then, notwithstanding Rule 5810(c)(2), we will not be permitted to provide Nasdaq with a plan of compliance with respect to any deficiency that arises during the one-year monitoring period.
In addition, Nasdaq will not be permitted to grant additional time for us to regain compliance with respect to any deficiency, nor will we be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Rather, Nasdaq will promptly issue a Staff Delisting Determination Letter.
On April 2, 2026, we received a Staff Delisting Determination Letter from Nasdaq, notifying us that we were once again not in compliance with the Stockholders' Equity Rule, nor were we in compliance with either of the alternative
listing standards, market value of listed securities of at least $35 million or net income of $500,000 from continuing operations in the most recently completed fiscal year, in two of the three most recently completed fiscal years. Our failure to comply with the Stockholders' Equity Rule was based on the filing of our Annual Report on Form 10-K for the year ended December 31, 2025, reporting a stockholders' deficit of ($7.0 million). We requested a hearing before the Panel, which was granted and was held on May 12, 2026. The hearing request automatically stayed any suspension or delisting action at least pending the hearing and the expiration of any additional extension period that may be granted by the Panel following the hearing. On May 21, 2026, the Company received a Compliance Notice from Nasdaq, notifying the Company that its request for additional time through August 14, 2026 to demonstrate compliance with the Stockholders' Equity Rule was granted. The Company has provided an update to the Panel as to the Company's progress toward demonstrating compliance with the Stockholders' Equity Rule and requested additional time to demonstrate compliance past August 14, 2026. We are awaiting the Panel's response to our request for an additional extension period to comply with the Stockholders' Equity Rule.
On April 23, 2026, we received an Additional Staff Delisting Determination Letter from Nasdaq, notifying us that we were not in compliance with the Bid Price Rule based on our closing bid price being lower than $1.00 per share for thirty (30) consecutive business days. We implemented a 4-to-1 reverse stock split effective April 27, 2026, in order to regain compliance with the Bid Price Rule. On May 21, 2026, the Company received a Compliance Notice from Nasdaq, notifying the Company that it had evidenced compliance with the Bid Price Rule, due to the closing bid price for our Class A Common Stock having closed at or above $1.00 per share for over 20 consecutive business days.
We intend to take all reasonable measures available to regain compliance with the Stockholders' Equity Rule and remain listed on Nasdaq. The Company's noncompliance has no immediate effect on the listing or trading of the Company's Class A Common Stock, which will continue to trade on The Nasdaq Capital Market under the symbol "DRCT." See "Risk Factors" in Item 1A herein.
Committed Equity Facility.
On April 28, 2026, the Company entered into a Common Stock Purchase Agreement (the "Roth Purchase Agreement" and the facility as a whole, the "Committed Equity Facility") with Roth Principal Investments, LLC ("Roth"). Pursuant to the Roth Purchase Agreement, the Company has the right, but not the obligation, to sell to Roth up to $50.0 million of the Company's Class A common stock, par value $0.001 per share ("Class A Common Stock"). The per-share purchase price for shares sold under the Roth Purchase Agreement will be based on the volume-weighted average trading price of the Class A Common Stock during the applicable valuation period, less a fixed discount at an effective rate of 7.4% (after giving effect to the reimbursement of our expenses in connection with each purchase pursuant to a letter agreement with Roth dated May 18, 2026). The Company sold 38,288 shares of the Company's Class A Common Stock for $0.1 million during the six months ended June 30, 2026.
The Roth Purchase Agreement will terminate upon the earliest of the expiration of the 36-month term, the sale of $50.0 million of shares under the agreement, certain events relating to delisting or bankruptcy, or termination by the Company upon prior written notice without penalty. The Roth Purchase Agreement contains customary representations, warranties, indemnification provisions and conditions.
Key Factors Affecting Our Performance
We believe our growth and financial performance are dependent on many factors, including those described below.
New Customer Acquisitions
Our customers consist of purchasers of programmatic advertising inventory (ad space). We serve the needs of about 190 small and mid-sized clients, consisting of advertising space buyers, including small and mid-sized companies, large advertising holding companies (which may manage several agencies), independent advertising agencies and mid-market advertising service organizations. We serve a variety of customers across multiple industries including travel/tourism (including DMOs), education, energy, consumer packaged goods, healthcare, financial services and other industries.
We are focused on increasing the number of customers that use our advertising businesses as their advertising partner. Our long-term growth and results of operations will depend on our ability to attract more customers, including DMOs, educational institutions and energy companies across multiple geographies.
Expand Sales to Existing Customers
Our customers understand the independent nature of our platform and relentless focus on driving results based on return on investment ("ROI"). Our value proposition is complete alignment across our entire digital supply platform beginning with the first dollar in and last dollar out. We are technology and media agnostic, and we believe our clients trust us to provide the best opportunity for success of their brands and businesses. As a result, our clients have been loyal, with approximately 80% client retention amongst the clients that represent approximately 80% of our revenue during the six months ended June 30, 2026. In addition, we cultivate client relationships through our pipeline of managed and moderate serve clients that conduct campaigns through our platform. The managed services delivery model allows us to combine our technology with a highly personalized offering to strategically design and manage advertising campaigns.
Shift to Digital Advertising
Media has increasingly become more digital as a result of three key ongoing developments:
•Advances in technology with more sophisticated digital content delivery across multiple platforms;
•Changes in consumer behavior, including spending longer portions of the day using mobile and other devices; and
•Better audience segmentation with more efficient targeting and measurable results.
The resulting shift has enabled a variety of options for advertisers to efficiently target and measure their advertising campaigns across nearly every media channel and device. These efforts have been led by big-budgeted, large, multi-national corporations incentivized to cast a broad advertising net to support national brands.
Increased Adoption of Digital Advertising by Small- and Mid-Sized Companies
Only recently have small and mid-sized businesses begun to leverage the power of digital media in meaningful ways, as emerging technologies have enabled advertising across multiple channels in a highly localized nature. Campaign efficiencies yielding measurable results and higher advertising ROI, as well as the needs driven by global economic and supply chain challenges, have prompted these companies to begin utilizing digital advertising on an accelerated pace. We believe this market is rapidly expanding, and that small-to-mid-sized advertisers will continue to increase their digital spend.
Increasing Revenue from Customers through Increased Advertising Spend through Our Proprietary Programmatic Platform
Colossus Media operates our proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP. Our customers (or buyers) include ad exchanges, DSPs, agencies and individual advertisers as well as our programmatic advertising platform customers. We continue to strive to retain existing publishers and add new publishers. Our proprietary Colossus SSP platform was custom developed with a view towards the specific challenges facing small and mid-sized publishers with the belief that smaller publishers often offer a more engaged, highly-valued, unique following but experience technological and budgetary constraints on the path to monetization. Our business strategy positions us to provide advertisers of all sizes with extensive market reach connecting partners with curated creators and audiences, optimizing the entire media chain to drive better results for clients. We believe that our technology curates unique, highly optimized audiences informed by data analytics, artificial intelligence and algorithmic machine-learning technology, resulting in increased campaign performance.
Monetizing Ad Impressions for Publishers and Buyers
We increase access to publishers with valuable ad impressions with a focus on monetizing digital impressions. Each time the publisher's web page loads, an ad request is sent to multiple ad exchanges, demand side platforms directly or to our programmatic advertising platform customers from Colossus SSP. We continuously review our available inventory from existing publishers across every format (mobile, desktop, digital video, OTT, CTV, and rich media). The factors we consider when determining which impressions we process include transparency, viewability, and whether or not the impression is human sourced. By consistently applying these criteria, we believe the ad impressions we process will be valuable and marketable to advertisers.
Enhancing Ad Inventory Quality
In the advertising industry, inventory quality is assessed in terms of invalid traffic ("IVT") which can be impacted by fraud such as "fake eyeballs" generated by automated technologies set up to artificially inflate impression counts. Through our platform design and proactive IVT mitigation efforts, including our accredited verification process, we address IVT on a number of fronts, including sophisticated technology, which detects and avoids IVT on the front end and back end, direct publisher and inventory relationships for supply path optimization and ongoing campaign and inventory performance reviews to ensure inventory quality and brand protection controls are in place.
Access to Valuable Ad Impressions
Advertisers and agencies often have a large portfolio of brands requiring a variety of campaign types and support for a wide array of inventory formats and devices, including OTT/CTV, video and display, in-app, native and audio. Our omni-channel proprietary technology platform is designed to maximize these various advertising channels, which we believe is a further driver of efficiency for our buyers. The platform is comprised of publishers across multiple channels including OTT/CTV, display, native, in-app, online video ("OLV"), audio and digital out of home ("DOOH"). The Company continues to expand its capabilities to give our content providers more avenues to distribute ad inventory such as OTT/CTV, digital audio, DOOH, etc. and inform our publishers to enhance their ad selling needs by distributing content in various forms to meet the rising demands of the ad buying community.
Components of Our Results of Operations
Revenues
We generate revenue primarily from customers that enter into agreements with us to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features either through our own programmatic platform operating under the trademarked banner Colossus SSP or through third parties such as DSPs.
In connection with our analysis of principal vs agent considerations, we have evaluated the specified goods or services and we considered whether we control the goods or services before they are provided to the customer including the three indicators of control. Based upon this analysis and our specific facts and circumstances, we concluded that we are a principal for the goods or services sold because we control the specified good or service before it is transferred to the customer and we are the primary obligor in the agreement with customers. Therefore, we report revenue on a gross basis inclusive of all supplier costs and we pay suppliers for the cost of digital media, advertising inventory, data and any add-on services or features.
Our revenue recognition policies are discussed in more detail under "-Critical Accounting Estimates and Related Policies" set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.
Cost of revenues
Cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to our customers. We also pay publishers a fee, which is typically a percentage of the value of the ad impressions monetized through our platform, and data center co-location costs including the publishing and real time bidding costs to secure advertising space.
Operating expenses
Operating expenses consist of compensation expenses related to our executive, sales, finance and administrative personnel (including salaries, commissions, stock-based compensation, bonuses, benefits and taxes); general and administrative expenses (including rent expense, professional fees, independent contractor costs, selling and marketing fees, administrative and operating system subscription costs, insurance and amortization expense related to our intangible assets); and other expense (including transactions that are unusual in nature or which are occurring infrequently).
Other income (expense)
Other income. Other income includes income associated with recovery of receivables and other miscellaneous credit card rebates.
Loss on settlement of accounts payable. The Company recognized a loss on settlement of liability associated with the issuance of Class A Common Stock through the Continuation Capital program that the Company initiated in 2025. See further description in "-Liquidity and Capital Resources."
Loss on debt extinguishment. On January 27, 2026, the Company and its lender executed an amendment to the debt agreement which was accounted for as a debt extinguishment, resulting in a loss from the write-off of unamortized deferred financing fees incurred through the date of the amendment as well as recognizing the remaining amendment closing fee of $0.4 million. See Note 3 - Long-Term Debt to our condensed consolidated financial statements.
Derecognition of tax receivable agreement liability. The Company derecognized its tax receivable agreement liability during the six months ended June 30, 2026.
Expenses for Equity Reserve Facility. Expenses are mainly related to our Equity Reserve Facility as further described below in "-Liquidity and Capital Resources."
Interest expense and amortization of deferred financing cost and debt discount (premium), net. Interest expense and amortization of deferred financing cost and debt discount (premium), net is mainly related to our debt as further described below in "-Liquidity and Capital Resources."
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2026 and 2025
The following tables set forth our condensed consolidated results of operations for the periods presented (in thousands). The period-to-period comparison of results is not necessarily indicative of results for future periods.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2026 2025 Amount % 2026 2025 Amount %
Revenues $ 7,832 $ 10,144 $ (2,312) (23) % $ 14,512 $ 18,301 $ (3,789) (21) %
Cost of revenues $ 5,169 $ 6,583 (1,414) (21) % 9,587 12,347 (2,760) (22) %
Gross profit 2,663 3,561 (898) (25) % 4,925 5,954 (1,029) (17) %
Operating expenses 5,591 5,987 (396) (7) % 11,104 12,304 (1,200) (10) %
Loss from operations (2,928) (2,426) (502) (21) % (6,179) (6,350) 171 3 %
Other expense, net (661) (1,770) 1,109 (63) % (2,981) (3,786) 805 (21) %
Loss before income taxes (3,589) (4,196) 607 14 % (9,160) (10,136) 976 10 %
Income tax expense - - - - % - - - - %
Net loss $ (3,589) $ (4,196) $ 607 14 % $ (9,160) $ (10,136) $ 976 10 %
Adjusted EBITDA (1)
$ (2,335) $ (1,452) $ (883) (61) % $ (4,949) $ (4,476) $ (473) (11) %
_______________________________________________________
(1)For a definition of Adjusted EBITDA, an explanation of our management's use of this measure, and a reconciliation of Adjusted EBITDA to net income see " - Non-GAAP Financial Measures."
Revenues
Our revenues of $7.8 million for the three months ended June 30, 2026 decreased by $2.3 million, or 23%, from $10.1 million for the three months ended June 30, 2025. The decrease in revenue was due primarily to a $2.5 million decrease in spending from DSP customers and a $0.4 million decrease from customers no longer actively purchasing from the Company, partially offset by net growth from new and existing customers of $0.6 million primarily due to growth from customers in new verticals added in 2025.
Our revenues of $14.5 million for the six months ended June 30, 2026 decreased by $3.8 million, or 21%, from $18.3 million for the six months ended June 30, 2025. The decrease in revenue was due primarily to a $4.5 million decrease in spending from DSP customers and a $0.8 million decrease from customers no longer actively purchasing from the
Company, partially offset by net growth from new and existing customers of $1.5 million primarily due to growth from customers in new verticals added in 2025.
Cost of revenues
Cost of revenues of $5.2 million (66% of revenue) for the three months ended June 30, 2026 decreased by $1.4 million, or 21% from $6.6 million (65% of revenue) for the three months ended June 30, 2025. The decrease in costs was primarily due to the related decrease in revenue, but was also impacted by a reduction of fixed costs of revenue resulting from ongoing cost savings initiatives. Fixed cost of revenues for the three months ended June 30, 2026 of $0.3 million decreased by $0.6 million, or 69%, from fixed cost of revenues of $0.9 million for the same period in 2025.
Cost of revenues of $9.6 million (66% of revenue) for the six months ended June 30, 2026 decreased by $2.8 million, or 22% from $12.3 million (67% of revenue) for the six months ended June 30, 2025. The decrease in costs was primarily due to the related decrease in revenue, but was also impacted by a reduction of fixed costs of revenue resulting from ongoing cost savings initiatives. Fixed cost of revenues for the six months ended June 30, 2026 of $0.7 million decreased by $1.1 million, or 61%, from fixed cost of revenues of $1.8 million for the same period in 2025.
Gross profit
Gross profit was $2.7 million, or 34% of revenue, for the three months ended June 30, 2026, compared to $3.6 million, or 35% of revenue, for the same period in 2025, reflecting a decrease of $0.9 million, or 25%. The change in gross profit margin percentage for the three months ended June 30, 2026 is attributable to changes in customer mix, including increased revenue from customers and service offerings with lower gross margin characteristics partially offset by a reduction in fixed costs. While these relationships contributed to near-term margin compression, they supported the Company's objectives of customer retention, revenue diversification and sustainable long-term growth.
Gross profit was $4.9 million, or 34% of revenue, for the six months ended June 30, 2026, compared to $6.0 million, or 33% of revenue, for the same period in 2025, reflecting a decrease of $1.0 million, or 17%. The change in gross profit margin percentage for the six months ended June 30, 2026 is attributable to a reduction in fixed costs partially offset by the changes in customer mix that also impacted the three months ended June 30, 2026.
Operating expenses
The following table sets forth the components of operating expenses for the periods presented (in thousands):
Three Months Ended June 30, Change Six Months Ended June 30, Change
2026 2025 Amount % 2026 2025 Amount %
Compensation, taxes and benefits $ 3,215 $ 3,639 $ (424) (12) % $ 6,236 $ 7,303 $ (1,067) (15) %
General and administrative 2,376 2,348 28 1 % 4,868 5,001 (133) (3) %
Total operating expenses $ 5,591 $ 5,987 $ (396) (7) % $ 11,104 $ 12,304 $ (1,200) (10) %
Compensation, taxes and benefits
Compensation, taxes and benefits of $3.2 million decreased by $0.4 million, or 12%, for the three months ended June 30, 2026 from $3.6 million for the same period in 2025. The decrease in the three months ended June 30, 2026 compared to the prior year is primarily due to lower payroll costs due to continued cost management efforts, including workforce optimization and a pause on hiring, which have reduced recurring operating expenses in the current period.
Compensation, taxes and benefits of $6.2 million decreased by $1.1 million, or 15%, for the six months ended June 30, 2026 from $7.3 million for the same period in 2025. The decrease in the six months ended June 30, 2026 compared to the prior year is primarily due to lower payroll costs due to continued cost management efforts, including workforce optimization and a pause on hiring, which have reduced recurring operating expenses in the current period.
General and administrative expense
General and administrative ("G&A") expenses of $2.4 million for the three months ended June 30, 2026 were consistent with the same period in 2025. G&A expenses as a percentage of revenue were 30% and 23% for the three months ended June 30, 2026 and 2025, respectively, with the change in percentages primarily due to a decrease in revenues.
General and administrative expenses of $4.9 million for the six months ended June 30, 2026 decreased by $0.1 million from the same period in 2025. G&A expenses as a percentage of revenue were 34% and 27% for the six months ended June 30, 2026 and 2025, respectively, with the change in percentages primarily due to a decrease in revenues. The overall decrease in G&A expenses was primarily due to lower sales and marketing expenses and travel expenses due to ongoing cost savings measures.
We expect to continue to invest in and incur additional expenses associated with our operation as a public company, including professional fees, investment in automation, and compliance costs associated with developing the requisite infrastructure required for internal controls. However, on July 1, 2024, we executed an internal reorganization plan that included a staff reduction, a pause on hiring and cost savings measures, which we have maintained resulting in lower ongoing expenses.
Other expense, net
The following table sets forth the components of other expense, net for the periods presented (in thousands):
Three Months Ended June 30, Change Six Months Ended June 30, Change
2026 2025 Amount % 2026 2025 Amount %
Interest expense and amortization of deferred financing cost and debt discount (premium), net $ (764) $ (1,789) $ 1,025 (57) % $ (1,327) $ (3,635) $ 2,308 (63) %
Loss on settlement of accounts payable - - - nm (1,247) - (1,247) nm
Loss on debt extinguishment - - - nm (517) - (517) nm
Expenses for Equity Reserve Facility - - - nm - (198) 198 nm
Derecognition of tax receivable agreement liability 41 - 41 nm 41 - 41 nm
Other income 62 19 43 226 % 69 47 22 47 %
Total other expense, net $ (661) $ (1,770) $ 1,109 (63) % $ (2,981) $ (3,786) $ 805 (21) %
nm - not meaningful
Total other expense, net for the three months ended June 30, 2026 and 2025 includes $0.8 million and $1.8 million, respectively, of interest expense. Interest expense decreased by $1.0 million compared to the prior period primarily due to the reduction of outstanding debt resulting from the conversion of debt to preferred stock in the second half of 2025.
Total other expense, net for the six months ended June 30, 2026 and 2025 includes $1.3 million and $3.6 million, respectively, of interest expense. Interest expense decreased by $2.3 million compared to the prior period primarily due to the reduction of outstanding debt resulting from the conversion of debt to preferred stock in the second half of 2025. Total other expense, net for the six months ended June 30, 2026 also includes $1.2 million for the loss on settlement of accounts payable associated with the issuance of common stock through the Continuation Capital program that the Company initiated in 2025 and $0.5 million for loss on debt extinguishment associated with the Eleventh Amendment to the Company's long term debt agreement.
Liquidity and Capital Resources
Going Concern
As discussed in Note 9 - Commitments and Contingencies in our condensed consolidated financial statements, the Company has experienced significant disruption in its business due to a series of unexpected setbacks in the past two years. During 2025, the Company worked with its partners to achieve prior volume levels of revenue but was unable to achieve historical volumes. Despite these challenges, the Company was able to reduce expenses, pay off the matured Credit Agreement with a term loan from Lafayette Square (see Note 3 - Long-Term Debt), convert existing debt of $35.0 million to Series A Convertible Preferred Stock and raise additional equity through the Equity Reserve Facility and the Committed Equity Facility of $11.7 million through June 30, 2026. Additionally, the Company (1) incurred a net loss of $9.2 million for the six months ended June 30, 2026 including the impact of the disruption described above, (2) reported an accumulated deficit of $36.4 million as of June 30, 2026, (3) reported cash and cash equivalents of $0.5 million and a working capital deficit of $27.5 million as of June 30, 2026, (4) owes its lender $18.8 million (combination of principal, accrued fees, interest and the preferred dividends) as of June 30, 2026, under the 2021 Credit Facility (as defined below) which matures in December 2026, (5) was notified by Nasdaq that it was not in compliance with the Stockholders' Equity Rule on April 2, 2026, and has until August 14, 2026 to demonstrate compliance with the Stockholders' Equity Rule (a request for extension
is currently under review by the Panel to extend this deadline), and (6) despite demonstrating compliance with the Bid Price Rule on February 12, 2026 and May 21, 2026, remains subject to a discretionary Panel Monitor through February 12, 2027 for the Bid Price Rule. These factors raise substantial doubt about the Company's ability to continue as a going concern over the next twelve months.
The Company anticipates sources of liquidity to include cash on hand, cash flow from operations, cash generated from its sales under the Company's Committed Equity Facility and cash generated from other potential sales of equity and/or debt securities and has taken several actions to address liquidity and performance concerns. Such plans include (1) a shift in focus to driving intentional digital marketing spend with current and future customers as well as new enterprise customers accessing the digital advertising market through Ignition+, launched in March 2026 allowing for further growth and a return to profitability and (2) refinancing the 2021 Credit Facility by raising additional funds in a registered or private offering. There can be no assurance that the Company's actions will be successful or that additional financing will be available when needed or on acceptable terms.
Sources of Liquidity
The following table summarizes our cash and cash equivalents, and working capital deficit on June 30, 2026 and December 31, 2025 (in thousands):
June 30, 2026 December 31, 2025
Cash and cash equivalents $ 520 $ 728
Working capital deficit
$ (27,489) $ (21,681)
To fund our operations and service our debt thereafter and depending on our growth and results of operations, we may raise additional capital through the issuance of additional equity and/or debt, which could have the effect of diluting our stockholders. Any future equity or debt financings may be on terms which are not favorable to us. As our credit facilities become due, we will need to repay, extend or replace such indebtedness. Our ability to do so will be subject to future economic, financial, business and other factors, many of which are beyond our control.
Credit Facilities
The terms and conditions of the various credit facilities we entered into are further described in Note 3 - Long-Term Debt in the notes to the condensed consolidated financial statements.
Committed Equity Facility
The terms and conditions of the Committed Equity Facility are further described in Note 4 - Stockholders' Deficit and Stock-Based Compensation in the notes to the condensed consolidated financial statements.
Historical Cash Flows:
The following table sets forth our cash flows for the six months ended June 30, 2026 and 2025 (in thousands):
Six Months Ended June 30,
2026 2025
Net cash used in operating activities $ (1,934) $ (5,398)
Net cash used in investing activities - (38)
Net cash provided by financing activities 1,726 5,584
Net (decrease) increase in cash and cash equivalents $ (208) $ 148
Our cash and cash equivalents at June 30, 2026 were held for working capital and general corporate purposes. Cash and cash equivalents as of June 30, 2026 and December 31, 2025 were relatively unchanged with operating cash shortfalls offset by proceeds from issuance of shares under the Equity Reserve Facility and the Committed Equity Facility.
Operating Activities
Cash provided by operating activities has typically been generated from net income and by changes in our operating assets and liabilities, particularly in the areas of accounts receivable and accounts payable and accrued expenses, adjusted
for certain non-cash and non-operating expense items such as depreciation, amortization, stock-based compensation and deferred income taxes.
For the six months ended June 30, 2026, net cash flows used in operating activities were $1.9 million and consisted of net loss of $9.2 million, offset by $4.3 million in adjustments for non-cash and non-operating items and $2.9 million of cash inflows from working capital. Adjustments for non-cash and non-operating items mainly consisted of loss on settlement of accounts payable of $1.2 million, depreciation and amortization expense of $1.2 million, interest paid in kind of $1.1 million, loss on debt extinguishment of $0.5 million, and stock-based compensation expense of $0.3 million. The $2.9 million increase in cash resulting from changes in working capital primarily consisted of a $2.7 million increase in accounts payable and accrued liabilities. The increase in accounts payable is mainly due to the timing of payments to vendors.
For the six months ended June 30, 2025, net cash flows used in operating activities were $5.4 million and consisted of net loss of $10.1 million, offset by $5.0 million in adjustments for non-cash and non-operating items and $0.3 million of cash outflows from working capital. Adjustments for non-cash and non-operating items mainly consisted of depreciation and amortization expense of $4.1 million, stock-based compensation expense of $0.7 million and expenses for the equity reserve facility of $0.2 million. The $0.3 million decrease in cash resulting from changes in working capital primarily consisted of a $1.5 million decrease in accounts payable and a $0.8 million increase in prepaid expenses and other assets, partially offset by a $1.1 million decrease in accounts receivable and a $1.0 million increase in accrued expenses such as payroll and payroll related expenses. The decrease in accounts payable and accounts receivable is mainly due to the seasonal decrease in revenue in the first half of the year compared to the second half of the prior year.
Investing Activities
Our investing activities to date have consisted primarily of purchases of software, office furniture and leasehold improvements. For the six months ended June 30, 2026, there were no investing activities. For the six months ended June 30, 2025, net cash flows used in investing activities of less than $0.1 million were primarily related to office furniture and leasehold improvements.
Financing Activities
For the six months ended June 30, 2026, net cash provided by financing activities was $1.7 million mainly resulting from $1.2 million of proceeds from issuance of Class A Common Stock under the Equity Reserve Facility and the Committed Equity Facility as well as $0.5 million advances from related party.
For the six months ended June 30, 2025, net cash provided by financing activities was $5.6 million mainly resulting from $5.9 million of proceeds issuance of Class A Common Stock under the Equity Reserve Facility partially offset by $0.2 million for payment of expenses for the Equity Reserve Facility.
Contractual Obligations and Future Cash Requirements
As of June 30, 2026, our principal contractual obligations expected to give rise to material cash requirements consist of the 2021 Credit Facility and non-cancelable leases for our various facilities. We anticipate that the future minimum payments related to our current indebtedness over the next five years will be $17.5 million in the remainder of 2026, less than $0.1 million in each of 2027, 2028, and 2029, and $0.1 million thereafter, assuming we do not refinance our indebtedness or enter into a new credit facility. The leases will require minimum payments of $0.1 million in the remainder of 2026, $0.3 million in 2027, $0.2 million in 2028, $0.2 million in 2029 and less than $0.1 million in 2030. As of June 30, 2026, we had cash and cash equivalents of $0.5 million.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles ("GAAP"), including, in particular operating income, net cash provided by operating activities, and net income, we believe that earnings before interest, taxes, depreciation and amortization, as adjusted for stock-based compensation, derecognition of tax receivable agreement liability, expenses for the Equity Reserve Facility, loss on settlement of accounts payable and loss on debt extinguishment ("Adjusted EBITDA"), a non-GAAP measure, is useful in evaluating our operating performance. The most directly comparable GAAP measure to Adjusted EBITDA is net income.
The following table presents a reconciliation of Adjusted EBITDA to net loss for each of the periods presented (in thousands):
Three Months Ended
June 30, 		Six Months Ended
June 30,
2026 2025 2026 2025
Net loss $ (3,589) $ (4,196) $ (9,160) $ (10,136)
Add back (deduct):
Interest expense and amortization of deferred financing cost and debt discount (premium), net 764 1,789 1,327 3,635
Loss on settlement of accounts payable - - 1,247 -
Loss on debt extinguishment - - 517 -
Derecognition of tax receivable agreement liability (41) - (41) -
Amortization of intangible assets 413 489 827 977
Stock-based compensation 84 389 267 705
Depreciation and amortization of property, equipment and software 34 77 67 145
Expenses for Equity Reserve Facility - - - 198
Adjusted EBITDA $ (2,335) $ (1,452) $ (4,949) $ (4,476)
In addition to operating income and net income, we use Adjusted EBITDA as a measure of operational efficiency. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:
•Adjusted EBITDA is widely used by investors and securities analysts to measure a company's operating performance without regard to items such as depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, and certain one-time items such as acquisition transaction costs, derecognition of tax receivable agreement liability, losses from financing activities and costs for the Equity Reserve Facility that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;
•Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance; and
•Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.
Our use of this non-GAAP financial measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP.
Critical Accounting Estimates and Related Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. The Company uses estimates to determine many reported amounts, including but not limited to gross vs net assessment in revenue recognition, recoverability of goodwill and long-lived assets, useful lives used in amortization of intangibles, income taxes and valuation allowances as well as stock-based compensation.
There have been no material changes to our critical accounting estimates and related policies as compared to the critical accounting estimates and related policies described in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation and Consolidation and Summary of Significant Accounting Policies to our condensed consolidated financial statements for accounting pronouncements recently adopted and accounting pronouncements not yet adopted.
Direct Digital Holdings Inc. published this content on August 14, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 14, 2026 at 20:05 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]