UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Digital Media Solutions, Inc.

(Exact name of Registrant as specified in its charter)


Delaware	001-38393	98-1399727
(State of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

4800 140th Avenue N., Suite 101, Clearwater, Florida		33762
(Address of Principal Executive Offices)		(Zip Code)

Registrant's telephone number, including area code: (877) 236-8632

(Former Name or Former Address, if Changed Since Last Report)

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

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Class A common stock, $0.0001 par value per share

DMS

New York Stock Exchange

Redeemable warrants to acquire Class A common stock

DMS WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

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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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 5,~~November 7, 2022, ~~39,836,114~~39,926,324 shares of the registrant’s Class A common stock; 25,699,464 of the registrant’s Class B common stock, par value $0.0001 per share; and 13,999,078 warrants to purchase shares of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding.

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Digital Media Solutions, Inc.

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		Page No.

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets (Unaudited)	1
	Consolidated Statements of Operations (Unaudited)	2
	Consolidated Statements of Changes in Deficit (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	76
	Notes to Consolidated Financial Statements (Unaudited)	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3433
Item 4.	Evaluation of Disclosure Controls and Procedures	3534
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3635
Item 1A.	Risk Factors	3635
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	3635
Item 3.	Defaults Upon Senior Securities	3635
Item 4.	Mine Safety Disclosures	3635
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		38

Cautionary Note Regarding Forward-Looking Statements

References in this document to the “Registrant,” “DMS Inc.,” “DMS,” the “Company,” “we,” “management,” “us” or “our” refers to Digital Media Solutions, Inc. and its consolidated subsidiaries, except where the context otherwise requires or indicates.

This Quarterly Report, particularly Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II. Item 1A. Risk Factors, and the documents we incorporate into this Quarterly Report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. These forward looking statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its future performance and its ability to implement its strategy, and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) the COVID-19 pandemic or other public health crises; (2) changes in client demand for our services and our ability to adapt to such changes; (3) the entry of new competitors in the market; (4) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (5) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers; (6) the performance of DMS’s technology infrastructure; (7) the ability to protect DMS’s intellectual property rights; (8) the ability to successfully source and complete acquisitions and to integrate the operations of companies DMS acquires, including Traverse Data, Inc., the Crisp Results assets and Aimtell, PushPros and Aramis Interactive; (9) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate the identified material weakness; (10) changes in applicable laws or regulations and the ability to maintain compliance; (11) our substantial levels of indebtedness; (12) volatility in the trading price on the NYSE of our common stock and warrants; (13) fluctuations in value of our private placement warrants; and (14) other risks and uncertainties indicated from time to time in

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DMS’s filings with the U.S. Securities and Exchange Commission (“SEC”), including those under “Risk Factors” in DMS’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 16, 2022 (“2021 Form 10-K”) and its subsequent filings with the SEC.

There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks.

DMS cautions that the foregoing list of factors is not exclusive. DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

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PART I - FINANCIAL INFORMATION

Item 1. Financial ~~Statement~~Statements

DIGITAL MEDIA SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share data)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	26,370	$	26,394	Cash and cash equivalents	$	18,271	$	26,394
Accounts receivable, net of allowances of $5,860 and $4,930, respectively		46,545		51,578
Accounts receivable, net of allowances of $5,654 and $4,459, respectively						Accounts receivable, net of allowances of $5,654 and $4,459, respectively	45,780		51,578
Prepaid and other current assets	Prepaid and other current assets	1,188		3,698		Prepaid and other current assets	2,468		3,698
Income tax receivable	Income tax receivable	1,537		2,078		Income tax receivable	1,399		2,078
Total current assets	Total current assets	75,640		83,748		Total current assets	67,918		83,748
Property and equipment, net	Property and equipment, net	18,152		19,168		Property and equipment, net	18,167		19,168
Goodwill	Goodwill	76,947		76,558		Goodwill	77,219		76,558
Intangible assets, net	Intangible assets, net	58,888		66,228		Intangible assets, net	53,825		66,228
Deferred tax assets		—		—

Other assets	Other assets	858		889		Other assets	808		889
Total assets	Total assets	$	230,485	$	246,591	Total assets	$	217,937	$	246,591
LIABILITIES AND DEFICIT	LIABILITIES AND DEFICIT					LIABILITIES AND DEFICIT
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	40,684	$	42,073	Accounts payable	$	36,348	$	42,073
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	9,912		9,473		Accrued expenses and other current liabilities	9,335		9,473
Current portion of long-term debt	Current portion of long-term debt	2,250		2,250		Current portion of long-term debt	2,250		2,250
Income taxes payable	Income taxes payable	193		103		Income taxes payable	721		103
Tax Receivable Agreement liability	Tax Receivable Agreement liability	1,310		1,310		Tax Receivable Agreement liability	1,190		1,310
Contingent consideration payable - current	Contingent consideration payable - current	10,909		7,370		Contingent consideration payable - current	1,371		7,370
Deferred acquisitions consideration payable - current	Deferred acquisitions consideration payable - current	4,928		4,785		Deferred acquisitions consideration payable - current	5,000		4,785
Total current liabilities	Total current liabilities	70,186		67,364		Total current liabilities	56,215		67,364

Long-term debt	Long-term debt	215,089		215,505		Long-term debt	214,838		215,505

Deferred tax liabilities	Deferred tax liabilities	4,001		4,786		Deferred tax liabilities	4,060		4,786
Private Placement Warrant liabilities	Private Placement Warrant liabilities	480		3,960		Private Placement Warrant liabilities	1,480		3,960
Contingent consideration payable - non-current	Contingent consideration payable - non-current	494		1,069		Contingent consideration payable - non-current	31		1,069

Other non-current liabilities	Other non-current liabilities	1,754		1,725		Other non-current liabilities	1,530		1,725
Total liabilities	Total liabilities	292,004		294,409		Total liabilities	278,154		294,409

Stockholders' deficit:	Stockholders' deficit:					Stockholders' deficit:
Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at June 30, 2022		—		—
Class A Common Stock, $0.0001 par value, 500,000 shares authorized; 36,564 issued and outstanding at June 30, 2022		3		3
Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and 25,699 outstanding at June 30, 2022		3		3
Class C convertible common stock, $0.0001 par value, 40,000 authorized; none issued and outstanding at June 30, 2022		—		—
Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at September 30, 2022						Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at September 30, 2022	—		—
Class A common stock, $0.0001 par value, 500,000 shares authorized; 39,926 issued and outstanding at September 30, 2022						Class A common stock, $0.0001 par value, 500,000 shares authorized; 39,926 issued and outstanding at September 30, 2022	4		3
Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at September 30, 2022						Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at September 30, 2022	3		3
Class C convertible common stock, $0.0001 par value, 40,000 shares authorized; none issued and outstanding at September 30, 2022						Class C convertible common stock, $0.0001 par value, 40,000 shares authorized; none issued and outstanding at September 30, 2022	—		—
Additional paid-in capital	Additional paid-in capital	(22,313)		(25,239)		Additional paid-in capital	(17,166)		(25,239)
Treasury stock, at cost, 125 and 0 shares, respectively						Treasury stock, at cost, 125 and 0 shares, respectively	(156)		—
Cumulative deficit	Cumulative deficit	(11,060)		(944)		Cumulative deficit	(17,544)		(944)
Total stockholders' deficit	Total stockholders' deficit	(33,367)		(26,177)		Total stockholders' deficit	(34,859)		(26,177)
Non-controlling interest	Non-controlling interest	(28,152)		(21,641)		Non-controlling interest	(25,358)		(21,641)
Total deficit	Total deficit	(61,519)		(47,818)		Total deficit	(60,217)		(47,818)
Total liabilities and deficit	Total liabilities and deficit	$	230,485	$	246,591	Total liabilities and deficit	$	217,937	$	246,591

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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DIGITAL MEDIA SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net revenue	Net revenue	$	91,197	$	105,079	$	200,307	$	201,882	Net revenue	$	90,066	$	107,399	$	290,372	$	309,281
Cost of revenue (exclusive of depreciation and amortization shown separately below)		67,784		71,359		145,624		140,541
Cost of revenue (exclusive of depreciation and amortization)										Cost of revenue (exclusive of depreciation and amortization)	66,378		77,063		211,997		218,304
Salaries and related costs	Salaries and related costs	13,237		11,708		26,945		21,977		Salaries and related costs	11,668		12,449		38,612		34,426
General and administrative expenses	General and administrative expenses	12,444		10,552		23,544		17,514		General and administrative expenses	9,076		10,237		32,622		27,051
Depreciation and amortization	Depreciation and amortization	7,173		7,044		14,233		12,463		Depreciation and amortization	7,142		7,186		21,377		19,649
Acquisition costs	Acquisition costs	279		466		292		1,960		Acquisition costs	14		420		306		1,820
Change in fair value of contingent consideration liabilities	Change in fair value of contingent consideration liabilities	(55)		—		2,536		—		Change in fair value of contingent consideration liabilities	(3)		(3,085)		2,533		(2,525)
(Loss) income from operations	(Loss) income from operations	$	(9,665)	$	3,950	$	(12,867)	$	7,427	(Loss) income from operations	$	(4,209)	$	3,129	$	(17,075)	$	10,556
Interest expense	Interest expense	3,817		3,622		7,502		6,879		Interest expense	4,570		3,756		12,072		10,635
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(1,640)		(7,750)		(3,480)		(7,435)		Change in fair value of warrant liabilities	1,000		(6,400)		(2,480)		(13,835)

Change in Tax Receivable Agreement liability										Change in Tax Receivable Agreement liability	(121)		—		(121)		—

Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		—		2,108		Loss on debt extinguishment	—		—		—		2,108

Net (loss) income before income taxes	Net (loss) income before income taxes	$	(11,842)	$	5,970	$	(16,889)	$	5,875	Net (loss) income before income taxes	$	(9,658)	$	5,773	$	(26,546)	$	11,648
Income tax expense	Income tax expense	45		1,031		355		1,148		Income tax expense	463		379		819		1,527
Net (loss) income	Net (loss) income	$	(11,887)	$	4,939	$	(17,244)	$	4,727	Net (loss) income	$	(10,121)	$	5,394	$	(27,365)	$	10,121
Net (loss) income attributable to non-controlling interest	Net (loss) income attributable to non-controlling interest	(4,905)		2,411		(7,121)		2,373		Net (loss) income attributable to non-controlling interest	(4,010)		1,858		(10,765)		4,217
Net (loss) income attributable to Digital Media Solutions, Inc.	Net (loss) income attributable to Digital Media Solutions, Inc.	$	(6,982)	$	2,528	$	(10,123)	$	2,354	Net (loss) income attributable to Digital Media Solutions, Inc.	$	(6,111)	$	3,536	$	(16,600)	$	5,904

Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	39,553		35,377		37,969		34,315		Weighted-average shares outstanding - basic	39,961		36,511		37,644		35,050
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	65,252		36,522		63,682		34,325		Weighted-average shares outstanding - diluted	65,660		63,321		37,644		61,988
Earnings (loss) per share attributable to Digital Media Solutions, Inc.:	Earnings (loss) per share attributable to Digital Media Solutions, Inc.:									Earnings (loss) per share attributable to Digital Media Solutions, Inc.:
Basic - per common shares	Basic - per common shares	$	(0.18)	$	0.07	$	(0.27)	$	0.07	Basic - per common shares	$	(0.15)	$	0.10	$	(0.44)	$	0.17
Diluted - per common shares	Diluted - per common shares	$	(0.18)	$	0.07	$	(0.27)	$	(0.06)	Diluted - per common shares	$	(0.15)	$	0.09	$	(0.44)	$	0.16

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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DIGITAL MEDIA SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

(Unaudited)

(in thousands, except share data)


		Class A Common Stock			Class B Common Stock			Additional Paid-in Capital				Cumulative Deficit		Total Stockholders' Deficit			Non- controlling Interest						Class A Common Stock					Class B Common Stock			Additional Paid-in Capital		Treasury Stock		Cumulative Deficit			Total Stockholders' Deficit		Non- controlling Interest
		Shares	Amount		Shares	Amount										Total Deficit			Shares				Amount			Shares		Amount									Total Deficit

Balance, March 31, 2022		36,394	$	3	25,699	$	3			$	(23,754)			$	(4,078)		$	(27,826)		$	(23,980)			$	(51,806)
Net (loss) income		—	—		—	—		—				(6,982)		(6,982)			(4,905)			$	(11,887)

Balance, June 30, 2022																						Balance, June 30, 2022	36,564			$	3	25,699	$	3	$	(22,313)	$	—	$	(11,060)		$	(33,367)	$	(28,152)	$	(61,519)
Net loss																						Net loss	—			—		—	—		—		—		(6,111)			(6,111)		(4,010)		(10,121)
Shares issued in connection with the Crisp Earnout (Note 6)																						Shares issued in connection with the Crisp Earnout (Note 6)	2,989			1		—	—		9,999		—		—			10,000		—		10,000
Stock-based compensation	Stock-based compensation	—	—		—	—		2,174				—		2,174			—			2,174		Stock-based compensation	—			—		—	—		1,579		—		—			1,579		—		1,579
Shares issued under the 2020 Omnibus Incentive Plan	Shares issued under the 2020 Omnibus Incentive Plan	170	—		—	—		—				—		—			—			—		Shares issued under the 2020 Omnibus Incentive Plan	498			—		—	—		—		—		—			—		—		—
Treasury shares purchased under the 2020 Omnibus Incentive Plan																						Treasury shares purchased under the 2020 Omnibus Incentive Plan	(125)			—		—	—		—		(156)		—			(156)		—		(156)
Impact of transactions affecting non-controlling interest (1)	Impact of transactions affecting non-controlling interest (1)	—	—		—	—		(733)				—		(733)			733			—		Impact of transactions affecting non-controlling interest (1)	—			—		—	—		(6,804)		—		—			(6,804)		6,804		—

Balance, June 30, 2022		36,564	$	3	25,699	$	3	$	(22,313)			$	(11,060)	$	(33,367)		$	(28,152)		$	(61,519)
Balance, September 30, 2022																						Balance, September 30, 2022	39,926			$	4	25,699	$	3	$	(17,539)	$	(156)	$	(17,171)		$	(34,859)	$	(25,358)	$	(60,217)

____________________

(1) The carrying amount of non-controlling interest was adjusted to reflect the change in ownership interest caused by shares issued in connection with the Crisp Earnout and shares issued under the 2020 Omnibus Incentive Plan.


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Cumulative Deficit		Total Stockholders' Deficit		Non- controlling Interest
	Shares	Amount		Shares	Amount										Total Deficit















Balance, June 30, 2021	35,818	$	3	25,699	$	3	$	(27,642)	$	(737)	$	(28,373)	$	(24,534)	$	(52,907)
Net income	—	—		—	—		—		3,536		3,536		1,858		5,394
Shares issued under the 2020 Omnibus Incentive Plan	350	—		—	—		—		—		—		—		—
Stock-based compensation	—	—		—	—		1,583		—		1,583		—		1,583
Impact of transactions affecting non-controlling interest (1)	—	—		—	—		(1,416)		—		(1,416)		1,416		—
Correction of Business Combination Tax Receivable Agreement	—	—		—	—		(322)		—		(322)		—		(322)
Other (2)	—	—		—	—		80		—		80		(75)		5
Balance, September 30, 2021	36,168	$	3	25,699	$	3	$	(27,717)	$	2,799	$	(24,912)	$	(21,335)	$	(46,247)

____________________

(1) The carrying amount of non-controlling interest was adjusted to reflect the change in ownership interest caused by shares issued under the 2020 Omnibus Incentive Plan.

(2) Includes costs associated with the issuance of equity shares.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Class A
Common Stock
Class B
Common Stock
Additional Paid-in Capital Cumulative Deficit Total
Stockholders' Deficit Non-
controlling
Interest
Shares Amount Shares Amount Total Deficit
Balance, March 31, 2021 33,687 $ 3 25,999 $ 3 $ (37,261) $ (3,265) $ (40,520) $ (39,016) $ (79,536)
Net income — — — — — 2,528 2,528 2,411 $ 4,939
Shares issued in connection with acquisition of Crisp Results (Note 6) 1,595 $ — — $ — $ 11,513 $ — $ 11,513 $ 8,310 $ 19,823
Prism shares redeemed and issued to Class A Common Stock 300 $ — (300) $ — $ 192 $ — $ 192 $ — $ 192
Directors and employee vested units redeemed 82 $ — — $ — $ — $ — — $ — $ —
Stock-based compensation — $ — — $ — $ 1,394 $ — $ 1,394 $ — $ 1,394
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)
154 $ — — — $ 392 $ — $ 392 $ — $ 392
Impact of transactions affecting non-controlling interest (2)
— $ — — $ — $ (3,788) $ — $ (3,788) $ 3,788 $ —
Other (3)
— $ — — $ — $ (84) $ — $ (84) $ (27) $ (111)
Balance, June 30, 2021 35,818 $ 3 25,699 3 (27,642) (737) $ (28,373) $ (24,534) $ (52,907)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Treasury Stock		Cumulative Deficit		Total Stockholders' Deficit		Non- controlling Interest
	Shares	Amount		Shares	Amount												Total Deficit
Balance, December 31, 2021	36,226	$	3	25,699	$	3	$	(25,239)	$	—	$	(944)	$	(26,177)	$	(21,641)	$	(47,818)
Net loss	—	—		—	—		—		—		(16,600)		(16,600)		(10,765)		(27,365)
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)	153	—		—	—		—		—		—		—		—		—
Shares issued in connection with the Crisp Earnout (Note 6)	2,989	1		—	—		9,999		—		—		10,000		—		10,000

Stock-based compensation	—	—		—	—		5,695		—		—		5,695		—		5,695
Shares issued under the 2020 Omnibus Incentive Plan	683	—		—	—		—		—		—		—		—		—
Distributions to non-controlling interest holders (2)	—	—		—	—		—		—		—		—		(573)		(573)
Treasury shares purchased under the 2020 Omnibus Incentive Plan	(125)	—		—	—		—		(156)		—		(156)		—		(156)
Impact of transactions affecting non-controlling interest (3)	—	—		—	—		(7,621)		—		—		(7,621)		7,621		—

Balance, September 30, 2022	39,926	$	4	25,699	$	3	$	(17,166)	$	(156)	$	(17,544)	$	(34,859)	$	(25,358)	$	(60,217)

(1) On June 30, 2021, the sellers of SmarterChaos redeemed approximately one-half of their non-controlling interest held through DMSH Units in exchange for Class A Common Stock in DMS Inc. The non-controlling interest held by the sellers of SmarterChaos did not include related Class B Common Stock to be retired upon redemption.

(2) The carrying amount of non-controlling interest was adjusted to reflect the change in ownership interest caused by additional controlling shares contributed as a result of the Crisp acquisition and non-controlling redemptions by Prism and the sellers of SmarterChaos.

~~(3) Includes costs associated with the issuance of equity shares.~~

~~The accompanying notes are an integral part of the unaudited consolidated financial statements.~~

~~Table of Contents~~

Class A
Common Stock Class B
Common Stock Additional
Paid-in Capital Cumulative Deficit Total
Stockholders'
Deficit Non-
controlling
Interest
Shares Amount Shares Amount Total Deficit
Balance, December 31, 2021 36,226 $ 3 25,699 $ 3 $ (25,239) $ (944) $ (26,177) $ (21,641) $ (47,818)
Net (loss) income — — — — — (10,123) (10,123) (7,121) (17,244)
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)
153 — — — — — — — —
Shares issued in connection with acquisition of Crisp Results (Note 6) — — — — — — — — —
Exercise of warrants to issue Class A common stock — — — — — — — — —
Stock-based compensation — — — — 4,116 — 4,116 — 4,116
Shares issued under the 2020 Omnibus Incentive Plan 185 — — — — — — — —
Distributions to non-controlling interest holders (2)
— — — — — — — (573) (573)
Impact of transactions affecting non-controlling interest (3)
— — — — (1,183) — (1,183) 1,183 —
Balance, June 30, 2022 36,564 $ 3 25,699 $ 3 $ (22,306) $ (11,067) $ (33,367) $ (28,152) $ (61,519)

____________________

(1) On January 17, 2022, the Sellers of SmarterChaos redeemed their remaining non-controlling interest held through DMSH Units in exchange for ~~154,000~~153 thousand shares of Class A Common Stock in DMS, Inc. The non-controlling interest held by the Sellers of SmarterChaos did not include related Class B Common Stock to be retired upon redemption.

(2) Represents tax distributions to shareholders Prism, Clairvest and the Sellers of SmarterChaos. As of ~~June~~September 30, 2022, $10 thousand of these distributions have not been paid.

(3) The carrying amount of non-controlling interest was adjusted primarily to reflect the change in ownership interest caused by additional DMSH units redeemed and issued to Class A Common Stock by the Sellers of SmarterChaos, shares issued in connection with the Crisp Earnout and shares issued under the 2020 Omnibus Incentive Plan.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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		Class A Common Stock			Class B Common Stock			Additional Paid-in Capital				Cumulative Deficit		Total Stockholders' Deficit			Non- controlling Interest						Class A Common Stock						Class B Common Stock				Additional Paid-in Capital				Cumulative Deficit				Total Stockholders' Deficit				Non- controlling Interest
		Shares	Amount		Shares	Amount										Total Deficit			Shares				Amount				Shares		Amount										Total Deficit
Balance, December 31, 2020	Balance, December 31, 2020	32,393	$	3	25,999	$	3			$	(48,027)			$	(3,146)		$	(51,167)		$	(44,518)			$	(95,685)	Balance, December 31, 2020	32,393		$	3	25,999				$	3			$	(48,027)			$	(3,146)			$	(51,167)			$	(44,518)	$	(95,685)
Net (loss) income	Net (loss) income	—	—		—	—		—				2,354		2,354			2,373			4,727		Net (loss) income	—				—		—		—		—				5,945				5,945				4,176				10,121
Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 6)	Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 6)	1,293	—		—	—		9,384				—		9,384			5,616			15,000		Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 6)	1,293				—		—		—		9,384				—				9,384				5,616				15,000
Shares issued in connection with acquisition of Crisp Results (Note 6)	Shares issued in connection with acquisition of Crisp Results (Note 6)	1,595	—		—	—		11,513				—		11,513			8,310			19,823		Shares issued in connection with acquisition of Crisp Results (Note 6)	1,595				—		—		—		11,513				—				11,513				8,310				19,823
Exercise of warrants to issue Class A common stock	Exercise of warrants to issue Class A common stock	1	—		—	—		17				—		17			—			17		Exercise of warrants to issue Class A common stock	1				—		—		—		17				—				17				—				17
Prism shares redeemed and issued to Class A Common Stock	Prism shares redeemed and issued to Class A Common Stock	300	—		(300)	—		192				—		192			—			192		Prism shares redeemed and issued to Class A Common Stock	300				—		(300)		—		192				—				192				—				192
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)	SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)	154	—		—	—		392				—		392			—			392		SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)	154				—		—		—		392				—				392				—				392
Shares issued under the 2020 Omnibus Incentive Plan	Shares issued under the 2020 Omnibus Incentive Plan	82	—		—	—		—				—		—			—			—		Shares issued under the 2020 Omnibus Incentive Plan	432				—		—		—		—				—				—				—				—
Stock-based compensation	Stock-based compensation	—	—		—	—		2,759				—		2,759			—			2,759		Stock-based compensation	—				—		—		—		4,342				—				4,342				—				4,342
Impact of transactions affecting non-controlling interest (2)	Impact of transactions affecting non-controlling interest (2)	—	—		—	—		(3,733)				—		(3,733)			3,733			—		Impact of transactions affecting non-controlling interest (2)	—				—		—		—		(5,204)				—				(5,204)				5,204				—
Correction of Business Combination Tax Receivable Agreement																						Correction of Business Combination Tax Receivable Agreement	—				—		—		—		(322)				—				(322)				—				(322)
Other (3)	Other (3)	—	—		—	—		(84)				—		(84)			(48)			(132)		Other (3)	—				—		—		—		(4)				—				(4)				(123)				(127)
Balance, June 30, 2021		35,818	$	3	25,699	$	3	$	(27,587)			$	(792)	$	(28,373)		$	(24,534)		$	(52,907)
Balance, September 30, 2021																						Balance, September 30, 2021	36,168				$	3	25,699		$	3	$	(27,717)			$	2,799			$	(24,912)			$	(21,335)			$	(46,247)

____________________

(3) Includes costs associated with the issuance of equity shares.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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DIGITAL MEDIA SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net (loss) income	Net (loss) income	$	(17,244)	$	4,727	Net (loss) income	$	(27,365)	$	10,121
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities					Adjustments to reconcile net income to net cash provided by operating activities
Provision for bad debt	Provision for bad debt	1,339		909		Provision for bad debt	1,305		1,384
Depreciation and amortization	Depreciation and amortization	14,233		12,463		Depreciation and amortization	21,377		19,649

Lease restructuring charges	Lease restructuring charges	2		174		Lease restructuring charges	(167)		(81)
Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		Loss on debt extinguishment	—		2,108
Stock-based compensation, net of amounts capitalized	Stock-based compensation, net of amounts capitalized	3,908		2,530		Stock-based compensation, net of amounts capitalized	5,332		3,976

Amortization of debt issuance costs	Amortization of debt issuance costs	938		528		Amortization of debt issuance costs	1,149		1,006
Deferred income tax provision, net	Deferred income tax provision, net	(785)		364		Deferred income tax provision, net	(1,160)		(856)

Change in fair value of contingent consideration	Change in fair value of contingent consideration	2,536		560		Change in fair value of contingent consideration	2,533		(2,525)
Change in fair value of warrant liability	Change in fair value of warrant liability	(3,480)		(7,435)		Change in fair value of warrant liability	(2,480)		(13,835)

Change in Tax Receivable Agreement liability						Change in Tax Receivable Agreement liability	(120)		—
Change in income tax receivable and payable	Change in income tax receivable and payable	631		(2,328)		Change in income tax receivable and payable	1,297		(728)
Change in accounts receivable	Change in accounts receivable	4,026		(4,330)		Change in accounts receivable	4,824		(7,324)
Change in prepaid expenses and other current assets	Change in prepaid expenses and other current assets	2,585		222		Change in prepaid expenses and other current assets	1,120		(2,121)
Change in accounts payable and accrued expenses	Change in accounts payable and accrued expenses	(1,275)		(6,768)		Change in accounts payable and accrued expenses	(5,341)		(2,367)
Change in other liabilities	Change in other liabilities	27		(190)		Change in other liabilities	(195)		(516)
Net cash provided by operating activities	Net cash provided by operating activities	$	7,441	$	3,534	Net cash provided by operating activities	$	2,109	$	7,891
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Additions to property and equipment	Additions to property and equipment	$	(3,197)	$	(4,212)	Additions to property and equipment	$	(5,247)	$	(7,875)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(2,579)		(24,830)		Acquisition of businesses, net of cash acquired	(2,579)		(24,830)

Net cash used in investing activities	Net cash used in investing activities	$	(5,776)	$	(29,042)	Net cash used in investing activities	$	(7,826)	$	(32,705)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities

Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	$	—	$	220,840	Proceeds from issuance of long-term debt	$	—	$	220,840
Payments of long-term debt and notes payable	Payments of long-term debt and notes payable	(1,126)		(199,851)		Payments of long-term debt and notes payable	(1,687)		(200,414)
Proceeds from borrowings on revolving credit facilities	Proceeds from borrowings on revolving credit facilities	—		11,000		Proceeds from borrowings on revolving credit facilities	—		11,000
Payments of borrowings on revolving credit facilities	Payments of borrowings on revolving credit facilities	—		(15,000)		Payments of borrowings on revolving credit facilities	—		(15,000)
Payment of debt issuance costs	Payment of debt issuance costs	—		(3,565)		Payment of debt issuance costs	—		(3,565)

Payment of equity issuance	Payment of equity issuance	—		(322)		Payment of equity issuance	—		(475)
Payment of early termination	Payment of early termination	—		(188)		Payment of early termination	—		(188)
Proceeds from warrants exercised	Proceeds from warrants exercised	—		11		Proceeds from warrants exercised	—		11
Purchase of treasury stock related to stock-based compensation						Purchase of treasury stock related to stock-based compensation	(156)		—
Distributions to non-controlling interest holders	Distributions to non-controlling interest holders	(563)		—		Distributions to non-controlling interest holders	(563)		—
Other	Other	—		15		Other	—		(60)
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	$	(1,689)	$	12,940	Net cash (used in) provided by financing activities	$	(2,406)	$	12,149
Net change in cash	Net change in cash	$	(24)	$	(12,568)	Net change in cash	$	(8,123)	$	(12,665)
Cash, beginning of period	Cash, beginning of period	26,394		31,397		Cash, beginning of period	26,394		31,397
Cash, end of period	Cash, end of period	$	26,370	$	18,829	Cash, end of period	$	18,271	$	18,732

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							Nine Months Ended September 30,
							2022		2021
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information					Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period For	Cash Paid During the Period For					Cash Paid During the Period For
Interest	Interest	$	6,524	$	6,308	Interest	$	10,651	$	10,908
Income taxes	Income taxes	$	—	$	3,837	Income taxes	$	662	$	3,837
Non-Cash Investing and Financing Transactions:	Non-Cash Investing and Financing Transactions:					Non-Cash Investing and Financing Transactions:
Contingent and deferred acquisition consideration	Contingent and deferred acquisition consideration	$	2,964	$	14,890	Contingent and deferred acquisition consideration	$	2,971	$	11,877
Stock-based compensation capitalized in property and equipment	Stock-based compensation capitalized in property and equipment	$	208	$	229	Stock-based compensation capitalized in property and equipment	$	363	$	366
Capital expenditures included in accounts payable	Capital expenditures included in accounts payable	$	269	$	1,144	Capital expenditures included in accounts payable	$	236	$	550
Issuance of equity for Aimtell/Aramis//PushPros, and Crisp Results	Issuance of equity for Aimtell/Aramis//PushPros, and Crisp Results	$	—	$	35,000	Issuance of equity for Aimtell/Aramis//PushPros, and Crisp Results	$	10,000	$	35,000

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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DIGITAL MEDIA SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Digital Media Solutions, Inc. (“DMS Inc.”) is a digital performance marketing company offering a diversified lead and software delivery platform that drives high value and high intent leads to its customers. As used in this Quarterly Report, the “Company” refers to DMS Inc. and its consolidated subsidiaries, (including its wholly-owned subsidiary, CEP V DMS US Blocker Company, a Delaware corporation (“Blocker”)). The Company is headquartered in Clearwater, Florida. The Company primarily operates and derives most of its revenues in the United States.

Basis of Presentation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.

Business Combination

On July 15, 2020, Digital Media Solutions Holding (“DMSH”) consummated the Business Combination with Leo Holdings Corp. (“Leo”) pursuant to the Business Combination Agreement (“Business Combination”). Pursuant to the Business Combination, DMS Inc. acquired, directly and through its acquisition of the equity of Blocker, approximately ~~58.7%~~60.8% of the membership interest in DMSH, while Prism Data, LLC, a Delaware limited liability company (“Prism”), CEP V-A DMS AIV Limited Partnership, a Delaware limited partnership (“Clairvest Direct Seller”) and related entities (the “Sellers”) retained approximately ~~41.3%~~39.2% of the membership interest in DMSH (“non-controlling interests”). For additional information, see Note 2. Business Combination in the Notes to Consolidated Financial Statements in our 2021 Form 10-K.

Non-controlling Interest

The non-controlling interest represents the membership interest in DMSH held by holders other than the Company. As of ~~June~~September 30, 2022, the Prism, Clairvest Direct Sellers and SmarterChaos combined ownership percentage in DMSH was ~~41.3%~~39.2% and as of December 31, 2021 it was 41.6%.

Principles of Consolidation

The Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker. The Company consolidates the assets, liabilities and operating results of DMSH and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations, and the non-controlling interests are reported as a separate component of equity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported as separate financial statement line items in the consolidated financial statements. Actual results could differ from those estimates. Management regularly makes estimates and assumptions that are inherent in the preparation of the consolidated financial statements including, but not limited to, the fair value of private placement warrants, the allowance for doubtful accounts, stock-based compensation, fair value of intangibles acquired in business combinations, loss contingencies, contingent consideration liabilities, asset impairments, and deferred taxes and amounts associated with the Tax Receivable Agreement.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.

Table of Contents

Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies in our 2021 Form 10-K.

~~Table of Contents~~

New Accounting Standards

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued authoritative guidance ASC 842, Lease Accounting, regarding the accounting for leases, and has since issued subsequent updates to the initial guidance. The amended guidance requires the recognition of assets and liabilities for operating leases. The standard was initially effective for annual and interim reporting periods beginning after December 15, 2019. However, in November 2019, the FASB issued amended guidance, which defers for Emerging Growth Companies (“EGC”) the effective date for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The standard must be adopted using a modified retrospective transition. We plan to adopt the standard using the optional transition method whereby we would apply the new lease requirements through a cumulative-effect adjustment on the effective date of adoption. We plan to elect the package of practical expedients permitted under the transition guidance of the new standards, which allows us to not reassess whether any expired or existing contracts contain leases, allows us to carry forward the historical lease classification and permits us to exclude from our assessment initial direct costs for any existing leases. We will also make an accounting policy election to exclude leases with an initial term of twelve months or less from our transition adjustment. We ~~are currently evaluating~~will adopt this standard in the last fiscal quarter of 2022 and we expect the adoption will have a material impact on our consolidated ~~balance sheets.~~financial statements and disclosures.

The Company qualifies as an “emerging growth company” and has elected to adhere to the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

In June 2016, the FASB issued authoritative guidance ASC 326 Financial Instruments - Credit Losses, regarding the impairment model known as the current expected credit loss (“CECL”) model on accounting for credit losses on financial instruments, including trade receivables, and has since issued subsequent updates to the initial guidance. The amended guidance requires the application of a CECL model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance requires adoption using a modified retrospective approach and is effective for emerging growth companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact on our consolidated financial statements.

NOTE 2. REVENUE

Disaggregation of Revenue

The following tables ~~presents~~present the disaggregation of revenue by reportable segment and type of service (in thousands):

Three Months Ended June 30, 2022
Brand
Direct Marketplace Technology Solutions Intercompany eliminations Total
Net revenue:
Customer acquisition $ 43,124 $ 54,092 $ — $ (10,232) $ 86,984
Managed services 1,665 — 1,403 — 3,068
Software services — — 1,145 — 1,145
Total Net revenue $ 44,789 $ 54,092 $ 2,548 $ (10,232) $ 91,197


		Three Months Ended June 30, 2021											Three Months Ended September 30, 2022
		Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total			Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:	Net revenue:											Net revenue:
Customer acquisition	Customer acquisition	$	57,955	$	57,763	$	—	$	(14,476)	$	101,242	Customer acquisition	$	41,381	$	53,230	$	—	$	(8,059)	$	86,552
Managed services	Managed services	1,921		—		1,109		—		3,030		Managed services	937		—		1,076		—		2,013
Software services	Software services	—		—		807		—		807		Software services	—		—		1,501		—		1,501
Total Net revenue	Total Net revenue	$	59,876	$	57,763	$	1,916	$	(14,476)	$	105,079	Total Net revenue	$	42,318	$	53,230	$	2,577	$	(8,059)	$	90,066

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		Six Months Ended June 30, 2022											Three Months Ended September 30, 2021
		Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total			Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:	Net revenue:											Net revenue:
Customer acquisition	Customer acquisition	$	102,743	$	112,898	$	—	$	(23,492)	$	192,149	Customer acquisition	$	63,332	$	58,278	$	—	$	(18,133)	$	103,477
Managed services	Managed services	3,274		—		2,913		—		6,187		Managed services	1,667		—		1,471		—		3,138
Software services	Software services	—		—		1,971		—		1,971		Software services	—		—		784		—		784
Total Net revenue	Total Net revenue	$	106,017	$	112,898	$	4,884	$	(23,492)	$	200,307	Total Net revenue	$	64,999	$	58,278	$	2,255	$	(18,133)	$	107,399


		Six Months Ended June 30, 2021											Nine Months Ended September 30, 2022
		Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total			Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:	Net revenue:											Net revenue:
Customer acquisition	Customer acquisition	$	111,009	$	107,022	$	—	$	(25,127)	$	192,904	Customer acquisition	$	144,123	$	166,128	$	—	$	(31,551)	$	278,700
Managed services	Managed services	5,046		—		2,325		—		7,371		Managed services	4,211		—		3,989		—		8,200
Software services	Software services	—		—		1,607		—		1,607		Software services	—		—		3,472		—		3,472
Total Net revenue	Total Net revenue	$	116,055	$	107,022	$	3,932	$	(25,127)	$	201,882	Total Net revenue	$	148,334	$	166,128	$	7,461	$	(31,551)	$	290,372


	Nine Months Ended September 30, 2021
	Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:
Customer acquisition	$	174,341	$	165,300	$	—	$	(43,260)	$	296,381
Managed services	6,713		—		3,796		—		10,509
Software services	—		—		2,391		—		2,391
Total Net revenue	$	181,054	$	165,300	$	6,187	$	(43,260)	$	309,281

Contract Balances

The Company’s contract liabilities result from payments received from clients in advance of revenue recognition as they precede the Company’s satisfaction of the associated performance obligation. If a customer pays consideration before the Company’s performance obligations are satisfied, such amounts are classified as deferred revenue on the unaudited consolidated balance sheets. As of ~~June~~September 30, 2022 and December 31, 2021, the balance of deferred revenue was ~~$1.3~~$1.1 million and $1.8 million, respectively, and is recorded within “Accrued expenses and other current liabilities” on the unaudited consolidated balance sheets. We expect the majority of the deferred revenue balance at ~~June~~September 30, 2022 to be recognized as revenue during the following quarter.

For the three and ~~six~~nine months ended ~~June~~September 30, 2022, one customer accounted for approximately ~~24.7%~~27.9% and ~~21.0%~~23.0%, respectively, of our total revenues. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, noone customer accounted for ~~more than 10%~~approximately 19.3% and 14.9%, respectively, of our total revenues.

NOTE 3. REPORTABLE SEGMENTS

The Company’s operating segments are determined based on the financial information reviewed by its chief operating decision maker (“CODM”), and the basis upon which management makes resource allocation decisions and assesses the performance of the Company’s segments. The Company evaluates the operating performance of its segments based on financial measures such as net revenue, cost of revenue, and gross profit. Given the nature of the digital marketing solutions business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the amount of the Company’s assets is not subject to segment allocation and total assets is not included within the disclosure of the Company’s segment financial information.

The following tables are a reconciliation of the operations of our segments to income from operations (in thousands):

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net revenue	Net revenue	$	91,197	$	105,079	$	200,307	$	201,882	Net revenue	$	90,066	$	107,399	$	290,372	$	309,281
Brand Direct	Brand Direct	44,789		59,876		106,017		116,055		Brand Direct	42,318		64,999		148,334		181,054
Marketplace	Marketplace	54,092		57,763		112,898		107,022		Marketplace	53,230		58,278		166,128		165,300
Technology Solutions	Technology Solutions	2,548		1,916		4,884		3,932		Technology Solutions	2,577		2,255		7,461		6,187
Intercompany eliminations	Intercompany eliminations	(10,232)		(14,476)		(23,492)		(25,127)		Intercompany eliminations	(8,059)		(18,133)		(31,551)		(43,260)
Cost of revenue		67,784		71,359		145,624		140,541
Cost of revenue (exclusive of depreciation and amortization)										Cost of revenue (exclusive of depreciation and amortization)	66,378		77,063		211,997		218,304
Brand Direct	Brand Direct	36,137		44,321		84,591		87,140		Brand Direct	32,873		50,165		117,459		137,759
Marketplace	Marketplace	41,463		41,056		83,843		77,654		Marketplace	41,202		44,396		125,045		122,296
Technology Solutions	Technology Solutions	416		458		682		874		Technology Solutions	362		635		1,044		1,509
Intercompany eliminations	Intercompany eliminations	(10,232)		(14,476)		(23,492)		(25,127)		Intercompany eliminations	(8,059)		(18,133)		(31,551)		(43,260)
Gross profit		$	23,413	$	33,720	$	54,683	$	61,341
Gross profit (exclusive of depreciation and amortization)										Gross profit (exclusive of depreciation and amortization)	$	23,688	$	30,336	$	78,375	$	90,977
Brand Direct	Brand Direct	8,652		15,555		21,426		28,915		Brand Direct	9,445		14,834		30,875		43,295
Marketplace	Marketplace	12,629		16,707		29,055		29,368		Marketplace	12,028		13,882		41,083		43,004
Technology Solutions	Technology Solutions	2,132		1,458		4,202		3,058		Technology Solutions	2,215		1,620		6,417		4,678
Salaries and related costs	Salaries and related costs	13,237		11,708		26,945		21,977		Salaries and related costs	11,668		12,449		38,612		34,426
General and administrative expenses	General and administrative expenses	12,444		10,552		23,544		17,514		General and administrative expenses	9,076		10,237		32,622		27,051
Depreciation and amortization	Depreciation and amortization	7,173		7,044		14,233		12,463		Depreciation and amortization	7,142		7,186		21,377		19,649
Acquisition costs	Acquisition costs	279		466		292		1,960		Acquisition costs	14		420		306		1,820
Change in fair value of contingent consideration liabilities	Change in fair value of contingent consideration liabilities	(55)		—		2,536		—		Change in fair value of contingent consideration liabilities	(3)		(3,085)		2,533		(2,525)
Income from operations		$	(9,665)	$	3,950	$	(12,867)	$	7,427
(Loss) income from operations										(Loss) income from operations	$	(4,209)	$	3,129	$	(17,075)	$	10,556

NOTE 4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying value of goodwill, by reporting segment, were as follows (in thousands):


		Brand Direct		Marketplace		Technology Solutions		Total			Brand Direct		Marketplace		Technology Solutions		Total
Balance, December 31, 2021	Balance, December 31, 2021	$	18,376	$	54,554	$	3,628	$	76,558	Balance, December 31, 2021	$	18,376	$	54,554	$	3,628	$	76,558
Additions (Note 6)	Additions (Note 6)	—		—		444		444		Additions (Note 6)	—		—		716		716
Miscellaneous changes	Miscellaneous changes	(55)		—		—		(55)		Miscellaneous changes	(55)		—		—		(55)
Balance, June 30, 2022		$	18,321	$	54,554	$	4,072	$	76,947
Balance, September 30, 2022										Balance, September 30, 2022	$	18,321	$	54,554	$	4,344	$	77,219

The carrying amount of goodwill for all reporting units had no accumulated impairments as of ~~June~~September 30, 2022 and December 31, 2021.

Intangible assets, net

Finite-lived intangible assets, net consisted of the following (in thousands):

June 30, 2022 December 31, 2021
Amortization
Period (Years) Gross Accumulated
Amortization Net Gross Accumulated
Amortization Net
Technology 3 to 5 $ 54,346 $ (34,675) $ 19,671 $ 51,946 $ (29,929) $ 22,017
Customer relationships 2 to 9 49,423 (17,181) 32,242 49,273 (13,076) 36,197
Brand 1 to 7 12,168 (5,408) 6,760 12,109 (4,575) 7,534
Non-competition agreements 3 1,901 (1,686) 215 1,898 (1,418) 480
Total $ 117,838 $ (58,950) $ 58,888 $ 115,226 $ (48,998) $ 66,228

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		September 30, 2022						December 31, 2021
	Amortization Period (Years)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Technology	3 to 5	$	54,336	$	(37,149)	$	17,187	$	51,946	$	(29,929)	$	22,017
Customer relationships	2 to 9	49,423		(19,209)		30,214		49,273		(13,076)		36,197
Brand	1 to 7	12,168		(5,821)		6,347		12,109		(4,575)		7,534
Non-competition agreements	3	1,898		(1,821)		77		1,898		(1,418)		480
Total		$	117,825	$	(64,000)	$	53,825	$	115,226	$	(48,998)	$	66,228

The weighted average amortization period for intangible assets is 4 years in total, and by category is 4 years for technology, 6 years for customer relationships, 4 years for brand, 3 years for non-competition agreements.

Amortization expense relating to intangible assets subject to amortization for each of the next five years and thereafter is estimated to be as follows (in thousands):


	2022		2023		2024		2025		2026		Thereafter
Amortization expense	$	4,719	$	16,890	$	14,311	$	7,114	$	6,368	$	4,423

Amortization expense for finite-lived intangible assets is recorded on an accelerated straight-line basis. Amortization expense related to finite-lived intangible assets was $5.0 million and ~~$10.0~~$15.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$5.8~~$5.5 million and ~~$9.9~~$15.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

NOTE 5. DEBT

The following table presents the components of outstanding debt (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Term loan	Term loan	$	222,750	$	223,875	Term loan	$	222,188	$	223,875

Less: Unamortized debt issuance costs (1)	Less: Unamortized debt issuance costs (1)	(5,411)		(6,120)		Less: Unamortized debt issuance costs (1)	(5,100)		(6,120)
Debt, net	Debt, net	217,339		217,755		Debt, net	217,088		217,755
Less: Current portion of long-term debt	Less: Current portion of long-term debt	(2,250)		(2,250)		Less: Current portion of long-term debt	(2,250)		(2,250)
Long-term debt	Long-term debt	$	215,089	$	215,505	Long-term debt	$	214,838	$	215,505

__________

(1) Includes net debt issuance discount and other costs.

On May 25, 2021, Digital Media Solutions, LLC (“DMS LLC”), as borrower, and DMSH, each of which is a subsidiary of DMS, entered into a five-year $275 million senior secured credit facility (the “Credit Facility”), with a syndicate of lenders (“Lenders”), arranged by Truist Bank and Fifth Third Bank, as joint lead arrangers, and Truist Bank, as administrative agent. The Credit Facility is guaranteed by, and secured by substantially all of the assets of, DMS LLC, DMSH LLC and their material subsidiaries, subject to customary exceptions. Pursuant to the Credit Facility, the Lenders provided DMS LLC with senior secured term loans consisting of a senior secured term loan with an aggregate principal amount of $225 million (the “Term Loan”) and a $50 million senior secured revolving credit facility (the “Revolving Facility”).

The Term Loan, which was issued at an original issue discount of 1.80% or $4.2 million, is subject to payment of 1.0% of the original aggregate principal amount per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and the revolving credit commitments under the Revolving Facility will terminate, on May 25, 2026, when any outstanding balances will become due.

Borrowings under the Revolving Facility bear interest, at our option, at either (i) adjusted LIBOR plus 4.25% or (ii) a base rate (which is equal to the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate, as in effect from time to time, plus 0.50%, (c) one-month LIBOR plus 1.00%, and (d) 1.75% (the “Base Rate”)), plus 3.25%. The Term Loan bears interest at our option, at either (i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus 4.00%. Under the Revolving Facility, DMS LLC pays a 0.50% per annum commitment fee in arrears on the undrawn portion of the revolving commitments. ~~For the three and six months ended June 30, 2022, the effective interest rate was 6.29%.~~ Since May 25, 2021 our interest rate is based on LIBOR plus 5%5.00%. For the three and nine months ended September 30, 2022, the effective interest rate was 7.25%. On October 4, 2022, the Company drew $5.0 million on the Revolving Facility.

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The initial $4.2 million debt discount and $3.5 million debt issuance cost related to the Term Loan and Revolving Facility is being amortized over the term of the loan using the effective interest method. As of ~~June~~September 30, 2022 the Term Loan debt discount and debt issuance cost classified as debt had a remaining unamortized balance of ~~$3.3~~$3.1 million and ~~$2.1~~$2.0 million, respectively. As of December 31, 2021, the Term Loan debt discount and debt issuance cost included in the carrying value of the debt had a remaining unamortized balance of $3.7 million and $2.4 million, respectively. At ~~June~~September 30, 2022 and December 31, 2021, the unamortized debt issuance cost of ~~$0.7~~$0.6 million and $0.8 million, respectively, associated with the undrawn Revolving Facility is classified and amortized as “Other assets” within consolidated balance sheets.

Upon the closing of the Credit Facility, the credit agreement dated as of July 3, 2018, by and among DMS LLC, DMSH, each of their subsidiaries party thereto, various financial institutions party thereto and Monroe Capital Management Advisors, LLC, as administrative agent and lead arranger, and all outstanding amounts thereunder that was previously outstanding with an aggregate principal amount of $210 million was extinguished, and the $15 million revolving credit facility was closed.

~~The Company recognized a loss on debt extinguishment~~As of ~~$2.1 million during the year ended~~September 30, 2022 and December 31, 2021, respectively, we were in material compliance with all financial covenants. If the Company fails to comply with its financial covenants, an event of default under the Credit Facility would be triggered and the Company’s obligations under the Credit Facility may be accelerated. Management is monitoring the Company’s compliance and future ability to comply with all financial covenants, which ~~primarily included accelerated amortization~~management estimates may not be met within one year of ~~deferred financing costs, legal fees and early termination fee. The loss recognized~~issuance of these consolidated financial statements. Management is ~~presented as “Loss on Debt Extinguishment” in~~prepared to take certain steps to ensure compliance, including requesting waivers from or entering into amendments with the ~~consolidated statement of operations.~~Lenders.

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Debt Maturity Schedule

The scheduled maturities of our total debt are estimated as follows at ~~June~~September 30, 2022 (in thousands):


2022	2022	$	1,125	2022	$	563
2023	2023	2,250		2023	2,250
2024	2024	2,250		2024	2,250
2025	2025	2,250		2025	2,250
2026 and thereafter		214,875
2026				2026	214,875

Total debt	Total debt	$	222,750	Total debt	$	222,188

NOTE 6. ACQUISITIONS

Traverse

On May 10, 2022, the Company acquired Traverse Data, Inc. (“Traverse”). Traverse is a marketing and advertising technology company. The Company paid cash consideration of $2.5 million upon closing of the transaction. The transaction also includes up to $0.5 million in contingent consideration, subject to the achievement of certain milestones, which ~~can be paid~~is payable in cash 15 months after the acquisition date.

During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date.

Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. ~~Future~~As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, the following adjustments were recorded related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration ~~liabilities may be needed~~liabilities. As a result, we have made adjustment to ~~adjust their~~the initial and subsequent fair value ~~throughout the measurement period.~~

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of ~~May 10, 2022, the acquisition date, the preliminary fair value of the intangibles,~~our intangible asset, goodwill, contingent consideration ~~liability~~ and working ~~capital accounts~~capital. The impact of these adjustments are as follows (in thousands):


~~Traverse~~	~~Acquisition Date Fair Value~~
~~Goodwill~~	$	~~444~~
~~Intangible Assets:~~
~~Technology~~	$	~~2,500~~
~~Customer relationships~~	$	50
~~Brand~~	$	59
~~Non-competition agreements~~	$	3

~~Contingent consideration liability~~	$	~~428~~

~~Working capital accounts~~	$	~~(49)~~


Traverse	Acquisition Date Fair Value		Fair Value Mark-to-Market changes		Revised Acquisition Date Fair Value
Goodwill	$	444	$	(162)	$	282
Intangible Assets:
Technology	$	2,500	$	(10)	$	2,490
Customer relationships	$	50	$	—	$	50
Brand	$	59	$	—	$	59
Non-competition agreements	$	3	$	(3)	$	—

Contingent consideration liability	$	428	$	10	$	438

Working capital accounts	$	(49)	$	333	$	284

The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date of May 10, 2022. Under Accounting Standards Codification 805 (“ASC 805”), an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included technology, brand, customer relationships and non-competition agreements. Fair value of the technology was determined using the Multi Period Excess Earnings Approach; fair value of the customer relationships was determined using the Excess Earnings Method utilizing distributor inputs; fair value of the brand was determined using the Relief from Royalty Method; and fair value of the non-competition agreements was determined using the Discounted Cash Flow Approach.

The goodwill related to this transaction reflects the synergies expected from combining the operations of Traverse and is included in the Technology Solutions reportable segment. Goodwill is expected to be deductible for tax purposes. Intangible

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assets primarily consist of technology, brand and customer relationships with an estimated useful life of five years for technology, three years for brand and five years for customer relationships.

Crisp Results

On April 1, 2021, the Company completed a transaction to purchase the assets of Crisp Marketing, LLC (“Crisp Results” or “Crisp”). Crisp Results is a digital performance advertising company that connects consumers with brands within the insurance sector, with primary focus on the Medicare insurance industry. Crisp Results is known for providing predictable, reliable, flexible and scalable customer acquisition solutions, supporting large brands with a process that combines data, design, technology and innovation.

The Company paid consideration of $40.0 million upon closing of the transaction, consisting of $20.0 million cash and 1.6 million Class A Common Stock valued at $20.0 million. The transaction also included up to $10.0 million in contingent consideration, subject to the achievement of certain milestones, which can be paid in cash or Class A Common Stock at the election of the Company, and a $5.0 million deferred payment, to be paid 18 months after the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, ~~the following~~ adjustments were recorded related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we made adjustment to the initial and subsequent fair value of the intangible assets, goodwill, contingent consideration and working capital. Since December 31, 2021, there were no measurement period adjustments identified and recorded. Accounting for the acquisition was completed on March 31, 2022.

As of April 1, 2021, the acquisition date, the fair value of the contingent consideration was $5.2 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the fair value of the contingent consideration increased $2.6 million due to accretion to $10.0 million from December 31, 2021. As of April 1, 2022, the contingent consideration milestones were met, and the

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Company paid it on July 1, 2022 in the form of 2.99 million unregistered shares of Class A Common Stock, priced at $3.3455, the average closing price of the Class A common stock during the twenty trading-day period ended March 31, 2022.

As of April 1, 2021, the acquisition date, the fair value of the deferred consideration was $4.6 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the present value of the deferred consideration increased ~~slightly~~$0.2 million due to accretion to ~~$4.9~~$5.0 million from December 31, 2021. ~~Since December 31, 2021, there were no measurement period adjustments identified and recorded.~~The $5.0 million deferred consideration became due on October 1, 2022, which the Company paid on October 4, 2022.

The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date of April 1, 2021. Under ~~Accounting Standards Codification~~ASC 805, ~~(“ASC 805”),~~ an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included the brand and customer relationships of the acquired business. Fair value of the Crisp Results brand was determined using the Relief from Royalty Method, and the fair value of customer relationships was determined using the Multi Period Excess Earnings Method.

The goodwill related to this transaction reflects the workforce and synergies expected from combining the operations of Crisp Results and is included in the Marketplace reportable segment. Goodwill is expected to be deductible for tax purposes. Intangible assets primarily consist of brand and customer relationships with an estimated useful life of seven years for brand and six years for customer relationships.

Aimtell, Aramis and PushPros

On February 1, 2021, the Company acquired Aimtell, Inc. (“Aimtell”), PushPros, Inc. (“PushPros”) and Aramis Interactive (“Aramis”, and together with Aimtell and ~~PushPro,~~PushPros, “AAP”). Aimtell and PushPros are leading providers of technology-enabled digital performance advertising solutions that connect consumers and advertisers within the home, auto, health and life insurance verticals. Aramis is a network of owned-and-operated websites that leverages the Aimtell and PushPros technologies and relationships.

The Company paid consideration of $20.0 million upon closing of the transaction, consisting of $5.0 million in cash and approximately 1.29 million shares of Class A Common Stock valued at $15.0 million. The transaction also included up to

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~~$15.0~~ $15.0 million in contingent consideration to be earned over the three years following the acquisition, subject to the achievement of certain milestones. The contingent consideration can be paid in cash or Class A Common Stock at the election of the Company.

Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition date, we recorded adjustments during the year ended December 31, 2021 related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we made adjustments to the initial and subsequent fair value of the intangible assets, goodwill, contingent consideration and working capital. Since December 31, 2021, there was a $0.1 million measurement period adjustment identified and recorded in Goodwill during the period ended March 31, 2022. ~~There were no further measurement period adjustments identified and recorded since accounting~~Accounting for the acquisition was completed on March 31, 2022.

As of February 1, 2021, the acquisition date, the fair value of the contingent consideration earnout was $2.1 million. As of ~~June~~September 30, 2022, the contingent consideration earnout fair value total ofchanged to $1.0 million, ~~remained relatively unchanged~~decreasing since December 31, 2021. The contingent consideration can be paid in cash or DMS Class A Common Stock at the election of the Company.

The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The results of operations of the acquired businesses have been included in the Company’s results of operations since the acquisition date of February 1, 2021. Under ~~Accounting Standards Codification~~ASC 805, ~~(ASC 805),~~ an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included the brand, technology, customer relationships and non-competition agreements of the acquired business. Fair value of the Aimtell and PushPros technology was determined using the

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Multi Period Excess Earnings Method; fair value of the AAP non-compete agreements was determined using a Discounted Cash Flow Approach; fair value of the AAP brand was determined using a Relief from Royalty Method; fair value of the Aramis customer relationships was determined using the Multi Period Excess Earnings Method; and fair value of the Aimtell and PushPros customer relationships was determined using the excess earnings method with distributor inputs.

The goodwill related to this transaction reflects the workforce and synergies expected from combining the operations of AAP and is included in the Brand Direct reportable segment. Goodwill is expected to be deductible for Aramis and PushPros for tax purposes. Intangible assets primarily consist of technology and customer relationships.

The acquisition date fair value of assets acquired and liabilities assumed from the AAP, Crisp Results and Traverse acquisitions consist of the following (in thousands):


		Expected Useful Life	AAP		Crisp Results		Traverse			Expected Useful Life	AAP		Crisp Results		Traverse
			2021		2021		2022				2021		2021		2022
Cash	Cash		$	—	$	—	$	232	Cash		$	—	$	—	$	232
Goodwill	Goodwill		9,761		21,894		444		Goodwill		9,761		21,894		282
Technology	Technology	4 to 5	3,900		—		2,500		Technology	4 to 5	3,900		—		2,490
Customer relationships	Customer relationships	4 to 6	7,690		19,600		50		Customer relationships	4 to 6	7,690		19,600		50
Accounts receivable, net	Accounts receivable, net		3,100		2,610		276		Accounts receivable, net		3,100		2,610		276
Brand	Brand	1 to 7	208		7,400		59		Brand	1 to 7	208		7,400		59
Non-competitive agreements	Non-competitive agreements	1 to 3	83		—		3		Non-competitive agreements	1 to 3	83		—		—
Property and equipment	Property and equipment	3 to 5	250		220		—		Property and equipment	3 to 5	250		220		—
Accounts payable	Accounts payable		(2,887)		(1,593)		(454)		Accounts payable		(2,887)		(1,593)		(232)
Other assets acquired and liabilities assumed, net (1)	Other assets acquired and liabilities assumed, net (1)		740		1		(103)		Other assets acquired and liabilities assumed, net (1)		740		1		7
Net assets and liabilities acquired	Net assets and liabilities acquired		$	22,845	$	50,132	$	3,007	Net assets and liabilities acquired		$	22,845	$	50,132	$	3,164

(1) Other assets acquired and liabilities assumed, net includes prepaids and other current assets, partially offset by other current liabilities (e.g., Travel and expense payables, payroll liabilities, tax liabilities, and transition services payable).

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The weighted average amortization period for AAP acquisition technology is 4 years, customer relationships is 4.1 years, brand is 2.1 years and non-compete agreements is 3 years. The weighted average amortization period for Crisp Results acquisition customer relationships is 6 years, and brand is 7 years. The weighted average amortization period for Traverse acquisition technology is 5 years, customer relationships is 5 years, brand is 3 years and non-compete agreements is 1 year. In total, the weighted average amortization period for AAP is 4 years, Crisp Results is 5.6 years and Traverse is 5 years.

The following schedule represents the amounts of net revenue and net loss from operations related to Traverse, AAP and Crisp Results acquisitions which have been included in the unaudited consolidated statements of operations for the periods indicated subsequent to the acquisition date in the period of acquisition (in thousands):


		Three Months Ended June 30, 2022		Six Months Ended June 30, 2022	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
		Traverse				Traverse				Traverse		Traverse
Net revenue	Net revenue	$	360			$	360		Net revenue	$	709	$	1,069
Net income from operations	Net income from operations	$	70			$	70		Net income from operations	$	229	$	299


		Three Months Ended June 30, 2021				Six Months Ended June 30, 2021			Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
		AAP		Crisp Results			AAP			Crisp Results			AAP		Crisp Results		AAP		Crisp Results
Net revenue	Net revenue	$	5,774	$	6,967		$	10,075		$	6,967	Net revenue	$	5,976	$	6,407	$	16,051	$	13,374
Net loss from operations		$	(484)	$	(155)		$	(620)		$	(155)
Net income (loss) from operations												Net income (loss) from operations	$	94	$	734	$	(526)	$	579

Pro Forma Information

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisitions had been included in our consolidated results beginning on the first day of the fiscal year prior to their respective acquisition dates (in thousands):

Three Months Ended June 30, 2022
DMS Traverse Pro Forma
Net revenue $ 91,197 $ 277 $ 91,474
Net (loss) income from operations $ (9,665) $ (434) $ (10,099)

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Three Months Ended June 30, 2021
DMS AAP Crisp Results Traverse Pro Forma
Net revenue $ 105,079 $ — $ — $ 583 $ 105,662
Net income (loss) from operations $ 3,950 $ — $ — $ (21) $ 3,929


		Six Months Ended June 30, 2022						Three Months Ended September 30, 2021
		DMS		Traverse		Combined			DMS				AAP			Crisp Results			Traverse			Pro Forma
Net revenue	Net revenue	$	200,307	$	999	$	201,306			Net revenue	$	107,399		$	—		$	—		$	664		$	108,063
Net loss from operations		$	(12,867)	$	(417)	$	(13,284)
Net income from operations										Net income from operations	$	3,129		$	—		$	—		$	38		$	3,167


		Six Months Ended June 30, 2021											Nine Months Ended September 30, 2022
		DMS		AAP		Crisp Results		Traverse		Pro Forma			DMS		Traverse		Pro Forma
Net revenue	Net revenue	$	201,882	$	2,465	$	8,284	$	1,253	$	213,884	Net revenue	$	290,372	$	999	$	291,371
Net income (loss) from operations		$	7,427	$	457	$	2,296	$	(67)	$	10,113
Net loss from operations												Net loss from operations	$	(17,075)	$	(417)	$	(17,492)


	Nine Months Ended September 30, 2021
	DMS		AAP		Crisp Results		Traverse		Pro Forma
Net revenue	$	309,281	$	2,465	$	8,284	$	1,917	$	321,947
Net income (loss) from operations	$	10,556	$	457	$	2,296	$	(29)	$	13,280

The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the companies’ operations; or the costs necessary to achieve

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these costs savings, operating synergies and revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies under our ownership and operation.

NOTE 7. RESTRUCTURING COSTS

Restructuring costs include expenses associated with the Company’s effort to continually improve operational efficiency and reposition its assets to remain competitive on a national basis. The Company leases office space in various locations within the United States and Canada. The leases entered into by the Company consist of both long-term and short-term leases.

Termination of office lease and other related costs include lease and termination of fixed assets, employee training, relocation and facility costs. These costs are recorded in General and administrative expenses in the unaudited consolidated statements of operations.

Since the year ended December 31, 2020, due to the economic environment caused by the COVID-19 pandemic, the Company entered into negotiations with landlords to terminate certain lease agreements, which reduced cash needs by approximately $1.9 million over the remaining life of the original leases through April 30, 2025. As of ~~June~~September 30, 2022, the Company has 4four leased properties, representing 55,798 square feet of office space located in the United ~~States, that are currently in negotiations~~States. During the third quarter of 2022, the Company entered into an agreement with ~~landlords~~a third-party to ~~be reduced or terminated.~~sublease a substantial portion of one of the Company’s leased properties. Income from the subleased property is used to offset the Company’s restructuring costs.

Valuation adjustments related to the reserve and lease accretion are recorded in General and administrative expenses in the consolidated statements of operations. The change in liability for the restructuring costs reserve for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, was as follows (in thousands):


		Three Months Ended June 30, 2022		Three Months Ended June 30, 2021			Three Months Ended September 30, 2022		Three Months Ended September 30, 2021
Beginning balance	Beginning balance	$	2,244	$	2,966	Beginning balance	$	2,498	$	2,957
Valuation adjustments	Valuation adjustments	496		432		Valuation adjustments	(73)		(300)
Lease payments	Lease payments	(290)		(487)		Lease payments	(242)		(333)
Lease accretion	Lease accretion	48		46		Lease accretion	68		45
Ending balance	Ending balance	$	2,498	$	2,957	Ending balance	$	2,251	$	2,369
Current portion - Accrued expenses and other current liabilities	Current portion - Accrued expenses and other current liabilities	$	908	$	1,200	Current portion - Accrued expenses and other current liabilities	$	830	$	1,200
Long-term portion - Other non-current liabilities	Long-term portion - Other non-current liabilities	$	1,590	$	1,757	Long-term portion - Other non-current liabilities	$	1,421	$	1,169

Six Months Ended
June 30, 2022 Six Months Ended June 30, 2021
Beginning balance $ 2,516 $ 3,653
Valuation adjustments 470 81
Lease payments (584) (870)
Lease accretion 96 93
Ending balance $ 2,498 $ 2,957
Current portion - Accrued expenses and other current liabilities $ 908 $ 1,200
Long-term portion - Other non-current liabilities $ 1,590 $ 1,757

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	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Beginning balance	$	2,516	$	3,653
Valuation adjustments	397		(219)
Lease payments	(826)		(1,203)
Lease accretion	164		138
Ending balance	$	2,251	$	2,369
Current portion - Accrued expenses and other current liabilities	$	830	$	1,200
Long-term portion - Other non-current liabilities	$	1,421	$	1,169

NOTE 8. FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The carrying amounts of our cash and cash equivalents, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable, approximate fair value because of the short-term maturity of those instruments.

Private Placement Warrants -

We record the fair value of the Private Placement Warrants as a liability in our consolidated balance sheet as of ~~June~~September 30, 2022 and 2021, respectively. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. Changes in fair value of the Private

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Placement Warrants are presented under Change in the fair value of warrant liabilities on the Income Statement. As of ~~June~~September 30, 2022, the Company has approximately 4.0 million Private Placement Warrants outstanding.

The significant assumptions were as follows:


	~~June~~September 30, 2022
Private Placement Warrants Fair Value Per Share	$	~~0.12~~0.37
Private Placement Warrant valuation inputs:
Stock price - DMS Inc. Class A Common Stock	$	~~1.11~~1.92

Remaining contractual term in years	~~3.04~~2.79
Estimated volatility	~~85.0~~90.0		%
Dividend yield	0.0		%
Risk free interest rate	~~2.97~~4.20		%

Contingent consideration payable related to acquisitions

The fair value of the contingent considerations payable for the AAP and Traverse acquisitions (described in Note 6. Acquisitions) were determined using a Monte Carlo fair value analysis and a scenario-based methodology, respectively, based on estimated performance and the probability of achieving certain targets. As certain inputs are not observable in the market, the contingent consideration is classified as a Level 3 instrument. Changes in fair value of contingent consideration are presented under ~~Acquisition costs~~“Change in fair value of contingent consideration liabilities” on the statement of operations.

The contingent consideration payable for the Crisp acquisition was finalized on April 1, 2022, the end of the earnout period. As the full target was met, the payment was made on July 1, 2022 in the form of Class A Common Stock. (See Note 6. Acquisitions).

The following table presents the contingent consideration assumptions.

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	Aimtell / PushPros
~~CYE2021 Revenue - Actual~~	$	~~7,193,881~~
~~CYE2022 Revenue - 6 Months Actual~~	$	~~2,724,201~~
~~CYE2022 Revenue - 6 Months Expectations~~	$	~~8,908,838~~
~~CYE2023 Revenue - Expectations~~	$	~~14,636,891~~
~~CYE2022 Risk Adjusted Revenue - 6 Months~~	$	~~8,715,176~~
~~CYE2023 Risk Adjusted Revenue~~	$	~~13,413,226~~
Revenue Volatility	25		%
Iteration (actual)	100,000
Risk adjustment discount rate	~~9.50~~10.25		%
Risk free / Credit risk	~~12.0~~12.75		%
Days gap from period end to payment	90

	Aramis
CYE2022 Earnout Successful Probability	99.0		%
Iteration (actual)	100,000
Risk free / Credit risk	~~12.0~~12.75		%
Days gap from period end to payment	90

	Traverse
CYE2023 Earnout Successful Probability	95.0		%

Risk free / Credit risk	~~10.0~~12.75		%
Days gap from period end to payment	90

The following table presents assets and liabilities measured at fair value on a recurrent basis (in thousands):

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			June 30, 2022										September 30, 2022
Category	Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total		Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:	Liabilities:										Liabilities:
Private Placement Warrant liabilities	Private Placement Warrant liabilities	Total liabilities	$	—	$	—	$	480	$	480	Private Placement Warrant liabilities	Total liabilities	$	—	$	—	$	1,480	$	1,480
Contingent consideration - Crisp Results		Contingent consideration payable - current	—		—		10,000		10,000

Contingent consideration - Aramis	Contingent consideration - Aramis	Contingent consideration payable - current	—		—		909		909		Contingent consideration - Aramis	Contingent consideration payable - current	—		—		933		933
Contingent consideration - Traverse	Contingent consideration - Traverse	Contingent consideration payable - non-current	—		—		428		428		Contingent consideration - Traverse	Contingent consideration payable - current	—		—		438		438
Contingent consideration - Aimtell/PushPro		Contingent consideration payable - non-current	—		—		66		66
Contingent consideration - Aimtell/PushPros											Contingent consideration - Aimtell/PushPros	Contingent consideration payable - non-current	—		—		31		31
Total	Total		$	—	$	—	$	11,883	$	11,883	Total		$	—	$	—	$	2,882	$	2,882

The following table represents the change in the warrant liability and contingent consideration (in thousands):


		Private Placement Warrants		Contingent Consideration			Private Placement Warrants		Contingent Consideration
Balance, April 1, 2022		$	2,120	$	11,030
Balance, July 1, 2022						Balance, July 1, 2022	$	480	$	11,403
Additions	Additions	—		428		Additions	—		2
Changes in fair value	Changes in fair value	(1,640)		(55)		Changes in fair value	1,000		(3)
Settlements	Settlements	—		—		Settlements	—		(10,000)
Balance, June 30, 2022		$	480	11,403
Balance, September 30, 2022						Balance, September 30, 2022	$	1,480	1,402


		Private Placement Warrants		Contingent Consideration			Private Placement Warrants		Contingent Consideration
Balance, December 31, 2021	Balance, December 31, 2021	$	3,960	$	8,439	Balance, December 31, 2021	$	3,960	$	8,439
Additions	Additions	—		428		Additions	—		430
Changes in fair value	Changes in fair value	(3,480)		2,536		Changes in fair value	(2,480)		2,533
Settlements	Settlements	—		—		Settlements	—		(10,000)
Balance, June 30, 2022		$	480	$	11,403
Balance, September 30, 2022						Balance, September 30, 2022	$	1,480	$	1,402

NOTE 9. EMPLOYEE AND DIRECTOR INCENTIVE PLANS

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2020 Omnibus Incentive Plan

On July 15, 2020, Leo’s shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Plan”). The 2020 Plan allows for the issuance and repurchase of stock options, stock appreciation rights, stock awards (including restricted stock awards (“RSAs”) and Restricted Stock Units (“RSUs”)) and other stock-based awards. Directors, officers and employees, as well as others performing independent consulting or advisory services for the Company or its affiliates, are eligible for grants under the 2020 Plan. The aggregate number of shares reserved under the 2020 Plan is approximately 11.6 million. The 2020 Plan terminates on June 24, 2030. The related costs were approximately ~~$3.9~~$5.3 million and ~~$2.8~~$4.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, and are included in “Salaries and related costs” within the Consolidated Statement of Operations. Fair value of stock-based compensation is based on the closing trading price of the Company’s stock on the grant date.

Restricted Stock Units

On April 12, 2022, the Board voted to award 762,000 RSUs consisting of 381,406 performance-based vesting RSUs (“PRSUs”) and 381,406 time-based vesting RSUs (“TRSUs”) to ~~directors~~executive management and certain key employees under the 2020 Plan. On July 1, 2022, the Board voted to award 326,000 RSUs consisting of 163,000 PRSUs and 163,000 TRSUs to executive management under the 2020 Plan. The TRSU and PRSUs vest one-fourth each year based on four years of continuous service starting with January 1, 2022 through January 1, 2026.

Vesting of the PRSUs are also subject to certain performance metrics of the Company, which the Company ~~evaluates~~re-evaluates the probability of achievement on a quarterly basis. The fair value of stock-based compensation is based on the closing trading price of the Company’s stock on the grant date. For PRSUs, fair value was also determined based on the assessed likelihood of meeting the performance metrics for each tranche of the awards as of the grant date. The TRSU’s related stock-based compensation expense is recognized on a straight-line basis over the vesting period. The PRSU awards’ expense is recognized on an accelerated basis over the vesting period.

~~Table~~On August 4, 2022, the Board voted to award an aggregate of ~~Contents~~52,545 RSUs to the Company’s non-employee directors under the 2020 Plan. The RSUs will vest on the date of the annual shareholder’s meeting or on the anniversary of the award, whichever occurs first, and the related stock-based compensation expense is recognized on a straight-line basis over the vesting period.

NOTE 10. INCOME TAXES

As a result of the Business Combination, the Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker, which owns ~~58.7%~~60.8% of equity interests in DMSH. DMSH is treated as a partnership for purposes of U.S. federal and certain state and local income tax. As a U.S. partnership, generally DMSH will not be subject to corporate income taxes (except with respect to UE, as described below). Instead, each of the ultimate partners (including DMS Inc.) are taxed on their proportionate share of DMSH taxable income.

While the Company consolidates DMSH for financial reporting purposes, the Company will only be taxed on its allocable share of future earnings (i.e. those earnings not attributed to the non-controlling interests, which continue to be taxed on their own allocable share of future earnings of DMSH). The Company’s income tax expense is attributable to the allocable share of earnings from DMSH, a portion of activities of DMSH that are subject to Canadian income tax, and the activities of UE aand Traverse, wholly-owned U.S. corporate ~~subsidiary~~subsidiaries of DMSH, which is subject to U.S. federal and state and local income taxes. The income tax burden on the earnings allocated to the non-controlling interests is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company’s effective tax rate is expected to differ materially from the statutory rate.

The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision. The Company recorded income tax expense of ~~$0.05~~$0.46 million and ~~$0.36~~$0.82 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The blended effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2022 was ~~0.4%~~4.8% and ~~2.1%~~3.1%, respectively, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest and impact of the valuation allowance on DMS, Inc. The Company ~~recorded$1.0~~recorded $0.4 million and ~~$1.1~~$1.5 million income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. The blended effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was ~~17.3%~~6.6% and ~~19.5%~~13.1%, respectively, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest.

Tax Receivable Agreement

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In conjunction with the Business Combination, DMS Inc. and Blocker also entered into a Tax Receivable Agreement (“TRA”) with the Sellers. Pursuant to the Tax Receivable Agreement, DMS Inc. is required to pay the Sellers (i) 85% of the amount of savings, if any, in U.S. federal, state and local income tax that DMS Inc. and Blocker actually realize as a result of (A) certain existing tax attributes of Blocker acquired in the Business Combination, and (B) increases in Blocker’s allocable share of the tax basis of the assets of DMS and certain other tax benefits related to the payment of the cash consideration pursuant to the Business Combination Agreement and any redemptions or exchanges of DMS Units for cash or Class A Common Stock after the Business Combination and (ii) 100% of certain refunds of pre-Closing taxes of DMSH and Blocker received during a taxable year beginning within two (2) years after the Closing. All such payments to the Sellers are the obligation of DMS Inc., and not that of DMSH.

As of ~~June~~September 30, 2022 and December 31, 2021, the Company recorded a full valuation allowance on our deferred tax asset (“DTA”) related to the TRA along with the entire DTA inventory at DMS, Inc. and Blocker. At ~~June~~September 30, 2022, the remaining current portion of Tax Receivable Agreement liability of ~~$1.3~~$1.2 million is attributable to carryback claims. We will continue to evaluate the positive and negative evidence in determining the realizability of the Company’s DTAs.

NOTE 11. EARNINGS PER SHARE

Basic earnings per share of Class A Common Stock is computed by dividing net income attributable to DMS Inc. by the weighted-average number of shares of Class A Common Stock outstanding during the period. Diluted earnings per share of Class A Common Stock is computed by dividing net income attributable to DMS Inc. adjusted for the income effects of dilutive instruments by the weighted-average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive elements.

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The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A Common Stock:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net (loss) income	Net (loss) income	$	(11,887)	$	4,939	$	(17,244)	$	4,727	Net (loss) income	$	(10,121)	$	5,394	$	(27,365)	$	10,121

Net (loss) income attributable to non-controlling interest	Net (loss) income attributable to non-controlling interest	(4,905)		$	2,411	(7,121)		2,373		Net (loss) income attributable to non-controlling interest	(4,010)		$	1,858	(10,765)		4,217
Net (loss) income attributable to Digital Media Solutions, Inc. - basic	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,982)	$	2,528	$	(10,123)	$	2,354	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,111)	$	3,536	$	(16,600)	$	5,904

Add: Income effects of Class B convertible common stock	Add: Income effects of Class B convertible common stock	$	(4,903)	$	—	$	(7,116)	$	—	Add: Income effects of Class B convertible common stock	$	(4,010)	$	1,858	$	—	$	4,217
Less: dilutive effect of change in fair value of warrant liabilities attributable to Digital Media Solutions, Inc.		—		—		—		4,321

Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(11,885)	$	2,528	$	(17,239)	$	(1,967)	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(10,121)	$	5,394	$	(16,600)	$	10,121

Denominator:	Denominator:									Denominator:
Weighted average shares - basic	Weighted average shares - basic	39,553		35,377		$	37,969	$	34,315	Weighted average shares - basic	39,961		36,511		37,644		35,050
Add: dilutive effects of Class B convertible common stock	Add: dilutive effects of Class B convertible common stock	25,699		—		$	25,713	$	—	Add: dilutive effects of Class B convertible common stock	25,699		25,853		—		25,853
Add: dilutive effects of employee equity awards	Add: dilutive effects of employee equity awards	—		628		—		—		Add: dilutive effects of employee equity awards	—		267		—		515
Add: dilutive effects of private placement warrants		—		—		—		10

Add: dilutive effects of public warrants										Add: dilutive effects of public warrants	—		—		—		168
Add: dilutive effects of deferred consideration	Add: dilutive effects of deferred consideration	—		517		—		—		Add: dilutive effects of deferred consideration	—		690		—		402
Weighted average shares - diluted	Weighted average shares - diluted	65,252		36,522		63,682		34,325		Weighted average shares - diluted	65,660		63,321		37,644		61,988

Net earnings (loss) per common share:	Net earnings (loss) per common share:									Net earnings (loss) per common share:
Basic	Basic	$	(0.18)	$	0.07	$	(0.27)	$	0.07	Basic	$	(0.15)	$	0.10	$	(0.44)	$	0.17
Diluted	Diluted	$	(0.18)	$	0.07	$	(0.27)	$	(0.06)	Diluted	$	(0.15)	$	0.09	$	(0.44)	$	0.16

Shares of the Company’s Class B convertible common stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate basic and diluted earnings per share of Class B convertible common stock under the two-class method has not been presented.

~~For the three and six months ended June 30, 2022, the Company included 2.99 million shares of Class A Common Stock issued to the sellers of Crisp Results on July 1, 2022 (see~~ ~~Note 6. Acquisitions) in the Company’s basic and diluted EPS calculations, as all necessary conditions were satisfied during the quarter ended June 30, 2022.~~

For the three and six months ended June 30, 2022, the Company excluded 4.0 million private warrants, 10.0 million public warrants, 1.9 million stock options, 1.7 million RSUs and 0.4 million PRSUs, respectively, as their effect would have been anti-dilutive. For the three and six months ended June 30, 2022, the Company excluded the contingent consideration issued in connection with the AAP acquisition and the deferred consideration issued in connection with the Crisp acquisition, respectively, which are payable in DMS common stock at the Company’s option, as their effect would have been anti-dilutive.

For the three months ended June 30, 2021, the Company excluded 4.0 million private warrants, 10.0 million public warrants, 0.1 million employee equity awards and 25.9 million Class B convertible common stock, as the effect was anti-dilutive. For the six months ended June 30, 2021, the Company excluded 10.0 million public warrants, 25.9 million Class B convertible common stock and 1.6 million employee equity awards as the effect was anti-dilutive.

For the three and six months ended June 30, 2021, the Company excluded contingent consideration issued in connection with AAP and Crisp acquisitions, which is payable in DMS common stock at the Company’s option, as the necessary conditions to pay such consideration had not been satisfied by the end of the period. For the three and six months ended June 30, 2021, the

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For the three and nine months ended September 30, 2022, the Company excluded 4.0 million private warrants, 10.0 million public warrants, 5.0 million deferred consideration, 1.7 million stock options, 1.0 million RSUs, and 0.3 million PRSUs, respectively, as their effect would have been anti-dilutive. For the nine months ended September 30, 2022, the Company excluded the Class B convertible common stock, as their effect would have been anti-dilutive.

For the three months ended September 30, 2021, the Company excluded 4.0 million private warrants, 10.0 million public warrants, 1.9 million employee equity awards, as the effect was anti-dilutive. For the nine months ended September 30, 2021, the Company excluded 4.0 million private warrants and approximately 1.9 million employee equity awards, as their effect would have been anti-dilutive.

For the three and nine months ended September 30, 2021, the Company excluded contingent consideration issued in connection with Aramis, Aimtell and PushPros and Crisp ~~acquisition,~~Results acquisitions, which iswere payable in DMS common stock, ~~at the Company’s option,~~ as the ~~effect was anti-dilutive.~~necessary conditions to pay such consideration had not been satisfied by the end of the period.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements (Unaudited) and accompanying Notes appearing elsewhere in this Quarterly Report (the “Notes”). In addition, reference should be made to our Audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results”.

RECENT DEVELOPMENTS

Strategic Alternatives

On August 16, 2021, we ~~announced our decision~~commenced a process to evaluate potential strategic alternatives to maximize shareholder ~~value. We intend to evaluate~~value, and as part of that process, have been evaluating a full range of strategic, operational and financial alternatives. ~~We have retained Goldman Sachs & Co~~On September 8, 2022, our board of directors received an offer from Prism Data, LLC, an investment vehicle affiliated with our CEO Joseph Marinucci and ~~Canaccord Genuity~~our COO Fernando Borghese, to acquire all of our outstanding Class A common stock of DMS for $2.50 per share in cash. Our board of directors is reviewing and considering the Prism Data proposal as ~~our financial advisors to assist with~~part of the ongoing strategic review process. There can be no assurance that either the Prism Data proposal or the strategic review process will result in any strategic alternative, or any assurance as to its outcome or timing.

~~Recent Business Acquisitions~~Auditor Change

~~Our acquisitions in~~On August 16, 2022, following a competitive selection process, the ~~past few years have enabled us~~Company's Audit Committee approved the engagement of Grant Thornton LLP (“GT”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. Effective on that same date, the Company dismissed Ernst & Young (“EY”) from that role. For further information, please refer to ~~expand~~ our ~~reach into high quality proprietary targeted media solutions in a wide range of industries and include~~Current Report on Form 8-K filed with the ~~following.~~SEC on August 19, 2022.

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RESULTS OF OPERATIONS

The following table presents our consolidated results of operations as a percentage of net revenue:


		Three Months Ended June 30,				Six Months Ended June 30,			Three Months Ended September 30,						Nine Months Ended September 30,
		2022		2021			2022			2021			2022			2021		2022		2021
Revenue by type:	Revenue by type:											Revenue by type:
Customer acquisition	Customer acquisition	95.4	%	96.3	%		95.9	%		95.6	%	Customer acquisition	96.1	%		96.3	%	96.0	%	95.8	%
Managed services	Managed services	3.4	%	2.9	%		3.1	%		3.7	%	Managed services	2.2	%		2.9	%	2.8	%	3.4	%
Software services	Software services	1.2	%	0.8	%		1.0	%		0.7	%	Software services	1.7	%		0.8	%	1.2	%	0.8	%
Total net revenue	Total net revenue	100.0	%	100.0	%		100.0	%		100.0	%	Total net revenue	100.0	%		100.0	%	100.0	%	100.0	%
Revenue by segment:	Revenue by segment:											Revenue by segment:
Brand Direct	Brand Direct	49.1	%	57.0	%		52.9	%		57.5	%	Brand Direct	47.0	%		60.5	%	51.1	%	58.6	%
Marketplace	Marketplace	59.3	%	55.0	%		56.4	%		53.0	%	Marketplace	59.0	%		54.3	%	57.2	%	53.4	%
Technology Solutions	Technology Solutions	2.8	%	1.8	%		2.4	%		1.9	%	Technology Solutions	2.9	%		2.1	%	2.6	%	2.0	%
Intercompany eliminations	Intercompany eliminations	(11.2)	%	(13.8)	%		(11.7)	%		(12.4)	%	Intercompany eliminations	(8.9)	%		(16.9)	%	(10.9)	%	(14.0)	%
Net revenue	Net revenue	100.0	%	100.0	%		100.0	%		100.0	%	Net revenue	100.0	%		100.0	%	100.0	%	100.0	%
Cost of revenue		74.3	%	67.9	%		72.7	%		69.6	%
Cost of revenue (exclusive of depreciation and amortization)												Cost of revenue (exclusive of depreciation and amortization)	73.7	%		71.8	%	73.0	%	70.6	%
Gross profit	Gross profit	25.7	%	32.1	%		27.3	%		30.4	%	Gross profit	26.3	%		28.2	%	27.0	%	29.4	%
Salaries and related costs	Salaries and related costs	14.5	%	11.1	%		13.5	%		10.9	%	Salaries and related costs	13.0	%		11.6	%	13.3	%	11.0	%
General and administrative	General and administrative	13.6	%	10.0	%		11.8	%		8.7	%	General and administrative	10.1	%		9.5	%	11.2	%	8.7	%
Depreciation and amortization	Depreciation and amortization	7.9	%	6.7	%		7.1	%		6.2	%	Depreciation and amortization	7.9	%		6.7	%	7.4	%	6.4	%
Acquisition costs	Acquisition costs	0.3	%	0.4	%		0.1	%		1.0	%	Acquisition costs	*			0.4	%	0.1	%	0.6	%
Change in fair value of contingent consideration	Change in fair value of contingent consideration	(0.1)	%	—	%		1.3	%		—	%	Change in fair value of contingent consideration	*			(2.9)	%	0.9	%	(0.8)	%
(Loss) income from operations	(Loss) income from operations	(10.5)	%	3.9	%		(6.5)	%		3.6	%	(Loss) income from operations	(4.7)	%		2.9	%	(5.9)	%	3.5	%
Interest expense	Interest expense	4.2	%	3.4	%		3.7	%		3.4	%	Interest expense	5.1	%		3.5	%	4.2	%	3.4	%
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(1.8)	%	(7.4)	%		(1.7)	%		(3.7)	%	Change in fair value of warrant liabilities	1.1	%		(6.0)	%	(0.9)	%	(4.5)	%

Change in Tax Receivable Agreement liability												Change in Tax Receivable Agreement liability	(0.1)	%		—	%	*		—	%
Loss on debt extinguishment	Loss on debt extinguishment	—	%	2.0	%		—	%		1.0	%	Loss on debt extinguishment	—	%		—	%	—	%	0.7	%

Net (loss) income before income taxes	Net (loss) income before income taxes	(12.9)	%	5.9	%		(8.5)	%		2.9	%	Net (loss) income before income taxes	(10.8)	%		5.4	%	(9.2)	%	3.9	%
Income tax expense	Income tax expense	—	%	1.0	%		0.2	%		0.6	%	Income tax expense	0.5	%		0.4	%	0.3	%	0.5	%
Net (loss) income	Net (loss) income	(12.9)	%	4.9	%		(8.7)	%		2.3	%	Net (loss) income	(11.3)	%		5.0	%	(9.5)	%	3.4	%
Net (loss) income attributable to non-controlling interest	Net (loss) income attributable to non-controlling interest	(5.4)	%	2.3	%		(3.6)	%		1.2	%	Net (loss) income attributable to non-controlling interest	(4.5)	%		1.7	%	(3.7)	%	1.4	%
Net (loss) income attributable to Digital Media Solutions, Inc.	Net (loss) income attributable to Digital Media Solutions, Inc.	(7.5)	%	2.6	%		(5.1)	%		1.2	%	Net (loss) income attributable to Digital Media Solutions, Inc.	(6.8)	%		3.3	%	(5.8)	%	2.0	%

____________________

* Less than one tenth of a percent.

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Operating Results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021

The following table presents the consolidated results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 and the changes from the prior period (in thousands):


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2022		2021		$ Change		% Change		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change		2022		2021		$ Change		% Change

Net revenue	Net revenue	$	91,197	$	105,079	$	(13,882)	(13)	%	$	200,307	$	201,882	$	(1,575)	(1)	%	Net revenue	$	90,066	$	107,399	$	(17,333)	(16)	%	$	290,372	$	309,281	$	(18,909)	(6)	%
Cost of revenue		67,784		71,359		(3,575)		(5)	%	145,624		140,541		5,083		4	%
Cost of revenue (exclusive of depreciation and amortization)																		Cost of revenue (exclusive of depreciation and amortization)	66,378		77,063		(10,685)		(14)	%	211,997		218,304		(6,307)		(3)	%

Salaries and related costs	Salaries and related costs	13,237		11,708		1,529		13	%	26,945		21,977		4,968		23	%	Salaries and related costs	11,668		12,449		(781)		(6)	%	38,612		34,426		4,186		12	%
General and administrative	General and administrative	12,444		10,552		1,892		18	%	23,544		17,514		6,030		34	%	General and administrative	9,076		10,237		(1,161)		(11)	%	32,622		27,051		5,571		21	%
Depreciation and amortization	Depreciation and amortization	7,173		7,044		129		2	%	14,233		12,463		1,770		14	%	Depreciation and amortization	7,142		7,186		(44)		(1)	%	21,377		19,649		1,728		9	%
Acquisition costs	Acquisition costs	279		466		(187)		(40)	%	292		1,960		(1,668)		(85)	%	Acquisition costs	14		420		(406)		(97)	%	306		1,820		(1,514)		(83)	%
Change in fair value of contingent consideration	Change in fair value of contingent consideration	(55)		—		(55)		(100)	%	2,536		—		2,536		100	%	Change in fair value of contingent consideration	(3)		(3,085)		3,082		(100)	%	2,533		(2,525)		5,058		(200)	%
(Loss) income from operations	(Loss) income from operations	$	(9,665)	3,950		$	(13,615)	(345)	%	$	(12,867)	7,427		$	(20,294)	(273)	%	(Loss) income from operations	$	(4,209)	$	3,129	$	(7,338)	(235)	%	$	(17,075)	$	10,556	$	(27,631)	(262)	%
Interest expense	Interest expense	3,817		3,622		195		5	%	7,502		6,879		623		9	%	Interest expense	4,570		3,756		814		22	%	12,072		10,635		1,437		14	%
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(1,640)		(7,750)		6,110		(79)	%	(3,480)		(7,435)		3,955		(53)	%	Change in fair value of warrant liabilities	1,000		(6,400)		7,400		(116)	%	(2,480)		(13,835)		11,355		(82)	%

Change in Tax Receivable Agreement liability																		Change in Tax Receivable Agreement liability	(121)		—		(121)		(100)	%	(121)		—		(121)		(100)	%
Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		(2,108)		(100)	%	—		2,108		(2,108)		(100)	%	Loss on debt extinguishment	—		—		—		100	%	—		2,108		(2,108)		(100)	%

Net (loss) income before income taxes	Net (loss) income before income taxes	$	(11,842)	$	5,970	$	(17,812)	(298)	%	$	(16,889)	$	5,875	$	(22,764)	(388)	%	Net (loss) income before income taxes	$	(9,658)	$	5,773	$	(15,431)	(267)	%	$	(26,546)	$	11,648	$	(38,194)	(328)	%
Income tax expense	Income tax expense	45		1,031		(986)		(96)	%	355		1,148		(793)		(69)	%	Income tax expense	463		379		84		22	%	819		1,527		(708)		(46)	%
Net (loss) income	Net (loss) income	$	(11,887)	$	4,939	$	(16,826)	(341)	%	$	(17,244)	$	4,727	$	(21,971)	(465)	%	Net (loss) income	$	(10,121)	$	5,394	$	(15,515)	(288)	%	$	(27,365)	$	10,121	$	(37,486)	(370)	%
Net (loss) income attributable to non-controlling interest	Net (loss) income attributable to non-controlling interest	(4,905)		2,411		(7,316)		(303)	%	(7,121)		2,373		(9,494)		(400)	%	Net (loss) income attributable to non-controlling interest	(4,010)		1,858		(5,868)		(316)	%	(10,765)		4,217		(14,982)		(355)	%
Net (loss) income attributable to Digital Media Solutions, Inc.	Net (loss) income attributable to Digital Media Solutions, Inc.	$	(6,982)	$	2,528	$	(9,510)	(376)	%	$	(10,123)	$	2,354	$	(12,477)	(530)	%	Net (loss) income attributable to Digital Media Solutions, Inc.	$	(6,111)	$	3,536	$	(9,647)	(273)	%	$	(16,600)	$	5,904	$	(22,504)	(381)	%

Net revenue. Our business generates revenue primarily through the delivery of a variety of performance-based marketing services, including customer acquisition, managed services and software services.

The following table presents revenue by type for each segment and the changes from the prior period:

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		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2022		2021		$ Change		% Change		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change		2022		2021		$ Change		% Change
Brand Direct	Brand Direct																	Brand Direct
Customer acquisition	Customer acquisition	$	43,124	$	57,955	$	(14,831)	(26)	%	$	102,743	$	111,009	$	(8,266)	(7)	%	Customer acquisition	$	41,381	$	63,332	$	(21,951)	(35)	%	$	144,123	$	174,341	$	(30,218)	(17)	%
Managed services	Managed services	1,665		1,921		(256)		(13)	%	3,274		5,046		(1,772)		(35)	%	Managed services	937		1,667		(730)		(44)	%	4,211		6,713		(2,502)		(37)	%

Total Brand Direct	Total Brand Direct	$	44,789	$	59,876	$	(15,087)	(25)	%	$	106,017	$	116,055	$	(10,038)	(9)	%	Total Brand Direct	$	42,318	$	64,999	$	(22,681)	(35)	%	$	148,334	$	181,054	$	(32,720)	(18)	%
Marketplace	Marketplace																	Marketplace
Customer acquisition	Customer acquisition	$	54,092	$	57,763	$	(3,671)	(6)	%	$	112,898	$	107,022	$	5,876	6	%	Customer acquisition	$	53,230	$	58,278	$	(5,048)	(9)	%	$	166,128	$	165,300	$	828	1	%

Total Marketplace	Total Marketplace	$	54,092	$	57,763	$	(3,671)	(6)	%	$	112,898	$	107,022	$	5,876	6	%	Total Marketplace	$	53,230	$	58,278	$	(5,048)	(9)	%	$	166,128	$	165,300	$	828	1	%
Technology Solutions	Technology Solutions																	Technology Solutions

Managed services	Managed services	1,403		1,109		294		27	%	2,913		2,325		588		25	%	Managed services	1,076		1,471		(395)		(27)	%	3,989		3,796		193		5	%
Software services	Software services	1,145		807		338		42	%	1,971		1,607		364		23	%	Software services	1,501		784		717		91	%	3,472		2,391		1,081		45	%
Total Technology Solutions	Total Technology Solutions	$	2,548	$	1,916	$	632	33	%	$	4,884	$	3,932	$	952	24	%	Total Technology Solutions	$	2,577	$	2,255	$	322	14	%	$	7,461	$	6,187	$	1,274	21	%
Corporate and Other	Corporate and Other																	Corporate and Other
Customer acquisition	Customer acquisition	$	(10,232)	$	(14,476)	$	4,244	(29)	%	$	(23,492)	$	(25,127)	$	1,635	(7)	%	Customer acquisition	$	(8,059)	$	(18,133)	$	10,074	(56)	%	$	(31,551)	$	(43,260)	$	11,709	(27)	%
Total Corporate and Other	Total Corporate and Other	$	(10,232)	$	(14,476)	$	4,244	(29)	%	$	(23,492)	$	(25,127)	$	1,635	(7)	%	Total Corporate and Other	$	(8,059)	$	(18,133)	$	10,074	(56)	%	$	(31,551)	$	(43,260)	$	11,709	(27)	%
Total Customer acquisition	Total Customer acquisition	$	86,984	$	101,242	$	(14,258)	(14)	%	$	192,149	$	192,904	$	(755)	—	%	Total Customer acquisition	$	86,552	$	103,477	$	(16,925)	(16)	%	$	278,700	$	296,381	$	(17,681)	(6)	%
Total Managed services	Total Managed services	3,068		3,030		38		1	%	6,187		7,371		(1,184)		(16)	%	Total Managed services	2,013		3,138		(1,125)		(36)	%	8,200		10,509		(2,309)		(22)	%
Total Software services	Total Software services	1,145		807		338		42	%	1,971		1,607		364		23	%	Total Software services	1,501		784		717		91	%	3,472		2,391		1,081		45	%
Total Net revenue	Total Net revenue	$	91,197	$	105,079	$	(13,882)	(13)	%	$	200,307	$	201,882	$	(1,575)	(1)	%	Total Net revenue	$	90,066	$	107,399	$	(17,333)	(16)	%	$	290,372	$	309,281	$	(18,909)	(6)	%

Customer Acquisition Revenue. Customer acquisition contracts deliver potential consumers or leads (i.e. number of clicks, emails, calls and applications) to the customer in real-time based on predefined qualifying characteristics specified by our customer.

Our Brand Direct segment experienced a decrease in Customer acquisition revenue of ~~$14.8~~$22.0 million or ~~26%~~35% and ~~$8.3~~$30.2 million or 7%17% during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Customer acquisition revenue for Marketplace decreased by ~~$3.7~~$5.0 million or 6%9% and increased by ~~$5.9~~$0.8 million or ~~5.5%~~0.5% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The changes in both the Brand Direct and Marketplace segments were primarily due to macro challenges within the insurance industry which continue to apply downward pressure on cost per click ~~(CPC)~~(“CPC”) and cost per lead ~~(CPL)~~(“CPL”) pricing. In addition we’ve observed aggressive competitive activities within our publisher portfolio, as well as an adjustment in the health insurance model shifting non-enrollment ad spend which impacted our ~~Q2 performance.~~performance since Q2.

Managed Services Revenue. Managed services contracts provide continuous service of managing the customer’s media spend for the purpose of generating leads through a third-party supplier of leads, as requested by our customer. Managed services revenue experienced a slight ~~increase~~decrease of ~~$0.0~~$1.1 million or 1%36% and a decrease of ~~$1.2~~$2.3 million or ~~16%~~22% during the three and ~~six~~nine months ended ~~June~~September 30, 2022. The changes were primarily driven by decreased media activity, ~~in Q1~~ resulting in lower agency fees.

Software Services Revenue. Software services contracts provide the customer with continuous, daily access to the Company’s proprietary software. Software services revenue is considered insignificant during the three and ~~six~~nine months ended ~~June~~September 30, 2022.

Cost of revenue and gross profit. Cost of revenue primarily includes media and other related costs, such as the cost to acquire user traffic through the purchase of impressions, clicks or actions from publishers or third-party intermediaries, including advertising exchanges, and technology costs that enable media acquisition. These media costs are used primarily to drive user traffic to the Company’s and our customers’ media properties. Cost of revenue also includes indirect costs such as data verification, hosting and fulfillment costs.

The following table presents the gross profit percentage (gross profit as a percentage of total revenue) by segment and the changes from prior period:

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		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended September 30,					Nine Months Ended September 30,
		2022		2021		PPTS Change	2022		2021		PPTS Change		2022		2021		PPTS Change	2022		2021		PPTS Change
Brand Direct	Brand Direct	19.3	%	26.0	%	(6.7)	20.2	%	24.9	%	(4.7)	Brand Direct	22.3	%	22.8	%	(0.5)	20.8	%	23.9	%	(3.1)
Marketplace	Marketplace	23.3	%	28.9	%	(5.6)	25.7	%	27.4	%	(1.7)	Marketplace	22.6	%	23.8	%	(1.2)	24.7	%	26.0	%	(1.3)
Technology Solutions	Technology Solutions	83.7	%	76.1	%	7.6	86.0	%	77.8	%	8.2	Technology Solutions	86.0	%	71.8	%	14.2	86.0	%	75.6	%	10.4
Total gross profit percentage	Total gross profit percentage	25.7	%	32.1	%	(6.4)	27.3	%	30.4	%	(3.1)	Total gross profit percentage	26.3	%	28.2	%	(1.9)	27.0	%	29.4	%	(2.4)

Gross profit for Brand Direct decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2022, primarily driven by inflationary uncertainty within the auto industry leading to compressed pricing and decreased acquisition spending, timing of optimized media rebalancing, and monetization challenges within the DMS ecosystem.

Gross profit for Marketplace decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2022, primarily driven by macro industry headwinds applying downward pricing pressure impacting revenue performance within our Insurance business as well as the shift in ad spend from non enrollment periods from some of our health insurance partners. The ad spend shift particularly affected the profitability of the Crisp business model due to the more stable nature of call center operations.

Gross profit for Technology Solutions increased for the three and ~~six~~nine months ended ~~June~~September 30, 2022, driven by the optimization of media purchasing activity which ~~lead~~led to larger budgets and resulted in increased fees in addition to the Traverse acquisition which carries a higher margin profile.

Total gross profit decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to the unexpected impact of inflationary pressures within the insurance industry which led to a decline in click pricing and shifts in health insurance budgets culminating in monetization contraction within the DMS ecosystem.

Salaries and related costs. Total compensation includes salaries, commissions, bonuses, payroll taxes and retirement benefits.

Salaries and related costs ~~increased~~decreased by ~~$1.5~~$0.8 million or ~~13.1% and $5.0 million or 22.6%~~6.3% for the three ~~and six~~ months ended ~~June~~September 30, 2022 ~~respectively, which were primarily driven by~~due to higher than expected attrition; and increased $4.2 million or 12.2% for the nine months ended September 30, 2022 due to an increase in stock-based compensation and headcount as a result of required expansion of our workforce to support the Company, as well as the addition of FTEs from the Crisp Results and DMS Voice licensing.

General and administrative. General and administrative consist of expenses incurred in our normal course of business relating to office supplies, computer and technology, rent and utilities, insurance, legal and professional fees, state and local taxes and licenses, penalties and settlements and bad debt expense, as well as sales and marketing expenses relating to advertising and promotion. We also include other expenses such as investment banking expenses, fundraising costs and costs related to the advancement of our corporate social responsibility program.

General and administrative expenses ~~increased $1.9~~decreased $1.2 million or ~~17.9% and $6.0 million or 34.4%~~11.3% for the three ~~and six~~ months ended ~~June~~September 30, 2022 ~~respectively. The increases were primarily driven by~~largely due to improved client collections and synergies within software and technology; and increased $5.6 million or 20.6% for the nine months ended September 30, 2022 due to acquisition related expenses across multiple categories including software, technology, and professional expenses as well as an overall increase in ~~insurance and~~ compliance fees.

Depreciation and amortization. Property, plant and equipment consists of computers and office equipment, furniture and

fixtures, leasehold improvements and internally developed software costs. Intangible assets subject to amortization include technology, customer relationships, brand, and non-competition agreements.

Depreciation and amortization expense ~~increased $0.1~~decreased $0.0 million or ~~1.8%~~0.6% for the three months ended September 30, 2022 due to fewer fixed assets purchased during the current quarter versus prior year’s quarter; and ~~$1.8~~increased $1.7 million or ~~14.2%~~8.8%, during the ~~three and six~~for the nine months ended ~~June~~September 30, 2022 ~~respectively, primarily driven by the~~due to fixed assets acquired with Crisp Results and AAP, as well as continued investments in internally developed software, which were placed in service during 2021.

Acquisition costs. Acquisition related costs are not considered part of the consideration for acquisitions and are expensed as incurred. This includes acquisition incentive compensation and other transaction related costs.

Acquisition costs ~~decreased by $0.2~~changed $0.4 million or ~~40.1%~~96.7% and ~~$1.7~~$1.5 million or ~~85.1%~~83.2% during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The ~~decreases~~changes were primarily due to ~~higher~~ prior year ~~acquisition~~ costs related to the AAP and Crisp acquisitions ~~when compared to the current year’s acquisition costs related to Traverse~~ (see Note 6. Acquisitions).

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Interest expense. Interest expense for three and ~~six~~nine months ended ~~June~~September 30, 2022 was related primarily to our debt, which carries a variable interest rate based on multiple options at either LIBOR plus 5% or an alternate base rate, plus an agreed upon margin with Truist Bank, the Company’s financial institution since May 25, 2021 (see Note 5. Debt).

Interest expense increased by ~~$0.2~~$0.8 million or ~~5.4%~~21.7% and ~~$0.6~~$1.4 million or ~~9.1%~~13.5%, during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The increases for the three and ~~six~~nine months ended ~~June~~September 30, 2022, were primarily due to approximately ~~1.5%~~1.0% increase in our LIBOR rate as a result of current financial markets.

Income tax expense. The Company recorded income tax expense of ~~$0.0~~$0.5 million and ~~$0.4~~$0.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The blended effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2022 was ~~0.4%~~4.8% and 2%3.1%, respectively, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest and impact of the valuation allowance on DMS, Inc.

NON-GAAP FINANCIAL MEASURES

In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this Quarterly Report includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including adjusted EBITDA, unlevered free cash flow, adjusted net income and adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below.

As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement.

Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion

We use the non-GAAP measures of Adjusted EBITDA and Unlevered Free Cash Flow to assess operating performance. Management believes that these measures provide useful information to investors regarding DMS’s operating performance and its capacity to incur and service debt and fund capital expenditures. DMS believes that these measures are used by many investors, analysts and rating agencies as a measure of performance. By reporting these measures, DMS provides a basis for comparison of our business operations between current, past and future periods by excluding items that DMS does not believe are indicative of our core operating performance.

Financial measures that are non-GAAP should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, DMS relies primarily on its GAAP results and uses Adjusted EBITDA and Unlevered Free Cash Flow only as a supplement.

Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b) income tax expense, (c) depreciation and amortization, (d) change in fair value of warrant liabilities, (e) debt extinguishment, (f) stock-based compensation, (g) change in ~~tax receivable agreement~~Tax Receivable Agreement liability, (h) restructuring costs, (i) acquisition costs, and (j) other expense.

In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized.

Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods.

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Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA.

~~Table of Contents~~

The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
Net (loss) income	Net (loss) income	$	(11,887)		$	4,939		$	(17,244)		$	4,727		Net (loss) income	$	(10,121)		$	5,394		$	(27,365)		$	10,121
Adjustments	Adjustments													Adjustments
Interest expense	Interest expense	3,817			3,622			7,502			6,879			Interest expense	4,570			3,756			12,072			10,635
Income tax expense	Income tax expense	45			1,031			355			1,148			Income tax expense	463			379			819			1,527
Depreciation and amortization	Depreciation and amortization	7,173			7,044			14,233			12,463			Depreciation and amortization	7,142			7,186			21,377			19,649
Change in fair value of warrant liabilities (1)	Change in fair value of warrant liabilities (1)	(1,640)			(7,750)			(3,480)			(7,435)			Change in fair value of warrant liabilities (1)	1,000			(6,400)			(2,480)			(13,835)

Change in Tax Receivable Agreement liability														Change in Tax Receivable Agreement liability	(121)			—			(121)			—
Loss on debt extinguishment	Loss on debt extinguishment	—			2,108			—			2,108			Loss on debt extinguishment	—			—			—			2,108
Stock-based compensation expense	Stock-based compensation expense	2,066			1,273			3,908			2,530			Stock-based compensation expense	1,424			1,516			5,332			4,046
Restructuring costs	Restructuring costs	1,784			432			2,178			81			Restructuring costs	(13)			52			2,166			133
Acquisition costs (2)	Acquisition costs (2)	224			466			2,828			1,960			Acquisition costs (2)	14			420			306			1,820
Change in fair value of contingent consideration liabilities														Change in fair value of contingent consideration liabilities	(3)			(3,085)			2,533			(2,525)
Other expense (3)	Other expense (3)	1,441			1,756			3,234			3,242			Other expense (3)	708			887			3,940			4,123
Adjusted net income	Adjusted net income	$	3,023		$	14,921		$	13,514		$	27,703		Adjusted net income	$	5,063		$	10,105		$	18,579		$	37,802
Additional adjustments	Additional adjustments													Additional adjustments
Pro forma cost savings - Reorganization (4)	Pro forma cost savings - Reorganization (4)	$	—		$	—		$	—		$	31		Pro forma cost savings - Reorganization (4)	$	—		$	—		$	—		$	31
Pro forma cost savings - Acquisitions (5)	Pro forma cost savings - Acquisitions (5)	—			1,030			—			1,800			Pro forma cost savings - Acquisitions (5)	—			856			—			2,656
Acquisitions EBITDA (6)	Acquisitions EBITDA (6)	—			—			—			2,711			Acquisitions EBITDA (6)	—			—			—			2,711

Adjusted EBITDA	Adjusted EBITDA	$	3,023		$	15,951		$	13,514		$	32,245		Adjusted EBITDA	$	5,063		$	10,961		$	18,579		$	43,200
Less: Capital Expenditures	Less: Capital Expenditures	1,580			1,821			3,197			4,212			Less: Capital Expenditures	2,050			3,663			5,247			7,875
Unlevered free cash flow	Unlevered free cash flow	$	1,443		$	14,130		$	10,317		$	28,033		Unlevered free cash flow	$	3,013		$	7,298		$	13,332		$	35,325
Unlevered free cash flow conversion	Unlevered free cash flow conversion	47.7		%	88.6		%	76.3		%	86.9		%	Unlevered free cash flow conversion	59.5		%	66.6		%	71.8		%	81.8		%

______________

(1)Mark-to-market warrant liability adjustments.

(2)~~Balance includes~~Includes business combination transaction fees, acquisition incentive payments ~~contingent consideration accretion, earnout payments~~ and pre-acquisition expenses.

(3)~~Balance includes~~Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs.

(4)Costs savings as a result of the Company reorganization initiated in Q2 2020.

(5)Cost synergies expected as a result of the full integration of the acquisitions.

(6)Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the three and ~~six~~nine months ended ~~June~~September 30, 2021.

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A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Unlevered free cash flow	Unlevered free cash flow	$	1,443	$	14,130	$	10,317	$	28,033	Unlevered free cash flow	$	3,013	$	7,298	$	13,332	$	35,325
Capital expenditures	Capital expenditures	1,580		1,821		3,197		4,212		Capital expenditures	2,050		3,663		5,247		7,875
Adjusted EBITDA	Adjusted EBITDA	$	3,023	$	15,951	$	13,514	$	32,245	Adjusted EBITDA	$	5,063	$	10,961	$	18,579	$	43,200

Acquisitions EBITDA (1)	Acquisitions EBITDA (1)	—		—		—		2,711		Acquisitions EBITDA (1)	—		—		—		2,711
Pro forma cost savings - Reorganization (2)	Pro forma cost savings - Reorganization (2)	—		—		—		31		Pro forma cost savings - Reorganization (2)	—		—		—		31
Pro forma cost savings - Acquisitions (3)	Pro forma cost savings - Acquisitions (3)	—		1,030		—		1,800		Pro forma cost savings - Acquisitions (3)	—		856		—		2,656
Adjusted net income	Adjusted net income	$	3,023	$	14,921	$	13,514	$	27,703	Adjusted net income	$	5,063	$	10,105	$	18,579	$	37,802
Acquisition costs (4)	Acquisition costs (4)	224		466		2,828		1,960		Acquisition costs (4)	14		420		306		1,820
Change in fair value of contingent consideration liabilities										Change in fair value of contingent consideration liabilities	(3)		(3,085)		2,533		(2,525)
Other expenses (5)	Other expenses (5)	1,441		1,756		3,234		3,242		Other expenses (5)	708		887		3,940		4,123
Stock-based compensation	Stock-based compensation	2,066		1,273		3,908		2,530		Stock-based compensation	1,424		1,516		5,332		4,046
Restructuring costs	Restructuring costs	1,784		432		2,178		81		Restructuring costs	(13)		52		2,166		133
Change in fair value of warrant liabilities (6)	Change in fair value of warrant liabilities (6)	(1,640)		(7,750)		(3,480)		(7,435)		Change in fair value of warrant liabilities (6)	1,000		(6,400)		(2,480)		(13,835)
Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		—		2,108		Loss on debt extinguishment	—		—		—		2,108
Subtotal before additional adjustments	Subtotal before additional adjustments	$	(852)	$	16,636	$	4,846	$	25,217	Subtotal before additional adjustments	$	1,933	$	16,715	$	6,782	$	41,932
Less: Interest expense	Less: Interest expense	3,817		3,622		7,502		6,879		Less: Interest expense	4,570		3,756		12,072		10,635
Less: Income tax expense	Less: Income tax expense	45		1,031		355		1,148		Less: Income tax expense	463		379		819		1,527

Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations										Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations	(121)		—		(121)		—
Provision for bad debt	Provision for bad debt	1,339		909		1,339		909		Provision for bad debt	(34)		475		1,305		1,384

Lease restructuring charges	Lease restructuring charges	2		174		2		174		Lease restructuring charges	(169)		(255)		(167)		(81)
Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		—		2,108		Loss on debt extinguishment	—		—		—		2,108
Stock-based compensation, net of amounts capitalized	Stock-based compensation, net of amounts capitalized	3,908		2,530		3,908		2,530		Stock-based compensation, net of amounts capitalized	1,424		1,446		5,332		3,976

Amortization of debt issuance costs	Amortization of debt issuance costs	938		528		938		528		Amortization of debt issuance costs	211		478		1,149		1,006
Deferred income tax provision, net	Deferred income tax provision, net	(785)		364		(785)		364		Deferred income tax provision, net	(375)		(1,220)		(1,160)		(856)

Change in fair value of contingent consideration	Change in fair value of contingent consideration	2,536		560		2,536		560		Change in fair value of contingent consideration	(3)		(3,085)		2,533		(2,525)
Change in fair value of warrant liability	Change in fair value of warrant liability	(3,480)		(7,435)		(3,480)		(7,435)		Change in fair value of warrant liability	1,000		(6,400)		(2,480)		(13,835)

Change in Tax Receivable Agreement liability - Consolidated statements of cash flows										Change in Tax Receivable Agreement liability - Consolidated statements of cash flows	(120)		—		(120)		—
Change in income tax receivable and payable	Change in income tax receivable and payable	631		(2,328)		631		(2,328)		Change in income tax receivable and payable	666		1,600		1,297		(728)
Change in accounts receivable	Change in accounts receivable	4,026		(4,330)		4,026		(4,330)		Change in accounts receivable	798		(2,994)		4,824		(7,324)
Change in prepaid expenses and other current assets	Change in prepaid expenses and other current assets	2,585		222		2,585		222		Change in prepaid expenses and other current assets	(1,465)		(2,343)		1,120		(2,121)
Change in accounts payable and accrued expenses	Change in accounts payable and accrued expenses	(1,275)		(6,768)		(1,275)		(6,768)		Change in accounts payable and accrued expenses	(4,066)		4,401		(5,341)		(2,367)
Change in other liabilities	Change in other liabilities	27		(190)		27		(190)		Change in other liabilities	(220)		(326)		(195)		(516)
Net cash provided by operating activities	Net cash provided by operating activities	$	5,738	$	(1,673)	$	7,441	$	3,534	Net cash provided by operating activities	$	(5,332)	$	4,357	$	2,109	$	7,891

______________

(1)Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results ~~and~~ acquisitions during the three and ~~six~~nine months ended ~~June~~September 30, 2021.

(2)Costs savings as a result of the Company reorganization initiated in Q2 2020.

(3)Cost synergies expected as a result of the full integration of the acquisitions.

(4)~~Balance includes~~Includes business combination transaction fees, acquisition incentive payments ~~contingent consideration accretion, earnout payments~~ and pre-acquisition expenses.

(5)~~Balance includes~~Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs.

(6)Mark-to-market warrant liability adjustments.

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Adjusted Net Income and Adjusted EPS

We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by

~~Table of Contents~~

management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis.

The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net (loss) income	Net (loss) income	$	(11,887)	$	4,939	$	(17,244)	$	4,727	Net (loss) income	$	(10,121)	$	5,394	$	(27,365)	$	10,121

Net (loss) income attributable to non-controlling interest	Net (loss) income attributable to non-controlling interest	(4,905)		$	2,411	(7,121)		2,373		Net (loss) income attributable to non-controlling interest	(4,010)		$	1,858	(10,765)		4,217
Net (loss) income attributable to Digital Media Solutions, Inc. - basic	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,982)	$	2,528	$	(10,123)	$	2,354	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,111)	$	3,536	$	(16,600)	$	5,904

Add: Income effects of Class B convertible common stock	Add: Income effects of Class B convertible common stock	$	(4,903)	$	—	$	(7,116)	$	—	Add: Income effects of Class B convertible common stock	$	(4,010)	$	1,858	$	—	$	4,217
Less: dilutive effect of change in fair value of warrant liabilities attributable to Digital Media Solutions, Inc.		—		—		—		4,321

Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(11,885)	$	2,528	$	(17,239)	$	(1,967)	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(10,121)	$	5,394	$	(16,600)	$	10,121

Denominator:	Denominator:									Denominator:
Weighted average shares - basic	Weighted average shares - basic	39,553		35,377		$	37,969	$	34,315	Weighted average shares - basic	39,961		36,511		37,644		35,050
Add: dilutive effects of Class B convertible common stock	Add: dilutive effects of Class B convertible common stock	25,699		—		$	25,713	$	—	Add: dilutive effects of Class B convertible common stock	25,699		25,853		—		25,853
Add: dilutive effects of employee equity awards	Add: dilutive effects of employee equity awards	—		628		—		—		Add: dilutive effects of employee equity awards	—		267		—		515
Add: dilutive effects of private placement warrants		—		—		—		10

Add: dilutive effects of public warrants										Add: dilutive effects of public warrants	—		—		—		168
Add: dilutive effects of deferred consideration	Add: dilutive effects of deferred consideration	—		517		—		—		Add: dilutive effects of deferred consideration	—		690		—		402
Weighted average shares - diluted	Weighted average shares - diluted	65,252		36,522		63,682		34,325		Weighted average shares - diluted	65,660		63,321		37,644		61,988

Net earnings (loss) per common share:	Net earnings (loss) per common share:									Net earnings (loss) per common share:
Basic	Basic	$	(0.18)	$	0.07	$	(0.27)	$	0.07	Basic	$	(0.15)	$	0.10	$	(0.44)	$	0.17
Diluted	Diluted	$	(0.18)	$	0.07	$	(0.27)	$	(0.06)	Diluted	$	(0.15)	$	0.09	$	(0.44)	$	0.16

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net (loss) income attributable to Digital Media Solutions, Inc. - basic	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,982)	$	2,528	$	(10,123)	$	2,354	Net (loss) income attributable to Digital Media Solutions, Inc. - basic	$	(6,111)	$	3,536	$	(16,600)	$	5,904
Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(11,885)	$	2,528	$	(17,239)	$	(1,967)	Net (loss) income attributable to Digital Media Solutions, Inc. - diluted	$	(10,121)	$	5,394	$	(16,600)	$	10,121
Add adjustments:	Add adjustments:									Add adjustments:
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	$	(1,640)	$	(7,750)	$	(3,480)	$	(7,435)	Change in fair value of warrant liabilities	$	1,000	$	(6,400)	$	(2,480)	$	(13,835)
Loss on debt extinguishment	Loss on debt extinguishment	—		2,108		—		2,108		Loss on debt extinguishment	—		—		—		2,108
Acquisition and related costs	Acquisition and related costs	224		466		2,828		1,960		Acquisition and related costs	14		420		306		1,820
Restructuring costs	Restructuring costs	1,784		432		2,178		81		Restructuring costs	(13)		52		2,166		133
Business combination expenses	Business combination expenses	—		1,030		—		1,800		Business combination expenses	—		856		—		2,656
Stock-based compensation expense	Stock-based compensation expense	2,066		1,273		3,908		2,530		Stock-based compensation expense	1,424		1,516		5,332		4,046

		$	2,434	$	(2,441)	$	5,434	$	1,044		$	2,425	$	(3,556)	$	5,324	$	(3,072)
Net income tax expense based on conversion of units	Net income tax expense based on conversion of units	—		(76)		—		902		Net income tax expense based on conversion of units	—		(337)		—		565
Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - basic	Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - basic	$	(4,548)	$	11	$	(4,689)	$	4,300	Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - basic	$	(3,686)	$	(357)	$	(11,276)	$	3,397
Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - diluted	Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - diluted	$	(9,451)	$	163	$	(11,805)	$	(1,825)	Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - diluted	$	(7,696)	$	2,175	$	(11,276)	$	6,484

Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	39,553		35,377		37,969		34,315		Weighted-average shares outstanding - basic	39,961		36,511		37,644		35,050
Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock	Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock	25,728		36,522		25,699		34,325		Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock	25,699		36,511		24,109		35,050
		65,281		71,899		63,668		68,640			65,660		73,022		61,753		70,100

Adjusted EPS - basic	Adjusted EPS - basic	$	(0.07)	$	—	$	(0.07)	$	0.06	Adjusted EPS - basic	$	(0.06)	$	—	$	(0.18)	$	0.05
Adjusted EPS - diluted	Adjusted EPS - diluted	$	(0.14)	$	—	$	(0.19)	$	(0.03)	Adjusted EPS - diluted	$	(0.12)	$	0.03	$	(0.18)	$	0.09

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes certain key measures of our liquidity and capital resources (in thousands):


		June 30, 2022		December 31, 2021		$ Change		% Change			September 30, 2022		December 31, 2021		$ Change		% Change
Cash	Cash	$	26,370	$	26,394	$	(24)	—	%	Cash	$	18,271	$	26,394	$	(8,123)	(31)	%
Availability under revolving credit facility	Availability under revolving credit facility	$	50,000	$	50,000	$	—	—	%	Availability under revolving credit facility	$	50,000	$	50,000	$	—	—	%
Total Debt	Total Debt	$	217,339	$	217,755	$	(416)	—	%	Total Debt	$	217,088	$	217,755	$	(667)	—	%

Our capital sources are focused on investments in our technology solutions, corporate infrastructure and strategic acquisitions to further expand into new business sectors and/or expand sales in existing sectors. We generate sufficient cash flows for working capital and expect to do so for the foreseeable future.

Our principal sources of liquidity on a short-term basis are cash and cash equivalents, and cash flows provided by operations. Our primary use of cash is compensation to our employees and payments for general operating expenses and interest expense.

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~~three and six months ended June 30, 2022, the effective interest rate was 6.29%. Since~~ May 25, 2021 our interest rate is based on LIBOR plus 5%5.00%. For the three and nine months ended September 30, 2022, the effective interest rate was 7.25%. On October 4, 2022, the Company drew $5.0 million on the Revolving Facility.

As of September 30, 2022 and December 31, 2021, respectively, we were in material compliance with all financial covenants. If the Company fails to comply with its financial covenants, an event of default under the Credit Facility would be triggered and the Company’s obligations under the Credit Facility may be accelerated. Management is monitoring the Company’s compliance and future ability to comply with all financial covenants, which management estimates may not be met within one year of issuance of these consolidated financial statements. Management is prepared to take certain steps to ensure compliance, including requesting waivers from or entering into amendments with the Lenders.

Cash flows from operating activities

Net cash provided by operating activities was ~~$7.4~~$2.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to ~~$3.5~~$7.9 million provided by operating activities in the ~~six~~nine months ended ~~June~~September 30, 2021. The ~~increase~~decrease is primarily attributable to an increase in accounts receivable collections, and a ~~slight~~ decrease in accounts payable and current accrued expenses due to timing of vendor payments.

Cash flows from investing activities

Net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 decreased by ~~$23.3~~$24.9 million or ~~80%~~76% to ~~$5.8~~$7.8 million from ~~$29.0~~$32.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to the timing of the acquisition of AAP and Crisp Results made during the first half of 2021.

Cash flows from financing activities

Net cash (used in) provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$(1.7)~~$(2.4) million, reflecting an increase of $14.6 million or ~~113%~~120%, as compared to ~~$12.9~~$12.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021. This increase was due to higher required repayments of borrowings of long-term debt and notes payable in the prior year under the Monroe Credit Facility and Insurance Premium Financial Service arrangements.

For the ~~six~~nine months ended ~~June~~September 30, 2022, our Unlevered Free Cash Flow conversion rate decreased ~~(11)%~~10% due to lower business performance.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. In addition, we do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation in our 2021 Form 10-K, for further information on our critical and other significant accounting policies.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements (Unaudited), included in Item 1: Financial Statements of this Quarterly Report, for a more detailed discussion on recent accounting pronouncements and the related impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For our disclosures about market risk, please see Part II, Item 7A: Quantitative and Qualitative Disclosures about Market Risk in our 2021 Form 10-K.

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Interest Rate Risk

As of ~~June~~September 30, 2022, we had total debt outstanding of ~~$217.3~~$217.1 million (net of ~~$5.4~~$5.1 million of unamortized discount and debt issuance costs), which was comprised of amounts outstanding under our original Term Loan of $225 million. Substantially all this debt bears interest at floating rates. Changes in interest rates affect the interest expense we pay on our floating rate debt. A

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hypothetical ~~100~~1% (100 basis ~~point~~points) increase in interest rates would increase our interest expense by approximately ~~$3.0~~$2.3 million annually, based on the debt outstanding at ~~June~~September 30, 2022.

Item 4. Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of ~~June~~September 30, 2022, the principal executive officer and principal financial officer of the Company have concluded that during the period covered by this Quarterly Report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective because of the material weakness in our internal control over financial reporting described in our 2021 Form 10-K. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our quarterly interim consolidated financial statements will not be prevented or detected on a timely basis.

Management’s Report on Internal Control Over Financial Reporting

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2021, as a material weakness ~~exists.~~existed. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements could occur but will not be prevented or detected on a timely basis.

In this regard, in connection with our implementation of policies and procedures with respect to accounts receivable, including the allowance for doubtful accounts, and associated revenue, we previously discovered a material error in a customer receivable account, related to a duplicate billing of a customer in fiscal years 2020 and 2021. As a result of these matters, we determined that our controls around revenue and accounts receivable policies and procedures were not effective as of December 31, 2021. The errors related to these matters have been corrected and are properly reflected in our consolidated financial statements for the year ended December 31, ~~2021 and the quarter ended June 30, 2022.~~2021.

We continue to analyze our aged receivables and have not identified any additional material errors similar to the items identified above. We are monitoring our processes and controls around evaluating the collectability of customer receivables along with assessing the loss rates used to calculate the reserve for potential uncollectible receivables. We believe our ongoing efforts will be sufficient to remediate the identified material weakness.

We will not consider the material weakness remediated until the remedial controls operate for a sufficient period of time and we have concluded, through testing, that these controls are effectively designed and operating effectively. We will continue to assess throughout 2022.

Changes in Internal Control Over Financial Reporting

Except as disclosed above, there have been no changes in our internal control over financial reporting during the fiscal quarter ended ~~June~~September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various disputes and litigation that arise in the ordinary course of business. However, separate from such matters, to the best of our knowledge, there are no material pending or threatened legal proceedings to which we are a party, either individually or in the aggregate.

Item 1A. Risk Factors

The Company’ s business, results of operations, and financial condition are subject to various risks and uncertainties, including those described below and in Part I, Item 1A: Risk Factors in our 2021 Form 10-K.

We have entered into, and may in the future enter into, credit facilities which may contain operating and financial covenants that restrict our business and financing activities.

We have entered into, and may in the future enter into, credit facilities which contain restrictions that limit our flexibility in operating our business. Our credit facility contains, and any future credit facility may contain, various covenants and ratios that limit our ability to engage in specific types of transactions. For example, under our credit facility, we have a net leverage ratio covenant of 5:1, which will reduce to 4.5:1 as of December 31, 2022. Subject to limited exceptions, these covenants and ratios limit our ability to, among other things:

•sell assets or make changes to the nature of our business;

•engage in mergers or acquisitions;

•incur, assume or permit additional indebtedness;

•make restricted payments, including paying dividends on, repurchasing, redeeming or making distributions with respect to our capital stock;

•make specified investments;

•engage in transactions with our affiliates; and

•make payments in respect of subordinated debt.

Our obligations under our credit facility are collateralized by a pledge of substantially all of our assets, including accounts receivable, deposit accounts, intellectual property, and investment property and equipment. The covenants in our credit facility may limit our ability to obtain future financing, make needed capital expenditures, withstand a downturn in our business or economy in general or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants under the credit facility impose on us. In the event that we breach one or more covenants, our lenders may choose to declare an event of default and require that we immediately repay all amounts outstanding, terminate the commitment to extend further credit and foreclose on the collateral granted to them to collateralize such indebtedness, which includes our intellectual property. Although we are currently in compliance with these covenants, if we anticipate non-compliance with certain financial covenants and ratios, we may be forced to request waivers from or enter into amendments with our lenders to avoid default. We cannot assure you that we will be able to negotiate a change to our credit facilities to allow us to amend these covenants or that any such amendment will be available to us on favorable terms. An inability on our part to amend the financial covenants could limit our ability to take advantage of the benefits described above related to our ability to engage in specific types of transactions and could decrease our earnings, if any, which would have an adverse effect on our results of operations and the value of our shares of common stock. In addition, if we fail to meet the required covenants and ratios, we will not have access to further draw-downs under our credit facility.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

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None.

Item 5. Other Information

~~Executive Severance Plan~~

On August 4, 2022, the Board of Directors of the Company (the “Board”) approved and adopted the Digital Media Solutions, Inc. Executive Severance Plan (the “Plan”). The Plan commences on August 4, 2022 and is administered by the Compensation Committee of the Board. The Plan is intended to provide severance benefits for certain selected senior executive employees of the Company who either have their employment terminated by the Company without “Cause” or who resign their employment for “Good Reason” (as such terms are defined in the Plan). The Plan seeks to reinforce and encourage the continued attention and dedication of those executive employees who participate in the Plan.

Under the Plan, upon a termination of employment without “Cause” or a resignation for “Good Reason,” a covered executive would receive a payment equal to: (i) his or her base salary in effect at the time of termination, multiplied by 1 (or, in the case of an executive employed by the Company for less than three years, multiplied by 0.5) and (ii) his or her pro-rated target bonus opportunity for the fiscal year of termination. Terminated executives are also entitled to (x) COBRA continuation coverage paid by the Company for 12 months (or, if earlier, until the date they become eligible for coverage under another employer-provided plan) and (y) outplacement services for up to six months.

In the event an executive is eligible for severance benefits provided under an offer letter or employment agreement with the Company, severance benefits payable under the Plan will be reduced by any duplicative severance pay, salary continuation pay, termination pay or similar amounts payable under such offer letter or employment agreement.

~~Terminated executives are also required to sign a general waiver and release of all claims against the Company prior to receiving severance benefits under the Plan.~~

Further, if any payments under the Plan or otherwise would be subject to “golden parachute” excise taxes under the Internal Revenue Code, the payments will be reduced to limit or avoid the excise taxes if and to the extent such reduction would produce an expected better after-tax result for the officer.

The foregoing description of the Plan does not purport to be complete and is qualified in its entirety by reference to the Digital Media Solutions, Inc. Executive Severance Plan, which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and the information set forth therein is incorporated by reference into this Quarterly Report.None.

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Item 6. Exhibits

The following exhibits are filed as part of this report:


Exhibit Number						Description

3.1						Certificate of Incorporation of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 3.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020).
3.2						Bylaws of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 3.2 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020).


31.1*						Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~10.1~~						~~Letter Agreement, by and between Digital Media Solutions, Inc. and Joseph Liner, dated as of May 26, 2022.~~
~~10.2~~						~~Offer Letter, by and between Digital Media Solutions, Inc. and Richard Rodick, dated as of June 28, 2022.~~
~~10.3~~						~~Separation Agreement, by and between Digital Media Solutions, Inc. and Vasundara Srenivas, dated as of June 28, 2022.~~
~~10.4~~						~~Digital Media Solutions, Inc. Executive Severance Plan, dated August 4, 2022.~~

101.INS*1						Inline XBRL Instance Document
101.SCH*†						Inline XBRL Taxonomy Extension Schema
101.CAL*†						Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*†						Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*†						Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*†						Inline XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

† Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these section

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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.

Date: ~~August~~November 9, 2022



			Digital Media Solutions, Inc.

			/s/ Joseph Marinucci
			Name:			Joseph Marinucci
			Title:			President and Chief Executive Officer (Principal Executive Officer)

			/s/ Richard Rodick
			Name:			Richard Rodick
			Title:			Chief Financial Officer (Principal Financial and Accounting Officer)


	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Beginning balance	$	2,516	$	3,653
Valuation adjustments	470		81
Lease payments	(584)		(870)
Lease accretion	96		93
Ending balance	$	2,498	$	2,957
Current portion - Accrued expenses and other current liabilities	$	908	$	1,200
Long-term portion - Other non-current liabilities	$	1,590	$	1,757