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 ~~September~~June 30, ~~2022~~2023


☐			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~~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	☒

~~Table of Contents~~

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 ~~November 7, 2022, 39,926,324~~August 10, 2023, 40,912,869 shares of the registrant’s Class A common stock; ~~25,699,464~~25,082,064 of the registrant’s Class B common stock, par value $0.0001 per share; and ~~13,999,078~~28,443,522 warrants to purchase shares of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding.

Table of Contents

Digital Media Solutions, Inc.

Table of Contents


		Page No.

~~PART~~Part I. ~~FINANCIAL INFORMATION~~Financial Information
Item 1.	Financial Statements	1
	Consolidated Balance Sheets ~~(Unaudited)~~	1
	Consolidated Statements of Operations ~~(Unaudited)~~	2
	Consolidated Statements of Changes in Preferred Stock and Stockholders’ Deficit ~~(Unaudited)~~	3
	Consolidated Statements of Cash Flows ~~(Unaudited)~~	67
	Condensed Notes to Consolidated Financial Statements ~~(Unaudited)~~	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2328
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3341
Item 4.	Evaluation of Disclosure Controls and Procedures	3442
~~PART~~Part II. ~~OTHER INFORMATION~~Other Information
Item 1.	Legal Proceedings	3544
Item 1A.	Risk Factors	3544
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	3544
Item 3.	Defaults Upon Senior Securities	3544
Item 4.	Mine Safety Disclosures	3544
Item 5.	Other Information	3644
Item 6.	Exhibits	3746
~~SIGNATURES~~Signatures		3847

Table of Contents

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 (the “Securities Act”), 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.~~statements and the Private Securities Litigation Reform Act of 1955. These ~~forward looking~~forward-looking statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “assume,” “likely,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its and ClickDealer’s 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) DMS’s ability to attain the expected financial benefits from the ClickDealer transaction; (2) any impacts to the ClickDealer business from our acquisition thereof, (3) the COVID-19 pandemic or other public health crises; ~~(2)~~(4) management of our international expansion as a result of the ClickDealer acquisition; (5) changes in client demand for our services and our ability to adapt to such changes; ~~(3)~~(6) the entry of new competitors in the market; ~~(4)~~(7) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; ~~(5)~~(8) the ability to maintain, grow and protect the data DMS obtains from consumers and ~~advertisers; (6)~~advertisers, and to ensure compliance with data privacy regulations in newly entered markets; (9) the performance of DMS’s technology infrastructure; ~~(7)~~(10) the ability to protect DMS’s intellectual property rights; ~~(8)~~(11) the ability to successfully source, complete 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)~~acquisitions; (12) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate material weaknesses therein, including any integration of the ~~identified material weakness; (10)~~ClickDealer business; (13) changes in applicable laws or regulations and the ability to maintain compliance; ~~(11)~~(14) our substantial levels of indebtedness; ~~(12)~~(15) volatility in the trading price ~~on the NYSE~~ of our common stock and warrants; ~~(13)~~(16) fluctuations in value of our private placement warrants; and ~~(14)~~(17) other risks and uncertainties indicated from time to time in

~~Table of Contents~~

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~~10-K/A for the year ended December 31, ~~2021,~~2022, filed on ~~March 16,~~ April 5, 2023 (“2022 ~~(“2021~~ Form ~~10-K”~~10-K/A”) 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.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DIGITAL MEDIA SOLUTIONS, INC.

~~CONSOLIDATED BALANCE SHEETS~~Consolidated Balance Sheets

~~(Unaudited)~~

(in thousands, except per share data)


	June 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,212	$	48,839
Accounts receivable, net of allowances of $3,942 and $4,656, respectively	37,766		48,109
Prepaid and other current assets	2,005		3,296
Income tax receivable	2,193		1,966
Total current assets	67,176		102,210
Property and equipment, net	16,513		17,702
Operating lease right-of-use assets, net	1,234		2,187
Goodwill	48,444		77,238
Intangible assets, net	42,498		27,519
Deferred tax assets	1,367		—
Other assets	680		765
Total assets	$	177,912	$	227,621
Liabilities, Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable	$	36,494	$	39,908
Accrued expenses and other current liabilities	8,864		7,101
Current portion of long-term debt	2,250		2,250

Tax Receivable Agreement liability	164		164
Operating lease liabilities - current	2,113		2,175
Contingent consideration payable - current	1,500		1,453

Total current liabilities	51,385		53,051
Long-term debt	264,149		254,573
Deferred tax liabilities	375		1,112
Operating lease liabilities - non-current	1,211		2,232
Warrant liabilities	3,202		600

Contingent consideration payable - non-current	2,268		—


Total liabilities	322,590		311,568

Preferred stock, $0.0001 par value, 100,000 shares authorized; 80 Series A and 60 Series B convertible redeemable issued and outstanding, respectively at June 30, 2023	16,334		—

Stockholders' deficit:
Class A common stock, $0.0001 par value, 500,000 shares authorized; 40,094 issued and outstanding at June 30, 2023	4		4
Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at June 30, 2023	3		3
Class C convertible common stock, $0.0001 par value, 40,000 authorized; none issued and outstanding at June 30, 2023	—		—
Additional paid-in capital	(9,766)		(14,054)
Treasury stock, at cost, 138 and 0 shares, respectively	(211)		(181)
Cumulative deficit	(85,792)		(32,896)
Total stockholders' deficit	(95,762)		(47,124)
Non-controlling interest	(65,250)		(36,823)

Total deficit	(161,012)		(83,947)
Total liabilities, preferred stock and stockholders' deficit	$	177,912	$	227,621

September 30, 2022 December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents $ 18,271 $ 26,394
Accounts receivable, net of allowances of $5,654 and $4,459, respectively 45,780 51,578
Prepaid and other current assets 2,468 3,698
Income tax receivable 1,399 2,078
Total current assets 67,918 83,748
Property and equipment, net 18,167 19,168
Goodwill 77,219 76,558
Intangible assets, net 53,825 66,228
Other assets 808 889
Total assets $ 217,937 $ 246,591
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable $ 36,348 $ 42,073
Accrued expenses and other current liabilities 9,335 9,473
Current portion of long-term debt 2,250 2,250
Income taxes payable 721 103
Tax Receivable Agreement liability 1,190 1,310
Contingent consideration payable - current 1,371 7,370
Deferred acquisitions consideration payable - current 5,000 4,785
Total current liabilities 56,215 67,364

Long-term debt 214,838 215,505
Deferred tax liabilities 4,060 4,786
Private Placement Warrant liabilities 1,480 3,960
Contingent consideration payable - non-current 31 1,069
Other non-current liabilities 1,530 1,725
Total liabilities 278,154 294,409
Stockholders' deficit:
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 4 3
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 — —
Additional paid-in capital (17,166) (25,239)
Treasury stock, at cost, 125 and 0 shares, respectively (156) —
Cumulative deficit (17,544) (944)
Total stockholders' deficit (34,859) (26,177)
Non-controlling interest (25,358) (21,641)
Total deficit (60,217) (47,818)
Total liabilities and deficit $ 217,937 $ 246,591

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

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net revenue $ 90,066 $ 107,399 $ 290,372 $ 309,281
Cost of revenue (exclusive of depreciation and amortization) 66,378 77,063 211,997 218,304
Salaries and related costs 11,668 12,449 38,612 34,426
General and administrative expenses 9,076 10,237 32,622 27,051
Depreciation and amortization 7,142 7,186 21,377 19,649
Acquisition costs 14 420 306 1,820
Change in fair value of contingent consideration liabilities (3) (3,085) 2,533 (2,525)
(Loss) income from operations $ (4,209) $ 3,129 $ (17,075) $ 10,556
Interest expense 4,570 3,756 12,072 10,635
Change in fair value of warrant liabilities 1,000 (6,400) (2,480) (13,835)
Change in Tax Receivable Agreement liability (121) — (121) —
Loss on debt extinguishment — — — 2,108
Net (loss) income before income taxes $ (9,658) $ 5,773 $ (26,546) $ 11,648
Income tax expense 463 379 819 1,527
Net (loss) income $ (10,121) $ 5,394 $ (27,365) $ 10,121
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. $ (6,111) $ 3,536 $ (16,600) $ 5,904
Weighted-average shares outstanding - basic 39,961 36,511 37,644 35,050
Weighted-average shares outstanding - diluted 65,660 63,321 37,644 61,988
Earnings (loss) per share attributable to Digital Media Solutions, Inc.:
Basic - per common shares $ (0.15) $ 0.10 $ (0.44) $ 0.17
Diluted - per common shares $ (0.15) $ 0.09 $ (0.44) $ 0.16


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Net revenue	$	82,551	$	91,197	$	172,863	$	200,307
Cost of revenue (exclusive of depreciation and amortization)	63,343		67,784		131,384		145,624

Salaries and related costs	11,489		13,237		23,715		26,945
General and administrative expenses	12,124		12,444		24,979		23,544
Depreciation and amortization	5,872		7,173		10,955		14,233
Impairment of goodwill	33,795		—		33,795		—
Impairment of intangible assets	7,791		—		7,791		—
Acquisition costs	658		279		3,003		292
Change in fair value of contingent consideration liabilities	(90)		(55)		(77)		2,536
Loss from operations	(52,431)		(9,665)		(62,682)		(12,867)
Interest expense, net	7,045		3,817		13,743		7,502
Change in fair value of warrant liabilities	(9,829)		(1,640)		(6,065)		(3,480)


Gain on disposal of assets	(3)		—		(3)		—
Net loss before income taxes	(49,644)		(11,842)		(70,357)		(16,889)
Income tax (benefit) expense	(2,151)		45		(2,163)		355
Net loss	(47,493)		(11,887)		(68,194)		(17,244)
Net loss attributable to non-controlling interest	(18,553)		(4,905)		(26,639)		(7,121)
Net loss attributable to Digital Media Solutions, Inc.	$	(28,940)	$	(6,982)	$	(41,555)	$	(10,123)

Weighted-average Class A common shares outstanding – basic	40,094		39,553		39,805		37,969
Weighted-average Class A common shares outstanding – diluted	40,094		65,252		39,805		63,682

Loss per share attributable to Digital Media Solutions, Inc.:
Basic – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)
Diluted – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)

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

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

~~CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT~~Consolidated Statements of Changes in Preferred Stock and Stockholders’ Deficit

(Unaudited)

(in thousands, except share data)

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, June 30, 2022 36,564 $ 3 25,699 $ 3 $ (22,313) $ — $ (11,060) $ (33,367) $ (28,152) $ (61,519)
Net loss — — — — — — (6,111) (6,111) (4,010) (10,121)
Shares issued in connection with the Crisp Earnout (Note 6) 2,989 1 — — 9,999 — — 10,000 — 10,000
Stock-based compensation — — — — 1,579 — — 1,579 — 1,579
Shares issued under the 2020 Omnibus Incentive Plan 498 — — — — — — — — —
Treasury shares purchased under the 2020 Omnibus Incentive Plan (125) — — — — (156) — (156) — (156)
Impact of transactions affecting non-controlling interest (1)
— — — — (6,804) — — (6,804) 6,804 —
Balance, September 30, 2022 39,926 $ 4 25,699 $ 3 $ (17,539) $ (156) $ (17,171) $ (34,859) $ (25,358) $ (60,217)


	Preferred Stock (1)			Class A Common Stock	Class B Common Stock			Additional Paid-in Capital		Treasury Stock		Cumulative Deficit			Total Stockholders' Deficit		Non- controlling Interest		Total Deficit
	Shares	Amount			Shares	Amount			Shares					Amount










Balance, March 31, 2023	140	$	4,993		39,957	$	4	25,699		$	3	$	(16,614)		$	(181)	$	(45,494)	$	(62,282)	$	(40,987)	$	(103,269)
Net loss	—	—			—	—		—		—		—			—		(28,940)		(28,940)		(18,553)		(47,493)
Stock-based compensation	—	—			—	—		—		—		1,121			—		—		1,121		—		1,121
Accretion Series A convertible redeemable preferred stock	—	6,391			—	—		—		—		—			—		(6,391)		(6,391)		—		(6,391)
Accretion Series B convertible redeemable preferred stock	—	4,794			—	—		—		—		—			—		(4,794)		(4,794)		—		(4,794)
Series A preferred stock dividends (2)	—	89			—	—		—		—		—			—		(89)		(89)		—		(89)
Series B preferred stock dividends (2)	—	67			—	—		—		—		—			—		(67)		(67)		—		(67)
Shares issued under the 2020 Omnibus Incentive Plan	—	—			178	—		—		—		—			—		—		—		—		—
Treasury stock purchased under the 2020 Omnibus Incentive Plan	—	—			(41)	—		—		—		—			(30)		—		(30)		—		(30)
Impact of transactions affecting non-controlling interest (3)	—	—			—	—		—		—		5,710			—		—		5,710		(5,710)		—

Balance, June 30, 2023	140	$	16,334		40,094	$	4	25,699		$	3	$	(9,783)		$	(211)	$	(85,775)	$	(95,762)	$	(65,250)	$	(161,012)

____________________

(1)See Note 8. Fair Value Measurements and Note 9. Equity.

(2)Represents Series A and Series B preferred stock dividends, which have not been paid.

(3)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)
The accompanying condensed notes are an integral part of the unaudited consolidated financial statements.

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

Consolidated Statements of Changes in Preferred Stock and Stockholders’ 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
		Shares	Amount		Shares			Amount										Total Deficit








Balance, Balance, March 31, 2022		36,394	$	3	25,699	$	3		$	(23,754)		$	(4,078)	$	(27,826)	$	(23,980)		$	(51,806)
Net loss		—	—		—	—			—			(6,982)		(6,982)		(4,905)			(11,887)
Stock-based compensation		—	—		—	—			2,174			—		2,174		—			2,174
Shares issued under the 2020 Omnibus Incentive Plan		170	—		—	—			—			—		—		—			—
Impact of transactions affecting non-controlling interest (1)		—	—		—	—			(733)			—		(733)		733			—

Balance, June 30, 2022		36,564	$	3	25,699	$	3		$	(22,313)		$	(11,060)	$	(33,367)	$	(28,152)		$	(61,519)

____________________

(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.~~

~~Table of Contents~~

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 January 17, 2022, the Sellers of SmarterChaos redeemed their remaining non-controlling interest held through DMSH Units in exchange for 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 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 condensed 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, 2020 32,393 $ 3 25,999 $ 3 $ (48,027) $ (3,146) $ (51,167) $ (44,518) $ (95,685)
Net (loss) income — — — — — 5,945 5,945 4,176 10,121
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) 1,595 — — — 11,513 — 11,513 8,310 19,823
Exercise of warrants to issue Class A common stock 1 — — — 17 — 17 — 17
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)
154 — — — 392 — 392 — 392
Shares issued under the 2020 Omnibus Incentive Plan 432 — — — — — — — —
Stock-based compensation — — — — 4,342 — 4,342 — 4,342
Impact of transactions affecting non-controlling interest (2)
— — — — (5,204) — (5,204) 5,204 —
Correction of Business Combination Tax Receivable Agreement — — — — (322) — (322) — (322)
Other (3)
— — — — (4) — (4) (123) (127)
Balance, September 30, 2021 36,168 $ 3 25,699 $ 3 $ (27,717) $ 2,799 $ (24,912) $ (21,335) $ (46,247)
DIGITAL MEDIA SOLUTIONS, INC.

Consolidated Statements of Changes in Preferred Stock and Stockholders’ Deficit

(Unaudited)

(in thousands, except share data)


	Preferred Stock (1)			Class A Common Stock	Class B Common Stock			Additional Paid-in Capital		Treasury Stock		Cumulative Deficit			Total Stockholders' Deficit		Non- controlling Interest		Total Deficit
	Shares	Amount			Shares	Amount			Shares					Amount
Balance, December 31, 2022	—	$	—		39,957	$	4	25,699		$	3	$	(14,054)		$	(181)	$	(32,896)	$	(47,124)	$	(36,823)	$	(83,947)
Net loss	—	—			—	—		—		—		—			—		(41,555)		(41,555)		(26,639)		(68,194)



Stock-based compensation	—	—			—	—		—		—		2,500			—		—		2,500		—		2,500
Series A convertible redeemable preferred stock	80	9,244			—	—		—		—		—			—		(6,391)		(6,391)		—		(6,391)
Series B convertible redeemable preferred stock	60	6,934			—	—		—		—		—			—		(4,794)		(4,794)		—		(4,794)
Series A preferred stock dividends (2)	—	89			—	—		—		—		—			—		(89)		(89)		—		(89)
Series B preferred stock dividends (2)	—	67			—	—		—		—		—			—		(67)		(67)		—		(67)
Shares issued under the 2020 Omnibus Incentive Plan	—	—			178	—		—		—		—			—		—		—		—		—

Treasury stock purchased under the 2020 Omnibus Incentive Plan	—	—			(41)	—		—		—		—			(30)		—		(30)		—		(30)
Impact of transactions affecting non-controlling interest (3)	—	—			—	—		—		—		1,788			—		—		1,788		(1,788)		—

Balance, June 30, 2023	140	$	16,334		40,094	$	4	25,699		$	3	$	(9,766)		$	(211)	$	(85,792)	$	(95,762)	$	(65,250)	$	(161,012)

____________________

(1)See Note 8. Fair Value Measurements and Note 9. Equity.

(2)Represents Series A and Series B preferred stock dividends, which have not been paid.

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

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

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

Consolidated Statements of Changes in Preferred Stock and Stockholders’ 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
		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		—	—		—	—			—			(10,123)		(10,123)		(7,121)			(17,244)
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1)		153	—		—	—			—			—		—		—			—
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 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 condensed notes are an integral part of the unaudited consolidated financial statements.

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Nine Months Ended September 30,
2022 2021
Cash flows from operating activities
Net (loss) income $ (27,365) $ 10,121
Adjustments to reconcile net income to net cash provided by operating activities
Provision for bad debt 1,305 1,384
Depreciation and amortization 21,377 19,649
Lease restructuring charges (167) (81)
Loss on debt extinguishment — 2,108
Stock-based compensation, net of amounts capitalized 5,332 3,976
Amortization of debt issuance costs 1,149 1,006
Deferred income tax provision, net (1,160) (856)
Change in fair value of contingent consideration 2,533 (2,525)
Change in fair value of warrant liability (2,480) (13,835)
Change in Tax Receivable Agreement liability (120) —
Change in income tax receivable and payable 1,297 (728)
Change in accounts receivable 4,824 (7,324)
Change in prepaid expenses and other current assets 1,120 (2,121)
Change in accounts payable and accrued expenses (5,341) (2,367)
Change in other liabilities (195) (516)
Net cash provided by operating activities $ 2,109 $ 7,891
Cash flows from investing activities
Additions to property and equipment $ (5,247) $ (7,875)
Acquisition of businesses, net of cash acquired (2,579) (24,830)
Net cash used in investing activities $ (7,826) $ (32,705)
Cash flows from financing activities
Proceeds from issuance of long-term debt $ — $ 220,840
Payments of long-term debt and notes payable (1,687) (200,414)
Proceeds from borrowings on revolving credit facilities — 11,000
Payments of borrowings on revolving credit facilities — (15,000)
Payment of debt issuance costs — (3,565)
Payment of equity issuance — (475)
Payment of early termination — (188)
Proceeds from warrants exercised — 11
Purchase of treasury stock related to stock-based compensation (156) —
Distributions to non-controlling interest holders (563) —
Other — (60)
Net cash (used in) provided by financing activities $ (2,406) $ 12,149
Net change in cash $ (8,123) $ (12,665)
Cash, beginning of period 26,394 31,397
Cash, end of period $ 18,271 $ 18,732


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(68,194)	$	(17,244)
Adjustments to reconcile net loss to net cash used in operating activities
Allowance for credit losses, net	1,350		1,339
Depreciation and amortization	10,955		14,233

Amortization of right-of-use assets	295		—

Gain on disposal of assets	(3)		—
Impairment of goodwill	33,795		—
Impairment of intangible assets	7,791		—
Lease restructuring charges	—		2

Stock-based compensation, net of amounts capitalized	2,168		3,908

Amortization of debt issuance costs	787		938
Deferred income tax benefit, net	(2,104)		(785)

Change in fair value of contingent consideration	(77)		2,536
Change in fair value of warrant liabilities	(6,065)		(3,480)
Loss from preferred warrants issuance	553		—


Change in income tax receivable and payable	(227)		631
Change in accounts receivable	15,952		4,026
Change in prepaid expenses and other current assets	1,457		2,585
Change in operating right-of-use assets	630		—
Change in accounts payable and accrued expenses	(8,743)		(1,275)
Change in operating lease liabilities	(1,094)		—
Change in other liabilities	—		27
Net cash (used in) provided by operating activities	(10,774)		7,441
Cash flows from investing activities
Additions to property and equipment	(2,985)		(3,197)
Acquisition of business, net of cash acquired	(31,820)		(2,579)

Net cash used in investing activities	(34,805)		(5,776)
Cash flows from financing activities

Proceeds from borrowings on revolving credit facilities	10,000		—

Payments of long-term debt and notes payable	(1,125)		(1,126)



Proceeds from preferred shares and warrants issuance, net	13,107		—

Purchase of treasury stock related to stock-based compensation	(30)		—
Distributions to non-controlling interest holders	—		(563)


Net cash provided by (used in) financing activities	21,952		(1,689)
Net change in cash and cash equivalents	(23,627)		(24)
Cash and cash equivalents, beginning of period	48,839		26,394
Cash and cash equivalents, end of period	$	25,212	$	26,370

Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period For
Interest	$	6,725	$	6,524
Income taxes	167		—
Non-Cash Transactions:
Contingent and deferred acquisition consideration	$	2,457	$	2,964
Stock-based compensation capitalized in property and equipment	332		208
Capital expenditures included in accounts payable	174		269

~~Table of Contents~~

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

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

Table of Contents

DIGITAL MEDIA SOLUTIONS, INC.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Condensed Notes to Consolidated Financial Statements

(Unaudited)

~~NOTE~~Note 1. ~~BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~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~~generates revenue in North America and ~~derives most~~internationally, with the majority of ~~its revenues~~the revenue 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 ~~60.8%~~60.9% 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 ~~39.2%~~39.1% 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~~2022 Form ~~10-K.~~10-K/A.

Non-controlling Interest

The non-controlling interest represents the membership interest in DMSH held by holders other than the Company. As of ~~September~~June 30, ~~2022,~~2023, the Prism, Clairvest Direct Sellers and SmarterChaos combined ownership percentage in DMSH was ~~39.2%~~39.1% and as of December 31, ~~2021~~2022 it was ~~41.6%~~39.1%.

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 preferred warrants, private placement warrants, the allowance for ~~doubtful accounts,~~credit losses, 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~~2022 Form ~~10-K.~~10-K/A except those related to the accounting and valuation of preferred stock and warrants. See Note 8. Fair Value Measurements and Note 9. Equity.

New Accounting Standards

Accounting Standards ~~Not Yet~~Recently 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~~Table 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 will adopt this standard in the last fiscal quarter of 2022 and we expect the adoption will have a material impact on our consolidated financial statements and disclosures.Contents

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 Company adopted this guidance effective January 1, 2023, which was not material to the ~~impact on our~~ consolidated financial ~~statements.~~statements for the three and six months ended June 30, 2023.

Accounting Standards Not Yet Adopted

As of June 30, 2023, there were no new accounting standards that would need to be disclosed.

~~NOTE~~Note 2. ~~REVENUE~~Revenue

Disaggregation of Revenue

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


		Three Months Ended September 30, 2022											Three Months Ended June 30, 2023
		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	$	41,381	$	53,230	$	—	$	(8,059)	$	86,552	Customer acquisition	$	50,425	$	32,477	$	—	$	(3,845)	$	79,057
Managed services	Managed services	937		—		1,076		—		2,013		Managed services	1,269		—		757		—		2,026
Software services	Software services	—		—		1,501		—		1,501		Software services	—		—		1,468		—		1,468
Total Net revenue	Total Net revenue	$	42,318	$	53,230	$	2,577	$	(8,059)	$	90,066	Total Net revenue	$	51,694	$	32,477	$	2,225	$	(3,845)	$	82,551


	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


	Six Months Ended June 30, 2023
	Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:
Customer acquisition	$	104,444	$	69,765	$	—	$	(8,559)	$	165,650
Managed services	2,652		—		1,510		—		4,162
Software services	—		—		3,051		—		3,051
Total Net revenue	$	107,096	$	69,765	$	4,561	$	(8,559)	$	172,863

Table of Contents


	Six Months Ended June 30, 2022
	Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:
Customer acquisition	$	102,743	$	112,898	$	—	$	(23,492)	$	192,149
Managed services	3,274		—		2,913		—		6,187
Software services	—		—		1,971		—		1,971
Total Net revenue	$	106,017	$	112,898	$	4,884	$	(23,492)	$	200,307

Three Months Ended September 30, 2021
Brand
Direct Marketplace Technology Solutions Intercompany eliminations Total
Net revenue:
Customer acquisition $ 63,332 $ 58,278 $ — $ (18,133) $ 103,477
Managed services 1,667 — 1,471 — 3,138
Software services — — 784 — 784
Total Net revenue $ 64,999 $ 58,278 $ 2,255 $ (18,133) $ 107,399
The Company generated revenue outside the United States through its 2023 ClickDealer acquisition. For the three and six months ended June 30, 2023, revenue from Europe represented $5.1 million and revenue from Other International countries represented $3.5 million of our total revenue, respectively.

Nine Months Ended September 30, 2022
Brand Direct Marketplace Technology Solutions Intercompany eliminations Total
Net revenue:
Customer acquisition $ 144,123 $ 166,128 $ — $ (31,551) $ 278,700
Managed services 4,211 — 3,989 — 8,200
Software services — — 3,472 — 3,472
Total Net revenue $ 148,334 $ 166,128 $ 7,461 $ (31,551) $ 290,372
Accounts Receivable, net

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, delinquency trends and current credit conditions. The Company reviews its Allowance for credit losses monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

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
The activity in the Allowance for credit losses is as follows (in thousands):


Balance, December 31, 2022	$	4,656
Additions charged to expense	1,309
Deductions/write-offs	(2,064)
ASU 2016-13 (Topic 326) adjustment	41
Balance, June 30, 2023	$	3,942

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 and recorded within Accrued expenses and other current liabilities on the ~~unaudited~~ consolidated balance sheets. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the balance of deferred revenue was ~~$1.1~~$0.5 million and ~~$1.8~~$1.0 million, ~~respectively, and is recorded within “Accrued expenses and other current liabilities” on the unaudited consolidated balance sheets.~~respectively. We expect the majority of the deferred revenue balance at ~~September~~June 30, ~~2022~~2023 to be recognized as revenue during the following quarter.

For the three and ~~nine~~six months ended ~~September~~June 30, 2023, one customer accounted for approximately 12.5% and 15.3%, respectively, of our total revenue. For the three and six months ended June 30, 2022, one customer accounted for approximately ~~27.9%~~24.7% and ~~23.0%~~21.0%, respectively, of our total ~~revenues. For the three and nine months ended September 30, 2021, one customer accounted for approximately 19.3% and 14.9%, respectively, of our total revenues.~~revenue.

~~NOTE~~Note 3. ~~REPORTABLE SEGMENTS~~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~~Net revenue, cost of revenue, and ~~gross~~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.

Table of Contents

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

~~Table of Contents~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net revenue $ 90,066 $ 107,399 $ 290,372 $ 309,281
Brand Direct 42,318 64,999 148,334 181,054
Marketplace 53,230 58,278 166,128 165,300
Technology Solutions 2,577 2,255 7,461 6,187
Intercompany eliminations (8,059) (18,133) (31,551) (43,260)
Cost of revenue (exclusive of depreciation and amortization) 66,378 77,063 211,997 218,304
Brand Direct 32,873 50,165 117,459 137,759
Marketplace 41,202 44,396 125,045 122,296
Technology Solutions 362 635 1,044 1,509
Intercompany eliminations (8,059) (18,133) (31,551) (43,260)
Gross profit (exclusive of depreciation and amortization) $ 23,688 $ 30,336 $ 78,375 $ 90,977
Brand Direct 9,445 14,834 30,875 43,295
Marketplace 12,028 13,882 41,083 43,004
Technology Solutions 2,215 1,620 6,417 4,678
Salaries and related costs 11,668 12,449 38,612 34,426
General and administrative expenses 9,076 10,237 32,622 27,051
Depreciation and amortization 7,142 7,186 21,377 19,649
Acquisition costs 14 420 306 1,820
Change in fair value of contingent consideration liabilities (3) (3,085) 2,533 (2,525)
(Loss) income from operations $ (4,209) $ 3,129 $ (17,075) $ 10,556


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net revenue	$	82,551	$	91,197	$	172,863	$	200,307
Brand Direct	51,694		44,789		107,096		106,017
Marketplace	32,477		54,092		69,765		112,898
Technology Solutions	2,225		2,548		4,561		4,884
Intercompany eliminations	(3,845)		(10,232)		(8,559)		(23,492)
Cost of revenue (exclusive of depreciation and amortization)	63,343		67,784		131,384		145,624
Brand Direct	41,231		36,137		84,046		84,591
Marketplace	25,447		41,463		54,785		83,843
Technology Solutions	510		416		1,112		682
Intercompany eliminations	(3,845)		(10,232)		(8,559)		(23,492)
Gross profit (exclusive of depreciation and amortization)	19,208		23,413		41,479		54,683
Brand Direct	10,463		8,652		23,050		21,426
Marketplace	7,030		12,629		14,980		29,055
Technology Solutions	1,715		2,132		3,449		4,202
Salaries and related costs	11,489		13,237		23,715		26,945
General and administrative expenses	12,124		12,444		24,979		23,544
Depreciation and amortization	5,872		7,173		10,955		14,233
Impairment of goodwill	33,795		—		33,795		—
Impairment of intangible assets	7,791		—		7,791		—
Acquisition costs	658		279		3,003		292
Change in fair value of contingent consideration liabilities	(90)		(55)		(77)		2,536
Loss from operations	$	(52,431)	$	(9,665)	$	(62,682)	$	(12,867)

~~NOTE~~Note 4. ~~GOODWILL AND INTANGIBLE ASSETS~~Goodwill and Intangible Assets

Goodwill

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

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


	Brand Direct		Marketplace		Technology Solutions		Total
Balance, December 31, 2022	$	18,321	$	54,554	$	4,363	$	77,238
Additions (Note 5)	2,308		2,693		—		5,001
Impairment of goodwill	—		(33,795)		—		(33,795)

Balance, June 30, 2023	$	20,629	$	23,452	$	4,363	$	48,444

The carrying amount of ~~goodwill~~Goodwill for ~~all reporting units~~the Marketplace segment had no accumulated ~~impairments~~impairment of $33.8 million as of ~~September~~June 30, ~~2022~~2023 and no impairment as of December 31, ~~2021.~~2022.

Table of Contents

Intangible assets, net

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

~~Table of Contents~~


			September 30, 2022						December 31, 2021								June 30, 2023								December 31, 2022
		Amortization Period (Years)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Amortization Period (Years)	Gross		Impairment		Accumulated Amortization		Net		Gross		Impairment		Accumulated Amortization		Net
Technology	Technology	3 to 5	$	54,336	$	(37,149)	$	17,187	$	51,946	$	(29,929)	$	22,017	Technology	4 to 7	$	59,096	$	(5,951)	$	(42,489)	$	10,656	$	54,316	$	(5,933)	$	(39,411)	$	8,972
Customer relationships	Customer relationships	2 to 9	49,423		(19,209)		30,214		49,273		(13,076)		36,197		Customer relationships	4 to 15	71,323		(20,119)		(24,099)		27,105		49,423		(12,387)		(21,205)		15,831
Brand	Brand	1 to 7	12,168		(5,821)		6,347		12,109		(4,575)		7,534		Brand	1 to 7	14,879		(3,291)		(6,867)		4,721		12,169		(3,250)		(6,233)		2,686
Non-competition agreements	Non-competition agreements	3	1,898		(1,821)		77		1,898		(1,418)		480		Non-competition agreements	1 to 3	1,898		—		(1,882)		16		1,898		—		(1,868)		30
Total	Total		$	117,825	$	(64,000)	$	53,825	$	115,226	$	(48,998)	$	66,228	Total		$	147,196	$	(29,361)	$	(75,337)	$	42,498	$	117,806	$	(21,570)	$	(68,717)	$	27,519

The weighted average amortization period for intangible assets is 48 years in total, and by category is 46 years for technology, 610 years for customer relationships, 46 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


	2023		2024		2025		2026		2027		Thereafter
Amortization expense	$	5,005	$	9,504	$	4,990	$	4,301	$	3,687	$	15,011

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~~$3.7 million and ~~$15.0~~$6.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~$5.5~~$5.0 million and ~~$15.4~~$10.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Impairment analysis

~~NOTE~~The Company considered if an event occurred or circumstances changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount and noted none for the Brand and Technology reporting units in the three and six months ended June 30, 2023 and 2022, respectively. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment for the Marketplace reporting unit under ASC 350-20, Goodwill, and ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2023.

The Company determined the fair value of Goodwill at the reporting unit level utilizing a combination of a discounted cash flow analysis incorporating variables such as revenue projections, projected operating cash flow margins, and discount rates, as well as a market-based approach employing comparable sales analysis. The valuation assumptions used in the discounted cash flow model reflect historical performance of the Company, the prevailing values in the Company’s industry, including the extent of the economic downturn related to the recent inflation and its economic contraction and its expected timing of recovery. The result of our interim impairment test indicated that there was Goodwill impairment of $33.8 million for the period ended June 30, 2023.

Further, the Company performed a recoverability test for certain asset groups in the Marketplace reporting unit to determine whether an impairment loss should be measured. The undiscounted cash flows in the recoverability test compared to the asset group’s carrying value of invested capital was less than the carrying value indicating an impairment. As a result, the Company calculated the fair value of the finite-lived intangible assets. Intangible assets include technology, brand, and customer relationships. The fair value of technology was determined using the Relief from Royalty Approach; fair value of the customer relationships was determined using the Multi Period Excess Earnings Method; and fair value of the brand was determined using the Relief from Royalty Method. As a result of the fair value being lower than the carrying value for certain assets, the Company recorded impairment loss of $7.8 million to Intangible assets which are in asset groups included in the Marketplace reporting unit, which is included in the consolidated statements of operations as Impairment of intangible assets for the three and six months ended June 30, 2023, respectively.

Table of Contents

Note 5. ~~DEBT~~Acquisitions

ClickDealer

On March 30, 2023, the Company completed a transaction to acquire the HomeQuote.io home services marketplace from Customer Direct Group, along with the supporting media and technology assets of the ClickDealer international ad network, ("ClickDealer"). ClickDealer’s international performance ad network and the HomeQuote.io marketplace connects consumers with brands within the home improvement and related home services sector.

The Company paid cash consideration of $31.8 million upon closing of the transaction, with an additional $3.5 million in holdbacks, subject to certain criteria. On July 3, 2023, after the successful completion of the first tranche in criteria was met, $1.0 million of the holdback was paid to the Sellers in cash. The remaining holdback of $2.5 million is expected to be released within 24 months of the closing date, subject to certain criteria. The transaction also included up to $10.0 million in contingent consideration, subject to the achievement of certain revenue and net margin based milestones in two subsequent one-year measurement periods, payable in cash or, if mutually agreed to by the Company and the Seller, in Class A Common Stock. The Estimated Net Working Capital adjustment upon closing was $0.3 million. The Final Net Working Capital adjustment was $0.6 million.

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. All recognized assets and liabilities are preliminary, including any foreign jurisdiction taxation, if any, and except for the contingent consideration.

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 have made adjustments to the initial fair value of our intangible assets, goodwill, contingent consideration and working capital. The impact of these adjustments at March 30, 2023 are as follows (in thousands):


ClickDealer	Acquisition Date Fair Value		Fair Value Mark-to-Market Changes		Revised Acquisition Date Fair Value
Goodwill	$	6,207	$	(1,206)	$	5,001
Intangible Assets:
Technology	$	5,010	$	(230)	$	4,780
Customer relationships	$	20,400	$	1,500	$	21,900
Brand	$	2,840	$	(130)	$	2,710


Contingent consideration liability	$	2,457	$	(65)	$	2,392

Working capital accounts	$	3,320	$	245	$	3,565

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. Under 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 ClickDealer and HomeQuote.io brands was determined using the Income Approach and Relief from Royalty Method, fair value of the technology was determined using the Relief from Royalty Method, and 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 ClickDealer and will be included in the Brand Direct reportable segment for ClickDealer and in the Marketplace reportable

Table of Contents

segment for HomeQuote.io. The Goodwill expected to be deductible for tax purposes is being evaluated. Intangible assets primarily consist of brand, technology and customer relationships with an estimated useful life of five years for brand, seven years for technology and twelve years for customer relationships.

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, to be paid in cash 15 months after the acquisition date. Accounting for the acquisition was completed on May 10, 2023. The contingent consideration for the Traverse acquisition was finalized on May 10, 2023, which the Company paid on July 10, 2023 in the form cash payment of $0.5 million.

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, and a $5.0 million deferred payment, to be paid 18 months after the acquisition date. Accounting for the acquisition was completed on March 31, 2022. The Company paid the contingent consideration 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. The $5.0 million deferred consideration became due on October 1, 2022, which the Company paid on October 4, 2022.

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 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 $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. Accounting for the acquisition was completed on March 31, 2022.

The contingent consideration for the Aramis acquisition was finalized on December 31, 2022, the end of the earnout period, and became payable during the second quarter of 2023, in the form of cash or Class A Common Stock, at the election of the Company. The timing of payment of the Aramis earnout remains subject to resolution of certain outstanding indemnity issues relating to the acquisition. The contingent consideration for the Aimtell / PushPros acquisition will finalize on December 31, 2023, the end of the earnout period.

Table of Contents

Acquisitions’ Fair Value Measurement and Pro Forma Information

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


	Expected Useful Life	Traverse		ClickDealer
		2022		2023
Cash		$	232	$	—
Goodwill		735		5,001
Technology	4 to 7	2,470		4,780
Customer relationships	4 to 12	50		21,900
Accounts receivable		276		6,959
Brand	1 to 7	60		2,710


Accounts payable		(232)		(3,561)
Other assets acquired and liabilities assumed, net (1)		7		167
Net assets and liabilities acquired		$	3,598	$	37,956

____________________

(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).

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. The weighted average amortization period for ClickDealer acquisition technology is 7 years, customer relationships is 12 years and brand is 5 years. In total, the weighted average amortization period for Traverse is 5 years and ClickDealer is 10 years.

The following schedules represent the amount of net revenue and net loss from operations related to Traverse and ClickDealer acquisitions which have been included in the 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, 2023				Six Months Ended June 30, 2023
	Traverse		ClickDealer		Traverse		ClickDealer
Net revenue	$	716	$	17,810	$	1,540	$	17,810
Net income from operations	$	14	$	703	$	234	$	703


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
	Traverse		Traverse
Net revenue	$	360	$	360
Net income from operations	$	70	$	70

Pro Forma Information

The following 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. There is no pro forma financial information for three months ended June 30, 2023 as the results remain consistent. Pro forma financial information is presented in the table below (in thousands):


	Three Months Ended June 30, 2022
	(unaudited)
	DMS		Traverse		ClickDealer		Pro Forma
Net revenue	$	91,197	$	277	$	17,987	$	109,461
Net income from operations	$	(9,665)	$	(434)	$	2,023	$	(8,076)

Table of Contents


	Six Months Ended June 30, 2023
	(unaudited)
	DMS		ClickDealer		Pro Forma
Net revenue	$	172,863	$	19,865	$	192,728
Net income (loss) from operations	$	(62,682)	$	1,704	$	(60,978)


	Six Months Ended June 30, 2022
	(unaudited)
	DMS		Traverse		ClickDealer		Pro Forma
Net revenue	$	200,307	$	999	$	36,537	$	237,843
Net income from operations	$	(12,867)	$	(417)	$	3,603	$	(9,681)

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 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 6. Debt

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

September 30, 2022 December 31, 2021
Term loan $ 222,188 $ 223,875
Less: Unamortized debt issuance costs (1)
(5,100) (6,120)
Debt, net 217,088 217,755
Less: Current portion of long-term debt (2,250) (2,250)
Long-term debt $ 214,838 $ 215,505

~~__________~~


	June 30, 2023		December 31, 2022
Term loan	$	220,500	$	221,625
Revolving credit facility	50,000		40,000


Total debt	270,500		261,625
Less: Unamortized debt issuance costs (1)	(4,101)		(4,802)
Debt, net	266,399		256,823
Less: Current portion of long-term debt	(2,250)		(2,250)
Long-term debt	$	264,149	$	254,573

____________________

(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. The Term Loan bears interest at our option, at either (i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus 4.00%. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00%. For the three and six months ended June 30, 2023, the effective interest rate was 10.80%.

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. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00%. The Company drew $10.0 million on May 24, 2023. Together with the previously disclosed draws, $50.0 million is currently outstanding under the Revolving Facility. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the effective interest rate was ~~7.25%. On October 4, 2022, the Company drew $5.0 million on the Revolving Facility.~~8.18% and 7.80%, respectively.

~~Table of Contents~~

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 ~~September~~June 30, 2023, the Term Loan debt discount

Table of Contents

and debt issuance cost classified as debt had a remaining unamortized balance of $2.5 million and $1.6 million, respectively. As of December 31, 2022, the Term Loan debt discount and debt issuance cost classified as debt had a remaining unamortized balance of ~~$3.1~~$3.0 million and $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$1.8 million, respectively. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, the~~2022, unamortized debt issuance ~~cost~~costs of ~~$0.6~~$0.5 million and ~~$0.8~~$0.6 million, respectively, associated with the ~~undrawn~~ Revolving Facility is classified ~~and amortized~~ as ~~“Other assets”~~Other assets within the consolidated balance sheets.

~~Upon~~On July 3, 2023, the ~~closing~~Term Loan and Revolving Facility were amended to transition LIBOR to the Term Secured Overnight Financing Rate (SOFR) as the basis for establishing the interest rate applicable to borrowings under the agreements. The interest rate is based on SOFR Benckmark Replacement plus 5.00% for the Term Loan and SOFR Benckmark Replacement plus 4.25% for Revolving Facility.

The Credit Facility is conditioned upon the Company’s compliance with specified covenants, including certain reporting covenants and financial covenants that, in addition to other items, require the Company to maintain a maximum net leverage ratio. As of December 31, 2022, the Company was in breach of the net leverage ratio, which it cured on March 30, 2023 through the funds received in connection with the issuance of Series A and Series B convertible Preferred stock and Warrants. As of June 30, 2023, compliance with the net leverage ratio covenant was waived in connection with entry into the First Amendment (as defined below) to the Credit Facility.

On August 16, 2023, DMS LLC and DMSH LLC, along with certain subsidiaries of the Company, entered into a First Amendment to the Credit Facility (the “First Amendment”) with the Lenders, which, among other things, modified the Credit Facility as follows:

a.allows for the payment-in-kind (“PIK”) of the quarterly interest payments due and payable on September 30, 2023 and each of the following three quarters, with all PIK interest required to be repaid no later than December 31, 2025;

b.provides that (a) if the borrower exercises the PIK option, the interest rate will be equal to SOFR+11%; (b) if interest is paid in cash during the PIK period, the rate will be equal to SOFR+8%; and (c) following the PIK period, the interest rate will be equal to SOFR+8%; provided that if the Company (1) achieves the credit ~~agreement dated as~~rating of ~~July 3, 2018,~~B3 by Moody’s and ~~among DMS LLC, DMSH, each of their subsidiaries party thereto, various financial institutions party thereto~~B- by S&P, and ~~Monroe Capital Management Advisors, LLC, as administrative agent and lead arranger, and all outstanding amounts thereunder that was previously outstanding with an~~(2) has repaid the aggregate ~~principal amount of $210 million was extinguished, and~~capitalized PIK interest, the ~~$15 million revolving credit facility was closed.~~interest rate will be SOFR + 6.0%;

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 defaultif any loans under the Credit Facility ~~would be triggered~~remain outstanding on or after January 1, 2025, back-end PIK interest will accrue as follows: 5% for the period from January 1, 2025 through June 30, 2025; 7.5% for the period from July 1, 2025 through December 31, 2025; and 10% in calendar year 2026 until maturity;

d.eliminates the total net leverage ratio covenant for the remainder of 2023, inclusive of the second quarter of 2023, and sets the total net leverage ratio of DMSH LLC and its restricted subsidiaries starting at 15.6x and 10.6x for the first and second quarters of 2024, respectively, and varying for every quarter there after, down to 6.9x for the fourth quarter of 2025 and until maturity;

e.eliminates the right of the Borrower to undertake an equity cure to cure any breach of the total net leverage ratio covenant;

f.establishes a minimum liquidity covenant of $9 million for the remainder of 2023 and $10 million thereafter until maturity (subject to the Company’s ability to exercise an equity cure solely with respect to the liquidity covenant); and

The amendment does not contemplate the issuance of any equity or warrants to the Company’s ~~compliance~~lenders. The foregoing description of the First Amendment does not purport to be complete and ~~future ability~~is qualified in its entirety by reference to ~~comply with all financial covenants,~~the full text thereof, 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.~~attached hereto as Exhibit 10.1.

Debt Maturity Schedule

The scheduled maturities of our total debt are estimated as follows at ~~September~~June 30, ~~2022~~2023 (in thousands):


2022		$	563
2023	2023	2,250		2023	$	1,125
2024	2024	2,250		2024	2,250
2025	2025	2,250		2025	2,250
2026	2026	214,875		2026	264,875

Total debt	Total debt	$	222,188	Total debt	$	270,500

~~NOTE 6. ACQUISITIONS~~Note 7. Leases

~~Traverse~~

~~On May 10, 2022,~~The following table summarizes the ~~Company acquired Traverse Data, Inc. (“Traverse”). Traverse is a marketing and advertising technology company. The Company paid~~maturities of undiscounted cash ~~consideration~~flows of ~~$2.5 million upon closing~~operating lease liabilities reconciled to total lease liability as of the transaction. The transaction also includes up to $0.5 million in contingent consideration, subject to the achievement of certain milestones, which is payable in cash 15 months after the acquisition date.June 30, 2023 (in thousands):

Table of Contents


	Lease Amounts
2023	$	1,130
2024	1,751
2025	546
Total	3,427
Less: Imputed interest	(103)
Present value of operating lease liabilities	$	3,324

As of June 30, 2023, the operating lease weighted average remaining lease term is 1.7 years and the operating lease weighted average remaining discount rate is 3.51%.

The discount rate for each lease represents the incremental borrowing rate that the Company would incur at commencement of the lease to borrow on a collateralized basis over a similar term and amount equal to lease payments in a similar economic environment.

~~of our intangible asset, goodwill, contingent consideration and working capital.~~

The ~~impact of these adjustments are as follows~~following table represents the Company’s aggregate lease costs, by lease classification (in thousands):

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


		Three Months Ended June 30,				Six Months Ended June 30,
Category	Statement of Operations Location	2023		2022		2023		2022
Operating lease costs	General and administrative expenses	$	297	$	130	$	582	$	389
Short-term lease costs	General and administrative expenses	38		39		191		91
Sub-lease income	General and administrative expenses	(183)		(152)		(362)		(242)
Total lease costs, net		$	152	$	17	$	411	$	238

The ~~Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess~~rental expense for the ~~components~~three and six months ended June 30, 2023 was $0.4 million and $0.8 million, respectively, and for the three and six months ended June 30, 2022 was $0.5 million and $1.0 million, respectively. As of ~~its purchase price allocation. The acquisition was accounted~~June 30, 2023 the cash paid 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 beenamounts included in the ~~Company’s results~~measurement 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 technologyoperating leases 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 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~~

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, 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 nine months ended 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

~~Table of Contents~~

~~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 nine months ended September 30, 2022, the present value of the deferred consideration increased $0.2 million due to accretion to $5.0 million from December 31, 2021. 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 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~~

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. 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~~$1.1 million. As of September 30, 2022, the contingent consideration earnout fair value total changed to $1.0 million, 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 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

~~Table of Contents~~

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
2021 2021 2022
Cash $ — $ — $ 232
Goodwill 9,761 21,894 282
Technology 4 to 5 3,900 — 2,490
Customer relationships 4 to 6 7,690 19,600 50
Accounts receivable, net 3,100 2,610 276
Brand 1 to 7 208 7,400 59
Non-competitive agreements 1 to 3 83 — —
Property and equipment 3 to 5 250 220 —
Accounts payable (2,887) (1,593) (232)
Other assets acquired and liabilities assumed, net (1)
740 1 7
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).

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 September 30, 2022 Nine Months Ended September 30, 2022
Traverse Traverse
Net revenue $ 709 $ 1,069
Net income from operations $ 229 $ 299

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
AAP Crisp Results AAP Crisp Results
Net revenue $ 5,976 $ 6,407 $ 16,051 $ 13,374
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):

~~Table of Contents~~

Three Months Ended September 30, 2021
DMS AAP Crisp Results Traverse Pro Forma
Net revenue $ 107,399 $ — $ — $ 664 $ 108,063
Net income from operations $ 3,129 $ — $ — $ 38 $ 3,167

Nine Months Ended September 30, 2022
DMS Traverse Pro Forma
Net revenue $ 290,372 $ 999 $ 291,371
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

~~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 September 30, 2022, the Company has four leased properties, representing 55,798 square feet of office space located in the United States. During the third quarter of 2022, the Company entered into an agreement with a third-party to sublease a substantial portion of onepart of the Company’s restructuring costs reduction plan, the Company subleased a certain portion of its leased ~~properties.~~office space. Income from the ~~subleased property~~sublease was $0.2 million and $0.4 million for the three and six months ended June 30, 2023, respectively, and $0.2 million and $0.2 million for the three and six months ended June 30, 2022, respectively, which is ~~used to offset the Company’s restructuring costs.~~

~~Valuation adjustments related to the reserve and lease accretion are recorded in~~included within General and administrative expenses in the consolidated statements of operations. ~~The change~~As of June 30, 2023 the AAP Lease located at 1245 East Main Street, Annville, PA 17003 was terminated under favorable terms, with a total lease termination credit and right of use asset impairment of $0.4 million, which is included within General and administrative expenses in ~~liability for~~ the ~~restructuring costs reserve for the three and nine months ended September 30, 2022 and 2021, respectively, was as follows (in thousands):~~

Three Months Ended
September 30, 2022 Three Months Ended September 30, 2021
Beginning balance $ 2,498 $ 2,957
Valuation adjustments (73) (300)
Lease payments (242) (333)
Lease accretion 68 45
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

~~Table~~consolidated statements of ~~Contents~~

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
operations.

~~NOTE~~Note 8. ~~FAIR VALUE MEASUREMENTS~~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.

Series A and Series B Preferred Warrants

On March 29, 2023, the Company completed a securities purchase agreement (the “SPA”) with certain investors to purchase 80 thousand shares of Series A convertible redeemable Preferred stock (“Series A Preferred stock”) and 60 thousand shares of Series B convertible redeemable Preferred stock (“Series B Preferred stock”, and together with Series A Preferred stock, “Preferred Warrants”) for an aggregate purchase price of $14.0 million (the “Preferred Offering”), including $6.0 million of related party participation. The Company also issued the purchasers in the Preferred Offering warrants to acquire 14.4 million shares of Class A Common Stock.

The Preferred Warrants are exercisable for shares of the Company’s Class A Common Stock at any time at the option of the holder and expire five years from the date of issuance. The Preferred Warrants are exercisable on a cashless basis or for cash at an exercise price of $0.6453 per share of Class A Common Stock. The exercise price of the Preferred Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, subdivisions, combinations, reclassifications, or similar events affecting the Company’s Common Stock. The Preferred Warrants contain a put feature providing the right to the holder for a net cash settlement in the event of a fundamental transaction, which is defined as instances where the Company (i) effects any merger or consolidation of the Company, (ii) effects any sale, lease, license, assignment, transfer, conveyance, or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) completes any purchase offer,

Table of Contents

tender offer, or exchange offer that has been accepted by the holders of at least 50% of the outstanding Class A Common Stock, (iv) effects any reclassification, reorganization, or recapitalization of the Class A Common Stock or any compulsory share exchange pursuant to which the Class A Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) consummates a stock or share purchase agreement or other business combination in which more than 50% of the outstanding shares of Class A Common Stock is acquired. Under such a fundamental transaction, the holder can require the Company to purchase any unexercised warrant shares at the pro-rata share of the sales price or calculated value less the exercise price of the Warrant share.

Due to the tender offer provision, the Preferred Warrants are classified as a derivative liability measured at fair value, with changes in fair value reported each period in earnings. The fair value of the warrant is estimated using the Black-Scholes pricing model. The fair value of the Preferred Warrants of approximately $8.7 million was estimated at the date of issuance using the following weighted average assumptions. Transaction costs incurred attributable to the issuance of the Preferred Warrants were part of the preferred shares issuance costs that were 0.9 million.

The fair value of the derivative Preferred Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. The change in the value of the derivative Preferred Warrants are included in the accompanying consolidated statements of operations as Change in fair value of warrant liabilities.

The significant assumptions were as follows:


	June 30, 2023

Preferred Warrants Fair Value Per Share	$	0.22
Preferred Warrant valuation inputs:
Stock price - DMS Inc. Class A Common Stock	$	0.33

Remaining contractual term in years	4.75
Estimated volatility	100.0		%
Dividend yield	0.0		%
Risk free interest rate	4.13		%

Private Placement Warrants

Each Company Private Placement Warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire five years after the Business Combination, or earlier upon redemption or liquidation.

The Company may call the Company Private Placement Warrants for redemption as follows: (1) in whole and not in part; (2) at a price of $0.01 per warrant; (3) upon a minimum of 30 days’ prior written notice of redemption; and (4) only if the last reported closing price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

If the Company calls the Company Private Placement Warrants for redemption, management will have the option to require all holders that wish to exercise the Company Public Warrants to do so on a “cashless basis.”

The exercise price and number of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrant shares.

We record the fair value of the Private Placement Warrants as a liability in our consolidated balance sheet as of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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 Placement Warrants are presented under Change in ~~the~~ fair value of warrant liabilities on the ~~Income Statement.~~consolidated statements of operations. As of ~~September~~June 30, ~~2022,~~2023, the Company has approximately 4.0 million Private Placement Warrants outstanding.

The significant assumptions were as follows:

Table of Contents


			~~September~~June 30, ~~2022~~2023
Private Placement Warrants Fair Value Per Share	$	~~0.37~~0.01
Private Placement Warrant valuation inputs:
Stock price - DMS Inc. Class A Common Stock	$	~~1.92~~0.33

Remaining contractual term in years			~~2.79~~ 2.04
Estimated volatility		~~90.0~~100.0		%
Dividend yield			0.0		%
Risk free interest rate		~~4.20~~4.80		%

Contingent consideration payable related to acquisitions

The fair value of the contingent considerations payable for the ~~AAP~~Aimtell/PushPros and ~~Traverse~~ClickDealer acquisitions (described in Note 6.5. 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 ~~“Change~~Change in fair value of contingent consideration ~~liabilities”~~liabilities on the ~~statement~~consolidated statements 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~~ (SeeNote 6.5. Acquisitions).

The contingent consideration for the Traverse acquisition was finalized on May 10, 2023, which the Company paid on July 10, 2023 in the form cash payment of $0.5 million.The following table presents the contingent consideration assumptions.

~~Table of Contents~~


			Aimtell / PushPros






Revenue Volatility			25		%
Iteration (actual)			100,000
Risk adjustment discount rate		~~10.25~~11.75		%
Risk free / Credit risk		~~12.75~~12.00		%
Days ~~gap~~ from period end to payment			90











	~~Aramis~~ClickDealer
~~CYE2022 Earnout Successful Probability~~Revenue Volatility		~~99.0~~50		%
Iteration (actual)		100,000
Risk Adjustment Discount Rate	25.75	%
Risk free / Credit risk		~~12.75~~12.00		%
Days ~~gap~~ from period end to payment			90

			~~Traverse~~
~~CYE2023 Earnout Successful Probability~~			~~95.0~~		%

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

Table of Contents

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

September 30, 2022
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Liabilities:
Private Placement Warrant liabilities Total liabilities $ — $ — $ 1,480 $ 1,480
Contingent consideration - Aramis Contingent consideration payable - current — — 933 933
Contingent consideration - Traverse Contingent consideration payable - current — — 438 438
Contingent consideration - Aimtell/PushPros Contingent consideration payable - non-current — — 31 31
Total $ — $ — $ 2,882 $ 2,882


		June 30, 2023
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:
Private placement warrants - Class B common stock	Warrant liabilities	$	—	$	—	$	24	$	24
Preferred warrants - Series A preferred stock	Warrant liabilities	—		—		1,816		1,816
Preferred warrants - Series B preferred stock	Warrant liabilities	—		—		1,362		1,362

Contingent consideration - Aramis	Contingent consideration payable - current	—		—		1,000		1,000
Contingent consideration - Traverse	Contingent consideration payable - current	—		—		500		500
Contingent consideration - ClickDealer	Contingent consideration payable - non-current	—		—		2,268		2,268
Total		$	—	$	—	$	6,970	$	6,970


		June 30, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:
Private placement warrants - Class B common stock	Warrant liabilities	$	—	$	—	$	480	$	480
Contingent consideration - Crisp Results	Contingent consideration payable - current	—		—		10,000		10,000
Contingent consideration - Traverse	Contingent consideration payable - current	—		—		428		428
Contingent consideration - Aramis	Contingent consideration payable - non-current	—		—		909		909
Contingent consideration - Aimtell/PushPros	Contingent consideration payable - non-current	—		—		66		66
Total		$	—	$	—	$	11,883	$	11,883

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

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


	Private Placement Warrants		Series A and B Preferred Warrants		Contingent Consideration
Balance, March 31, 2023	$	320	$	12,711	$	3,923

Changes in fair value	(296)		(9,533)		(90)

Other (1)	—		—		(65)
Balance, June 30, 2023	$	24	$	3,178	3,768

____________________

(1)Relates to the revision of the initial fair value of the ClickDealer contingent consideration. See Note 5. Acquisitions.

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


	Private Placement Warrants		Contingent Consideration
Balance, March 31, 2022	$	2,120	$	11,030
Additions	—		428
Changes in fair value	(1,640)		(55)

Balance, June 30, 2022	$	480	$	11,403

Table of Contents


	Private Placement Warrants		Series A and B Preferred Warrants		Contingent Consideration
Balance, December 31, 2022	$	600	$	—	$	1,453
Additions	—		8,667		2,457
Changes in fair value	(576)		(5,489)		(77)

Other (1)	—		—		(65)
Balance, June 30, 2023	$	24	$	3,178	$	3,768

____________________

(1)Relates to the revision of the initial fair value of the ClickDealer contingent consideration. See Note 5. Acquisitions.


	Private Placement Warrants		Contingent Consideration
Balance, December 31, 2021	$	3,960	$	8,439
Additions	—		428
Changes in fair value	(3,480)		2,536

Balance, June 30, 2022	$	480	$	11,403

Note 9. Equity

Preferred Stock

The Board has the authority to issue shares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series, and to fix the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the DGCL. The issuance of Preferred Stock of the Company could have the effect of decreasing the trading price of Company Common Stock, restricting dividends on the capital stock of the Company, diluting the voting power of the Company Common Stock, impairing the liquidation rights of the capital stock of the Company, or delaying or preventing a change in control of the Company.

The Company is authorized to issue 100,000,000 preferred shares with such designations, voting, and other rights and preferences as may be determined from time to time by the Board (of which 140,000 preferred shares have been issued).

March 2023 Offering

On March 29, 2023, the Company entered into a Securities Purchase Agreement with certain investors, pursuant to which the Company sold (i) 80,000 shares of Series A Preferred Stock accompanied with warrants to purchase 8,253,968 Class A Common Stock (“Series A Warrant”) and (ii) 60,000 shares of Series B Preferred Stock accompanied with warrants to purchase 6,190,476 shares of Class A Common Stock (“Series B Warrants”). One share of Series A Preferred Stock with the accompanying warrants (“Series A Unit”) and one share of Series B Preferred Stock with the accompanying warrants (“Series B Unit”) were sold at $100 per unit.

Although the Preferred Stock are mandatorily redeemable, the Preferred Stock have a substantive conversion feature; and therefore, are not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. However, as the Preferred Stock are mandatorily redeemable, redeemable in certain circumstances at the option of the holder, and redeemable in certain circumstances upon the occurrence of an event that is not solely within the Company’s control, the Company has classified the Preferred Stock as mezzanine equity in the consolidated balance sheets. The Company measures the Preferred Stock at its maximum redemption value plus dividends not currently declared or paid but which will be payable upon redemption. On June 15, 2023 the Company remeasured the Preferred Stock following the accretion method, which resulted in the Preferred Stock being measured at its maximum redemption value of $16.3 million and accretion of $11.3 million, included in Cumulative Deficit on theconsolidated balance sheets as of June 30, 2023. The fair value of the preferred stock at issuance was recognized using the discount method, which accounts for the 11% discount of the stated value and a pro-rata allocation of the proceeds between the preferred shares and the warrants, less a pro-rata amount of the transaction costs.

Dividend Rights

The holders of the Preferred Stock are entitled to cumulative dividends at a 4.0% rate, which is accrued and compounded annually whether or not declared. These dividends are payable in cash or Class A Common Stock upon conversion or redemption of the underlying preferred stock.

Table of Contents

Additionally, the holders are also entitled to participate in dividends declared or paid on Class A Common Stock on an as-converted basis.

Conversion Rights

Each holder has the right, at its option, to convert its Preferred Stock into Class A Common Stock at either, at the option of the holder, (1) the Conversion Price, which is equal to $0.56 per share or (2) the Alternate Conversion Price, which is equal to the lesser of (i) 90% of the arithmetic average of the three lowest daily VWAPs (as defined in the Securities Purchase Agreement) of the 20 trading days prior to the applicable conversion date or (ii) 90% of the VWAP of the trading day prior to the applicable conversion date. Both the Conversion Price and the Alternate Conversion Price are subject to a floor price of $0.484 (“Floor Price”). However, for the Series A Preferred Stock only, if redemption of the Series A Preferred Stock is accelerated by either the Company or the holder (see the Accelerated Redemption provisions defined below), (i) any cash payment required to be made is not made, and (ii) the existing investors have defaulted under their obligations to purchase the Series A pursuant to the terms of a side letter, then the Floor Price shall be $0.161.

The Conversion Price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, subdivisions, combinations, recapitalization, or similar events, and subject to price-based adjustment in the event of any issuances of Class A Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). Additionally, the Conversion Price is subject to adjustment for any increase or decrease to the exercise price or conversion price to any outstanding options or convertible securities the Company has issued.

The Company determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument because the Preferred Stock are subject to a substantive Conversion Option that is in-the-money and the Company has the ultimate authority to settle redemption of the Preferred Warrants upon the Mandatory Redemption or Accelerated Redemption (all defined below) by issuing shares of Class A Common Stock rather than paying cash. Further, such potential share settlement will be at the lower of the Conversion Price or based on the Company’s VWAP allowing for the holder to be exposed to the risks and returns of the underlying Class A Common Stock. Accordingly, the economic characteristics and risks of the embedded option to convert the Preferred Stock at the Conversion Price (the “Conversion Option”) was clearly and closely related to the host contract. As such, the Conversion Option was not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.

Redemption Rights

In addition to the share-settled redemption feature discussed above in the Conversion Rights section (e.g., conversion of the Preferred Stock at the Alternate Conversion Price), the Preferred Warrants are subject to several redemption features.

Mandatory Redemption – On and after June 29, 2023, the Preferred Stock are required to redeem 1/10th of the number of the issued shares of Preferred Stock on a monthly basis (“Installments”). The redemption price is paid, at the option of the Company: (i) in cash at an amount that is approximately 104% of the stated value of $111.11 per share plus all accrued and unpaid dividends and any other amounts due (the “Mandatory Redemption Price”), (ii) in a variable number shares of Class A Common Stock based on a share price equal to the lesser of (1) the prevailing Conversion Price, (2) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable mandatory redemption date, or (3) 90% of the VWAP of the trading day prior to the applicable mandatory redemption date, provided that such share price used will not be below the Floor Price, or (iii) in a combination thereof. Installments may be deferred or reallocated to other dates at the Preferred Stockholders’ discretion.

Accelerated Redemption – The holders of the Preferred Stock have the right to require redemption of all or any part of the Preferred Stock at any time on or after June 15, 2023. Additionally, the Company has the option to elect redemption of all Series A shares at any time on or after June 15, 2023. The redemption price, as elected by the holder, is paid in either (i) the Mandatory Redemption Price in cash, (ii) in a variable number of shares of Common Stock based on a share price equal to the lesser of (1) the prevailing Conversion Price, (2) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable accelerated redemption date or (3) 90% of the VWAP of the trading day prior to the applicable accelerated redemption date, provided that such share price used will not be below the Floor Price, or (iii) a combination thereof.

Triggered Optional Redemption – If the Company closes a debt or equity financing, then each holder has the right to require the Company to use 30% of the proceeds from the financing to repurchase a pro rata portion of that holder's Preferred Stock in cash at the Mandatory Redemption Price.

Default Redemption – Upon certain default events in which the Company defaults on its covenants, promises, or obligations under the Securities Purchase Agreement or defaults on any of its other obligations, the holder has the option to redeem the Preferred Stock for a cash amount equal to 115% of the Mandatory Redemption Price.

Table of Contents

Bankruptcy Redemption – If the Company is subject to a bankruptcy event, then the Company is required to immediately redeem the outstanding Preferred Stock for cash. The redemption price paid shall equal 115% of the Mandatory Redemption Price.

Change of Control Redemption – Upon change of control events (as defined in the Securities Purchase Agreement), the holders have the option to require the Company to redeem the Preferred Stock for cash. The redemption price paid shall equal the greater of (i) the product of 115% multiplied by the Mandatory Redemption Price and (ii) the prevailing Conversion Price plus all accrued but unpaid dividends.

If upon an Accelerated Redemption, Triggered Optional Redemption, or Default Redemption, any cash payment required to be made is not made, then the holder can elect to retain its shares of Preferred Warrants that have not been redeemed for cash and sell the shares of Preferred Stock to a third party. Additionally, if such an election is not made by the holder, the Company has the authority to pay to the holder the unpaid cash redemption payment in duly authorized, validly issued, fully paid and non-assessable shares of Class A Common Stock.

On July 3, 2023, a non-controlling interest holder redeemed 617,400 Class B Common Stock in exchange for Class A Common Stock on a one-for-one basis.

As noted above, the Company determined that the nature of the Preferred Stock were more akin to an equity instrument than a debt instrument. The Company determined that the economic characteristics and risks of the embedded redemption features discussed above were not clearly and closely related to the host contract. However, the Company assessed these items further and determined they did not meet the definition of a derivative under ASC 815, Derivatives and Hedging.

Liquidation Rights

Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), prior and in preference to the common stock and the Series B Preferred Stock, the holders of Series A Preferred Stock are entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the stated value of $111.11 per share plus all accrued and unpaid dividends and any other amounts due. After the payment of all preferential amounts required to be paid to the Series A holders, the Series B holders shall be entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the stated value of $111.11 per share purchase price plus all accrued and unpaid dividends and any other amounts due.

Voting Rights

Holders of the Preferred Stock are entitled to vote with the holders of the ordinary shareholders on an as-converted basis. Holders of the Preferred Stock are entitled to a separate class vote with respect to (i) altering or changing the powers, preferences, or rights of the Preferred Stock so as to affect them adversely, (ii) amending the Certificate of Incorporation or other charter documents in a manner adverse to the holders, (iii) increasing the number of authorized shares of Preferred Stock, or (iv) entering into any agreement with respect to any of the foregoing.

Redemptions

On June 15, 2023, the Company received notice from the holders of all of the Company’s outstanding Series A Preferred Stock that each holder has elected to have the Company redeem for cash the Series A Preferred Stock held by such holder pursuant to Section 9(b) of the Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock of the Company (the “Series A Certificate of Designation”).

Section 9(b) of the Series A Certificate of Designation gives holders of Series A Preferred Stock the right to require the Company to redeem for cash the Series A Preferred Stock for cash at any time on or after June 15, 2023 at the “Corporation’s Mandatory Redemption Price” (as such term is defined in the Series A Certificate of Designation). As of June 15, 2023, the aggregate Corporation’s Mandatory Redemption Price for all of the outstanding Series A Preferred Stock was approximately $9.3 million.

On June 16, 2023, the Board determined that the Company was not legally permitted under applicable Delaware law to effect a redemption for cash of any Series A Preferred Stock. As a result and in accordance with the Securities Purchase Agreement, the Company accrued dividends payable of $89.0 thousand to the Series A Preferred Stockholders, included Cumulative Deficit on the consolidated balance sheets, as of June 30, 2023. Total accrued dividend to Series A and B Preferred Stockholders was $156.0 thousand, as of June 30, 2023.

Relatedly, Section 9(a) of the Series A Certificate of Designation and the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock (the “Series B Certificate of Designation” and together with the Series A Certificate of Designation, the “Certificates of Designation”) provide for the Company to redeem 1/10th of the outstanding Series A Preferred Stock and Series B Preferred Stock, respectively, for cash or shares of the Company’s Class A common stock on a monthly basis beginning on June 30, 2023 at the “Corporation’s Mandatory Redemption Price.”

Table of Contents

As calculated pursuant to the Certificates of Designation, the aggregate Mandatory Redemption Price for the redemptions Series A and B Preferred Stock on June 30, 2023 and July 30, 2023 was approximately $1.8 million and $1.7 million, respectively. Pursuant to the terms of the Certificates of Designation, the Company was not permitted to elect payment in common stock because the Company’s common stock has not traded above the “Floor Price” ($0.484) for 20 trading days prior to redemption, as required by the Certificates of Designation. With respect to each monthly redemption date, the Board determined that the redemption was not permitted under the Certificates of Designation or applicable Delaware law. As a result, the Company did not redeem any shares of Series A Preferred Stock in connection with either monthly redemption.

~~NOTE 9. EMPLOYEE AND DIRECTOR INCENTIVE PLANS~~Note 10. Employee and Director Incentive Plans

~~Table of Contents~~

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 ~~$5.3~~$0.9 million and ~~$4.0~~$2.2 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023, respectively, and ~~2021,~~$2.1 million and $3.9 million for the three and six months ended June 30, 2022, respectively, and are included in ~~“Salaries~~Salaries and related ~~costs”~~costs within the ~~Consolidated Statement~~consolidated statements of ~~Operations.~~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

For the three and six months ended June 30, 2023, there were no new RSU awards. During the six months ended June 30, 2023, 362,000 RSUs were forfeited.

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 ~~executive management and~~ certain ~~key~~ employees of the Company 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~~ The TRSUs vest one-fourth each years based on four years continuous service starting April 12, 2022 and ending April 12, 2026.Vesting of the PRSUs are also subject to certain performance metrics of the Company, which the Company ~~re-evaluates the probability of achievement~~evaluates 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.

On August 4, 2022, the Board voted to award an aggregate of 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~~Note 11. Income Taxes

As a result of the Business Combination, the Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker, which owns ~~60.8%~~60.9% 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 and Traverse, 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 and Traverse, wholly-owned U.S. corporate 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~~benefit of ~~$0.46~~$2.15 million and ~~$0.82~~$2.16 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. The blended effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~4.8%~~24.5% and ~~3.1%~~24.5%, 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

Table of Contents

Company recorded ~~$0.4 million and $1.5 million~~ income tax expense $0.05 million and $0.36 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. The blended effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~6.6%~~24.8% and ~~13.1%~~26.4%, 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

~~Table of Contents~~

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 ~~September~~June 30, 2023 and December 31, 2022, the remaining current portion of Tax Receivable Agreement liability of ~~$1.2~~$0.2 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~~Note 12. Earnings Per Share

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

Table of Contents

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Numerator:
Net (loss) income $ (10,121) $ 5,394 $ (27,365) $ 10,121
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 $ (6,111) $ 3,536 $ (16,600) $ 5,904
Add: Income effects of Class B convertible common stock $ (4,010) $ 1,858 $ — $ 4,217
Net (loss) income attributable to Digital Media Solutions, Inc. - diluted $ (10,121) $ 5,394 $ (16,600) $ 10,121
Denominator:
  Weighted average shares - basic 39,961 36,511 37,644 35,050
Add: dilutive effects of Class B convertible common stock 25,699 25,853 — 25,853
  Add: dilutive effects of employee equity awards — 267 — 515
  Add: dilutive effects of public warrants — — — 168
  Add: dilutive effects of deferred consideration — 690 — 402
Weighted average shares - diluted 65,660 63,321 37,644 61,988
Net earnings (loss) per common share:
  Basic $ (0.15) $ 0.10 $ (0.44) $ 0.17
  Diluted $ (0.15) $ 0.09 $ (0.44) $ 0.16


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss	$	(47,493)	$	(11,887)	$	(68,194)	$	(17,244)

Net loss attributable to non-controlling interest	(18,553)		$	(4,905)	(26,639)		(7,121)
Accretion and dividend Series A and B convertible redeemable preferred stock	(11,341)		$	—	(11,341)		—
Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - basic	$	(40,281)	$	(6,982)	$	(52,896)	$	(10,123)

Add: Income effects of Class B convertible common stock	$	—	$	(4,903)	$	—	$	(7,116)

Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - diluted	$	(40,281)	$	(11,885)	$	(52,896)	$	(17,239)

Denominator:
Weighted-average Class A common shares outstanding – basic	40,094		39,553		39,805		37,969
Add: dilutive effects of Class B convertible common stock	—		25,699		—		25,713




Weighted-average Class A common shares outstanding – diluted	40,094		65,252		39,805		63,682

Net loss per common share:
Basic – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)
Diluted – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)

Shares of the Company’s Class B convertible common stock and Series A and B Preferred 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 and Series A and B Preferred stock under the two-class method has not been presented.

~~Table of Contents~~

For the three and ~~nine~~six months ended ~~September~~June 30, 2023, the Company excluded 25.7 million shares of Class B convertible common stock, 80 thousand Series A Preferred stock, 60 thousand Series B Preferred stock, 4.0 million private warrants, 10.0 million public warrants, 14.4 million preferred warrants, 1.6 million stock options, 0.9 million RSUs, 0.2 million PRSUs, and the contingent and deferred considerations issued in connection with the ClickDealer and Aramis acquisitions as their effect would have been anti-dilutive. For the three and six months ended June 30, 2022, the Company excluded 4.0 million private warrants, 10.0 million public warrants, ~~5.0 million deferred consideration, 1.7~~1.9 million stock options, ~~1.0~~1.7 million RSUs and ~~0.3~~0.4 million PRSUs, ~~respectively, as their effect would have been anti-dilutive. For~~and the ~~nine months ended September 30, 2022,~~contingent and deferred considerations issued in connection with the ~~Company excluded the Class B convertible common stock,~~AAP and Crisp Results acquisitions, 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

Note 13. Commitments and ~~approximately 1.9 million employee equity awards, as their effect would have been anti-dilutive.~~Contingencies

~~For~~Legal proceedings

In the ~~three~~ordinary course of business, we are involved from time to time in various claims and ~~nine months ended September 30, 2021,~~legal actions incident to our operations, both as a plaintiff and defendant. In the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on the results of operations, financial position or cash flows. We intend to vigorously defend ourselves in these matters.

On October 28, 2022, the Company ~~excluded contingent consideration issued in connection with Aramis, Aimtell and PushPros and Crisp Results acquisitions, which were payable in DMS common stock, as~~received notice from the ~~necessary conditions to pay such consideration had not been satisfied by the end~~Office of the ~~period.~~

Ohio Attorney General (“OH OAG”) that it was reviewing certain of DMS’s business practices pursuant to its authority under the Consumer Sales Practices Act, Ohio Revised Code Section 1345.06, and the Telephone Solicitation Sales Act, Ohio Revised Code Sections 4719.11; 109.87(C). While the Company believes that its practices are in compliance with applicable law, the Company and the OH OAG have entered into discussions regarding the terms of a potential resolution to the OH AG's review. It is uncertain whether a mutually acceptable resolution can be reached and the terms thereof, and, accordingly, the Company is unable to predict the impact of any such resolution to the Company’s business operations or financial results.

Table of Contents

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

~~OVERVIEW~~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~~2022 Form ~~10-K.~~10-K/A. 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~~Series A and Series B Preferred Stock and Warrants

On ~~August~~June 15, 2023, Digital Media Solutions, Inc. (the “Company”) received notice from the holders of all of the Company’s outstanding Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) that each holder has elected to have the Company redeem for cash the Series A Preferred Stock held by such holder pursuant to Section 9(b) of the Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock of the Company (the “Series A Certificate of Designation”).

On June 16, 2021, we commenced a process to evaluate potential strategic alternatives to maximize shareholder value, and as part of that process, have been evaluating a full range of strategic, operational and financial alternatives. On September 8, 2022, our2023, the board of directors ~~received an offer from Prism Data, LLC, an investment vehicle affiliated~~of the Company (the “Board”) determined that the Company was not legally permitted under applicable Delaware law to effect a redemption for cash of any Series A Preferred Stock. As a result and in accordance with ~~our CEO Joseph Marinucci~~the Securities Purchase Agreement, the Company accrued dividends payable of $89.0 thousand included in Cumulative Deficit on theconsolidated balance sheets as of June 30, 2023.

Relatedly, Section 9(a) of the Series A Certificate of Designation and ~~our COO Fernando Borghese,~~the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred Stock (the “Series B Certificate of Designation” and together with the Series A Certificate of Designation, the “Certificates of Designation”) provide for the Company to ~~acquire all~~redeem 1/10th of ~~our~~the outstanding Series A Preferred Stock and Series B Preferred Stock, respectively, for cash or shares of the Company’s Class A common stock on a monthly basis beginning on June 30, 2023 at the “Corporation’s Mandatory Redemption Price.”

As calculated pursuant to the Certificates of ~~DMS~~Designation, the aggregate Mandatory Redemption Price for ~~$2.50 per share~~the redemptions Series A and B Preferred Stock on June 30, 2023 and July 30, 2023 was approximately $1.8 million and $1.7 million, respectively. Pursuant to the terms of the Certificates of Designation, the Company was not permitted to elect payment in ~~cash. Our~~common stock because the Company’s common stock has not traded above the “Floor Price” ($0.484) for 20 trading days prior to redemption, as required by the Certificates of Designation. With respect to each monthly redemption date, the Board determined that the redemption was not permitted under the Certificates of Designation or applicable Delaware law. As a result, the Company did not redeem any shares of Series A Preferred Stock in connection with either monthly redemption.

See Note 8. Fair Value Measurements and Note 9. Equityfor further information on the Series A and Series B Preferred Stock and Warrants.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

On March 30, 2023, the Company received notice from the New York Stock Exchange (the "NYSE") indicating that the Company is not in compliance with Rule 802.01C of the NYSE’s Listed Company Manual (“Rule 802.01C”) because the average closing price of the Company's Class A common stock was less than $1.00 over a consecutive 30 trading-day period. Under Rule 802.01C, the Company has a period of six months from receipt of the notice to regain compliance with the NYSE minimum stock price listing requirement. The Company has notified the NYSE of its intent to cure the stock price deficiency and return to compliance with the NYSE continued listing standards. The Company intends to consider available alternatives if the Company does not otherwise regain compliance during the cure period, including but not limited to a reverse stock split.

Table of Contents

The Company's stockholders have approved a reverse stock split, which the Company's board of directors ~~is reviewing and considering~~may determine to implement if necessary to regain compliance with the Prism Data proposal as 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.NYSE's continued listing standards.

~~Auditor Change~~

On ~~August 16, 2022, following~~April 28, 2023, Digital Media Solutions, Inc. (the "Company") received notice from the New York Stock Exchange (the "NYSE") indicating that the Company is not in compliance with Rule 802.01B of the NYSE’s Listed Company Manual, which requires it to maintain an average global market capitalization of at least $50.0 million over a ~~competitive selection process,~~consecutive 30-day trading period and, at the same time, a total stockholders’ equity equal to or greater than $50.0 million (the "market capitalization listing standard"). This is a separate notice from the previously announced notice from the NYSE that the Company was not in compliance with the $1.00 30-trading day average price listing standard set forth in Rule 802.01C of the NYSE's Listed Company Manual. Under NYSE rules, the Company has a period of 45 days from receipt of the notice to submit a plan advising the NYSE of definitive actions the Company has taken, or is taking, that would bring it into compliance with the market capitalization listing standard within 18 months of receipt of the notice. The Company submitted a plan to cure the global market capitalization listing standard deficiency. The NYSE has notified the Company that it accepted the Company's ~~Audit Committee approved~~remediation plan.

On June 14, 2023, the ~~engagement~~Company received notice from the staff of ~~Grant Thornton LLP (“GT”~~NYSE Regulation (the “Staff”) asof the New York Stock Exchange (the “NYSE”), indicating that the Staff has determined to commence proceedings to delist the Company’s ~~independent registered public accounting firm~~warrants, each whole warrant exercisable for one share of the ~~fiscal year ending December 31, 2022. Effective~~Company’s Class A common stock, par value $0.0001 per share at an exercise price of $11.50 per share, and listed to trade on the NYSE under the symbol “DMS WS” from the NYSE and that ~~same date,~~trading in the Warrants on the NYSE would be suspended immediately. The Staff determined that the Warrants are no longer suitable for listing on the NYSE based on “abnormally low” price levels, pursuant to Section 802.01D of the NYSE Listed Company ~~dismissed Ernst & Young (“EY”) from that role.~~ ~~For further information, please refer~~Manual. Trading in the Company’s Class A Common Stock and units on the NYSE will continue, subject to ~~our Current Report on Form 8-K filed~~compliance with the ~~SEC on August 19, 2022.~~

NYSE's other listing standards and remediation of the deficiencies noted above.

Table of Contents

~~RESULTS OF OPERATIONS~~Results of Operations

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

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenue by type:
Customer acquisition 96.1 % 96.3 % 96.0 % 95.8 %
Managed services 2.2 % 2.9 % 2.8 % 3.4 %
Software services 1.7 % 0.8 % 1.2 % 0.8 %
Total net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Revenue by segment:
Brand Direct 47.0 % 60.5 % 51.1 % 58.6 %
Marketplace 59.0 % 54.3 % 57.2 % 53.4 %
Technology Solutions 2.9 % 2.1 % 2.6 % 2.0 %
Intercompany eliminations (8.9) % (16.9) % (10.9) % (14.0) %
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue (exclusive of depreciation and amortization) 73.7 % 71.8 % 73.0 % 70.6 %
Gross profit 26.3 % 28.2 % 27.0 % 29.4 %
Salaries and related costs 13.0 % 11.6 % 13.3 % 11.0 %
General and administrative 10.1 % 9.5 % 11.2 % 8.7 %
Depreciation and amortization 7.9 % 6.7 % 7.4 % 6.4 %
Acquisition costs * 0.4 % 0.1 % 0.6 %
Change in fair value of contingent consideration * (2.9) % 0.9 % (0.8) %
(Loss) income from operations (4.7) % 2.9 % (5.9) % 3.5 %
Interest expense 5.1 % 3.5 % 4.2 % 3.4 %
Change in fair value of warrant liabilities 1.1 % (6.0) % (0.9) % (4.5) %
Change in Tax Receivable Agreement liability (0.1) % — % * — %
Loss on debt extinguishment — % — % — % 0.7 %
Net (loss) income before income taxes (10.8) % 5.4 % (9.2) % 3.9 %
Income tax expense 0.5 % 0.4 % 0.3 % 0.5 %
Net (loss) income (11.3) % 5.0 % (9.5) % 3.4 %
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. (6.8) % 3.3 % (5.8) % 2.0 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022			2023		2022
Revenue by type:
Customer acquisition	95.7	%	95.4	%		95.8	%	95.9	%
Managed services	2.5	%	3.4	%		2.4	%	3.1	%
Software services	1.8	%	1.2	%		1.8	%	1.0	%
Total net revenue	100.0	%	100.0	%		100.0	%	100.0	%
Revenue by segment:
Brand Direct	62.7	%	49.1	%		62.0	%	52.9	%
Marketplace	39.3	%	59.3	%		40.4	%	56.4	%
Technology Solutions	2.7	%	2.8	%		2.6	%	2.4	%
Intercompany eliminations	(4.7)	%	(11.2)	%		(5.0)	%	(11.7)	%
Net revenue	100.0	%	100.0	%		100.0	%	100.0	%
Cost of revenue (exclusive of depreciation and amortization)	76.7	%	74.3	%		76.0	%	72.7	%
Gross profit	23.3	%	25.7	%		24.0	%	27.3	%
Salaries and related costs	13.9	%	14.5	%		13.7	%	13.5	%
General and administrative	14.7	%	13.6	%		14.5	%	11.8	%
Depreciation and amortization	7.1	%	7.9	%		6.3	%	7.1	%
Impairment of goodwill	41.0	%	—	%		19.6	%	—	%
Impairment of intangible assets	9.4	%	—	%		4.5	%	—	%
Acquisition costs	0.8	%	0.3	%		1.7	%	0.1	%
Change in fair value of contingent consideration	(0.1)	%	*			*		1.3	%
Loss from operations	(63.5)	%	(10.5)	%		(36.3)	%	(6.5)	%
Interest expense, net	8.5	%	4.2	%		7.9	%	3.7	%
Change in fair value of warrant liabilities	(11.9)	%	(1.8)	%		(3.5)	%	(1.7)	%


Gain on disposal of assets	*		—	%		*		—	%
Net loss before income taxes	(60.1)	%	(12.9)	%		(40.7)	%	(8.5)	%
Income tax (benefit) expense	(2.6)	%	*			(1.3)	%	0.2	%
Net loss	(57.5)	%	(12.9)	%		(39.4)	%	(8.7)	%
Net loss attributable to non-controlling interest	(22.5)	%	(5.4)	%		(15.4)	%	(3.6)	%
Net loss attributable to Digital Media Solutions, Inc.	(35.1)	%	(7.5)	%		(24.0)	%	(5.1)	%

____________________

* Less than one tenth of a percent.

Table of Contents

Operating Results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

The following table presents the consolidated results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 and the changes from the prior period (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Net revenue $ 90,066 $ 107,399 $ (17,333) (16) % $ 290,372 $ 309,281 $ (18,909) (6) %
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 11,668 12,449 (781) (6) % 38,612 34,426 4,186 12 %
General and administrative 9,076 10,237 (1,161) (11) % 32,622 27,051 5,571 21 %
Depreciation and amortization 7,142 7,186 (44) (1) % 21,377 19,649 1,728 9 %
Acquisition costs 14 420 (406) (97) % 306 1,820 (1,514) (83) %
Change in fair value of contingent consideration (3) (3,085) 3,082 (100) % 2,533 (2,525) 5,058 (200) %
(Loss) income from operations $ (4,209) $ 3,129 $ (7,338) (235) % $ (17,075) $ 10,556 $ (27,631) (262) %
Interest expense 4,570 3,756 814 22 % 12,072 10,635 1,437 14 %
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 (121) — (121) (100) % (121) — (121) (100) %
Loss on debt extinguishment — — — 100 % — 2,108 (2,108) (100) %
Net (loss) income before income taxes $ (9,658) $ 5,773 $ (15,431) (267) % $ (26,546) $ 11,648 $ (38,194) (328) %
Income tax expense 463 379 84 22 % 819 1,527 (708) (46) %
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 (4,010) 1,858 (5,868) (316) % (10,765) 4,217 (14,982) (355) %
Net (loss) income attributable to Digital Media Solutions, Inc. $ (6,111) $ 3,536 $ (9,647) (273) % $ (16,600) $ 5,904 $ (22,504) (381) %


	Three Months Ended June 30,								Six Months Ended June 30,
	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change










Net revenue	$	82,551	$	91,197	$	(8,646)	(10)	%	$	172,863	$	200,307	$	(27,444)	(14)	%
Cost of revenue (exclusive of depreciation and amortization)	63,343		67,784		(4,441)		(7)	%	131,384		145,624		(14,240)		(10)	%

Salaries and related costs	11,489		13,237		(1,748)		(13)	%	23,715		26,945		(3,230)		(12)	%
General and administrative	12,124		12,444		(320)		(3)	%	24,979		23,544		1,435		6	%
Depreciation and amortization	5,872		7,173		(1,301)		(18)	%	10,955		14,233		(3,278)		(23)	%
Impairment of goodwill	33,795		—		33,795		100.0	%	33,795		—		33,795		100.0	%
Impairment of intangible assets	7,791		—		7,791		100.0	%	7,791		—		7,791		100.0	%
Acquisition costs	658		279		379		136	%	3,003		292		2,711		928	%
Change in fair value of contingent consideration	(90)		(55)		(35)		64	%	(77)		2,536		(2,613)		(103)	%
Loss from operations	(52,431)		(9,665)		(42,766)		443	%	(62,682)		(12,867)		(49,815)		387	%
Interest expense, net	7,045		3,817		3,228		85	%	13,743		7,502		6,241		83	%
Change in fair value of warrant liabilities	(9,829)		(1,640)		(8,189)		499	%	(6,065)		(3,480)		(2,585)		74	%


Gain on disposal of assets	(3)		—		(3)		(100)	%	(3)		—		(3)		(100)	%
Net loss before income taxes	(49,644)		(11,842)		(37,802)		319	%	(70,357)		(16,889)		(53,468)		317	%
Income tax (benefit) expense	(2,151)		45		(2,196)		(4880)	%	(2,163)		355		(2,518)		(709)	%
Net loss	(47,493)		(11,887)		(35,606)		300	%	(68,194)		(17,244)		(50,950)		296	%
Net loss attributable to non-controlling interest	(18,553)		(4,905)		(13,648)		278	%	(26,639)		(7,121)		(19,518)		274	%
Net loss attributable to Digital Media Solutions, Inc.	$	(28,940)	$	(6,982)	$	(21,958)	315	%	$	(41,555)	$	(10,123)	$	(31,432)	311	%

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.

Table of Contents

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

~~Table of Contents~~


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
		2022		2021		$ Change		% Change		2022		2021		$ Change		% Change			2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Brand Direct	Brand Direct																	Brand Direct
Customer acquisition	Customer acquisition	$	41,381	$	63,332	$	(21,951)	(35)	%	$	144,123	$	174,341	$	(30,218)	(17)	%	Customer acquisition	$	50,425	$	43,124	$	7,301	17	%	$	104,444	$	102,743	$	1,701	2	%
Managed services	Managed services	937		1,667		(730)		(44)	%	4,211		6,713		(2,502)		(37)	%	Managed services	1,269		1,665		(396)		(24)	%	2,652		3,274		(622)		(19)	%

Total Brand Direct	Total Brand Direct	$	42,318	$	64,999	$	(22,681)	(35)	%	$	148,334	$	181,054	$	(32,720)	(18)	%	Total Brand Direct	51,694		44,789		6,905		15	%	107,096		106,017		1,079		1	%
Marketplace	Marketplace																	Marketplace
Customer acquisition	Customer acquisition	$	53,230	$	58,278	$	(5,048)	(9)	%	$	166,128	$	165,300	$	828	1	%	Customer acquisition	32,477		54,092		(21,615)		(40)	%	69,765		112,898		(43,133)		(38)	%

Total Marketplace	Total Marketplace	$	53,230	$	58,278	$	(5,048)	(9)	%	$	166,128	$	165,300	$	828	1	%	Total Marketplace	32,477		54,092		(21,615)		(40)	%	69,765		112,898		(43,133)		(38)	%
Technology Solutions	Technology Solutions																	Technology Solutions

Managed services	Managed services	1,076		1,471		(395)		(27)	%	3,989		3,796		193		5	%	Managed services	757		1,403		(646)		(46)	%	1,510		2,913		(1,403)		(48)	%
Software services	Software services	1,501		784		717		91	%	3,472		2,391		1,081		45	%	Software services	1,468		1,145		323		28	%	3,051		1,971		1,080		55	%
Total Technology Solutions	Total Technology Solutions	$	2,577	$	2,255	$	322	14	%	$	7,461	$	6,187	$	1,274	21	%	Total Technology Solutions	2,225		2,548		(323)		(13)	%	4,561		4,884		(323)		(7)	%
Corporate and Other	Corporate and Other																	Corporate and Other
Customer acquisition	Customer acquisition	$	(8,059)	$	(18,133)	$	10,074	(56)	%	$	(31,551)	$	(43,260)	$	11,709	(27)	%	Customer acquisition	(3,845)		(10,232)		6,387		(62)	%	(8,559)		(23,492)		14,933		(64)	%
Total Corporate and Other	Total Corporate and Other	$	(8,059)	$	(18,133)	$	10,074	(56)	%	$	(31,551)	$	(43,260)	$	11,709	(27)	%	Total Corporate and Other	(3,845)		(10,232)		6,387		(62)	%	(8,559)		(23,492)		14,933		(64)	%
Total Customer acquisition	Total Customer acquisition	$	86,552	$	103,477	$	(16,925)	(16)	%	$	278,700	$	296,381	$	(17,681)	(6)	%	Total Customer acquisition	79,057		86,984		(7,927)		(9)	%	165,650		192,149		(26,499)		(14)	%
Total Managed services	Total Managed services	2,013		3,138		(1,125)		(36)	%	8,200		10,509		(2,309)		(22)	%	Total Managed services	2,026		3,068		(1,042)		(34)	%	4,162		6,187		(2,025)		(33)	%
Total Software services	Total Software services	1,501		784		717		91	%	3,472		2,391		1,081		45	%	Total Software services	1,468		1,145		323		28	%	3,051		1,971		1,080		55	%
Total Net revenue	Total Net revenue	$	90,066	$	107,399	$	(17,333)	(16)	%	$	290,372	$	309,281	$	(18,909)	(6)	%	Total Net revenue	$	82,551	$	91,197	$	(8,646)	(10)	%	$	172,863	$	200,307	$	(27,444)	(14)	%

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~~an increase in Customer acquisition revenue of ~~$22.0~~$7.3 million or ~~35%~~17% and ~~$30.2~~$1.7 million or ~~17%~~2% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively.~~2023. As our base business continues to experience downward pressure, growth within the period was driven primarily by the acquisition of ClickDealer. Customer acquisition revenue for Marketplace decreased by ~~$5.0~~$21.6 million or 9%40% and ~~increased~~decreased by ~~$0.8~~$43.1 million or ~~0.5%~~38% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively.~~2023. The changes in both the Brand Direct and Marketplace segments were primarily due to continued macro challenges within the insurance industry which continue to apply ~~downward~~increased pressure on cost per click (“CPC”) and cost per lead (“CPL”) pricing. Carriers continue to navigate and adjust to unprecedented complex market conditions. The prolonged recovery in Property & Casualty insurance, which remains uncertain, has resulted in acute revenue declines across the business as carrier profitability remains challenged due to high loss ratios. The Company has also experienced a downturn within the Mass Tort business; In addition, ~~we’ve observed aggressive competitive activities within our publisher portfolio, as well as an adjustment~~there has been a shift in the health insurance distribution model ~~shifting~~during non-enrollment periods affecting ad spend as well as enhancements to an already highly restrictive regulatory environment, which ~~impacted~~continues to impact our performance since ~~Q2.~~Q2 of prior year.

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~~ decrease of ~~$1.1~~$1.0 million or ~~36%~~34% and a decrease of ~~$2.3~~$2.0 million or ~~22%~~33% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The changes were primarily driven by decreased media activity, resulting in lower agency fees. The managed services environment is highly sensitive and correlative to economic drivers especially inflationary in nature. As inflationary pressures and uncertainty persist, the managed services industry will continue to experience contraction.

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 ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

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.

Table of Contents

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

~~Table of Contents~~


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022		PPTS Change	2023		2022		PPTS Change
Brand Direct	20.2	%	19.3	%	0.9	21.5	%	20.2	%	1.3
Marketplace	21.6	%	23.3	%	(1.7)	21.5	%	25.7	%	(4.2)
Technology Solutions	77.1	%	83.7	%	(6.6)	75.6	%	86.0	%	(10.4)
Total gross profit percentage	23.3	%	25.7	%	(2.4)	24.0	%	27.3	%	(3.3)

Gross profit percentage for Brand Direct increased for the three and six months ended June 30, 2023, in comparison to the same periods in 2022, primarily driven by strong demand across debt consolidation verticals and the ClickDealer acquisition integration due to expanding relationships across our customers and publisher portfolios (see

Note 5. Acquisitions

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 PPTS Change 2022 2021 PPTS Change
Brand Direct 22.3 % 22.8 % (0.5) 20.8 % 23.9 % (3.1)
Marketplace 22.6 % 23.8 % (1.2) 24.7 % 26.0 % (1.3)
Technology Solutions 86.0 % 71.8 % 14.2 86.0 % 75.6 % 10.4
Total gross profit percentage 26.3 % 28.2 % (1.9) 27.0 % 29.4 % (2.4)
).The increased demand for warm transfers in our debt categories allowed us to maximize our strategic partnerships to grow revenue while leveraging our owned & operated properties expanding our gross margin.

Gross profit for Brand Direct decreased for the three and nine months ended 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~~percentage for Marketplace decreased for the three and ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same periods in 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~~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 percentage for Technology Solutions ~~increased~~decreased for the three and ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same periods in 2022, primarily driven by the ~~optimization~~mix of media purchasing activity skewed more heavily towards higher priced media sources which led to ~~larger~~compressed budgets and resulted in decreased fees. Additionally, we have seen softness in our margin performance driven by lower utilization across our technology stack within our existing customer base as a result of increased ~~fees in addition to the Traverse acquisition which carries a higher margin profile.~~economic inflationary fears and uncertainty.

Total gross profit percentage decreased for the three and ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same periods in 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 decreased by ~~$0.8~~$1.7 million or ~~6.3%~~13.2% for the three months ended ~~September~~June 30, ~~2022 due~~2023, in comparison to ~~higher than expected attrition;~~the same period in 2022; and ~~increased $4.2~~decreased $3.2 million or ~~12.2%~~12.0% for the ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same period in 2022, ~~due~~primarily driven by a recently executed reduction in force and corporate restructuring to ~~an increase in stock-based compensation~~optimize the operational and ~~headcount as a result of required expansion of our workforce to~~administrative support across the ~~Company,~~organization as well as ~~the addition of FTEs from the Crisp Results and DMS Voice licensing.~~higher attrition than expected.

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,~~allowance for credit losses, as well as sales and marketing expenses relating to advertising and promotion. We also include other expenses such as investment banking expenses, ~~fundraising~~capital raising costs and costs related to the advancement of our corporate social responsibility program.

General and administrative expenses decreased ~~$1.2~~$0.3 million or ~~11.3%~~2.6% for the three months ended ~~September~~June 30, 2023, in comparison to the same period in 2022, largely due to ~~improved client collections~~reduced accounting and ~~synergies within software~~audit fees and ~~technology;~~deploying a more optimized strategy as it relates to operational consultant engagements; and increased ~~$5.6~~$1.4 million or ~~20.6%~~6.1% for the ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same period in 2022, primarily due to ~~acquisition~~the costs related ~~expenses across multiple categories including software, technology, and professional expenses as well as an overall increase in compliance fees.~~to the termination of the DMS Voice operations.

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 decreased ~~$0.0~~$1.3 million or ~~0.6%~~18.1% for the three months ended ~~September~~June 30, 2023, in comparison to the same period in 2022, and decreased $3.3 million or 23.0%, for the six months ended June 30, 2023, in comparison to the same period in 2022, primarily due to fewer ~~fixed assets purchased~~intangibles amortized after the impairment recorded as of December 31, 2022, offset by $0.8 million increase related to the ClickDealer Acquisition.

Table of Contents

Impairment of goodwill and intangible assets. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment for the Marketplace reporting unit under ASC 350-20, Goodwill, and ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2023. During the ~~current quarter versus prior year’s quarter;~~three and six months ended June 30, 2023, Impairment of goodwill increased ~~$1.7~~$33.8 million or ~~8.8%~~100.0% and Impairment of intangible assets increased $7.8 million or 100.0%, ~~during the for the nine months ended September 30, 2022~~respectively, due to ~~fixed~~the Intangible assets ~~acquired with Crisp Results~~within Marketplace exceeding its recoverability (see Note 4. Goodwill and ~~AAP, as well as continued investments in internally developed software, which were placed in service during 2021.~~Intangible Assets).

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 ~~changed~~increased $0.4 million or ~~96.7%~~135.8% for the three months ended June 30, 2023 and ~~$1.5~~increased $2.7 million or ~~83.2%~~928.4% during the ~~three and nine~~six months ended ~~September~~June 30, 2023, in comparison to the same periods in 2022, ~~respectively. The changes were~~ primarily due to ~~prior year costs related to~~ the ~~AAP and Crisp acquisitions~~ClickDealer acquisition (see Note 6.5. Acquisitions).

~~Table of Contents~~

Interest ~~expense.~~expense, net. Interest expense, net for three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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 administrative agent under the Company’s ~~financial institution~~senior secured credit facility since May 25, 2021 (see Note 5.6. Debt).

Interest expense, net increased by ~~$0.8~~$3.2 million or ~~21.7%~~84.6% and ~~$1.4~~increased by $6.2 million or ~~13.5%~~83.2%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively.~~2023, respectively, in comparison to the same period in 2022. The increases for the three and ~~nine~~six months ended ~~September~~June 30, 2023, in comparison to the same periods in 2022, were primarily due to a rate increase of approximately ~~1.0% increase~~1.5% in our LIBOR rate as a result of current financial markets.

Income tax (benefit) expense. The Company recorded ~~income~~Income tax (benefit) expense of ~~$0.5~~$(2.2) million and ~~$0.8~~$(2.2) million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. The blended effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~4.8%~~24.5% and ~~3.1%~~24.5%, 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~~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~~segments 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, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion 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, Unlevered Free Cash Flow, and Unlevered Free Cash Flow Conversion only as a supplement.

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

Table of Contents

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.

~~Table of Contents~~

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.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net (loss) income $ (10,121) $ 5,394 $ (27,365) $ 10,121
Adjustments
Interest expense 4,570 3,756 12,072 10,635
Income tax expense 463 379 819 1,527
Depreciation and amortization 7,142 7,186 21,377 19,649
Change in fair value of warrant liabilities (1)
1,000 (6,400) (2,480) (13,835)
Change in Tax Receivable Agreement liability (121) — (121) —
Loss on debt extinguishment — — — 2,108
Stock-based compensation expense 1,424 1,516 5,332 4,046
Restructuring costs (13) 52 2,166 133
Acquisition costs (2)
14 420 306 1,820
Change in fair value of contingent consideration liabilities (3) (3,085) 2,533 (2,525)
Other expense (3)
708 887 3,940 4,123
Adjusted net income $ 5,063 $ 10,105 $ 18,579 $ 37,802
Additional adjustments
Pro forma cost savings - Reorganization (4)
$ — $ — $ — $ 31
Pro forma cost savings - Acquisitions (5)
— 856 — 2,656
Acquisitions EBITDA (6)
— — — 2,711
Adjusted EBITDA $ 5,063 $ 10,961 $ 18,579 $ 43,200
Less: Capital Expenditures 2,050 3,663 5,247 7,875
Unlevered free cash flow $ 3,013 $ 7,298 $ 13,332 $ 35,325
Unlevered free cash flow conversion 59.5 % 66.6 % 71.8 % 81.8 %


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net loss	$	(47,493)		$	(11,887)		$	(68,194)		$	(17,244)
Adjustments
Interest expense, net	7,045			3,817			13,743			7,502
Income tax (benefit) expense	(2,151)			45			(2,163)			355
Depreciation and amortization	5,872			7,173			10,955			14,233
Impairment of goodwill	33,795			—			33,795			—
Impairment of intangible assets	7,791			—			7,791			—
Change in fair value of warrant liabilities	(9,829)			(1,640)			(6,065)			(3,480)
Change in fair value of contingent consideration liabilities	(90)			(55)			(77)			2,536
Legal and professional fees - Equity cure	1,680			—			3,282			1
Termination of DMS Voice	1,390			—			3,507			—


Stock-based compensation expense	910			2,066			2,168			3,908
Restructuring costs	250			1,784			742			2,178
Acquisition and other related costs (1)	902			279			3,816			292
Gain on disposal of assets	(3)			—			(3)			—
Other expense (2)	833			1,441			964			3,233






Adjusted EBITDA	902			3,023			4,261			13,514
Less: Capital Expenditures	1,770			1,580			2,985			3,197
Unlevered free cash flow	$	(868)		$	1,443		$	1,276		$	10,317
Unlevered free cash flow conversion	(96.2)		%	47.7		%	29.9		%	76.3		%

~~______________~~____________________

(1)~~Mark-to-market warrant liability adjustments.~~Includes transaction fees in connection with the ClickDealer acquisition, pre-acquisition expenses, preferred warrants issuance costs, and post-acquisition related costs.

(2)Includes ~~business combination transaction fees, acquisition incentive payments~~legal and ~~pre-acquisition expenses.~~

~~(3)Includes legal~~professional 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 nine months ended September 30, 2021.~~strategic alternatives.

Table of Contents

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
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Unlevered free cash flow $ 3,013 $ 7,298 $ 13,332 $ 35,325
Capital expenditures 2,050 3,663 5,247 7,875
Adjusted EBITDA $ 5,063 $ 10,961 $ 18,579 $ 43,200
Acquisitions EBITDA (1)
— — — 2,711
Pro forma cost savings - Reorganization (2)
— — — 31
Pro forma cost savings - Acquisitions (3)
— 856 — 2,656
Adjusted net income $ 5,063 $ 10,105 $ 18,579 $ 37,802
Acquisition costs (4)
14 420 306 1,820
Change in fair value of contingent consideration liabilities (3) (3,085) 2,533 (2,525)
Other expenses (5)
708 887 3,940 4,123
Stock-based compensation 1,424 1,516 5,332 4,046
Restructuring costs (13) 52 2,166 133
Change in fair value of warrant liabilities (6)
1,000 (6,400) (2,480) (13,835)
Loss on debt extinguishment — — — 2,108
Subtotal before additional adjustments $ 1,933 $ 16,715 $ 6,782 $ 41,932
Less: Interest expense 4,570 3,756 12,072 10,635
Less: Income tax expense 463 379 819 1,527
Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations (121) — (121) —
Provision for bad debt (34) 475 1,305 1,384
Lease restructuring charges (169) (255) (167) (81)
Loss on debt extinguishment — — — 2,108
Stock-based compensation, net of amounts capitalized 1,424 1,446 5,332 3,976
Amortization of debt issuance costs 211 478 1,149 1,006
Deferred income tax provision, net (375) (1,220) (1,160) (856)
Change in fair value of contingent consideration (3) (3,085) 2,533 (2,525)
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 (120) — (120) —
Change in income tax receivable and payable 666 1,600 1,297 (728)
Change in accounts receivable 798 (2,994) 4,824 (7,324)
Change in prepaid expenses and other current assets (1,465) (2,343) 1,120 (2,121)
Change in accounts payable and accrued expenses (4,066) 4,401 (5,341) (2,367)
Change in other liabilities (220) (326) (195) (516)
Net cash provided by operating activities $ (5,332) $ 4,357 $ 2,109 $ 7,891


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Unlevered free cash flow	$	(868)	$	1,443	$	1,276	$	10,317
Capital expenditures	1,770		1,580		2,985		3,197





Adjusted net income	902		3,023		4,261		13,514
Impairment of goodwill	33,795		—		33,795		—
Impairment of intangible assets	7,791		—		7,791		—
Acquisition and other related costs (1)	902		279		3,816		292
Change in fair value of contingent consideration liabilities	(90)		(55)		(77)		2,536
Other expenses (2)	833		1,441		964		3,233
Stock-based compensation	910		2,066		2,168		3,908
Restructuring costs	250		1,784		742		2,178
Change in fair value of warrant liabilities	(9,829)		(1,640)		(6,065)		(3,480)
Legal and professional fees - Equity cure	1,680		—		3,282		1
Termination of DMS Voice	1,390		—		3,507		—

Subtotal before additional adjustments	(36,730)		(852)		(45,662)		4,846
Less: Interest expense, net	7,045		3,817		13,743		7,502
Less: Income tax (benefit) expense	(2,151)		45		(2,163)		355

Allowance for credit losses	787		1,339		1,350		1,339
Amortization of right-of-use assets	53		—		295		—

Gain on disposal of assets	(3)		—		(3)		—
Impairment of goodwill	33,795		—		33,795		—
Impairment of intangible assets	7,791		—		7,791		—
Lease restructuring charges	—		2		—		2

Stock-based compensation, net of amounts capitalized	910		3,908		2,168		3,908

Amortization of debt issuance costs	397		938		787		938
Deferred income tax benefit, net	(2,654)		(785)		(2,104)		(785)

Change in fair value of contingent consideration	(90)		2,536		(77)		2,536
Change in fair value of warrant liabilities	(9,829)		(3,480)		(6,065)		(3,480)
Loss from preferred warrants issuance	—		—		553		—


Change in income tax receivable and payable	343		631		(227)		631
Change in accounts receivable	17,323		4,026		15,952		4,026
Change in prepaid expenses and other current assets	2,114		2,585		1,457		2,585
Change in operating right-of-use assets	630		—		630		—
Change in accounts payable and accrued expenses	(15,377)		(1,275)		(8,740)		(1,275)
Change in operating lease liabilities	(557)		—		(1,094)		—
Change in other liabilities	—		27		—		27
Net cash (used in) provided by operating activities	$	(5,991)	$	5,738	$	(10,774)	$	7,441

~~______________~~____________________

(1)~~Pre-acquisition Adjusted EBITDA results from~~Includes transaction fees in connection with the ~~AAP~~ClickDealer acquisition, pre-acquisition expenses, preferred warrants issuance costs, and ~~Crisp Results acquisitions during the three and nine months ended September 30, 2021.~~post-acquisition related costs.

(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)Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses.~~

~~(5)~~Includes legal and professional 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.~~

~~Table of Contents~~

the strategic alternatives.

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 management and comparison with our past financial and operating performance. Management also believes these non-GAAP

Table of Contents

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,
	2023		2022		2023		2022
Numerator:
Net loss	$	(47,493)	$	(11,887)	$	(68,194)	$	(17,244)

Net loss attributable to non-controlling interest	(18,553)		(4,905)		(26,639)		(7,121)
Accretion and dividend Series A and B convertible redeemable preferred stock	(11,341)		—		(11,341)		—
Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - basic	$	(40,281)	$	(6,982)	$	(52,896)	$	(10,123)

Add: Income effects of Class B convertible common stock	$	—	$	(4,903)	$	—	$	(7,116)

Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - diluted	$	(40,281)	$	(11,885)	$	(52,896)	$	(17,239)

Denominator:
Weighted-average Class A common shares outstanding – basic	40,094		39,553		39,805		37,969
Add: dilutive effects of Class B convertible common stock	—		25,699		—		25,713




Weighted-average Class A common shares outstanding – diluted	40,094		65,252		39,805		63,682

Net loss per common share:
Basic – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)
Diluted – per Class A common shares	$	(1.00)	$	(0.18)	$	(1.33)	$	(0.27)

Table of Contents


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
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		$	(10,121)	$	5,394	$	(16,600)	$	10,121
Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - basic										Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - basic	$	(40,281)	$	(6,982)	$	(52,896)	$	(10,123)
Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - diluted										Net loss attributable to Digital Media Solutions, Inc. - Class A common stock - diluted	(40,281)		(11,885)		(52,896)		(17,239)
Add adjustments:	Add adjustments:									Add adjustments:
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	$	1,000	$	(6,400)	$	(2,480)	$	(13,835)	Change in fair value of warrant liabilities	(9,829)		(1,640)		(6,065)		(3,480)
Loss on debt extinguishment		—		—		—		2,108
Acquisition and related costs		14		420		306		1,820

Acquisition costs										Acquisition costs	902		279		3,816		292
Change in fair value of contingent consideration liabilities										Change in fair value of contingent consideration liabilities	(90)		(55)		(77)		2,536
Restructuring costs	Restructuring costs	(13)		52		2,166		133		Restructuring costs	250		1,784		742		2,178
Business combination expenses		—		856		—		2,656

Stock-based compensation expense	Stock-based compensation expense	1,424		1,516		5,332		4,046		Stock-based compensation expense	910		2,066		2,168		3,908

		$	2,425	$	(3,556)	$	5,324	$	(3,072)		(7,857)		2,434		584		5,434
Net income tax expense based on conversion of units		—		(337)		—		565
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		$	(7,696)	$	2,175	$	(11,276)	$	6,484

Adjusted net loss attributable to Digital Media Solutions, Inc. - basic										Adjusted net loss attributable to Digital Media Solutions, Inc. - basic	(48,138)		(4,548)		(52,312)		(4,689)
Adjusted net loss attributable to Digital Media Solutions, Inc. - diluted										Adjusted net loss attributable to Digital Media Solutions, Inc. - diluted	(48,138)		(9,451)		(52,312)		(11,805)

Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	39,961		36,511		37,644		35,050		Weighted-average shares outstanding - basic	40,094		39,553		39,805		37,969
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	25,699		36,511		24,109		35,050		Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock	25,699		25,728		25,699		25,699
Weighted-average Preferred Stock Units that are convertible into Class A common stock										Weighted-average Preferred Stock Units that are convertible into Class A common stock	4,884		—		4		—
		65,660		73,022		61,753		70,100			70,677		65,281		65,508		63,668

Adjusted EPS - basic	Adjusted EPS - basic	$	(0.06)	$	—	$	(0.18)	$	0.05	Adjusted EPS - basic	$	(0.68)	$	(0.07)	$	(0.80)	$	(0.07)
Adjusted EPS - diluted	Adjusted EPS - diluted	$	(0.12)	$	0.03	$	(0.18)	$	0.09	Adjusted EPS - diluted	$	(0.68)	$	(0.14)	$	(0.80)	$	(0.19)

~~LIQUIDITY AND CAPITAL RESOURCES~~Liquidity and Capital Resources

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

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


	June 30, 2023		December 31, 2022		$ Change		% Change
Cash	$	25,212	$	48,839	$	(23,627)	(48)	%
Availability under revolving credit facility	$	—	$	10,000	$	(10,000)	(100)	%
Total Debt	$	270,500	$	261,625	$	8,875	3	%

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. 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, net. We generate sufficient cash flows for working capital and expect to do so for the foreseeable future. From time to time, we may access debt or equity capital markets to meet our working capital and/or capital expenditure needs.

During the second quarter of 2023, the Company experienced an unexpected decline in revenues due to the continued weakness in the insurance sector. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The decline in revenue adversely affected the Company's liquidity. In response, during the quarter, the Company drew the remaining $10 million available under its Revolving Facility and subsequently has undertaken efforts to improve its liquidity by undertaking further cost-savings initiatives and negotiating an amendment to its senior secured credit facility as further discussed below.

Table of Contents

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, net.

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. The Term Loan bears interest ~~expense.~~at our option, at either (i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus 4.00%. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00%. For the three and six months ended June 30, 2023, the effective interest rate was 10.80%.

~~Table of Contents~~

May 25, 2021 our interest rate is based on LIBOR plus 5.00%. The Company drew $10.0 million on May 24, 2023. Together with the previously disclosed draws, $50.0 million is currently outstanding under the Revolving Facility. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the effective interest rate was ~~7.25%.~~ 8.18% and 7.80%, respectively.

On ~~October 4, 2022,~~July 3, 2023, the borrowings under the Term Loan and Revolving Facility were amended to transition LIBOR to the Term SOFR as the basis for establishing the interest rate applicable to borrowings under the agreements. See Note 6. Debt for additional information.

The Company’s ability to borrow amounts under the Credit Facility is conditioned upon its compliance with specified covenants, including certain reporting covenants and financial covenants that, in addition to other items, require the Company ~~drew $5.0 million on~~to maintain a maximum net leverage ratio. As of June 30, 2023, compliance with the ~~Revolving~~net leverage ratio covenant was waived in connection with entry into the First Amendment (as defined below) to the Credit 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%~~On August 16, 2023, DMS LLC and DMSH LLC, along with certain subsidiaries of the ~~original aggregate principal amount per annum paid~~Company, entered into a First Amendment to the Credit Facility (the “First Amendment”) with the Lenders, which, among other things, modified the Credit Facility as follows:

a.allows for the payment-in-kind (“PIK”) of the quarterly ~~with a bullet payment at maturity. The Term Loan will mature,~~interest payments due and ~~the revolving credit commitments under the Revolving Facility will terminate,~~payable on ~~May 25, 2026, when any outstanding balances will become due.~~

~~As of~~ September 30, ~~2022~~2023 and each of the following three quarters, with all PIK interest required to be repaid no later than December 31, ~~2021, respectively, we were~~2025;

b.provides that (a) if the borrower exercises the PIK option, the interest rate will be equal to SOFR+11%; (b) if interest is paid in ~~material compliance with all financial covenants. If~~cash during the PIK period, the rate will be equal to SOFR+8%; and (c) following the PIK period, the interest rate will be equal to SOFR+8%; provided that if the Company ~~fails to comply with its financial covenants, an event~~(1) achieves the credit rating of ~~default~~B3 by Moody’s and B- by S&P, and (2) has repaid the aggregate capitalized PIK interest, the interest rate will be SOFR + 6.0%;

c.if any loans under the Credit Facility ~~would be triggered~~remain outstanding on or after January 1, 2025, back-end PIK interest will accrue as follows: 5% for the period from January 1, 2025 through June 30, 2025; 7.5% for the period from July 1, 2025 through December 31, 2025; and 10% in calendar year 2026 until maturity;

e.eliminates the right of the Borrower to undertake an equity cure to cure any breach of the total net leverage ratio covenant;

g.modifies in certain respects the affirmative and negative covenants and the ~~Company’s obligations under~~events of default in the Credit Facility, ~~may be accelerated. Management is monitoring~~including subjecting non ordinary course investments and restricted distributions to consent of 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 therequisite Lenders.

See Note 6. Debt for additional information.

Cash flows from operating activities

Net cash (used in) provided by operating activities was ~~$2.1~~$(10.8) million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~$7.9~~$7.4 million provided by operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase in cash used in operating activities is primarily attributable to anlower business performance and increase ~~in accounts receivable collections, and a decrease~~ in accounts payable and current accrued expenses due to timing of vendor payments.

Cash flows from investing activities

Table of Contents

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022 decreased~~2023 increased by ~~$24.9~~$29.0 million or ~~76%~~503% to ~~$7.8~~$34.8 million from ~~$32.7~~$5.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, primarily due to the ~~timing of the~~ acquisition of ~~AAP and Crisp Results made~~ClickDealer during the first ~~half~~quarter of ~~2021.~~2023.

Cash flows from financing activities

Net cash provided by (used in) ~~provided by~~ financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$(2.4)~~$22.0 million, reflecting an increase of ~~$14.6~~$23.6 million or ~~120%~~1400%, as compared to ~~$12.1~~$(1.7) million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This increase was due to ~~higher required repayments~~the issuance of ~~borrowings of long-term debt~~preferred shares and ~~notes payable in~~warrants, and the ~~prior year under the Monroe Credit Facility and Insurance Premium Financial Service arrangements.~~revolving credit facility draw.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, our Unlevered Free Cash Flow conversion rate decreased ~~10%~~46% due to lower business performance.

~~OFF-BALANCE SHEET ARRANGEMENTS~~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~~Critical Accounting Policies and Estimates

Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation in our ~~2021~~2022 Form ~~10-K,~~10-K/A, for further information on our critical and other significant accounting policies.

~~RECENTLY ISSUED ACCOUNTING STANDARDS~~Recently Issued Accounting Standards

Refer to Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies in the Condensed 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.

Table of Contents

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~~2022 Form ~~10-K.~~

~~Table of Contents~~

10-K/A.

Interest Rate Risk

As of ~~September~~June 30, ~~2022,~~2023, we had total debt outstanding of ~~$217.1~~$266 million (net of ~~$5.1~~$4.1 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 hypothetical 1% (100 basis points) increase in interest rates would increase our interest expense by approximately ~~$2.3~~$1.4 million annually, based on the debt outstanding at ~~September~~June 30, ~~2022.~~2023.

Table of Contents

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 ~~September~~June 30, ~~2022,~~2023, 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~~2022 Form ~~10-K.~~10-K/A. 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.

Starting in Q4 of fiscal year 2022 and continuing through June 30, 2023, the Company has taken steps to remediate the material weakness by adding reconciliation controls for the revenue process. We intend to keep assessing our process and adding internal controls as necessary that will continue to mitigate the risk related to the material weakness.

Management’s Report on Internal Control Over Financial Reporting

June 30, 2023 Assessment

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).

The Company’s internal control over financial reporting includes those policies and procedures that:

i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and Board of Directors; and

iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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,~~June 30, 2023, as a material weakness ~~existed.~~exists. 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~~As 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 reflecteddisclosed in our ~~consolidated financial statements~~Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, we identified a material weakness in internal control over financial reporting related to revenue. Management assessed our internal control over financial reporting as of June 30, 2023 and concluded that a material weakness exists related to revenue. We did not design and maintain sufficient procedures and controls related to revenue recognition including those related to ensuring accuracy of revenue recognized. Also, during management’s assessment of internal control over financial reporting as of June 30, 2023, we concluded that we did not design and maintain effective information technology general controls for certain information

Table of Contents

systems that are relevant to the preparation of the financial statements. In light of the material weakness, management performed additional procedures to validate the accuracy and completeness of the financial results impacted by the control deficiencies. Such procedures included validation using revenue reconciliations and fluctuation analyses.

Remediation Plans

We intend to continue to ~~analyze~~take steps to remediate the material weaknesses described above and further evolving our ~~aged receivables~~accounting processes, controls, and reviews. The Company plans to continue to assess its internal controls and procedures and intends to take further action as necessary or appropriate to address any other matters it identifies or are brought to its attention. We will not be able to fully remediate these material weaknesses until these steps have been completed 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~~been operating effectively for a sufficient period of ~~customer receivables along with assessing the loss rates used to calculate the reserve for potential uncollectible receivables.~~time. 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~~described above in Management’s Report on Internal Control over Financial Reporting, there have been no changes in our internal control over financial reporting during the second quarter of the fiscal ~~quarter ended September 30, 2022,~~year ending December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

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, outside of those described below, there are no material pending or threatened legal proceedings to which we are a party, either individually or in the aggregate.

On October 28, 2022, the Company received notice from the Office of the Ohio Attorney General (“OH OAG”) that it was reviewing certain of DMS’s business practices pursuant to its authority under the Consumer Sales Practices Act, Ohio Revised Code Section 1345.06, and the Telephone Solicitation Sales Act, Ohio Revised Code Sections 4719.11; 109.87(C). While the Company believes that its practices are in compliance with applicable law, the Company and the OH OAG have entered into discussions regarding the terms of a potential resolution to the OH AG's review. It is uncertain whether a mutually acceptable resolution can be reached and the terms thereof, and, accordingly, the Company is unable to predict the impact of any such resolution to the Company’s business operations or financial results.

Item 1A. Risk Factors

The ~~Company’ s~~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~~2022 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.

10-K/A.

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

~~Table of Contents~~

None.

Item 5. Other Information

~~None.~~On August 16, 2023, DMS LLC and DMSH LLC, along with certain subsidiaries of the Company, entered into a First Amendment to the Credit Facility (the “First Amendment”) with the Lenders, which, among other things, modified the Credit Facility as follows:

c.if any loans under the Credit Facility remain outstanding on or after January 1, 2025, back-end PIK interest will accrue as follows: 5% for the period from January 1, 2025 through June 30, 2025; 7.5% for the period from July 1, 2025 through December 31, 2025; and 10% in calendar year 2026 until maturity;

e.eliminates the right of the Borrower to undertake an equity cure to cure any breach of the total net leverage ratio covenant;

g.modifies in certain respects the affirmative and negative covenants and the events of default in the Credit Facility, including subjecting non ordinary course investments and restricted distributions to consent of the requisite Lenders.

Certain of the lenders and their affiliates have provided from time to time, and may continue to provide, investment banking, commercial banking, financial and other services to us for which we have paid, and intend to pay, customary fees.The amendment does not contemplate the issuance of any equity or warrants to the Company’s lenders. The foregoing description of

Table of Contents

the First Amendment does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which is attached hereto as Exhibit 10.1.

Table of Contents

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).
4.1						Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock, filed on March 30, 2023 (incorporated by reference to Exhibit 4.5 to Digital Media Solutions, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2022 filed with the SEC on April 5, 2023).
4.2						Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Redeemable Preferred Stock, filed on March 30, 2023 (incorporated by reference to Exhibit 4.6 to Digital Media Solutions, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2022 filed with the SEC on April 5, 2023).


10.1*						First Amendment to the Credit Agreement, dated as of August 16, 2023, by and among Digital Media Solutions, LLC, as borrower, Digital Media Solutions Holdings, LLC, the lenders and issuing banks named therein, and Truist Bank, as administrative agent and as collateral agent.
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.





101.INS*						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

Table of Contents

~~SIGNATURE~~SIGNATURES

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: ~~November 9, 2022~~August 17, 2023



			Digital Media Solutions, Inc.

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

			/s/ ~~Richard Rodick~~Vanessa Guzmán-Clark
			Name:			~~Richard Rodick~~Vanessa Guzmán-Clark
			Title:			Interim Chief Financial Officer (Principal Financial and Accounting Officer)


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

Balance, September 30, 2022	39,926	$	4	25,699	$	3	$	(17,539)	$	(156)	$	(17,171)	$	(34,859)	$	(25,358)	$	(60,217)


	Three Months Ended September 30, 2021
	Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:
Customer acquisition	$	63,332	$	58,278	$	—	$	(18,133)	$	103,477
Managed services	1,667		—		1,471		—		3,138
Software services	—		—		784		—		784
Total Net revenue	$	64,999	$	58,278	$	2,255	$	(18,133)	$	107,399


	Nine Months Ended September 30, 2022
	Brand Direct		Marketplace		Technology Solutions		Intercompany eliminations		Total
Net revenue:
Customer acquisition	$	144,123	$	166,128	$	—	$	(31,551)	$	278,700
Managed services	4,211		—		3,989		—		8,200
Software services	—		—		3,472		—		3,472
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


	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021
Beginning balance	$	2,498	$	2,957
Valuation adjustments	(73)		(300)
Lease payments	(242)		(333)
Lease accretion	68		45
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


	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


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


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