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Prospectus Supplement No. 11
(to prospectus dated August 7, 2020)
| Filed Pursuant to Rule 424(b)(3)
Registration No. 333-240278
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DIGITAL MEDIA SOLUTIONS, INC.
73,444,102 Shares of Class A Common Stock
4,000,000 Warrants to Purchase Class A Common Stock
This prospectus supplement relates to the prospectus dated August 7, 2020, as supplemented thereafter (the “Prospectus”), related to (i) the issuance by Digital Media Solutions, Inc., a Delaware corporation (“DMS”), of up to 13,999,078 shares of its Class A common stock, par value $0.0001 per share (“Class A Common Stock”), upon exercise of warrants to purchase Class A Common Stock at an exercise price of $11.50 per share (“DMS Warrants”) and (ii) the offer and sale, from time to time, by the selling holders identified in the Prospectus, or their permitted transferees, of (A) up to 59,445,024 shares of Class A Common Stock and (B) up to 4,000,000 DMS Warrants.
This prospectus supplement is being filed to update and supplement the information contained in the Prospectus with the information contained in DMS’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2021, which is attached to this prospectus supplement.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
The Class A Common Stock and DMS Warrants are traded on the New York Stock Exchange under the symbols “DMS” and “DMS WS,” respectively.
Investing in our securities involves risks. See “Risk Factors” beginning on page 24 of the Prospectus and in any applicable prospectus supplement.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 9, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
OR
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☐ | 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)
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Delaware | 001-38393 | 98-1399727 |
(State of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
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4800 140th Avenue N. , Suite 101, Clearwater, Florida | 33762 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant's telephone number, including area code: (877) 236-8632
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
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 July 30, 2021, 36,167,765May 6, 2022, 36,403,202 shares of the registrant’s Class A common stock; 25,999,46425,699,464 of the registrant’s Class B common stock, par value $0.0001 per share; and 13,999,078 warrants to purchase shares of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding.
Digital Media Solutions, Inc.
Table of Contents
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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 ReprtReport contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. These forward looking statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its future performance and its ability to implement its strategy, and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) the COVID-19 pandemic or other public health crises; (2) changes in client demand for our services and our ability to adapt to such changes; (3) the entry of new competitors in the market; (4) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (5) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers; (6) the performance of DMS’s technology infrastructure; (7) the ability to protect DMS’s intellectual property rights; (8) the ability to successfully source and complete acquisitions and to integrate the operations of companies DMS acquires, including the Crisp Results assets and Aimtell, PushPros and Aramis Interactive; (9) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate the identified material weakness; (10) changes in applicable laws or regulations and the ability to maintain compliance; (11) our substantial levels of indebtedness; (12) volatility in the trading price on the NYSE of our common stock and warrants; (13) fluctuations in value of
our private placement warrants; and (14) other risks and uncertainties indicated from time to time in DMS’s filings with the SEC,
U.S. Security and Exchange Commission (“SEC”), including those under “Risk Factors” in DMS’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2021, filed on March 16, 2022 (“2021 Form 10-K”) and its subsequent filings with the SEC.
There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks.
DMS cautions that the foregoing list of factors is not exclusive. DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.
PART I - FINANCIAL INFORMATION
Item 1. Financial StatementsStatement
DIGITAL MEDIA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data) | | | June 30, 2021 | | December 31, 2020 As Restated | | March 31, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 18,829 | | | $ | 31,397 | | Cash and cash equivalents | $ | 21,703 | | | $ | 26,394 | |
Accounts receivable, net of allowances of $3,985 and $3,121, respectively | 51,868 | | | 42,085 | | |
Accounts receivable, net of allowances of $5,459 and $4,930, respectively | | Accounts receivable, net of allowances of $5,459 and $4,930, respectively | 58,470 | | | 51,578 | |
Prepaid and other current assets | Prepaid and other current assets | 3,171 | | | 2,943 | | Prepaid and other current assets | 2,575 | | | 3,698 | |
Income tax receivable | Income tax receivable | 2,141 | | | 474 | | Income tax receivable | 1,537 | | | 2,078 | |
Total current assets | Total current assets | 76,009 | | | 76,899 | | Total current assets | 84,285 | | | 83,748 | |
Property and equipment, net | Property and equipment, net | 18,484 | | | 15,016 | | Property and equipment, net | 18,571 | | | 19,168 | |
Goodwill | Goodwill | 67,127 | | | 44,904 | | Goodwill | 76,503 | | | 76,558 | |
Intangible assets, net | Intangible assets, net | 86,434 | | | 46,447 | | Intangible assets, net | 61,288 | | | 66,228 | |
Deferred tax assets | Deferred tax assets | 19,687 | | | 18,948 | | Deferred tax assets | — | | | — | |
Other assets | Other assets | 797 | | | 206 | | Other assets | 822 | | | 889 | |
Total assets | Total assets | $ | 268,538 | | | $ | 202,420 | | Total assets | $ | 241,469 | | | $ | 246,591 | |
LIABILITIES AND DEFICIT | LIABILITIES AND DEFICIT | | | | LIABILITIES AND DEFICIT | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 39,741 | | | $ | 37,191 | | Accounts payable | $ | 39,765 | | | $ | 42,073 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 7,569 | | | 9,886 | | Accrued expenses and other current liabilities | 10,335 | | | 9,473 | |
Current portion of long-term debt | Current portion of long-term debt | 2,250 | | | 7,967 | | Current portion of long-term debt | 2,250 | | | 2,250 | |
Income tax payable | 26 | | | 1,413 | | |
Short-term Tax Receivable Agreement liability | 1,180 | | | 510 | | |
Income taxes payable | | Income taxes payable | 294 | | | 103 | |
Tax Receivable Agreement liability | | Tax Receivable Agreement liability | 1,310 | | | 1,310 | |
Contingent consideration payable - current | Contingent consideration payable - current | 6,213 | | | 0 | | Contingent consideration payable - current | 10,000 | | | 7,370 | |
Deferred acquisitions consideration payable - current | | Deferred acquisitions consideration payable - current | 4,857 | | | 4,785 | |
Total current liabilities | Total current liabilities | 56,979 | | | 56,967 | | Total current liabilities | 68,811 | | | 67,364 | |
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Long-term debt | Long-term debt | 215,995 | | | 193,591 | | Long-term debt | 215,283 | | | 215,505 | |
Long-term Tax Receivable Agreement liability | 16,179 | | | 15,760 | | |
Deferred tax liability | 6,455 | | | 7,024 | | |
| Deferred tax liabilities | | Deferred tax liabilities | 4,394 | | | 4,786 | |
Private Placement Warrant liabilities | Private Placement Warrant liabilities | 14,640 | | | 22,080 | | Private Placement Warrant liabilities | 2,120 | | | 3,960 | |
Contingent consideration payable - noncurrent | 4,035 | | | 0 | | |
Deferred acquisition consideration payable | 4,642 | | | 0 | | |
Contingent consideration payable - non-current | | Contingent consideration payable - non-current | 1,030 | | | 1,069 | |
| Other non-current liabilities | Other non-current liabilities | 2,520 | | | 2,683 | | Other non-current liabilities | 1,637 | | | 1,725 | |
Total liabilities | Total liabilities | 321,445 | | | 298,105 | | Total liabilities | 293,275 | | | 294,409 | |
| Stockholders' deficit: | Stockholders' deficit: | | Stockholders' deficit: | |
Preferred stock, $0.0001 par value, 100,000 shares authorized; NaN issued and outstanding at June 30, 2021 | 0 | | | 0 | | |
Class A common stock, $0.0001 par value, 500,000 shares authorized; 35,818 issued and outstanding at June 30, 2021 | 3 | | | 3 | | |
Class B common stock, $0.0001 par value, 60,000 shares authorized; 25,999 issued and 25,699 outstanding at June 30, 2021 | 3 | | | 3 | | |
Class C common stock, $0.0001 par value, 40,000 authorized; NaN issued and outstanding at June 30, 2021 | 0 | | | 0 | | |
Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at March 31, 2022 | | Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at March 31, 2022 | — | | | — | |
Class A Common Stock, $0.0001 par value, 500,000 shares authorized; 36,394 issued and outstanding at March 31, 2022 | | Class A Common Stock, $0.0001 par value, 500,000 shares authorized; 36,394 issued and outstanding at March 31, 2022 | 3 | | | 3 | |
Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and 25,699 outstanding at March 31, 2022 | | Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and 25,699 outstanding at March 31, 2022 | 3 | | | 3 | |
Class C convertible common stock, $0.0001 par value, 40,000 authorized; none issued and outstanding at March 31, 2022 | | Class C convertible common stock, $0.0001 par value, 40,000 authorized; none issued and outstanding at March 31, 2022 | — | | | — | |
Additional paid-in capital | Additional paid-in capital | $ | (27,642) | | | $ | (48,027) | | Additional paid-in capital | (23,754) | | | (25,239) | |
Retained earnings | Retained earnings | (737) | | | (3,146) | | Retained earnings | (4,078) | | | (944) | |
Total stockholders' deficit | Total stockholders' deficit | (28,373) | | | (51,167) | | Total stockholders' deficit | (27,826) | | | (26,177) | |
Non-controlling interest | Non-controlling interest | $ | (24,534) | | | $ | (44,518) | | Non-controlling interest | (23,980) | | | (21,641) | |
Total deficit | Total deficit | (52,907) | | | (95,685) | | Total deficit | (51,806) | | | (47,818) | |
Total liabilities and deficit | Total liabilities and deficit | $ | 268,538 | | | $ | 202,420 | | Total liabilities and deficit | $ | 241,469 | | | $ | 246,591 | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
DIGITAL MEDIA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
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Net revenue | $ | 105,079 | | | $ | 75,196 | | | $ | 201,882 | | | $ | 147,924 | |
Cost of revenue | 71,359 | | | 52,402 | | | 140,541 | | | 102,561 | |
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Salaries and related costs | 11,708 | | | 7,901 | | | 21,977 | | | 16,231 | |
General and administrative expenses | 10,552 | | | 4,652 | | | 17,514 | | | 9,950 | |
Acquisition costs | 466 | | | 47 | | | 1,960 | | | 74 | |
Depreciation and amortization | 7,044 | | | 4,356 | | | 12,463 | | | 8,671 | |
Income from operations | $ | 3,950 | | | $ | 5,838 | | | $ | 7,427 | | | $ | 10,437 | |
Interest expense | 3,622 | | | 3,491 | | | 6,879 | | | 7,281 | |
Change in fair value of warrant liabilities | (7,750) | | | 0 | | | (7,435) | | | 0 | |
Debt extinguishment | 2,108 | | | $ | 0 | | | 2,108 | | | $ | 0 | |
Net income before income taxes | $ | 5,970 | | | $ | 2,347 | | | $ | 5,875 | | | $ | 3,156 | |
Income tax expense | 1,031 | | | 213 | | | 1,148 | | | 265 | |
Net income | $ | 4,939 | | | $ | 2,134 | | | $ | 4,727 | | | $ | 2,891 | |
Net income attributable to non-controlling interest | 2,411 | | | 0 | | | 2,373 | | | 0 | |
Net income attributable to Digital Media Solutions, Inc. | $ | 2,528 | | | $ | 2,134 | | | $ | 2,354 | | | $ | 2,891 | |
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Weighted-average shares outstanding - basic | 35,377 | | | N/A1 | | 34,315 | | | N/A1 |
Weighted-average shares outstanding - diluted | 36,522 | | | N/A1 | | 34,325 | | | N/A1 |
Earnings per share attributable to Digital Media Solutions, Inc.: | | | | | | | |
Basic earnings per common shares | $ | 0.07 | | | N/A1 | | $ | 0.07 | | | N/A1 |
Diluted earnings per common shares | $ | 0.07 | | | N/A1 | | $ | (0.06) | | | N/A1 |
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| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net revenue | $ | 109,110 | | | $ | 96,803 | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 77,834 | | | 69,182 | | | | | |
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Salaries and related costs | 13,705 | | | 10,269 | | | | | |
General and administrative expenses | 11,107 | | | 6,962 | | | | | |
Depreciation and amortization | 7,060 | | | 5,419 | | | | | |
Acquisition costs | 13 | | | 1,494 | | | | | |
Change in fair value of contingent consideration liabilities | 2,591 | | | — | | | | | |
(Loss) income from operations | $ | (3,200) | | | $ | 3,477 | | | | | |
Interest expense | 3,687 | | | 3,257 | | | | | |
Change in fair value of warrant liabilities | (1,840) | | | 315 | | | | | |
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Net loss before income taxes | $ | (5,047) | | | $ | (95) | | | | | |
Income tax expense | 310 | | | 117 | | | | | |
Net loss | $ | (5,357) | | | $ | (212) | | | | | |
Net loss attributable to non-controlling interest | (2,223) | | | (93) | | | | | |
Net loss attributable to Digital Media Solutions, Inc. | $ | (3,134) | | | $ | (119) | | | | | |
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Weighted-average shares outstanding - basic and diluted | 35,576 | | | 33,241 | | | | | |
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Earnings (loss) per share attributable to Digital Media Solutions, Inc.: | | | | | | | |
Basic and diluted - per common shares | $ | (0.09) | | | $ | — | | | | | |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
Prior to the Business Combination, the membership structure of Digital Media Solutions Holdings, LLC included units which had profit interests. The Company analyzed the calculation of earnings per unit for periods prior to the Business Combination and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for periods prior to the Business Combination on July 15, 2020.
DIGITAL MEDIA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(Unaudited)
(in thousands, except share data)
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| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Deficit | | Non- controlling Interest | | |
| Shares | | Amount | | Shares | | Amount | | | | | | Total Deficit |
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Balance, December 31, 2020 (As Restated) | 32,393 | | | $ | 3 | | | 25,999 | | | $ | 3 | | | $ | (48,027) | | | $ | (3,146) | | | $ | (51,167) | | | $ | (44,518) | | | $ | (95,685) | |
Net income (loss) | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | (119) | | | $ | (119) | | | $ | (93) | | | $ | (212) | |
Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 6) | 1,293 | | | $ | — | | | — | | | $ | — | | | $ | 9,384 | | | $ | — | | | $ | 9,384 | | | $ | 5,616 | | | $ | 15,000 | |
Exercise of warrants to issue Class A common stock | 1 | | | $ | — | | | — | | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | |
Stock-based compensation | — | | | $ | — | | | — | | | $ | — | | | $ | 1,365 | | | $ | — | | | $ | 1,365 | | | $ | — | | | $ | 1,365 | |
Other | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (21) | | | $ | (21) | |
Balance, March 31, 2021 | 33,687 | | | $ | 3 | | | 25,999 | | | $ | 3 | | | $ | (37,261) | | | $ | (3,265) | | | $ | (40,520) | | | $ | (39,016) | | | $ | (79,536) | |
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| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Retained Earnings | | 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 | — | | | — | | | — | | | — | | | — | | | (3,134) | | | (3,134) | | | (2,223) | | | (5,357) | |
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1) | 153 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,942 | | | — | | | 1,942 | | | — | | | 1,942 | |
Shares issued under the 2020 Omnibus Incentive Plan | 15 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Distributions to non-controlling interest holders (2) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (573) | | | (573) | |
Impact of transactions affecting non-controlling interest (3) | — | | | — | | | — | | | — | | | (457) | | | — | | | (457) | | | 457 | | | — | |
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Balance, March 31, 2022 | 36,394 | | | $ | 3 | | | 25,699 | | | $ | 3 | | | $ | (23,754) | | | $ | (4,078) | | | $ | (27,826) | | | $ | (23,980) | | | $ | (51,806) | |
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Net income | — | | | — | | | — | | | — | | | — | | | 2,528 | | | 2,528 | | | 2,411 | | | | $ | 4,939 | |
Shares issued in connection with acquisition of Crisp Results (Note 6) | 1,595 | | | $ | — | | | — | | | $ | — | | | $ | 11,513 | | | $ | — | | | $ | 11,513 | | | $ | 8,310 | | | | $ | 19,823 | |
Prism shares redeemed and issued to Class A Common Stock | 300 | | | $ | — | | | (300) | | | $ | — | | | $ | 192 | | | $ | — | | | $ | 192 | | | $ | — | | | | $ | 192 | |
Directors and employee vested units redeemed | 82 | | — | | | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | | $ | — | |
Stock-based compensation | — | | | $ | — | | | — | | | $ | — | | | $ | 1,394 | | | $ | — | | | $ | 1,394 | | | $ | — | | | | $ | 1,394 | |
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1) | 154 | | | $ | — | | | — | | | $ | — | | | $ | 392 | | | $ | — | | | $ | 392 | | | $ | — | | | | $ | 392 | |
Impact of transactions affecting non-controlling interest (2) | — | | | $ | — | | | — | | | $ | — | | | $ | (3,788) | | | $ | — | | | $ | (3,788) | | | $ | 3,788 | | | | $ | — | |
Other (3) | — | | | $ | — | | | — | | | $ | — | | | $ | (84) | | | $ | — | | | $ | (84) | | | $ | (27) | | | | $ | (111) | |
Balance, June 30, 2021 | 35,818 | | | $ | 3 | | | 25,699 | | | 3 | | | (27,642) | | | (737) | | | $ | (28,373) | | | $ | (24,534) | | | | $ | (52,907) | |
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| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Retained Earnings | | 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 income (loss) | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | (119) | | | $ | (119) | | | $ | (93) | | | $ | (212) | |
Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 6) | 1,293 | | | $ | — | | | — | | | $ | — | | | $ | 9,384 | | | $ | — | | | $ | 9,384 | | | $ | 5,616 | | | $ | 15,000 | |
Exercise of warrants to issue Class A common stock | 1 | | | $ | — | | | — | | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | |
Stock-based compensation | — | | | $ | — | | | — | | | $ | — | | | $ | 1,365 | | | $ | — | | | $ | 1,365 | | | $ | — | | | $ | 1,365 | |
Other | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (21) | | | $ | (21) | |
Balance, March 31, 2021 | 33,687 | | | $ | 3 | | | 25,999 | | | $ | 3 | | | $ | (37,261) | | | $ | (3,265) | | | $ | (40,520) | | | $ | (39,016) | | | $ | (79,536) | |
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(1) The carrying amountOn January 17, 2022, the Sellers 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.
(2) On June 30, 2021, the sellers of Smarter ChaosSmarterChaos redeemed approximately one-half of their remaining non-controlling interest held through DMSH Units in exchange for 154 thousand shares of Class A Common Stock in DMS, Inc. The non-controlling interest held by the sellersSellers 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 March 31, 2022, $10 thousand of these distributions have not been paid.
(3) Includes costs associated withThe carrying amount of non-controlling interest was adjusted primarily to reflect the issuancechange in ownership interest caused by additional DMSH units redeemed and issued to Class A Common Stock by the Sellers of equity shares.
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| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Deficit | | Non- controlling Interest | | Members’ Deficit | | |
| Shares | | Amount | | Shares | | Amount | | | | | | Total Deficit |
Balance, December 31, 2019 | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (106,258) | | | $ | (106,258) | |
Net income | — | | | $ | 0 | | | — | | | $ | 0 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | 757 | | | $ | 757 | |
Member distributions | — | | | $ | 0 | | | — | | | $ | 0 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (170) | | | $ | (170) | |
Balance, March 31, 2020 | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (105,671) | | | $ | (105,671) | |
Net income | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,134 | | | $ | 2,134 | |
Balance, June 30, 2020 | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (103,537) | | | $ | (103,537) | |
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SmarterChaos.The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
DIGITAL MEDIA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities | Cash flows from operating activities | | | | Cash flows from operating activities | | | |
Net income | $ | 4,727 | | | $ | 2,891 | | |
Net loss | | Net loss | $ | (5,357) | | | $ | (212) | |
Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | Adjustments to reconcile net income to net cash provided by operating activities | |
Provision for bad debt | | Provision for bad debt | 532 | | | 410 | |
Depreciation and amortization | Depreciation and amortization | 12,463 | | | 8,671 | | Depreciation and amortization | 7,060 | | | 5,419 | |
| | Lease restructuring charges | Lease restructuring charges | 174 | | | 0 | | Lease restructuring charges | (126) | | | (303) | |
Loss on debt extinguishment | 2,108 | | | 0 | | |
Provision for bad debt | 909 | | | 0 | | |
| Stock-based compensation, net of amounts capitalized | Stock-based compensation, net of amounts capitalized | 2,530 | | | 0 | | Stock-based compensation, net of amounts capitalized | 1,842 | | | 1,257 | |
Payment of contingent consideration | 0 | | | (1,000) | | |
| Amortization of debt issuance costs | Amortization of debt issuance costs | 528 | | | 471 | | Amortization of debt issuance costs | 453 | | | 233 | |
Deferred income tax provision, net | Deferred income tax provision, net | 364 | | | (984) | | Deferred income tax provision, net | (392) | | | (1,016) | |
| Change in fair value of contingent consideration | Change in fair value of contingent consideration | 560 | | | 0 | | Change in fair value of contingent consideration | 2,591 | | | 382 | |
Change in fair value of warrant liability | Change in fair value of warrant liability | (7,435) | | | 0 | | Change in fair value of warrant liability | (1,840) | | | 315 | |
| Change in income tax receivable and payable | Change in income tax receivable and payable | (2,328) | | | 0 | | Change in income tax receivable and payable | 732 | | | 1,133 | |
Change in accounts receivable, net | (4,330) | | | (2,200) | | |
Change in accounts receivable | | Change in accounts receivable | (7,368) | | | (1,069) | |
Change in prepaid expenses and other current assets | Change in prepaid expenses and other current assets | 222 | | | (4,109) | | Change in prepaid expenses and other current assets | 1,150 | | | 367 | |
Change in accounts payable and accrued expenses | Change in accounts payable and accrued expenses | (6,768) | | | (76) | | Change in accounts payable and accrued expenses | (1,263) | | | (5,703) | |
| Change in other liabilities | Change in other liabilities | (190) | | | 29 | | Change in other liabilities | 38 | | | (24) | |
Net cash provided by operating activities | $ | 3,534 | | | $ | 3,693 | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | $ | (1,948) | | | $ | 1,189 | |
Cash flows from investing activities | Cash flows from investing activities | | Cash flows from investing activities | |
Additions to property and equipment | Additions to property and equipment | $ | (4,212) | | | $ | (5,031) | | Additions to property and equipment | $ | (1,617) | | | $ | (2,391) | |
Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | (24,830) | | | 0 | | Acquisition of businesses, net of cash acquired | — | | | (4,454) | |
| Net cash used in investing activities | Net cash used in investing activities | $ | (29,042) | | | $ | (5,031) | | Net cash used in investing activities | $ | (1,617) | | | $ | (6,845) | |
Cash flows from financing activities | Cash flows from financing activities | | Cash flows from financing activities | |
| Payments of long-term debt and notes payable | Payments of long-term debt and notes payable | $ | (199,851) | | | $ | (2,386) | | Payments of long-term debt and notes payable | $ | (563) | | | $ | (1,865) | |
Proceeds from borrowings on revolving credit facilities | 11,000 | | | 10,000 | | |
Payments of borrowings on revolving credit facilities | (15,000) | | | (1,000) | | |
Proceeds from issuance of long-term debt | 220,840 | | | 0 | |
Proceeds from warrants exercised | 11 | | | 0 | | |
| Payment of debt issuance costs | (3,565) | | | (163) | | |
| Payment of equity issuance costs | (322) | | | 0 | | |
Payment of early termination | (188) | | | 0 | | |
Other | 15 | | | (170) | | |
Net cash provided by financing activities | $ | 12,940 | | | $ | 6,281 | | |
| Proceeds from warrants exercised | | Proceeds from warrants exercised | — | | | 11 | |
Distributions to non-controlling interest holders | | Distributions to non-controlling interest holders | (563) | | | (21) | |
Net cash used in financing activities | | Net cash used in financing activities | $ | (1,126) | | | $ | (1,875) | |
Net change in cash | Net change in cash | $ | (12,568) | | | $ | 4,943 | | Net change in cash | $ | (4,691) | | | $ | (7,531) | |
Cash, beginning of period | Cash, beginning of period | 31,397 | | | 3,008 | | Cash, beginning of period | 26,394 | | | 31,397 | |
Cash, end of period | Cash, end of period | $ | 18,829 | | | $ | 7,951 | | Cash, end of period | $ | 21,703 | | | $ | 23,866 | |
| Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | | Supplemental Disclosure of Cash Flow Information | |
Cash Paid During the Period For: | | |
Cash Paid During the Period For | | Cash Paid During the Period For | |
Interest | Interest | $ | 6,308 | | | $ | 6,904 | | Interest | $ | 3,218 | | | $ | 3,098 | |
Income taxes, net | $ | 3,837 | | | $ | 0 | | |
| Non-Cash Investing and Financing Transactions: | Non-Cash Investing and Financing Transactions: | | Non-Cash Investing and Financing Transactions: | |
Contingent and deferred acquisition consideration | Contingent and deferred acquisition consideration | $ | 14,890 | | | $ | 0 | | Contingent and deferred acquisition consideration | $ | 2,591 | | | $ | — | |
Issuance of equity for Aimtell/PushPros/Aramis and Crisp Results | $ | 35,000 | | | $ | 0 | | |
Stock-based compensation capitalized in property and equipment | | Stock-based compensation capitalized in property and equipment | $ | 100 | | | $ | — | |
Capital expenditures included in accounts payable | Capital expenditures included in accounts payable | $ | 1,144 | | | $ | 248 | | Capital expenditures included in accounts payable | $ | 216 | | | $ | 391 | |
Issuance of equity for Aimtell/PushPros/Aramis, and SmarterChaos | | Issuance of equity for Aimtell/PushPros/Aramis, and SmarterChaos | $ | — | | | $ | 15,000 | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
DIGITAL MEDIA SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Digital Media Solutions, Inc. (“DMS Inc.”) is a digital performance marketing company offering a diversified lead and software delivery platform that drives high value and high intent leads to its customers. As used in this Quarterly Report, the “Company” refers to DMS Inc. and its consolidated subsidiaries, (including its wholly-owned subsidiary, CEP V DMS US Blocker Company, a Delaware corporation (“Blocker”)). The Company is headquartered in Clearwater, Florida. The Company primarily operates and derives most of its revenues in the United States.
Restatement of Previously Issued Financial Statements
The notes included herein should be read in conjunction with the Company’s restated audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A filed with the SEC on May 18, 2021 (the “2020 Form 10-K/A”).
As previously disclosed in our 2020 Form 10-K/A, we restated the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2020, as well as each of the impacted quarters within 2020 to make the necessary accounting corrections related to our warrant accounting for the Private Placement warrants. There was no impact to the quarter ended June 30, 2020 as the Private Placement warrants were not issued.
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 SECU.S. Security 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 condensed 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
As discussed in more detail in our 2020 Form 10-K/A onOn July 15, 2020, DMSHDigital Media Solutions Holding (“DMSH”) consummated the Business Combination with 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 55.5%58.6% 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 44.5%41.4% 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 20202021 Form 10-K/A.10-K.
Non-controlling Interest
The non-controlling interest represents the membership interest in Digital Media Solutions Holding (“DMSH”)DMSH held by holders other than the Company. As of June 30, 2021,March 31, 2022, the Prism, Clairvest Direct Sellers and SmarterChaos combined ownership percentage in DMSH was 41.9%41.4% and as of December 31, 20202021 it was 44.8%41.6%.
Principles of Consolidation
The Company has consolidatedconsists of DMS Inc. and its wholly-owned subsidiary, Blocker. The Company consolidates the financial positionassets, 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 DMSH and reflected the proportionate interest held by Prism, Clairvest Direct Selleroperations, and the SmarterChaos sellersnon-controlling interests are reported as a non-controlling interest.separate component of equity.
ChangesUse of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported as separate financial statement line items in the consolidated financial statements. Actual results could differ from those estimates. Management regularly makes estimates and assumptions that are inherent in the preparation of the consolidated financial statements including, but not limited to, the fair value of private placement warrants, the allowance for doubtful accounts, stock-based compensation, fair value of intangibles acquired in business combinations, loss contingencies, contingent consideration liabilities, asset impairments, and deferred taxes and amounts associated with the Tax Receivable Agreement.
Significant Accounting Standards and Policies
There have been no material changes into our significant accounting policies as compared to the significant accounting policies from those that were discloseddescribed in our 20202021 Form 10-K/A.
Accounting Standards Not Yet Adopted
The Company qualifies as an “emerging growth company” and thus 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.10-K.
New Accounting Standards
Accounting Standards Not Yet Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued authoritative guidance ASC 842, Lease Accounting, regarding the accounting for leases, and has since issued subsequent updates to the initial guidance. The amended guidance requires the recognition of assets and liabilities for operating leases. The standard was initially effective for annual and interim reporting periods beginning after December 15, 2019. However, in November 2019, the FASB issued amended guidance, which defers for Emerging Growth Companies (“EGC”) the effective date tofor fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The standard must be adopted using a modified retrospective transition. We plan to adopt the standard using the optional transition method whereby we would apply the new lease requirements through a cumulative-effect adjustment on the effective date of adoption. We plan to elect the package of practical expedients permitted under the transition guidance of the new standards, which allows us to not reassess whether any expired or existing contracts contain leases, allows us to carry forward the historical lease classification and permits us to exclude from our assessment initial direct costs for any existing leases. We will also make an accounting policy election to exclude leases with an initial term of twelve months or less from our transition adjustment. We are currently evaluating the impact on our consolidated balance sheets, recognizing assets and related lease liabilities, which mayliabilities.
The Company qualifies as an “emerging growth company” and has elected to adhere to the extended transition period for complying with new or may notrevised 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 a material impact on the Company’s Consolidated Financial Statements.different effective dates for public and private companies until those standards apply to private companies.
In June 2016, the FASB issued authoritative guidance 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 current expected credit loss 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 EGCemerging growth companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact on our consolidated financial statements.
NOTE 2. REVENUE
Disaggregation of Revenue
The following tables presents the disaggregation of revenue by reportable segment and type of service (in thousands):
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| Three Months Ended June 30, 2021 |
| Brand Direct | | Marketplace | | Other | | Intercompany eliminations | | Total |
Three Months Ended June 30, 2021 | | | | | | | | | |
Net revenue: | | | | | | | | | |
Customer acquisition | $ | 57,955 | | | $ | 57,763 | | | $ | 0 | | | $ | (14,476) | | | $ | 101,242 | |
Managed services | 1,921 | | | 0 | | | 1,109 | | | 0 | | | 3,030 | |
Software services | 0 | | | 0 | | | 807 | | | 0 | | | 807 | |
Total Net revenue | $ | 59,876 | | | $ | 57,763 | | | $ | 1,916 | | | $ | (14,476) | | | $ | 105,079 | |
| Three Months Ended June 30, 2020 |
Three Months Ended June 30, 2020 | Brand Direct | | Marketplace | | Other | | Intercompany eliminations | | Total |
Net revenue: | | | | | | | | | |
Customer acquisition | $ | 40,185 | | | $ | 35,218 | | | $ | 0 | | | $ | (6,636) | | | $ | 68,767 | |
Managed services | 5,189 | | | 0 | | | 449 | | | 0 | | | 5,638 | |
Software services | 0 | | | 0 | | | 791 | | | 0 | | | 791 | |
Total Net revenue | $ | 45,374 | | | $ | 35,218 | | | $ | 1,240 | | | $ | (6,636) | | | $ | 75,196 | |
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| Three Months Ended March 31, 2022 |
| Brand Direct | | Marketplace | | Technology Solutions | | Intercompany eliminations | | Total |
Net revenue: | | | | | | | | | |
Customer acquisition | $ | 59,619 | | | $ | 58,806 | | | $ | — | | | $ | (13,260) | | | $ | 105,165 | |
Managed services | 1,609 | | | — | | | 1,510 | | | — | | | 3,119 | |
Software services | — | | | — | | | 826 | | | — | | | 826 | |
Total Net revenue | $ | 61,228 | | | $ | 58,806 | | | $ | 2,336 | | | $ | (13,260) | | | $ | 109,110 | |
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| Three Months Ended March 31, 2021 |
| Brand Direct | | Marketplace | | Technology Solutions | | Intercompany eliminations | | Total |
Net revenue: | | | | | | | | | |
Customer acquisition | $ | 52,901 | | | $ | 49,101 | | | $ | — | | | $ | (10,652) | | | $ | 91,350 | |
Managed services | 3,278 | | | 158 | | | 510 | | | — | | | 3,946 | |
Software services | — | | | — | | | 1,507 | | | — | | | 1,507 | |
Total Net revenue | $ | 56,179 | | | $ | 49,259 | | | $ | 2,017 | | | $ | (10,652) | | | $ | 96,803 | |
Contract balances
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| Six Months Ended June 30, 2021 |
| Brand Direct | | Marketplace | | Other | | Intercompany eliminations | | Total |
Six Months Ended June 30, 2021 | | | | | | | | | |
Net revenue: | | | | | | | | | |
Customer acquisition | $ | 111,009 | | | $ | 107,022 | | | $ | 0 | | | $ | (25,127) | | | $ | 192,904 | |
Managed services | 5,046 | | | 0 | | | 2,325 | | | 0 | | | 7,371 | |
Software services | 0 | | | 0 | | | 1,607 | | | 0 | | | 1,607 | |
Total Net revenue | $ | 116,055 | | | $ | 107,022 | | | $ | 3,932 | | | $ | (25,127) | | | $ | 201,882 | |
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| Six Months Ended June 30, 2020 |
Six Months Ended June 30, 2020 | Brand Direct | | Marketplace | | Other | | Intercompany eliminations | | Total |
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Net revenue: | | | | | | | | | |
Customer acquisition | 78,637 | | | 69,396 | | | 0 | | | (10,246) | | | 137,787 | |
Managed services | 7,638 | | | 0 | | | 899 | | | 0 | | | 8,537 | |
Software services | 0 | | | 0 | | | 1,600 | | | 0 | | | 1,600 | |
Total Net revenue | $ | 86,275 | | | $ | 69,396 | | | $ | 2,499 | | | $ | (10,246) | | | $ | 147,924 | |
Contract balances
The Company’s contract liabilities result from payments received from clients in advance of revenue recognition as they precede the Company’s satisfaction of the associated performance obligation. If a customer pays consideration before the Company’s performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the balance of deferred revenue was $1.2$1.8 million and $1.7$1.8 million, respectively, and recorded within Accrued“Accrued expenses and other current liabilitiesliabilities” on the unaudited condensed consolidated balance sheets. We expect the majority of the deferred revenue balance at June 30, 2021March 31, 2022 to be recognized as revenue during the following quarter.
For the three and six months ended June 30,March 31, 2022, one customer accounted for approximately 18.1% of our total revenues. For the three months ended March 31, 2021, we recognized revenueno customer accounted for more than 10% of our total revenues. $1.1 million and $2.8 million, respectively, that was previously recorded as a contract liability within “Accrued expenses and other current liabilities” on the unaudited condensed consolidated balance sheets.
As of June 30, 2021 and December 31, 2020, unbilled revenue included in accounts receivable was $2.2 million and $1.8 million, respectively. Substantially all amounts included within the unbilled revenue balance are invoiced to customers within the month directly following the period of service.
NOTE 3. REPORTABLE SEGMENTS
The Company’s operating segments are determined based on the financial information reviewed by its chief operating decision maker (“CODM”), and the basis upon which management makes resource allocation decisions and assesses the performance of the Company’s segments. The Company evaluates the operating performance of its segments based on financial measures such as net revenue, cost of revenue, and gross profit. Given the nature of the digital marketing solutions business, the amount of assets does not provide meaningful insight into the operating performance of the Company. As a result, the amount of the Company’s assets is not subject to segment allocation and total assets is not included within the disclosure of the Company’s segment financial information.
The following tables are a reconciliation of the operations of our segments to income from operations (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| |
Net revenue | $ | 105,079 | | | $ | 75,196 | | | $ | 201,882 | | | $ | 147,924 | |
Brand Direct | 59,876 | | | 45,374 | | | 116,055 | | | 86,275 | |
Marketplace | 57,763 | | | 35,218 | | | 107,022 | | | 69,396 | |
Other | 1,916 | | | 1,240 | | | 3,932 | | | 2,499 | |
Intercompany eliminations | (14,476) | | | (6,636) | | | (25,127) | | | (10,246) | |
Cost of revenue | 71,359 | | | 52,402 | | | 140,541 | | | 102,561 | |
Brand Direct | 44,321 | | | 34,410 | | | 87,140 | | | 65,298 | |
Marketplace | 41,056 | | | 24,541 | | | 77,654 | | | 47,440 | |
Other | 458 | | | 38 | | | 874 | | | 69 | |
Intercompany eliminations | (14,476) | | | (6,587) | | | (25,127) | | | (10,246) | |
Gross profit | $ | 33,720 | | | $ | 22,794 | | | $ | 61,341 | | | $ | 45,363 | |
Salaries and related costs | 11,708 | | | 7,901 | | | 21,977 | | | 16,231 | |
General and administrative expenses | 10,552 | | | 4,652 | | | 17,514 | | | 9,950 | |
Acquisition costs | 466 | | | 47 | | | 1,960 | | | 74 | |
Depreciation and amortization | 7,044 | | | 4,356 | | | 12,463 | | | 8,671 | |
Income from operations | $ | 3,950 | | | $ | 5,838 | | | $ | 7,427 | | | $ | 10,437 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net revenue | $ | 109,110 | | | $ | 96,803 | | | | | |
Brand Direct | 61,228 | | | 56,179 | | | | | |
Marketplace | 58,806 | | | 49,259 | | | | | |
Technology Solutions | 2,336 | | | 2,017 | | | | | |
Intercompany eliminations | (13,260) | | | (10,652) | | | | | |
Cost of revenue | 77,834 | | | 69,182 | | | | | |
Brand Direct | 48,448 | | | 41,061 | | | | | |
Marketplace | 42,380 | | | 36,599 | | | | | |
Technology Solutions | 266 | | | 416 | | | | | |
Intercompany eliminations | (13,260) | | | (8,894) | | | | | |
Gross profit | $ | 31,276 | | | $ | 27,621 | | | | | |
Brand Direct | 12,780 | | | 15,118 | | | | | |
Marketplace | 16,426 | | | 12,660 | | | | | |
Technology Solutions | 2,070 | | | 1,601 | | | | | |
Salaries and related costs | 13,705 | | | 10,269 | | | | | |
General and administrative expenses | 11,107 | | | 6,962 | | | | | |
Depreciation and amortization | 7,060 | | | 5,419 | | | | | |
Acquisition costs | 13 | | | 1,494 | | | | | |
Contingent consideration changes in fair value of acquisition | 2,591 | | | — | | | | | |
Income from operations | $ | (3,200) | | | $ | 3,477 | | | | | |
Table of Contents
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Changes in the carrying value of goodwill, by reporting segment, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Brand Direct | | Marketplace | | Other | | Total |
Balance, December 31, 2020 | $ | 8,616 | | | $ | 32,660 | | | $ | 3,628 | | | $ | 44,904 | |
Additions (Note 6) | 4,853 | | | 17,370 | | | 0 | | | 22,223 | |
Balance, June 30, 2021 | $ | 13,469 | | | $ | 50,030 | | | $ | 3,628 | | | $ | 67,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Brand Direct | | Marketplace | | Technology Solutions | | Total |
Balance, December 31, 2021 | | $ | 18,376 | | | $ | 54,554 | | | $ | 3,628 | | | $ | 76,558 | |
Miscellaneous changes | | (55) | | | — | | | — | | | (55) | |
Balance, March 31, 2022 | | $ | 18,321 | | | $ | 54,554 | | | $ | 3,628 | | | $ | 76,503 | |
The carrying amount of goodwill for all reporting units had 0no accumulated impairments as of June 30, 2021March 31, 2022 and December 31, 2020.2021.
Intangible assets, net
Finite-lived intangible assets, net consisted of the following (in thousands):
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Amortization Period (Years) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | Amortization Period (Years) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization: | | | | | | | | | | | | | | |
Technology | Technology | 3 to 5 | | $ | 58,631 | | | $ | (26,672) | | | $ | 31,959 | | | $ | 48,008 | | | $ | (21,454) | | | $ | 26,554 | | Technology | 3 to 5 | | $ | 51,846 | | | $ | (32,255) | | | $ | 19,591 | | | $ | 51,946 | | | $ | (29,929) | | | $ | 22,017 | |
Customer relationships | Customer relationships | 2 to 9 | | 55,713 | | | (10,653) | | | 45,060 | | | 21,794 | | | (6,749) | | | 15,045 | | Customer relationships | 2 to 9 | | 49,373 | | | (15,135) | | | 34,238 | | | 49,273 | | | (13,076) | | | 36,197 | |
Brand | Brand | 1 to 7 | | 9,621 | | | (1,547) | | | 8,074 | | | 4,295 | | | (961) | | | 3,334 | | Brand | 1 to 7 | | 12,109 | | | (4,996) | | | 7,113 | | | 12,109 | | | (4,575) | | | 7,534 | |
Non-competition agreements | Non-competition agreements | 3 | | 2,222 | | | (881) | | | 1,341 | | | 2,105 | | | (591) | | | 1,514 | | Non-competition agreements | 3 | | 1,898 | | | (1,552) | | | 346 | | | 1,898 | | | (1,418) | | | 480 | |
Total | Total | | $ | 126,187 | | | $ | (39,753) | | | $ | 86,434 | | | $ | 76,202 | | | $ | (29,755) | | | $ | 46,447 | | Total | | $ | 115,226 | | | $ | (53,938) | | | $ | 61,288 | | | $ | 115,226 | | | $ | (48,998) | | | $ | 66,228 | |
Amortization expense for finite-lived intangible assets is recorded on aan accelerated straight-line basis in the pattern in which the assets’ economic benefits are consumed over their estimated useful lives.basis. Amortization expense related to finite-lived intangible assets was $9.9$4.9 million and $7.1$4.1 million for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively.
NOTE 5. DEBT
The following table presents the components of outstanding debt (in thousands):
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Term loan | $ | 225,000 | | | $ | 190,541 | |
Revolving credit facility | 0 | | | 4,000 | |
Delayed draw term loan | 0 | | | 8,236 | |
Notes payable | 0 | | | 1,074 | |
Total debt | 225,000 | | | 203,851 | |
Unamortized debt issuance costs (1) | (6,755) | | | (2,293) | |
Debt, net | 218,245 | | | 201,558 | |
Current portion of long-term debt | (2,250) | | | (7,967) | |
Long-term debt | $ | 215,995 | | | $ | 193,591 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Term loan | $ | 223,313 | | | $ | 223,875 | |
| | | |
| | | |
| | | |
| | | |
Less: Unamortized debt issuance costs (1) | (5,780) | | | (6,120) | |
Debt, net | 217,533 | | | 217,755 | |
Less: Current portion of long-term debt | (2,250) | | | (2,250) | |
Long-term debt | $ | 215,283 | | | $ | 215,505 | |
__________
(1) Includes net debt issuance discount and other costs.
On May 25, 2021, Digital Media Solutions, LLC (“DMS LLC”), as borrower, and DMSH, each of which is a subsidiary of DMS, entered into a new 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 Company deferred approximately $3.5 million of issuance costs primarily associated with brokerage, legal, arrangement and consulting fees. The discount and the deferred financing costs will be amortized using the effective interest method over the life of the note.
The Term Loan, which was issued at an original issue discount of 1.8%1.80% or $4.2 million, will be subject to payment of 1.0% of the original aggregate principal amount per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and the revolving credit commitments under the Revolving Facility will terminate, on May 25, 2026, when any outstanding balances will become due.
Borrowings under the Revolving Facility bear interest, at our option, at either (i) adjusted LIBOR plus 4.25% or (ii) a base rate (which is equal to the highest of (a) Administrative Agent’sthe 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 LoansLoan bears
interest at, 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 will pay a 0.50% per annum commitment fee in arrears on the undrawn portion of the revolving commitments. For the three months ended March 31, 2022, the effective interest rate was 6.29%. Since May 25, 2021 our interest rate is based on LIBOR plus 5%.
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 March 31, 2022 the Term Loan debt discount and debt issuance cost classified as debt had a remaining unamortized balance of $3.5 million and $2.3 million, respectively. As of December 31, 2021, the Term Loan debt discount and debt issuance cost classified as debt had a remaining unamortized balance of $3.7 million and $2.4 million, respectively. At March 31, 2022 and December 31, 2021, the unamortized debt issuance cost of $0.7 million and $0.8 million, respectively, associated with the undrawn Revolving Facility is classified and amortized as “Other assets” within consolidated balance sheets.
Upon the closing of the Credit Facility, the credit agreement dated as of July 3, 2018, by and among DMS LLC, DMSH, each of their subsidiaries party thereto, various financial institutions party thereto and Monroe Capital Management Advisors, LLC, as administrative agent and lead arranger, and all outstanding amounts thereunder that was previously outstanding with an aggregate principal amount of $210 million was extinguished, and the $15 million revolving credit facility was closed (“Monroe Facility”).closed.
The Company recognized a loss on debt extinguishment of $2.1 million during the three and six monthsyear ended June 30,December 31, 2021, which primarily included accelerated amortization of deferred financing costs, legal fees and early termination fee. The loss recognized is presented as “Debt“Loss on Debt Extinguishment” in the condensed consolidated statement of operations.
Debt Maturity Schedule
The scheduled maturities of our total debt are estimated as follows at June 30, 2021:March 31, 2022: | (in thousands) | (in thousands) | | (in thousands) | |
2021 | | $ | 1,125 | | |
2022 | 2022 | | 2,250 | | 2022 | | $ | 1,688 | |
2023 | 2023 | | 2,250 | | 2023 | | 2,250 | |
2024 | 2024 | | 2,250 | | 2024 | | 2,250 | |
2025 and thereafter | | 217,125 | | |
2025 | | 2025 | | 2,250 | |
2026 and thereafter | | 2026 and thereafter | | 214,875 | |
Total debt | Total debt | | $ | 225,000 | | Total debt | | $ | 223,313 | |
NOTE 6. ACQUISITIONS
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 includes up to $10.0 million in contingent consideration, subject to the achievement of certain milestones, which can be paid in cash or Class A Common Stock at the election of the Company. As of March 31, 2022, the contingent consideration milestones have been met and is scheduled to be paid by June 2022. The consideration also includes a $5.0 million deferred payment, to be paid 18 months after the acquisition date.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, the following adjustments were recorded related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we have made adjustment to the initial and subsequent fair value
earned overof the 12 months followingintangible assets, goodwill, contingent consideration and working capital. Accounting for the acquisition subject to the achievementswas completed on March 31, 2022. The impact of certain milestones, and $5.0 million of deferred payment, to be paid 18-months after the acquisition date.these adjustments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
Crisp Results | | | | Acquisition Date Fair Value | | Fair Value Mark-to-Market changes | | Fair Value as of March 31, 2022 |
Goodwill | | | | $ | 21,894 | | | $ | — | | | $ | 21,894 | |
Intangible Assets: | | | | | | | | |
Technology | | | | $ | — | | | $ | — | | | $ | — | |
Customer relationships | | | | $ | 19,600 | | | $ | — | | | $ | 19,600 | |
Brand | | | | $ | 7,400 | | | $ | — | | | $ | 7,400 | |
Non-competition agreements | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Contingent Consideration | | | | $ | 5,186 | | | $ | 4,814 | | | $ | 10,000 | |
| | | | | | | | |
Working Capital | | | | $ | 1,018 | | | $ | — | | | $ | 1,018 | |
As of April 1, 2021, the acquisition date, the presentfair value of the contingent consideration earnout was recorded at $4.8$5.2 million, and the deferred consideration was $4.6 million. As of June 30, 2021,During the three months ended March 31, 2022, the contingent consideration earnout value increased
$0.6 $2.6 million during the current quarterfrom December 31, 2021 to a total of $5.4 million, and$10.0 million. As of March 31, 2022, the present value of the deferred consideration did not materially change. The contingent consideration and deferred payment can be paid in cash or DMS Class A Common Stock at the election of the Company.
In conjunction with this acquisition, we incurred approximately $0.7increased slightly due to accretion to $4.9 million of legal and other acquisition-related expenses, which were recorded as Acquisition costs in the unaudited condensed consolidated operations duringfrom December 31, 2021. For the three and six months ended June 30, 2021. Additionally, we incurred $0.2 million of equity issuance costs, offsetting the 1.6 million share issuance in the equity for Crisp Results.March 31, 2022, there were no measurement period adjustments identified and recorded.
The Company primarily used an Income Approach, specifically a Discounted Cash Flow (“DCF”) analysis, 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 businessesbusiness have been included in the Company’s results of operations since the acquisition date of April 1, 2021. 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 the brand and customer relationships of the acquired business. The fairFair value of theCrisp Results brand was determined by applying an Income Approach, specificallyusing the Relief from Royalty Method. TheMethod, and the fair value of the acquired customer relationships was determined by applying an Income Approach, specificallyusing 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 one to seven years for brand and five to six years for customer relationships. Accounting remains open for working capital adjustments and final fair value calculations due to the timing and complexity of the acquisition transaction.
Aimtell, PushPros and Aramis
The Company acquired onOn February 1, 2021, the Company acquired Aimtell, Inc. (“Aimtell”), PushPros, Inc. (“PushPros”) and Aramis Interactive (“Aramis”, and together with Aimtell and PushPro, “AAP”). Aimtell and PushPros are leading providers of technology-enabled digital performance advertising solutions connectingthat 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 atupon closing of the closing 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 includes up to $15.0 million subject to a lock-up agreement,in contingent consideration with a fair value of $4.9 million and working capital of $0.3 million. Total payouts for contingent considerationto be earned over the three years following the closing of the transaction is $15.0 million,acquisition, subject to the acquired companies reachingachievement of certain milestones. The contingent consideration can be paid in cash or DMS Class A Common Stock at the election of the Company.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, 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. Accounting for the acquisition was completed on March 31, 2022. The impact of these adjustments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
Aimtell, PushPros, and Aramis | | | | Acquisition Date Fair Value | | Fair Value Mark-to-Market changes | | Fair Value as of March 31, 2022 |
Goodwill | | | | $ | 9,761 | | | $ | — | | | $ | 9,761 | |
Intangible Assets: | | | | | | | | |
Technology | | | | $ | 3,900 | | | $ | — | | | $ | 3,900 | |
Customer relationships | | | | $ | 7,690 | | | $ | — | | | $ | 7,690 | |
Brand | | | | $ | 208 | | | $ | — | | | $ | 208 | |
Non-competition agreements | | | | $ | 83 | | | $ | — | | | $ | 83 | |
| | | | | | | | |
Contingent Consideration | | | | $ | 2,147 | | | $ | (1,117) | | | $ | 1,030 | |
| | | | | | | | |
Working Capital | | | | $ | 944 | | | $ | — | | | $ | 944 | |
As of February 1, 2021, the acquisition date, the presentfair value of the contingent consideration earnout was recorded at $4.9$2.1 million. TheAs of March 31, 2022, the contingent consideration did not materially change during the three and six months ended June 30,earnout fair value total of $1.1 million remained relatively unchanged since December 31, 2021. The contingent consideration can be paid in cash or DMS Class A Common Stock at the election of the Company.
In conjunction with this acquisition, we incurred approximately $0.5 million of legal and other acquisition-related expenses, which were recorded as Acquisition costs in the unaudited condensed consolidated statements of operations during the six months ended June 30, 2021.
The Company primarily used an Income Approach, specifically a Discounted Cash Flow (“DCF”) analysis, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The results of operations of the acquired businesses have been included in the Company’s results of operations since the acquisition date of February 1, 2021. Under Accounting Standards Codification 805 (ASC 805), an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included the brand, technology and customer relationships of the acquired business. The fairFair value
of the brandAimtell and PushPros technology was determined by applying an Income Approach, specifically the Relief from Royalty Method. The fair value of the acquired customer relationships was determined by applying an Income Approach, specificallyusing the Multi Period Excess Earnings Method.Method; fair value of Aramis customer relationships was determined using the Multi Period Excess Earnings Method; and fair value of 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 Aimtell/Aramis/PushProsAAP 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 brand and customer relationships with an estimated useful life of seven years for technology, one to seven years for brand, and five to six years for customer relationships. Accounting remains open for working capital adjustments and final fair value calculations due to the timing and complexity of the acquisition transaction.
SmarterChaos and She is Media
On July 16, 2020, the Company acquired SmarterChaos.com, LLC, a premier digital marketing and online performance management marketer, along with She Is Media, a female-centric performance ad network, (collectively, “SmarterChaos”) for cash and equity of DMSH totaling approximately $5.8 million, net of cash, which was subject to a working capital adjustment that was finalized December 31, 2020.
DMSH issued the SmarterChaos sellers approximately 307,000 DMSH Units, which are convertible to Class A Common Stock, with an aggregate total value of $3.0 million based on the DMS Inc. stock price on July 15, 2020. The SmarterChaos sellers also became parties to the Amended Partnership Agreement.
On June 30, 2021, SmarterChaos sellers elected to redeem 154,000 DMSH units; DMS Inc. elected to exchange those for shares of Class A common stock, with an aggregate capital contribution to DMSH of approximately $3.0 million.
In conjunction with this acquisition, we incurred approximately $0.4 million of legal and other acquisition-related expenses, which were recorded as Acquisition costs in the unaudited condensed consolidated statements of operations.
The Company primarily used an Income Approach, specifically a Discounted Cash Flow (“DCF”) analysis, 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 July 16, 2020. 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 the brand and customer relationships of the acquired business. The fair value of the brand was determined by applying an Income Approach, specifically the Relief from Royalty Method. The fair value of the acquired customer relationships was determined by applying an Income Approach, specifically the Multi Period Excess Earnings Method.
The goodwill related to this transaction reflects the workforce and synergies expected from combining the operations of SmarterChaos and is included in the Other reportable segment. Intangible assets primarily consist of brand and customer relationships with an estimated useful life of one to seven years for brand, and five to six years for customer relationships.
Net assets and liabilities acquired from the 2020AAP and 2021 AcquisitionsCrisp Results acquisitions consist of the following;following (in thousands):
| (In thousands) | SmarterChaos | | Aimtell, PushPros and Aramis (preliminary) | | Crisp Results (preliminary) | | Expected Useful Life | |
| | | Expected Useful Life | | | Aimtell, PushPros and Aramis | | Crisp Results |
| | 2020 | | 2021 | | 2021 | | 2021 | | | | 2021 | | 2021 |
Goodwill | Goodwill | $ | 3,078 | | | $ | 4,853 | | | $ | 17,370 | | | | Goodwill | | | | $ | 9,761 | | | $ | 21,894 | |
Technology | Technology | $ | 0 | | | $ | 10,500 | | | $ | 0 | | | 3 to 5 | Technology | 4 | | | 3,900 | | | — | |
Customer relationships | Customer relationships | $ | 2,500 | | | $ | 7,920 | | | $ | 26,000 | | | 5 to 6 | Customer relationships | 4 to 6 | | | 7,690 | | | 19,600 | |
Accounts receivable | Accounts receivable | $ | 576 | | | $ | 3,313 | | | $ | 2,610 | | | Accounts receivable | | | 3,100 | | | 2,610 | |
Brand | Brand | $ | 277 | | | $ | 226 | | | $ | 5,100 | | | 1 to 7 | Brand | 1 to 7 | | | 208 | | | 7,400 | |
Non-competitive agreements | Non-competitive agreements | $ | 0 | | | $ | 117 | | | $ | 0 | | | 3 | Non-competitive agreements | 3 | | | 83 | | | — | |
Property and equipment | Property and equipment | $ | 28 | | | $ | 250 | | | $ | 220 | | | 3 to 5 | Property and equipment | 3 to 5 | | | 250 | | | 220 | |
Accounts payable | Accounts payable | $ | (1,156) | | | $ | (2,966) | | | $ | (1,593) | | | Accounts payable | | | (2,887) | | | (1,593) | |
Other assets acquired and liabilities assumed, net (1) | Other assets acquired and liabilities assumed, net (1) | $ | 496 | | | $ | 1,057 | | | $ | 0 | | | Other assets acquired and liabilities assumed, net (1) | | | 740 | | | 1 | |
Net assets and liabilities acquired | Net assets and liabilities acquired | $ | 5,799 | | | $ | 25,270 | | | $ | 49,707 | | | | Net assets and liabilities acquired | | | $ | 22,845 | | | $ | 50,132 | |
|
(1) Other assets acquired and liabilities assumed, net includes Prepaids and Other Current Assets,other current assets, partially offset by other current liabilities (i.e., Travel and expense payables, payroll liabilities, tax liabilities).
Table of ContentsThe 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. In total, the weighted average amortization period for AAP is 4 years and Crisp Results is 5.6 years.
The following schedule represents the amounts of net revenue and net income (loss)loss from operations related to 2021AAP and 2020Crisp Results acquisitions which have been included in the unaudited consolidated statements of operations for the periods indicated subsequent to the acquisition date.date (in thousands): | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
(In thousands) | | Aimtell, PushPros and Aramis | Crisp Results | | Aimtell, PushPros and Aramis | Crisp Results |
Net revenue | | $ | 5,774 | | $ | 6,967 | | | $ | 10,075 | | $ | 6,967 | |
Net income (loss) from operations | | $ | (484) | | $ | (155) | | | $ | (620) | | $ | (155) | |
| | | | | | |
| | | | | | |
| | | | | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
(In thousands) | | | | SmarterChaos |
Net revenue | | | | | $ | 934 | | $ | 1,757 | |
Net income (loss) from operations | | | | | $ | 7 | | $ | (161) | |
| | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2021 |
| | | | | Aimtell, PushPros and Aramis | | Crisp Results |
Net revenue | | | | | $ | 4,301 | | | $ | — | |
Net loss from operations | | | | | $ | (136) | | | $ | — | |
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. 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.
A proforma schedule for SmarterChaos is not included below because the Company was acquired on July 16, 2020 and net revenue and net income from operations related to this acquisition prior to July 16, 2020 was not material to the Company’s consolidated financial position or results of operations. Net revenue and net income from operations are presented in the above table subsequent to the acquisition date.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
(In thousands) | | Aimtell, PushPros and Aramis | Crisp Results | | Aimtell, PushPros and Aramis | Crisp Results |
Net revenue | | $ | 5,774 | | $ | 6,967 | | | $ | 14,860 | | $ | 15,246 | |
Net income (loss) from operations | | $ | (484) | | $ | (155) | | | $ | 635 | | $ | 2,087 | |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| | Aimtell, PushPros and Aramis | Crisp Results | | Aimtell, PushPros and Aramis | Crisp Results |
Net revenue | | $ | 8,393 | | $ | 6,650 | | | $ | 16,432 | | $ | 13,110 | |
Net income (loss) from operations | | $ | 2,573 | | $ | 1,119 | | | $ | 3,268 | | $ | 2,105 | |
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| Three Months Ended March 31, 2021 |
(In thousands): | DMS | | Aimtell, PushPros and Aramis | | Crisp Results | | Pro Forma |
Net revenue | $ | 96,803 | | | $ | 2,465 | | | $ | 8,284 | | | $ | 107,552 | |
Net (loss) income from operations | $ | (212) | | | $ | 457 | | | $ | 2,296 | | | $ | 2,541 | |
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 net in the unaudited condensed consolidated statements of operations.
During
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, for 12 differentwhich reduced cash needs by approximately $1.9 million over the remaining life of the original leases through April 30, 2025. As of March 31, 2022, the Company has 4 leased properties, for approximately 62,113representing 55,798 square feet of office space located in Canada and the United States. As of June 30, 2021, a reserve of approximately $3.0 million was recorded; and $1.2 million is accrued for within Accrued expenses and other current liabilities and $1.8 million is accrued for within Other non-current liabilities, on the unaudited condensed consolidated balance sheets.
During the three and six months ended June 30, 2021, the Company recognized a valuation cost reductionStates, that are currently in negotiations with landlords to the restructuring lease liability of $0.4 million and $0.1 million, respectively, which primarily consisted of 2 additional locations added to the reserve representing 7,975 sq. feet.
The reserve is amortized to General and administrative expenses in the consolidated statements of operations. The change in liability for the restructuring costs reserve for the three and six months ended June 30, 2021 areMarch 31, 2022 was as follows:follows (in thousands):
| | | | | | | |
| Three Months Ended June 30, March 31, 2022 |
| 2021 |
Restructuring Lease Liability | |
| |
Beginning balance at April 1, 2021 | $ | 2,9662,516 | |
Valuation adjustments | 432 | |
Lease payments | (487) | |
Lease accretion | 46 | |
Ending balance at June 30, 2021 | $ | 2,957 | |
| |
| Six Months Ended June 30, |
| 2021 |
Restructuring Lease Liability | |
| |
Beginning balance at January 1, 2021 | $ | 3,653 | |
Valuation adjustments | 81 (26) | | | |
Lease payments | (870)(294) | | | |
Lease accretion | 9348 | | | |
Ending balance at June 30, 2021 | $ | 2,9572,244 | | | |
Current portion - Accrued expenses and other current liabilities | $ | 782 | | | |
Long-term portion - Other non-current liabilities | $ | 1,462 | | | |
NOTE 8. FAIR VALUE MEASUREMENTS
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The carrying amounts of our cash and cash equivalents, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable, approximate fair value because of the short-term maturity of those instruments.
Private Placement Warrants
As disclosed in - We record the 2020 Form 10-K/A, during the first quarterfair value of 2021, we reevaluated the accounting treatment of the Company’s Warrants issued in connection with the Business Combination. As a result of our reevaluation, we restated the Private Placement Warrants and recorded these warrants at fair value as a liability in the Company’sour consolidated balance sheet as at Decemberof March 31, 2020.2022 and 2021, respectively. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. Changes in fair value of the Private Placement Warrants are presented under Change in the fair value of warrant liabilities on the Income Statement.
As of June 30, 2021,March 31, 2022, the Company has approximately 4.0 million Private Placement Warrants outstanding.
The significant assumptions were as follows:
| | | | | | | | |
| | June 30, 2021March 31, 2022 |
Private Placement Warrants Fair Value Per Share | | $ | 3.660.53 | |
Private Placement Warrant valuation inputs: | | |
Stock price - DMS Inc. Class A Common Stock | | $ | 9.683.64 | |
Strike price | | $ | 11.50 | |
Remaining contractual term in years | | 4.043.29 | |
Estimated volatility of Class A Common Stock | | 55.060.0 | % |
Dividend yield | | 0.0 | % |
Risk free interest rate | | 0.672.43 | % |
Contingent consideration payable related to acquisitions
The fair value of the contingent consideration payable for the Aimtell/PushPros/Aramis and Crisp ResultsAAP acquisitions (described in Note 6 Acquisitions) were determined using a Monte Carlo fair value analysis based on estimated performance and the probability of achieving certain targets. As certain inputs are not observable in the market, the contingent consideration is classified as a Level 3 instrument. Changes in fair value of contingent consideration are presented under Acquisition costs on the unaudited condensed statement of operations.
The range of outcomes for the fair value offollowing table presents the contingent consideration did not materially change for Aimtell/PushPros/Aramis from prior period.
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Contingent Consideration assumptions: | | Aimtell/PushPros/Aramis | | Crisp Results |
EBITDA expectations | | 4,390,925 | | | 10,581,397 | |
Risk adjustment EBITDA | | 3,885,625 | | | 9,680,674 | |
EBITDA volatility | | 115.0 | % | | 70.0 | % |
Iteration (actual) | | 100,000 | | | 100,000 | |
Risk adjustment discount rate | | 36.0 | % | | 21.5 | % |
Risk free / Credit risk | | 6.2 | % | | 6.2 | % |
Days gap from period end to payment | | 90 | | 90 |
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| | | | June 30, 2021 |
Category | | | | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities: | | | | | | | | | | |
Private Warrant Liabilities | | Total liabilities | | $ | 0 | | | $ | 0 | | | $ | 14,640 | | | $ | 14,640 | |
Contingent consideration - current | | Contingent consideration payable | | | | | | $ | 6,213 | | | $ | 6,213 | |
Contingent consideration -non-current | | Contingent consideration payable | | $ | 0 | | | $ | 0 | | | $ | 4,035 | | | $ | 4,035 | |
Total | | | | $ | 0 | | | $ | 0 | | | $ | 24,888 | | | $ | 24,888 | |
The following table represents the change in the warrant liability and contingent consideration (in thousands): | | | | | | | | | | | | | | |
| | Private Warrants | | Contingent Consideration |
Beginning January 1, 2021 | | $ | 22,080 | | | $ | 0 | |
Additions | | 0 | | | 9,688 | |
Changes in fair value | | (7,435) | | | 560 | |
Settlements | | (5) | | | 0 | |
Ending June 30, 2021 | | $ | 14,640 | | | $ | 10,248 | |
| | | | | | | | | | | | | | |
| | Private Warrants | | Contingent Consideration |
Beginning April 1, 2021 | | $ | 22,390 | | | $ | 5,307 | |
Additions | | 0 | | | 4,763 | |
Changes in fair value | | (7,750) | | | 178 | |
Settlements | | 0 | | | 0 | |
Ending June 30, 2021 | | $ | 14,640 | | | $ | 10,248 | |
assumptions.
NOTE 9. EMPLOYEE AND DIRECTOR INCENTIVE PLANS
2020 Omnibus Incentive Plan | | | | | | | | |
| | Aimtell / PushPros |
CYE2021 Revenue - Actual | | $ | 7,193,881 | |
CYE2022 Revenue - 3 Months Actual | | $ | 1,287,738 | |
CYE2022 Revenue - 9 Months Expectations | | $ | 10,041,919 | |
CYE2023 Revenue - Expectations | | $ | 14,636,891 | |
CYE2022 Risk Adjusted Revenue - 9 Months | | $ | 9,756,478 | |
CYE2023 Risk Adjusted Revenue | | $ | 13,301,545 | |
Revenue Volatility | | 25 | % |
Iteration (actual) | | 100,000 | |
Risk adjustment discount rate | | 8.25 | % |
Risk free / Credit risk | | 8.0 | % |
Days gap from period end to payment | | 90 |
| | |
| | Aramis |
CYE2022 Earnout Successful Probability | | 99.0 | % |
Iteration (actual) | | 100,000 | |
Risk free / Credit risk | | 8.0 | % |
Days gap from period end to payment | | 90 |
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On July 15, 2020, Leo’s shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Plan”). The 2020 Plan allows for the issuance 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, will be 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. For additional information see
Note 12 “Employee and Director Incentive Plans” in the Notes to Consolidated Financial Statements in our 2020 Form 10-K/A.
The fair value of non-vested shares is determined based on the closing trading price of the Company’s shares on the grant date and are amortized over the award’s service period. At June 30, 2021, total non-vested stock-based compensation expense related to restricted stock was $7.0 million, which will be recognized over a weighted-average remaining period of 2.04 years. The weighted-average grant-date fair value of shares granted during the six-month period ended June 30, 2021, was $7.14 per share.
Restricted Shares
The following table presents the restricted share activity for the six-month period ended June 30, 2021assets and liabilities measured at fair value on a recurrent basis (in thousands, except price per share)thousands):
| | | | | | | | | | | | | | |
Restricted Stock Units | | Number of Restricted Stock | | Weighted-Average Grant Date Fair Value |
Outstanding at January 1, 2021 | | 1,197 | | | $ | 7.31 | |
Granted | | 56 | | | $ | 12.10 | |
Exercised | | (83) | | | $ | 7.31 | |
Forfeited/Canceled | | (101) | | | $ | 11.73 | |
Outstanding at June 30, 2021 | | 1,069 | | | $ | 7.14 | |
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| | | | March 31, 2022 |
Category | | | | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities: | | | | | | | | | | |
Private Placement Warrant liabilities | | | | $ | — | | | $ | — | | | $ | 2,120 | | | $ | 2,120 | |
Contingent consideration - current (Crisp Results) | | | | — | | | — | | | 10,000 | | | 10,000 | |
Contingent consideration -non-current (AAP) | | | | — | | | — | | | 1,030 | | | 1,030 | |
Total | | | | $ | — | | | $ | — | | | $ | 13,150 | | | $ | 13,150 | |
As of June 30, 2021, the Company has one shared-based compensation plan that allows for granting of restricted share units and stock options. The compensation cost that has been recorded against Consolidated Statement of Operations, “Salaries and related costs” was approximately $1.4 million and $2.8 million for the three and six months ended June 30, 2021, respectively. The total intrinsic value of units exercised during the quarter ended June 30, 2021, was $0.6 million.
The following table presentsrepresents the stock option activity forchange in the quarter ended June 30, 2021warrant liability and contingent consideration (in thousands, except price per share)thousands):
| | | | | | | | | | | | | | | | | | | | |
Stock Options | | Number of Stock Options | | Weighted-Average Grant Date Fair Value | Weighted-Average Remaining Contractual Term (in Years) | Total Intrinsic Value of Stock Options Vested |
Outstanding at January 1, 2021 | | 551 | | | $ | 3.34 | | 5.9 years | $ | — | |
Granted | | 59 | | | $ | 5.77 | | 5.9 years | $ | — | |
Forfeited/expired | | (47) | | | $ | 5.33 | | — | | $ | — | |
Outstanding at June 30, 2021 | | 563 | | | $ | 3.43 | | 5.9 years | $ | — | |
Vested at June 30, 2021 | | (9) | | | $ | 3.34 | | — | | $ | 47.36 | |
The weighted-average grant-date strike price of options during the quarter ended June 30, 2021 was $12.96 per share. | | | | | | | | | | | | | | |
| | Private Placement Warrants | | Contingent Consideration |
Balance, December 31, 2021 | | $ | 3,960 | | | $ | 8,439 | |
Additions | | — | | | — | |
Changes in fair value | | (1,840) | | | 2,591 | |
Settlements | | — | | | — | |
Balance, March 31, 2022 | | $ | 2,120 | | | $ | 11,030 | |
NOTE 10.9. INCOME TAXES
As a result of the Business Combination, the Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker, which owns 58.1%58.6% of equity interests in DMSH. DMSH is treated as a partnership for purposes of U.S. federal and certain state and local income tax. As a U.S. partnership, generally DMSH will not be subject to corporate income taxes (except with respect to UE, as described below). Instead, each of the ultimate partners (including DMS Inc.) are taxed on their proportionate share of DMSH taxable income.
While the Company consolidates DMSH for financial reporting purposes, the Company will only be taxed on its allocable share of future earnings (i.e. those earnings not attributed to the non-controlling interests, which continue to be taxed on their own allocable share of future earnings of DMSH). The Company’s income tax expense is attributable to the allocable share of earnings from DMSH, a portion of activities of DMSH that are subject to Canadian income tax, and the activities of UE, a wholly-owned U.S. corporate subsidiary 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 condensed consolidated financial statements under GAAP. As a result, the Company’s effective tax rate is expected to differ materially from the statutory rate.
The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision. The Company recorded income tax expense of $1.0 million and $1.1 million$310 thousand for the three and six months ended June 30,March 31, 2022. The blended effective tax rate for the three months ended March 31, 2022 was (6.1)%, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest and impact of the valuation allowance on DMS, Inc. The Company recorded $117 thousand income tax expense for the three months ended March 31, 2021. The blended effective tax rate for the three and six months ended June 30,March 31, 2021 were 17.27% and 19.53%was (124.6)%, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest. The Company recorded $0.2 million and $0.3 million income tax expense for the three and six months ended June 30, 2020.
Tax Receivable Agreement
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 a result of this agreement, the Company recorded as of December 31, 2020, a deferred tax asset and income tax receivable of $20.1 million and $199 thousand, respectively, with the offset as a long-term Tax Receivable Agreement liability of $16.2 million and Additional Paid-in Capital of $4.0 million in the unaudited condensed consolidated balance sheets.
As of June 30,December 31, 2021, the total amount of payments underCompany recorded a full valuation allowance on our deferred tax asset (“DTA”) related to the TRA was $17.4along with the entire DTA inventory at DMS, Inc. and Blocker. The remaining short-term Tax Receivable Agreement liability of $1.3 million of which $1.2 million was currentis attributable to carryback claims. We will continue to evaluate the positive and includednegative evidence in Accrued expenses and other current liabilities ondetermining the unaudited condensed consolidated balance sheet.
ASU 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This new guidance was effective for the Company beginning on January 1, 2021, and did not have a material impact onrealizability of the Company’s condensed consolidated financial statements.DTAs.
NOTE 11.10. EARNINGS PER SHARE
Basic earnings per share of Class A common stockCommon Stock is computed by dividing net income attributable to DMS Inc. by the weighted-average number of shares of Class A common stockCommon Stock outstanding during the period. Diluted earnings per share of Class A common stockCommon Stock is computed by dividing net income attributable to DMS Inc., after adjusting net income for the change in fair value of warrant liability multiplied by the percentage of parent’s ownership share and the denominator is adjusted for the assumed exchangeincome effects of all potentially dilutive securities,
instruments by the weighted-average number of shares of Class A common stockCommon Stock outstanding adjusted to give effect to potentially dilutive elements.
Prior to the Business Combination, the membership structure of DMSH included units which had profit interests. The Company analyzed the calculation of earnings per unit for periods prior to the Business Combination and determined that it resulted in values that would not be meaningful to the users of these unaudited condensed consolidated financial statements. Therefore, earnings per share information has not been presented for periods prior to the Business Combination on July 15, 2020. The basic and diluted earnings per share represent only the shares earned during the period of January 1, 2021 to June 30, 2021.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock:Common Stock:
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2021 |
Numerator: | | | | |
Net income attributable to Digital Media Solutions, Inc. - basic | | $ | 2,528 | | | $ | 2,354 | |
Less: dilutive effect of change in fair value warrant liabilities attributable to Digital Media Solutions, Inc. | | 0 | | | 4,321 | |
Net income (loss) attributable to Digital Media Solutions, Inc. - diluted | | $ | 2,528 | | | $ | (1,967) | |
| | | | |
Denominator: | | | | |
Weighted average shares - basic | | 35,377 | | | 34,315 | |
Add: dilutive effects of employee equity awards | | 628 | | | 0 | |
Add: dilutive effects of Private Placement warrants | | 0 | | | 10 | |
Add: dilutive effects of public warrants | | 0 | | | 0 | |
Add: dilutive effects of deferred consideration | | 517 | | | 0 | |
Weighted average shares - diluted | | 36,522 | | | 34,325 | |
Net income per common share: | | | | |
Basic | | $ | 0.07 | | | $ | 0.07 | |
Diluted | | $ | 0.07 | | | $ | (0.06) | |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2022 | | | | 2021 | |
Numerator: | | | | | | | | |
Net loss | | | $ | (5,357) | | | | | $ | (212) | | |
| | | | | | | | |
Net loss attributable to non-controlling interest | | | (2,223) | | | | | (93) | | |
Net loss attributable to Digital Media Solutions, Inc. - basic and diluted | | | $ | (3,134) | | | | | $ | (119) | | |
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Denominator: | | | | | | | | |
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| | | | | | | | |
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Weighted average shares - basic and diluted | | | 35,576 | | | | | 33,241 | | |
| | | | | | | | |
Net earnings (loss) per common share: | | | | | | | | |
Basic and diluted | | | $ | (0.09) | | | | | $ | — | | |
| | | | | | | | |
Shares of the Company’s Class B Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.
For the three months ended June 30,March 31, 2022, the Company excluded 25.7 million shares of Class B Common Stock, 4 million private warrants, 10.0 million public warrants, 2.0 million shares of restrictive stock options (“Options”), 1.6 million shares of restrictive stock units (“RSU”), and the contingent and deferred considerations issued in connection with the AAP and Crisp Results acquisitions, as their effect would have been anti-dilutive. For the three months ended March 31, 2021, the Company excluded 14.00.2 million private warrants, 87,000 employee0.5 million public warrants, 0.1 million Options, 0.5 million RSU, and the contingent consideration issued in connection with the AAP acquisition, which could be settled in common stock of 1.2 million and convertible equity awards and 25.9of 26.3 million DMSH Units convertible into Class A Common Stock, as thetheir effect was anti-dilutive. For the six months ended June 30, 2021, the Company excluded 10.0 million warrants, 25.9 million DMSH Units convertible into Class A Common Stock and 1,632,000 employee equity awards as the effect waswould have been anti-dilutive.
For the three and six months ended June 30, 2021,March 31, 2022, the Company excluded contingent consideration issued in connection with Aramis, Aimtell and PushProsAAP and Crisp Results acquisitions, which is payable in DMS common stock at the Company’s option, asalthough the necessary conditions to pay such consideration had nothave been satisfied by the end of the period. For the six months ended June 30, 2021,period, as their effect would have been anti-dilutive.
NOTE 11. SUBSEQUENT EVENTS
On May 10, 2022, the Company excluded deferred consideration issued in connection with Crisp Results acquisition, which isacquired Traverse Data, Inc. (“Traverse”), a marketing and advertising technology company, for a total up to $3.0 million payable in DMS common stockcash, subject to certain adjustments.
As a result of limited access to the information required to prepare the initial accounting, the initial accounting for the Traverse acquisition is incomplete and the Company is unable to provide the amounts that will be recognized at the Company’s option, asacquisition date for the effect was anti-dilutive.
major classes of assets acquired and liabilities assumed, pre-existing contingencies, goodwill or other intangible assets at the time of this Quarterly Report on Form 10-Q.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes appearing elsewhere in this Quarterly Report (the “Notes”). In addition, reference should be made to our auditedAudited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7.7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 20202021 Form 10-K/A.10-K. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”
Recent Business Acquisitions
Crisp Results
On April 1, 2021, the Company completed a transaction to purchase the assets of Crisp Results. 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 Class A Common Stock valued at $20.0 million. The transaction also includes up to $10.0 million in contingent consideration to be earned over the 12 months following the closing of the acquisition, subject to the achievement of certain milestones, and a $5.0 million deferred payment. The contingent consideration and deferred payment can be paid in cash or stock at the election of the Company.Results”.
In conjunctionOn August 16, 2021, we announced our decision to evaluate potential strategic alternatives to maximize shareholder value. We intend to evaluate a full range of strategic, operational and financial alternatives. We have retained Goldman Sachs & Co LLC and Canaccord Genuity as our financial advisors to assist with this acquisition, we incurred approximately $0.7 million of legal and other acquisition-related expenses, which were recorded as Acquisition Costs in the condensed consolidated operations during the three and six months ended June 30, 2021. Additionally, we incurred $0.2 million of equity issuance costs, offsetting the 1.6 million share issuance in the equity for Crisp Results.
Aimtell, PushPros and Aramis
On February 1, 2021, the Company acquired Aimtell, Inc. (“Aimtell”), PushPros, Inc. (“PushPros”) and Aramis Interactive (“Aramis”). Aimtell and PushPros are leading providers of technology-enabled digital performance advertising solutions connecting 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 million at the closing transaction, consisting of $5.0 million in cash and approximately 1.29 million shares of Class A Common Stock valued at $15.0 million, subject to a lock-up agreement, contingent consideration with a fair value of $4.9 million and working capital of $0.3 million. Total payouts for contingent consideration over the next three years is $15.0 million, subject to the acquired companies reaching certain milestones. The contingent considerationstrategic review process. There can be paidno assurance that the strategic review process will result in cashany strategic alternative, or DMS Class A Common Stock at the election of the Company.
In conjunction with this acquisition, we incurred approximately $0.5 million of legal and other acquisition-related expenses, which were recordedany assurance as Acquisition Costs in the unaudited condensed consolidated statements of operations during the six months ended June 30, 2021.
SmarterChaos
On July 16, 2020, the Company acquired SmarterChaos.com, LLC, a premier digital marketing and online performance management marketer, along with She Is Media, a female-centric performance ad network, (collectively, “SmarterChaos”) for cash and equity of DMSH totaling approximately $5.8 million, net of cash, which was subject to a working capital adjustment that was finalized December 31, 2020. This acquisition expanded media distribution, allowing the Company to further accelerate the digital marketing acquisition efforts of its advertiser clients and enable brands to acquire new customers by leveraging our customer acquisition platform and the relationships cultivated by SmarterChaos.outcome or timing.
DMSH issued the SmarterChaos sellers approximately 307,000 DMSH Units, which are convertible to Class A Common Stock, with an aggregate total value of $3.0 million based on the DMS Inc. stock price on July 15, 2020. The SmarterChaos sellers also became parties to the Amended Partnership Agreement.
On June 30, 2021, SmarterChaos sellers elected to redeem 154,000 DMSH units; DMS Inc., elected to exchange those for shares of Class A Common Stock, with an aggregate capital contribution to DMSH of approximately $3.0 million.
In conjunction with this acquisition, we incurred approximately $0.4 million of legal and other acquisition-related expenses, during the third quarter of 2020, which were recorded as Acquisition costs in the condensed consolidated statements of operations.
RESULTS OF OPERATIONS
The following table presents our consolidated results of operations as a percentage of net revenue:
| | | | Three Months Ended June 30, | | Six Months Ended June 30 | | | | | Three Months Ended March 31, |
| | | | 2021 | | | 2020 | | 2021 | | 2020 | | | | | 2022 | | | 2021 |
Revenue by type: | Revenue by type: | | | | | | | | | | | | Revenue by type: | | | | |
Customer acquisition | Customer acquisition | | | 96.3 | % | | | 91.5 | % | | 95.6 | % | | 93.1 | % | | | Customer acquisition | | 96.4 | % | | | 94.4 | % |
Managed services | Managed services | | | 2.9 | % | | | 7.5 | % | | 3.7 | % | | 5.8 | % | | | Managed services | | 2.9 | % | | | 4.1 | % |
Software services | Software services | | | 0.8 | % | | | 1.0 | % | | 0.8 | % | | 1.1 | % | | | Software services | | 0.7 | % | | | 1.5 | % |
Total net revenue | Total net revenue | | | 100.0 | % | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | | Total net revenue | | 100.0 | % | | | 100.0 | % |
Revenue by segment: | Revenue by segment: | | | | | | | | | | | | | Revenue by segment: | | | | |
Brand Direct | Brand Direct | | | 57.0 | % | | | 60.3 | % | | 57.5 | % | | 58.3 | % | | | Brand Direct | | 56.1 | % | | | 58.0 | % |
Marketplace | Marketplace | | | 55.0 | % | | | 46.8 | % | | 53.0 | % | | 46.9 | % | | | Marketplace | | 53.9 | % | | | 50.9 | % |
Other | | | 1.8 | % | | | 1.6 | % | | 1.9 | % | | 1.7 | % | | | |
Corporate and other | | | (13.8) | % | | | (8.8) | % | | (12.4) | % | | (6.9) | % | | | |
Technology Solutions | | Technology Solutions | | 2.1 | % | | | 2.1 | % |
Intercompany eliminations | | Intercompany eliminations | | (12.1) | % | | | (11.0) | % |
Net revenue | Net revenue | | | 100.0 | % | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | | Net revenue | | 100.0 | % | | | 100.0 | % |
Cost of revenue | Cost of revenue | | | 67.9 | % | | | 69.7 | % | | 69.6 | % | | 69.3 | % | | | Cost of revenue | | 71.3 | % | | | 71.5 | % |
Gross profit | Gross profit | | | 32.1 | % | | | 30.3 | % | | 30.4 | % | | 30.7 | % | | | Gross profit | | 28.7 | % | | | 28.5 | % |
| Salaries and related costs | Salaries and related costs | | | 11.1 | % | | | 11.0 | % | | 10.9 | % | | 11.0 | % | | | Salaries and related costs | | 12.5 | % | | | 10.6 | % |
General and administrative | General and administrative | | | 10.0 | % | | | 6.7 | % | | 8.7 | % | | 6.7 | % | | | General and administrative | | 10.2 | % | | | 7.2 | % |
Depreciation and amortization | | Depreciation and amortization | | 6.5 | % | | | 5.6 | % |
Acquisition costs | Acquisition costs | | | 0.4 | % | | | 0.1 | % | | 1.0 | % | | 0.1 | % | | | Acquisition costs | | — | % | | | 1.5 | % |
Depreciation and amortization | | | 6.7 | % | | | 5.8 | % | | 6.2 | % | | 5.9 | % | | | |
Income from operations | | | 3.8 | % | | | 7.8 | % | | 3.7 | % | | 7.1 | % | | | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | | 2.4 | % | | | — | % |
(Loss) income from operations | | (Loss) income from operations | | (2.9) | % | | | 3.6 | % |
Interest expense | Interest expense | | | 3.4 | % | | | 4.6 | % | | 3.4 | % | | 4.9 | % | | | Interest expense | | 3.4 | % | | | 3.4 | % |
Change in fair value of warrant liabilities | Change in fair value of warrant liabilities | | | (7.4) | % | | | — | % | | (3.7) | % | | — | % | | | Change in fair value of warrant liabilities | | (1.7) | % | | | 0.3 | % |
Net income before income taxes | | | 5.7 | % | | | 3.1 | % | | 2.9 | % | | 2.1 | % | | | |
| Net loss before income taxes | | Net loss before income taxes | | (4.6) | % | | | (0.1) | % |
Income tax expense | Income tax expense | | | 1.0 | % | | | 0.3 | % | | 0.6 | % | | 0.2 | % | | | Income tax expense | | 0.3 | % | | | 0.1 | % |
Net income | | | 4.7 | % | | | 2.8 | % | | 2.3 | % | | 2.0 | % | | | |
Net income attributable to non-controlling interest | | | 2.3 | % | | | — | % | | 1.2 | % | | — | % | | | |
Net income attributable to Digital Media Solutions, Inc. | | | 2.4 | % | | | 2.8 | % | | 1.2 | | | 2.0 | % | | | |
Net loss | | Net loss | | (4.9) | % | | | (0.2) | % |
Net loss attributable to non-controlling interest | | Net loss attributable to non-controlling interest | | (2.0) | % | | | (0.1) | % |
Net loss attributable to Digital Media Solutions, Inc. | | Net loss attributable to Digital Media Solutions, Inc. | | (2.9) | % | | | (0.1) | % |
Operating Results for the three and six months ended June 30,March 31, 2022 and 2021 and June 30, 2020
The following table presents the consolidated results of operations for the three and sixmonths ended June 30,March 31, 2022 and 2021 and 2020 and the changes from the prior periodsperiod (in thousands):
| | | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | $ Change | | % Change |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | |
| | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | |
Net revenue | Net revenue | $ | 105,079 | | | $ | 75,196 | | | $ | 29,883 | | | 40 | % | | $ | 201,882 | | | $ | 147,924 | | | $ | 53,958 | | | 36 | % | | Net revenue | $ | 109,110 | | | | $ | 96,803 | | | | $ | 12,307 | | | 12.7 | % |
Cost of revenue | Cost of revenue | 71,359 | | | 52,402 | | | 18,957 | | | 36 | % | | 140,541 | | | 102,561 | | | 37,980 | | | 37 | % | | Cost of revenue | 77,834 | | | | 69,182 | | | | 8,652 | | | 12.5 | % |
| Gross profit | | Gross profit | $ | 31,276 | | | | $ | 27,621 | | | | $ | 3,655 | | | 13.2 | % |
Salaries and related costs | Salaries and related costs | 11,708 | | | 7,901 | | | 3,807 | | | 48 | % | | 21,977 | | | 16,231 | | | 5,746 | | | 35 | % | | Salaries and related costs | 13,705 | | | | 10,269 | | | | 3,436 | | | 33.5 | % |
General and administrative | General and administrative | 10,552 | | | 4,652 | | | 5,900 | | | 127 | % | | 17,514 | | | 9,950 | | | 7,564 | | | 76 | % | | General and administrative | 11,107 | | | | 6,962 | | | | 4,145 | | — | | 59.5 | % |
Depreciation and amortization | | Depreciation and amortization | 7,060 | | | | 5,419 | | | | 1,641 | | | 30.3 | % |
Acquisition costs | Acquisition costs | 466 | | | 47 | | | 419 | | | 891 | % | | 1,960 | | | 74 | | | 1,886 | | | 2549 | % | | Acquisition costs | 13 | | | | 1,494 | | | | (1,481) | | | (99.1) | % |
Depreciation and amortization | 7,044 | | | 4,356 | | | 2,688 | | | 62 | % | | 12,463 | | | 8,671 | | | 3,792 | | | 44 | % | | |
Income from operations | 3,950 | | | 5,838 | | | (1,888) | | | (32) | % | | $ | 7,427 | | | $ | 10,437 | | | $ | (3,010) | | | (29) | % | | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | 2,591 | | | | — | | | | 2,591 | | | 100.0 | % |
(Loss) income from operations | | (Loss) income from operations | $ | (3,200) | | | | $ | 3,477 | | | | $ | (6,677) | | | (192.0) | % |
Interest expense | Interest expense | 3,622 | | | 3,491 | | | 131 | | | 4 | % | | 6,879 | | | 7,281 | | | (402) | | | (6) | % | | Interest expense | 3,687 | | | | 3,257 | | | | 430 | | | 13.2 | % |
Change in fair value of warrant liabilities | Change in fair value of warrant liabilities | (7,750) | | | — | | | $ | (7,750) | | | N/A | | (7,435) | | | — | | | (7,435) | | | N/A | | Change in fair value of warrant liabilities | (1,840) | | | | 315 | | | | (2,155) | | — | | (684.1) | % |
Debt extinguishment | 2,108 | | | — | | | 2,108 | | — | | N/A | | 2,108 | | | — | | | 2,108 | | | N/A | | |
Net income before income taxes | 5,970 | | | 2,347 | | | 3,623 | | | 154 | % | | 5,875 | | | $ | 3,156 | | | $ | 2,719 | | | 86 | % | | |
| Net loss before income taxes | | Net loss before income taxes | $ | (5,047) | | | | $ | (95) | | | | $ | (4,952) | | | 5212.6 | % |
Income tax expense | Income tax expense | 1,031 | | | 213 | | | 818 | | | 384 | % | | 1,148 | | | 265 | | | 883 | | | 333 | % | | Income tax expense | 310 | | | | 117 | | | | 193 | | | 165.0 | % |
Net income | 4,939 | | | 2,134 | | | 2,805 | | | 131 | % | | 4,727 | | | $ | 2,891 | | | $ | 1,836 | | | 64 | % | | |
Net income attributable to non-controlling interest | 2,411 | | | — | | | 2,411 | | | — | % | | 2,373 | | | — | | | $ | 2,373 | | | — | % | | |
Net income attributable to Digital Media Solutions, Inc. | $ | 2,528 | | | $ | 2,134 | | | $ | 394 | | | 18 | % | | $ | 2,354 | | | $ | 2,891 | | | $ | (537) | | | (19) | % | | |
Net loss | | Net loss | $ | (5,357) | | | | $ | (212) | | | | $ | (5,145) | | | 2426.9 | % |
Net loss attributable to non-controlling interest | | Net loss attributable to non-controlling interest | (2,223) | | | | (93) | | | | (2,130) | | | 2290.3 | % |
Net loss attributable to Digital Media Solutions, Inc. | | Net loss attributable to Digital Media Solutions, Inc. | $ | (3,134) | | | | $ | (119) | | | | $ | (3,015) | | | 2533.6 | % |
Net revenue. Our business generates revenue primarily through the delivery of a variety of performance-based marketing services, including customer acquisition, managed services and software services.
The following table presents revenue by type for each segment and the changes from the prior periods:period:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | | | |
Brand Direct | | | | | | | | | | | | | | | | | | | | | | | |
Customer acquisition | $ | 57,955 | | | $ | 40,185 | | | $ | 17,770 | | | 44 | % | | $ | 111,009 | | | $ | 78,637 | | | $ | 32,372 | | | 41 | % | | | | | | | | |
Managed services | 1,921 | | | 5,189 | | | (3,268) | | | (63) | % | | 5,046 | | | 7,638 | | | (2,592) | | | (34) | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Brand Direct | $ | 59,876 | | | $ | 45,374 | | | $ | 14,502 | | | 32 | % | | $ | 116,055 | | | $ | 86,275 | | | $ | 29,780 | | | 35 | % | | | | | | | | |
Marketplace | | | | | | | | | | | | | | | | | | | | | | | |
Customer acquisition | $ | 57,763 | | | $ | 35,218 | | | $ | 22,545 | | | 64 | % | | $ | 107,022 | | | $ | 69,396 | | | $ | 37,626 | | | 54 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total Marketplace | $ | 57,763 | | | $ | 35,218 | | | $ | 22,545 | | | 64 | % | | $ | 107,022 | | | $ | 69,396 | | | $ | 37,626 | | | 54 | % | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Managed services | $ | 1,109 | | | $ | 449 | | | $ | 660 | | | 147 | % | | $ | 2,325 | | | $ | 899 | | | $ | 1,426 | | | 159 | % | | | | | | | | |
Software services | 807 | | | 791 | | | 16 | | | 2 | % | | 1,607 | | | 1,600 | | | 7 | | | — | % | | | | | | | | |
Total Other | $ | 1,916 | | | $ | 1,240 | | | $ | 676 | | | 55 | % | | $ | 3,932 | | | $ | 2,499 | | | $ | 1,433 | | | 57 | % | | | | | | | | |
Corporate and Other | | | | | | | | | | | | | | | | | | | | | | | |
Customer acquisition | $ | (14,476) | | | $ | (6,636) | | | $ | (7,840) | | | 118 | % | | $ | (25,127) | | | $ | (10,246) | | | $ | (14,881) | | | 145 | % | | | | | | | | |
Total Corporate and Other | $ | (14,476) | | | $ | (6,636) | | | $ | (7,840) | | | 118 | % | | $ | (25,127) | | | $ | (10,246) | | | $ | (14,881) | | | 145 | % | | | | | | | | |
Total Customer acquisition | 101,242 | | | 68,767 | | | 32,475 | | | 47 | % | | 192,904 | | | 137,787 | | | 55,117 | | | 40 | % | | | | | | | | |
Total Managed services | 3,030 | | | 5,638 | | | (2,608) | | | (46) | % | | 7,371 | | | 8,537 | | | (1,166) | | | (14) | % | | | | | | | | |
Total Software services | 807 | | | 791 | | | 16 | | | 2 | % | | 1,607 | | | 1,600 | | | 7 | | | — | % | | | | | | | | |
Total Net revenue | $ | 105,079 | | | $ | 75,196 | | | $ | 29,883 | | | 40 | % | | $ | 201,882 | | | $ | 147,924 | | | $ | 53,958 | | | 36 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | $ Change | | % Change |
Brand Direct | | | | | | | |
Customer acquisition | $ | 59,619 | | | $ | 52,901 | | | $ | 6,718 | | | 13 | % |
Managed services | 1,609 | | | 3,278 | | | (1,669) | | | (51) | % |
| | | | | | | |
Total Brand Direct | 61,228 | | | 56,179 | | | 5,049 | | | 9 | % |
Marketplace | | | | | | | |
Customer acquisition | 58,806 | | | 49,101 | | | 9,705 | | | 20 | % |
Managed services | — | | | 158 | | | (158) | | | (100) | % |
| | | | | | | |
Total Marketplace | 58,806 | | | 49,259 | | | 9,547 | | | 19 | % |
Technology Solutions | | | | | | | |
| | | | | | | |
Managed services | 1,510 | | | 510 | | | 1,000 | | | 196 | % |
Software services | 826 | | | 1,507 | | | (681) | | | (45) | % |
Total Technology Solutions | 2,336 | | | 2,017 | | | 319 | | | 16 | % |
Corporate and Other | | | | | | | |
Customer acquisition | (13,260) | | | (10,652) | | | (2,608) | | | 24 | % |
Total Corporate and Other | (13,260) | | | (10,652) | | | (2,608) | | | 24 | % |
Total Customer acquisition | 105,165 | | | 91,350 | | | 13,815 | | | 15 | % |
Total Managed services | 3,119 | | | 3,946 | | | (827) | | | (21) | % |
Total Software services | 826 | | | 1,507 | | | (681) | | | (45) | % |
Total Net revenue | $ | 109,110 | | | $ | 96,803 | | | $ | 12,307 | | | 13 | % |
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 an increase in Customer acquisition revenue of $17.8$6.7 million or 44%, and $32.4 million or 41%13% during the three and sixmonths ended June 30, 2021, respectively. These increases are due to growth in our affiliate and performance businesses due to further penetration of existing customers and expansion in the markets, offset by lack of sales from our messaging services due to a strategic shift away from this industry.
March 31, 2022. Customer acquisition revenue for Marketplace increased by $22.5$9.7 million or 64%, and $37.6 million or 54% during20% for the three and sixmonths ended June 30, 2021, respectively. TheseMarch 31, 2022. The increases arein both the Brand Direct and Marketplace segments were primarily due to our penetrationthe migration of consumers to the online shopping experience, especially in the auto and health insurance verticals.verticals, as well as two acquisitions the Company completed in the first half of 2021.
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 decrease of $(2.6)$0.8 million or (46)%, and $(1.2) million or (14)%21% during the three and sixmonths ended June 30, 2021, respectively. These decreases areMarch 31, 2022. The decrease was primarily driven by decreased media activity resulting in lower third-party supplier leads.agency fees.
Software Services Revenue. Software services contracts provide the customer with continuous, daily access to the Company’s proprietary software. Software services revenue is considered insignificant during the three and six months ended June 30, 2021 to our total Net revenue as a whole.March 31, 2022.
Cost of revenue and gross profit. Cost of revenue primarily includes media and other related costs, such as the cost to acquire user traffic through the purchase of impressions, clicks or actions from publishers or third-party intermediaries, including advertising exchanges, and technology costs that enable media acquisition. These media costs are used primarily to drive user traffic to the Company’s and our customers’ media properties. Cost of revenue also includes indirect costs such as data verification, hosting and fulfillment costs.
The following table presents the gross profit percentage (gross profit as a percentage of total revenue) by segment and the changes from prior period:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | | | | | |
Brand Direct | 26.0 | % | | 24.2 | % | | 7.4 | % | | 24.9 | % | | 24.3 | % | | 2.5 | % | | | | | | |
Marketplace | 28.9 | % | | 30.3 | % | | (4.6) | % | | 27.4 | % | | 31.6 | % | | (13.3) | % | | | | | | |
Other | 76.1 | % | | 96.9 | % | | (21.5) | % | | 77.8 | % | | 97.2 | % | | (20.0) | % | | | | | | |
Total gross profit percentage | 32.1 | % | | 30.3 | % | | 5.9 | % | | 30.4 | % | | 30.7 | % | | (1.0) | % | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | | | | | 2022 | | 2021 | | PPTS Change | | | | | |
Brand Direct | | | | | | | 20.9 | % | | 26.9 | % | | -6.0 | | | | | |
Marketplace | | | | | | | 27.9 | % | | 25.7 | % | | 2.2 | | | | | |
Technology Solutions | | | | | | | 88.6 | % | | 79.4 | % | | 9.2 | | | | | |
Total gross profit percentage | | | | | | | 28.7 | % | | 28.5 | % | | 0.2 | | | | | |
Gross profit for Brand Direct increaseddecreased for the three and six months ended June 30, 2021,March 31, 2022, primarily driven by substantial diversification incompressed pricing within auto insurance and increasing telecom costs (dialer fees) for DMS Voice, our distribution channels as we continue to scale growth.voice integrated telephony system.
Gross profit for Marketplace decreasedincreased for the three and six months ended June 30, 2021,March 31, 2022, primarily duedriven by strong performance from our Crisp acquisition and optimizing the media mix to the expansion in the auto and health insurance business at compressed margins.drive lead conversion leveraging our first-party data asset.
Gross profit for Other decreasedTechnology Solutions increased for the three and six months ended June 30, 2021, primarily dueMarch 31, 2022, driven by the optimization of media purchasing activity which lead to the new revenue mix, which has compressed lower profit margins.larger budgets and resulted in increased fees.
Total gross profit increased for the three months ended June 30, 2021,March 31, 2022, primarily due to acquisition related performance, vertical expansion, in the health insurance vertical at higher margins. Total gross profit decreased for the six months ended June 30, 2021, due to the first and second quarter expansiongrowth of performance ad network for our affiliate and auto insurance business at compressed margins, partially offset by expansion of health insurance vertical at higher margins.first-party data asset through signals data.
Salaries and related costs. Total compensation includes salaries, commissions, bonuses, payroll taxes and retirement benefits.
Salaries and related costs increased by $3.8$3.4 million or 48%33.5% for the three months ended June 30, 2021, and increased $5.7 million or 35% for the six months ended June 30, 2021. These increases areMarch 31, 2022, which was primarily driven by stock-based compensation and headcount as a result of anrequired expansion of our workforce into support the insurance and health business,Company’s growth, as well as an increase in commissions due to the increase in revenue.addition of FTEs from the Crisp Results and Aimtell/Aramis/PushPros (“AAP”) acquisitions.
General and administrative. General and administrative consist of expenses incurred in our normal course of business relating to office supplies, computer and technology, rent and utilities, insurance, legal and professional fees, state and local taxes and licenses, penalties and settlements and bad debt expense, as well as sales and marketing expenses relating to advertising and promotion. We also include other expenses such as investment banking expenses, fundraising costs and costs related to the advancement of our corporate social responsibility program.
General and administrative expenses increased $5.9$4.1 million or 127%59.5% for the three months ended June 30, 2021, and for the six months ended June 30, 2021 expenses increased $7.6 million or 76%. These increases areMarch 31, 2022. The increase was primarily driven by higheracquisition related expenses across multiple categories including software, technology, and computerprofessional expenses as well as an overall increase in insurance legal and professional fees related to compliance partially offset by a decline in rental expense due to office closures.fees.
Acquisition costs. Acquisition related costs are not considered part of the consideration for acquisitions and are expensed as incurred. This includes accretion of contingent consideration, acquisition incentive compensation and other transaction related costs.costs..
Acquisition costs increaseddecreased by $0.4$1.5 million or greater than 100%99.1%, and increased $1.9 million or greater than 100% during the three and six months ended June 30, 2021, respectively. These increases areMarch 31, 2022. The decrease was primarily due to thehigher prior year acquisition costs related to contingent consideration based on re-measurement of milestone payments.Crisp Results and Aimtell/Aramis/PushPros (“AAP”) acquisitions.
Depreciation and amortization. Property, plant and equipment consists of computers and office equipment, furniture and
fixtures, leasehold improvements and internally developed software costs. Intangible assets subject to amortization include technology, customer relationships, brand, and non-competition agreements.
Depreciation and amortization expense increased $2.7$1.6 million or 62%30.3%, and $3.8 million or 44% during the three and six months ended June 30, 2021, respectively. These increase areMarch 31, 2022, primarily driven by the fixed assets acquired with Crisp Results and Aimtel/Aramis/PushPros (“AAP”)AAP, as well as continued investments in internally developed software, which were placed in service.service during 2021.
Interest expense. Interest expense for three and six months ended June 30, 2021 isMarch 31, 2022 was related primarily to our debt, which carries a variable interest rate based on multiple options at either LIBOR plus 4.25%,5% or an alternate base rate, plus an agreed upon margin with Truist Bank, the Company’s financial institution since May 25, 2021 (see Note 55. Debt).
Interest expense increased by $0.1$0.4 million or 4%13.2%, and decreased by $(0.4) million or (6%) during the three and six months ended June 30, 2021, respectively.March 31, 2022. The increase for the three months ended June 30, 2021March 31, 2022, was primarily due to comparatively higher outstanding debt balance. The decrease for the six months ended June 30, 2021 was due to a partial decline in interest rates compared to the same period in the prior year.
Income tax expense. ForThe Company recorded income tax expense of $0.3 million for the three months ended June 30, 2021 the Company’s effective income tax rate was 17.27%.March 31, 2022. The blended effective tax rate for the sixthree months ended June 30, 2021March 31, 2022 was 19.53%. These rates vary(6)%, which varies from our statutory U.S. tax rate due to the tax impact of the taxable income or loss that is allocated to the non-controlling interest.interest and impact of the valuation allowance on DMS, Inc.
Non-controlling interest. As a result of the Aimtell/PushPros/Aramis and Crisp Results acquisitions, our non-controlling interest owns approximately 41.9% of the ownership interest of DMSH and we allocate the respective portion of net income or loss to the DMSH Units held by the non-controlling interest.
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 revenue, adjusted EBITDA, unlevered free cash flow, adjusted net income and adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below.
As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, andnon-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 Revenue
Adjusted revenue is a non-GAAP financial measure presented as an alternative method for assessing the Company’s operating results in a manner that is focused on the performance of our underlying operations. Management believes this measure provides useful information because, while the majority of our business consists of lead generation contracts which are accounted for on a gross basis, a portion of our agency managed services contracts are accounted for on a net basis. In light of these considerations, management believes that adjusted revenue provides useful information regarding operating performance across our business, without regard to the accounting treatment of individual contracts, and allows management to build forecasts on a consistent basis across the business. Management further uses adjusted revenue to compare the performance of divisions within the Company against each other and to isolate our core operating performance. Moreover, management expects that over time we will transition all of our services to a principal relationship and as our contracts are either amended or new agreements are executed, this measure will help provide a basis for comparison of our business operations between different periods over time as we transition these services and related accounting for these contracts.
Adjusted revenue is defined as revenue as reported under GAAP, without regard to netting of costs applicable to revenues earned under contracts that are deemed to be entered into on an agency basis.
The following table provides a reconciliation of Adjusted Revenue to revenue, the most directly comparable GAAP measure (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | | |
| Reported (GAAP) | | Adjustments (1) | | Adjusted (Non-GAAP) | | Reported (GAAP) | | Adjustments (1) | | Adjusted (Non-GAAP) | | | | | | |
Net revenue | $ | 105,079 | | | $ | 4,176 | | | $ | 109,255 | | | $ | 201,882 | | | $ | 6,911 | | | $ | 208,793 | | | | | | | |
Cost of revenue | 71,359 | | | 4,176 | | | 75,535 | | | 140,541 | | | 6,911 | | | 147,452 | | | | | | | |
Gross profit | $ | 33,720 | | | $ | — | | | $ | 33,720 | | | $ | 61,341 | | | $ | — | | | $ | 61,341 | | | | | | | |
Gross profit margin | 32.1 | % | | — | % | | 30.9 | % | | 30.4 | % | | — | % | | 29.4 | % | | | | | | |
(1) Includes the gross up for certain Managed services contracts that are presented net of costs under GAAP for the three and six months ended June 30, 2021.
Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion
We use the non-GAAP measures of adjustedAdjusted EBITDA and unlevered free cash flowUnlevered Free Cash Flow to assess operating performance. Management believes that these measures provide useful information to investors regarding DMS’s operating performance and its capacity to incur and service debt and fund capital expenditures. DMS believes that these measures are used by many investors, analysts and rating agencies as a measure of performance. By reporting these measures, DMS provides a basis for comparison of our business operations between current, past and future periods by excluding items that DMS does not believe are indicative of our core operating performance.
Financial measures that are non-GAAP should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, DMS relies primarily on its GAAP results and uses adjustedAdjusted EBITDA and unlevered free cash flowUnlevered Free Cash Flow only as a supplement.
Adjusted EBITDA is defined as net income (loss),loss, excluding (1)(a) interest expense, (2)(b) income tax expense, (3)(c) depreciation and amortization, (4)(d) change in fair value of warrant liabilities, (5)(e) debt extinguishment, (6)(f) stock-based compensation, (7)(g) change in tax receivable agreement liability, (h) restructuring (8)costs, (i) acquisition costs, (9)and (j) other expenses, (10) cost savings expected as a result of a company reorganization, (11) cost synergies expected as a result of full integration of our acquisitions,
and (12) pre-acquisition cost savings resulting from current years’ acquisition and comparable to same period last year.expense.
In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized.
Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods.
Unlevered free cash flowFree Cash Flow is defined as adjustedAdjusted EBITDA, less capital expenditures, and unlevered free cash flow conversionUnlevered Free Cash Flow Conversion is defined as unlevered free cash flowUnlevered Free Cash Flow divided by adjustedAdjusted EBITDA.
The following table provides a reconciliation ofbetween Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from net incomeNet loss, the most directly comparable GAAP measure ((in thousands):
in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | |
| (U.S. Dollars in Thousands) | | | | |
Net income | $ | 4,939 | | | $ | 2,134 | | | $ | 4,727 | | | $ | 2,891 | | | | | |
Adjustments | | | | | | | | | | | |
Interest expense | 3,622 | | | 3,491 | | | 6,879 | | | 7,281 | | | | | |
Income tax expense | 1,031 | | | 213 | | | 1,148 | | | 265 | | | | | |
Depreciation and amortization | 7,044 | | | 4,356 | | | 12,463 | | | 8,671 | | | | | |
Change in fair value of warrant liabilities | (7,750) | | | — | | | (7,435) | | | — | | | | | |
Debt extinguishment | 2,108 | | | — | | | 2,108 | | | — | | | | | |
Stock-based compensation | 1,273 | | | — | | | 2,530 | | | — | | | | | |
Restructuring | 432 | | | — | | | 81 | | | — | | | | | |
Acquisition costs (1) | 466 | | | 47 | | | 1,960 | | | 74 | | | | | |
Other expense (2) | 1,828 | | | 603 | | | 3,410 | | | 1,083 | | | | | |
Subtotal before additional adjustments | $ | 14,993 | | | $ | 10,844 | | | $ | 27,871 | | | $ | 20,265 | | | | | |
Additional adjustments | | | | | | | | | | | |
Pro Forma Cost Savings - Reorganization (3) | $ | — | | | 295 | | | $ | 31 | | | $ | 970 | | | | | |
Pro Forma Cost Savings - Acquisitions (4) | 1,030 | | | 1,770 | | | 1,800 | | | 3,922 | | | | | |
Acquisitions EBITDA (5) | — | | | 3,604 | | | 2,711 | | | 5,604 | | | | | |
Adjusted EBITDA | $ | 16,023 | | | $ | 16,513 | | | $ | 32,413 | | | $ | 30,761 | | | | | |
Capex | $ | 1,821 | | | 2,055 | | | $ | 4,212 | | | $ | 5,031 | | | | | |
Unlevered cash flow | $ | 14,202 | | | $ | 14,458 | | | $ | 28,201 | | | $ | 25,730 | | | | | |
Unlevered cash flow conversion | 89 | % | | 88 | % | | 87 | % | | 84 | % | | | | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2022 | | 2021 | | | | | | | | |
Net loss | $ | (5,357) | | | $ | (212) | | | | | | | | | |
Adjustments | | | | | | | | | | | |
Interest expense | 3,687 | | | 3,257 | | | | | | | | | |
Income tax expense | 310 | | | 117 | | | | | | | | | |
Depreciation and amortization | 7,060 | | | 5,419 | | | | | | | | | |
Change in fair value of warrant liabilities (1) | (1,840) | | | 315 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Stock-based compensation expense | 1,842 | | | 1,257 | | | | | | | | | |
Restructuring costs | 394 | | | (351) | | | | | | | | | |
Acquisition costs (2) | 2,604 | | | 1,494 | | | | | | | | | |
Other expense (3) | 1,793 | | | 1,513 | | | | | | | | | |
Adjusted net income | $ | 10,493 | | | $ | 12,809 | | | | | | | | | |
Additional adjustments | | | | | | | | | | | |
Pro forma cost savings - Reorganization (4) | $ | — | | | $ | 31 | | | | | | | | | |
Pro forma cost savings - Acquisitions (5) | — | | | 769 | | | | | | | | | |
Acquisitions EBITDA (6) | — | | | 2,711 | | | | | | | | | |
| | | | | | | | | | | |
Adjusted EBITDA | $ | 10,493 | | | $ | 16,320 | | | | | | | | | |
Less: Capital Expenditures | 1,617 | | | 2,391 | | | | | | | | | |
Unlevered free cash flow | $ | 8,876 | | | $ | 13,929 | | | | | | | | | |
Unlevered free cash flow conversion | 84.6 | % | | 85.3 | % | | | | | | | | |
______________
(1)IncludesMark-to-market warrant liability adjustments.
(2)Balance includes business combination transaction fees, acquisition incentive payments, contingent consideration accretion, earnout payments and pre-acquisition transactions related to travel, professional andexpenses.
(3)Balance includes legal fees for recent acquisitions.
(2) Other expenses include lease termination costs due to office closures, severance and commission payments due to company reorganization, legal settlements, investor management fees, director fees, professional services associated with the set-up of employee benefits structure for a publicly traded company,acquisitions and other extraordinary matters, costs related to philanthropic initiatives.initiatives, and private warrant transaction related costs.
(3) This reflects remaining cost(4)Costs savings expected as a result of a companythe Company reorganization initiated in Q2 2020.
(4) This reflects remaining cost(5)Cost synergies expected as a result of the full integration of ourthe acquisitions.
(5) This represents the pre-acquisition(6)Pre-acquisition Adjusted EBITDA results forfrom the SmarterChaos, Aimtell/Aramis/PushPros,AAP and Crisp Results acquisitions during the three and six months ended June 30, 2021, and the comparable Adjusted EBITDA amounts for those same acquisitions during the same three- and six-month periods in 2020.March 31, 2021.
A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2021 | | 2020 | | 2021 | | 2020 | | | |
Unlevered Free Cash Flow | $ | 14,202 | | | $ | 14,458 | | | $ | 28,201 | | | $ | 25,730 | | | | |
Capital expenditures | 1,821 | | | 2,055 | | | 4,212 | | | 5,031 | | | | |
Adjusted EBITDA | $ | 16,023 | | | $ | 16,513 | | | $ | 32,413 | | | $ | 30,761 | | | | |
Acquisitions EBITDA (1) | — | | | 3,604 | | | 2,711 | | | 5,604 | | | | |
Pro Forma Cost Savings - Acquisitions (2) | 1,030 | | | 1,770 | | | 1,800 | | | 3,922 | | | | |
Pro Forma Cost Savings - Reorganization (3) | — | | | 295 | | | 31 | | | 970 | | | | |
Subtotal before additional adjustments | 14,993 | | | $ | 10,844 | | | $ | 27,871 | | | $ | 20,265 | | | | |
Other expenses (4) | 1,828 | | | 603 | | | 3,410 | | | 1,083 | | | | |
Acquisition costs (5) | 466 | | | 47 | | | 1,960 | | | 74 | | | | |
Stock-based compensation | 1,273 | | | — | | | 2,530 | | | — | | | | |
Restructuring | 432 | | | — | | | 81 | | | — | | | | |
Change in fair value of warrant liabilities | (7,750) | | | — | | | (7,435) | | | — | | | | |
Debt extinguishment | 2,108 | | | — | | | 2,108 | | | — | | | | |
Subtotal before additional adjustments | $ | 16,636 | | | $ | 10,194 | | | $ | 25,217 | | | $ | 19,108 | | | | |
| | | | | | | | | | |
Loss on debt extinguishment | 2,108 | | | — | | | 2,108 | | | — | | | | |
Provision for bad debt | 499 | | | (143) | | | 909 | | | — | | | | |
Lease restructuring charges | 477 | | | — | | | 174 | | | — | | | | |
Stock-based compensation | 1,273 | | | — | | | 2,530 | | | — | | | | |
Interest expense | (3,622) | | | (3,491) | | | (6,879) | | | (7,281) | | | | |
Income tax expense | (1,031) | | | (213) | | | (1,148) | | | (265) | | | | |
Payment of contingent consideration | — | | | — | | | — | | | (1,000) | | | | |
Amortization of debt issuance costs | 295 | | | 191 | | | 528 | | | 471 | | | | |
Deferred income tax provision, net | 1,380 | | | (494) | | | 364 | | | (984) | | | | |
Change in income tax receivable and payable | (3,461) | | | — | | | (2,328) | | | — | | | | |
Change in fair value of contingent consideration | 178 | | | — | | | 560 | | | — | | | | |
Change in fair value of warrant liability | (7,750) | | | — | | | (7,435) | | | — | | | | |
Change in accounts receivable, net | (3,261) | | | 2,670 | | | (4,330) | | | (2,200) | | | | |
Change in prepaid expenses and other current assets | (145) | | | (2,921) | | | 222 | | | (4,109) | | | | |
Change in accounts payable and accrued expenses | (1,065) | | | (3,250) | | | (6,768) | | | (76) | | | | |
Change in income tax receivable and payable | — | | | — | | | — | | | — | | | | |
Change in other liabilities | (166) | | | 41 | | | (190) | | | 29 | | | | |
Net cash provided by (used in) operating activities | $ | 2,345 | | | $ | 2,584 | | | $ | 3,534 | | | $ | 3,693 | | | | |
______________
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Unlevered free cash flow | | $ | 8,876 | | | $ | 13,929 | | | | | |
Capital expenditures | | 1,617 | | | 2,391 | | | | | |
Adjusted EBITDA | | $ | 10,493 | | | $ | 16,320 | | | | | |
| | | | | | | | |
Acquisitions EBITDA (1) | | — | | | 2,711 | | | | | |
Pro forma cost savings - Reorganization (2) | | — | | | 31 | | | | | |
Pro forma cost savings - Acquisitions (3) | | — | | | 769 | | | | | |
Adjusted net income | | $ | 10,493 | | | $ | 12,809 | | | | | |
Acquisition costs (4) | | 2,604 | | | 1,494 | | | | | |
Other expenses (5) | | 1,793 | | | 1,513 | | | | | |
Stock-based compensation | | 1,842 | | | 1,257 | | | | | |
Restructuring costs | | 394 | | | (351) | | | | | |
Change in fair value of warrant liabilities (6) | | (1,840) | | | 315 | | | | | |
| | | | | | | | |
Subtotal before additional adjustments | | $ | 5,700 | | | $ | 8,581 | | | | | |
Less: Interest expense | | 3,687 | | | 3,257 | | | | | |
Less: Income tax expense | | 310 | | | 117 | | | | | |
| | | | | | | | |
Provision for bad debt | | 532 | | | 410 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Lease restructuring charges | | (126) | | | (303) | | | | | |
| | | | | | | | |
Stock-based compensation, net of amounts capitalized | | 1,842 | | | 1,257 | | | | | |
| | | | | | | | |
Amortization of debt issuance costs | | 453 | | | 233 | | | | | |
Deferred income tax provision, net | | (392) | | | (1,016) | | | | | |
| | | | | | | | |
Change in fair value of contingent consideration | | 2,591 | | | 382 | | | | | |
Change in fair value of warrant liability | | (1,840) | | | 315 | | | | | |
| | | | | | | | |
Change in income tax receivable and payable | | 732 | | | 1,133 | | | | | |
Change in accounts receivable | | (7,368) | | | (1,069) | | | | | |
Change in prepaid expenses and other current assets | | 1,150 | | | 367 | | | | | |
Change in accounts payable and accrued expenses | | (1,263) | | | (5,703) | | | | | |
Change in other liabilities | | 38 | | | (24) | | | | | |
Net cash (used in) provided by operating activities | | $ | (1,948) | | | $ | 1,189 | | | | | |
______________
(1)This represents the pre-acquisitionPre-acquisition Adjusted EBITDA results forfrom the SmarterChaos, Aimtell/Aramis/PushPros,AAP and Crisp Results, and acquisitions during the three and six months ended June 30, 2021, and the comparable Adjusted EBITDA amounts for those same acquisitions during the same three- and six-month periods in 2020.March 31, 2021.
(2)This reflects remaining costCosts savings as a result of the Company reorganization initiated in Q2 2020.
(3)Cost synergies expected as a result of the full integration of ourthe acquisitions.
(3)This reflects remaining cost savings expected as a result of a company reorganization initiated in Q2 2020.
(4)Other expenses include lease termination costs due to office closures, severanceBalance includes business combination transaction fees, acquisition incentive payments, contingent consideration accretion, earnout payments and commission payments due to company reorganization,pre-acquisition expenses.
(5)Balance includes legal settlements, investor management fees director feesassociated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives.initiatives, and private warrant transaction related costs.
(5)(6)Includes pre-acquisition transactions related to travel, professional and legal fees for recent acquisitions.
Mark-to-market warrant liability adjustments.
Adjusted Net Income and Adjusted EPS:EPS
We use the non-GAAP measures adjusted net incomeAdjusted Net Income and adjustedAdjusted 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 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)Adjusted Net Income (Loss) as net income (loss)loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combinations andCombination, 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 stockCommon Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net income (loss)loss per share as adjusted pro forma net income (loss)loss divided by the weighted-average shares of Class A common stockCommon 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 stockCommon 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, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | | |
Net income attributable to Digital Media Solutions, Inc. - basic | | $ | 2,528 | | | $ | 2,134 | | | $ | 2,354 | | | $ | 2,891 | |
Less: dilutive effect of change in fair value warrant liabilities attributable to Digital Media Solutions, Inc. | | — | | | $ | — | | | 4,321 | | | $ | — | |
Net income (loss) attributable to Digital Media Solutions, Inc. - diluted | | $ | 2,528 | | | $ | 2,134 | | | $ | (1,967) | | | $ | 2,891 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average shares - basic | | 35,377 | | | N/A | | 34,315 | | | N/A |
Add: dilutive effects of employee equity awards | | 628 | | | — | | — | | | — |
Add: dilutive effects of Private Placement warrants | | — | | | — | | 10 | | | — |
Add: dilutive effects of deferred consideration | | 517 | | | — | | — | | | — |
Weighted average shares - diluted | | 36,522 | | | N/A | | 34,325 | | | N/A |
Net income per common share: | | | | | | | | |
Basic | | $ | 0.07 | | | N/A | | $ | 0.07 | | | N/A |
Diluted | | $ | 0.07 | | | N/A | | $ | (0.06) | | | N/A |
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | | |
Net income attributable to Digital Media Solutions, Inc.; | | $ | 2,528 | | | $ | 2,134 | | | $ | 2,354 | | | $ | 2,891 | |
Add adjustments to net income: | | | | | | | | |
Change in fair value of warrant liabilities | | (7,750) | | | — | | | (7,435) | | | — | |
Debt Extinguishment | | 2,108 | | | — | | | 2,108 | | | — | |
Acquisition costs | | 466 | | | 47 | | | 1,960 | | | 74 | |
Equity based compensation, legal and severance costs | | 1,625 | | | 495 | | | 3,878 | | | 628 | |
Restructuring, transition and refinance costs | | 1,943 | | | 107 | | | 2,497 | | | 455 | |
Acquisition synergies | | 31 | | | 1,888 | | | 831 | | | 4,714 | |
Acquisition EBITDA | | 999 | | | 306 | | | 1,421 | | | 1,432 | |
| | $ | 1,950 | | | $ | 4,977 | | | $ | 7,614 | | | $ | 10,194 | |
Net income tax expense (benefit) based on conversion of units | | (76) | | | 1,244 | | | 902 | | | 2,039 | |
Adjusted net income | | $ | 2,026 | | | $ | 3,733 | | | $ | 6,712 | | | $ | 8,155 | |
Denominator: | | | | | | | | |
Weighted-average shares outstanding - basic and diluted | | | | | | | | |
Class A common stock | | 35,377 | | | N/A | | 34,315 | | | N/A |
Weighted-average LLC Units of Digital Media Solutions Holdings, LLC that are convertible into Class A common stock | | 36,522 | | | N/A | | 34,325 | | | N/A |
| | | | | | | | |
Adjusted EPS -basic | | $ | 0.06 | | | N/A | | $ | 0.20 | | | N/A |
Adjusted EPS -dilutive | | $ | 0.06 | | | N/A | | $ | 0.20 | | | N/A |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2022 | | | | 2021 | |
Numerator: | | | | | | | | |
Net loss | | | $ | (5,357) | | | | | $ | (212) | | |
| | | | | | | | |
Net loss attributable to non-controlling interest | | | (2,223) | | | | | (93) | | |
Net loss attributable to Digital Media Solutions, Inc. - basic and diluted | | | $ | (3,134) | | | | | $ | (119) | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Denominator: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted average shares - basic and diluted | | | 35,576 | | | | | 33,241 | | |
| | | | | | | | |
Net earnings (loss) per common share: | | | | | | | | |
Basic and diluted | | | $ | (0.09) | | | | | $ | — | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Numerator: | | | | | | | | |
Net loss attributable to Digital Media Solutions, Inc. - basic and diluted | | $ | (3,134) | | | $ | (119) | | | | | |
| | | | | | | | |
Add adjustments: | | | | | | | | |
Change in fair value of warrant liabilities | | (1,840) | | | 315 | | | | | |
Acquisition and related costs | | 2,604 | | | 1,494 | | | | | |
Restructuring costs | | 394 | | | (351) | | | | | |
Business combination expenses | | — | | | 769 | | | | | |
Stock-based compensation expense | | 1,842 | | | 1,257 | | | | | |
| | | | | | | | |
| | $ | 3,000 | | | $ | 3,484 | | | | | |
Net income tax expense based on conversion of units | | — | | | 144 | | | | | |
Adjusted net income (loss) attributable to Digital Media Solutions, Inc. - basic and diluted | | $ | (134) | | | $ | 3,509 | | | | | |
| | | | | | | | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted-average shares outstanding - basic and diluted | | 35,576 | | | 33,241 | | | | | |
Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock | | 25,728 | | | 26,306 | | | | | |
| | 61,304 | | | 59,547 | | | | | |
| | | | | | | | |
Adjusted EPS - basic and diluted | | $ | — | | | $ | 0.06 | | | | | |
| | | | | | | | |
| | | | | | | | |
LIQUIDITY AND CAPITAL RESOURCES
| | | | | | | | | | | | | | | | | |
| | | | | |
Prospectus Supplement No. 11
(to prospectus dated August 7, 2020)
| Filed Pursuant to Rule 424(b)(3)
Registration No. 333-240278
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DIGITAL MEDIA SOLUTIONS, INC.
73,444,102 Shares of Class A Common Stock
4,000,000 Warrants to Purchase Class A Common Stock
This prospectus supplement relates to the prospectus dated August 7, 2020, as supplemented thereafter (the “Prospectus”), related to (i) the issuance by Digital Media Solutions, Inc., a Delaware corporation (“DMS”), of up to 13,999,078 shares of its Class A common stock, par value $0.0001 per share (“Class A Common Stock”), upon exercise of warrants to purchase Class A Common Stock at an exercise price of $11.50 per share (“DMS Warrants”) and (ii) the offer and sale, from time to time, by the selling holders identified in the Prospectus, or their permitted transferees, of (A) up to 59,445,024 shares of Class A Common Stock and (B) up to 4,000,000 DMS Warrants.
This prospectus supplement is being filed to update and supplement the information contained in the Prospectus with the information contained in DMS’s Current Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2021, which is attached to this prospectus supplement.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
The Class A Common Stock and DMS Warrants are traded on the New York Stock Exchange under the symbols “DMS” and “DMS WS,” respectively.
Investing in our securities involves risks. See “Risk Factors” beginning on page 24 of the Prospectus and in any applicable prospectus supplement.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 9, 2021.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes certain key measures of our liquidity and capital resources (in thousands):
| | | June 30, 2021 | | December 31, 2020 | | $ Change | | % Change | | March 31, 2022 | | December 31, 2021 | | $ Change | | % Change |
Cash | Cash | $ | 18,829 | | | $ | 31,397 | | | $ | (12,568) | | | (40) | % | Cash | $ | 21,703 | | | $ | 26,394 | | | $ | (4,691) | | | (18) | % |
Availability under revolving credit facility | Availability under revolving credit facility | $ | 50,000 | | | $ | 15,000 | | | $ | 35,000 | | | 233 | % | Availability under revolving credit facility | $ | 50,000 | | | $ | 50,000 | | | $ | — | | | — | % |
Total Debt | Total Debt | 225,000 | | | 203,851 | | | $ | 21,149 | | | 10 | % | Total Debt | $ | 217,533 | | | $ | 217,755 | | | $ | (222) | | | — | % |
Our capital sources are focused on investments in our technology solutions, corporate infrastructure and strategic acquisitions to further expand into new business sectors and/or expand sales in existing sectors. We generate sufficient cash flows for working capital and expect to do so for the foreseeable future.
Our principal sources of liquidity on a short-term basis are cash and cash equivalents, and cash flows provided by operations. Our primary use of cash is compensation to our employees and payments for general operating expenses and interest expense.
OnBorrowings 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 will pay a 0.50% per annum commitment fee in arrears on the undrawn portion of the revolving commitments. For the three months ended March 31, 2022, the effective interest rate was 6.29%. Since May 25, 2021 Digital Media Solutions, LLC (“DMS LLC”), as borrower, and DMSH, eachour interest rate is based on LIBOR plus 5%.
The Term Loan, which was issued at an original issue discount of which is a subsidiary1.80% or $4.2 million, will be subject to payment of DMS, entered into a new 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 all1.0% 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 anoriginal aggregate principal amount of $225 million (the “Term Loan”)per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and a $50 million senior securedthe revolving credit facility (the “Revolving Facility”). The Company deferred approximately $3.5 million of issuance costs primarily associated with brokerage, legal, arrangement and consulting fees. The premium andcommitments under the deferred financing costsRevolving Facility will be amortized using the effective interest method over the life of the note.terminate, on May 25, 2026, when any outstanding balances will become due.
For the six months ended June 30, 2021 and the six months ended June 30, 2020, our Unlevered Free Cash Flow conversion rate was 87% and 84%, respectively. This increase was due to stock-based compensation, acquisition synergies and debt extinguishment related to management proforma adjustments.
Cash flows from operating activities
Net cash (used in) provided by operating activities was $3.5$(1.9) million for the sixthree months ended June 30, 2021March 31, 2022 as compared to $3.7$1.2 million provided by in the six months ended June 30, 2020. The increase in comparable cash provided by operating activities wasin the three months ended March 31, 2021. The decrease is primarily attributable to an increase in accounts receivable due to continued growthtiming of the businesscustomer payments, and payments ofa slight decrease in accounts payable and current accrued expenses offset by stock-based compensation and the payoutdue to timing of the earnout compensation related to an acquisition of UE Authority, Co. during the six months ended June 30, 2020.vendor payments.
Cash flows from investing activities
Net cash used in investing activities for the sixthree months ended June 30, 2021 increasedMarch 31, 2022 decreased by $24.0$5.2 million or 477%76% to $29.0$1.6 million from $5.0$6.8 million for the sixthree months ended June 30, 2020March 31, 2021 primarily due to the recenttiming of the acquisition of Aimtell/Aramis/PushPros and Crisp Results as well as continued investments in internally developed software.AAP made during the first quarter of 2021.
Cash flows from financing activities
Net cash used in financing activities for the sixthree months ended June 30, 2021March 31, 2022 was $12.9$1.1 million, reflecting an increasea decrease of $6.7$0.7 million or 106%40%, as compared to $6.3$1.9 million for the sixthree months ended June 30, 2020.March 31, 2021. This increasedecrease was mainly due to higher required repayments of borrowings incurredof long-term debt and notes payable in connection with the establishment ofprior year under the Monroe Credit Facility and Insurance Premium Financial Service arrangements.
For the three months ended March 31, 2022 and 2021, our Credit Facility.Unlevered Free Cash Flow conversion rate was 84.6% and 85.3%, respectively. The slight decrease was due to higher business performance.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. In addition, we do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to Item 7.7: Management’s Discussion and Analysis of Financial Condition and Results of Operation of thein our 2021 Form 10-K/A for the year ended December 31, 2020, filed on May 18, 2021,10-K, for further information on our critical and other significant accounting policies.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 1. Summary of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited), included in Item 1.1: Financial Statements of this Quarterly Report, for a more detailed discussion on recent accounting pronouncements and the related impact on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For our disclosures about market risk, please see Part II, Item 7A “Quantitative7A: Quantitative and Qualitative Disclosures about Market Risk”Risk in our Annual Report2021 Form 10-K.
Interest Rate Risk
As of March 31, 2022, we had total debt outstanding of $217.5 million (net of $5.8 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 Form 10-K/our floating rate debt. A forhypothetical 100 basis point increase in interest rates would increase our interest expense by approximately $2.2 million annually, based on the year ended Decemberdebt outstanding at March 31, 2020, filed on May 18, 2021.2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
DisclosureWe have established disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in ourthe reports that it files or submits under the Securities Exchange Act reportsof 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms and include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicatedmade known to ourthe officers who certify the Company’s financial reports and to other members of senior management including our principal executive officer and principal financial officer or persons performing similar functions,the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
UnderBased on their evaluation as of March 31, 2022, the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial OfficerCompany have concluded that during the period covered by this Quarterly Report, ourthe 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 weaknessesweakness in our internal control over financial reporting described in our Annual Report on2021 Form 10-K/A for the year ended December 31, 2020, filed on May 18, 2021.10-K. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our quarterly interim consolidated financial statements will not be prevented or detected on a timely basis.
Changes inManagement’s Report on Internal Control Over Financial Reporting
WithUnder the oversightsupervision and with the participation of senior management, including our Chief Executive Officer and our audit committee,Chief Financial Officer, we have been taking steps to improve and enhanceconducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2021, as a material weakness exists. 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 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 more recentlyprocedures with respect to remediateaccounts receivable, including the allowance for doubtful accounts, and associated revenue, we previously discovered a material weaknesses describederror in a customer receivable account, related to a duplicate billing of a customer in fiscal years 2020 and 2021. As a result of these matters, we determined that our controls around revenue and accounts receivable policies and procedures were not effective as of December 31, 2021. The errors related to these matters have been corrected and are properly reflected in our Annual Report on Form 10-K/Aconsolidated financial statements for the year ended December 31, 2020, filed on May 18, 2021. These steps include: (i) moving2021 and the quarter ended March 31, 2022.
We continue to a new accounting system foranalyze our aged receivables and have not identified any additional material errors similar to the period commencing on January 1, 2021 for more efficient and timely reporting; (ii) hiring additional personnel to oversee and effectively allow for formally documenting accounting policies and ensuring compliance with accounting requirements; (iii) continuing to improve and maintain policies,items identified above. We are monitoring our processes and documentation procedures to improvecontrols around evaluating the overall efficiency and accuracycollectability of our financial reporting; and (iv) establishing an ongoing programcustomer receivables
along with assessing the loss rates used to calculate the reserve for potential uncollectible receivables. We believe our ongoing efforts will be sufficient to remediate the identified material weakness.
We will not consider the material weakness remediated until the remedial controls operate for a sufficient period of time and we have concluded, through testing, that these controls are effectively designed and operating effectively. We will continue to assess throughout 2022.
Changes in Internal Control Over Financial Reporting
Except as disclosed above, there washave been no changechanges in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2021,March 31, 2022, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various disputes and litigation that arise in the ordinary course of business. However, separate from such matters, to the best of our knowledge, there are no material pending or threatened legal proceedings to which we are a party, either individually or in the aggregate.
Item 1A. Risk Factors
As
The Company’ s business, results of June 30, 2021, there have been no material changesoperations, and financial condition are subject to the risk factors set forthvarious risks and uncertainties, including those described in Part I, Item 1A: Risk Factors in our Annual Report on2021 Form 10-K/A for the year ended December 31, 2020, filed on May 18, 2021.10-K.
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
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of this report:
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Exhibit Number | | Description |
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| | 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). |
| | 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). |
| | Asset Purchase Agreement, dated April 1, 2021, by and among Digital Media Solutions, Inc.,
Edge Marketing, LLC, and wholly owned subsidiary of Digital Media Solutions, LLC,
Crisp Marketing, LLC, d/b/a Crisp Results, and Union Health, LLC, a Florida limited liability company, and Justin Ferreira, in his capacity as Sellers’ representative.
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| | Credit Agreement, dated as of May 25, 2021, by and among Digital Media Solutions, LLC, as borrower, Digital Media Solutions Holding, LLC, the lenders and issuing banks named therein, and Truist Bank, as administrative agent and as collateral agent (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on May 26, 2021). |
| | 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. |
| | 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. |
| | 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. |
| | 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. |
101101.INS* | | Inline XBRL Instance Document |
101.SCH*† | The following financial information for the period ended June 30, 2021, formatted in | Inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets; (ii) Unaudited Condensed Consolidated Statements of Operations; (iii) Unaudited Condensed Consolidated Statements of Changes in Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows; and (v) Notes to Unaudited Condensed Consolidated Financial Statements.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) |
+ Certain confidential information contained in this agreement has been omitted because it (i) is not material, and (ii) would
be competitively harmful if publicly disclosed.* Filed herewith
^ Certain schedules to† Users of this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedules upon request, provided that the registrant may request confidential treatmentdata are advised pursuant to Rule 24b-2406T 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, of 1934, as amended.and otherwise is not subject to liability under these section
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 9, 2021May 10, 2022
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| Digital Media Solutions, Inc. |
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| /s/ Joseph Marinucci |
| Name: | Joseph Marinucci |
| Title: | President and Chief Executive Officer (Principal Executive Officer) |
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| /s/ Vasundara Srenivas |
| Name: | Vasundara Srenivas |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) |