Direct Digital Holdings Raises $25 Million in Series A Preferred Equity

Rhea-AI Summary

Direct Digital Holdings (Nasdaq: DRCT), a leading advertising and marketing technology platform, has announced a $25 million Series A Convertible Preferred Stock issuance through the conversion of existing debt. The preferred stock features a $2.50 per share conversion price for Class A Common Stock and carries a 10% cumulative annual dividend.

This strategic financial restructuring transforms the company's balance sheet from a $24.6 million deficit to an estimated $0.4 million positive shareholders' equity. The move reduces ongoing debt service by over $3.5 million and significantly decreases debt obligations maturing in December 2026. This restructuring is particularly crucial for regaining compliance with Nasdaq's minimum stockholders' equity listing requirement.

Positive

• Conversion of debt to equity improves balance sheet structure
• Reduction of over $3.5 million in ongoing debt service costs
• Transformation from $24.6M deficit to $0.4M positive shareholders' equity
• Premium conversion price of $2.50 per share indicates confidence in company value

Negative

• Substantial doubt about company's ability to continue as going concern
• Risk of potential Nasdaq delisting due to listing requirement issues
• 10% cumulative dividend obligation adds future financial burden
• Company still actively seeking additional funding indicating ongoing capital needs

Insights

Financial Restructuring Specialist

DRCT converts $25M debt to preferred equity, turning negative equity positive and reducing debt burden while addressing Nasdaq compliance issues.

Direct Digital Holdings has executed a critical balance sheet restructuring by converting $25 million of existing debt into Series A Convertible Preferred Stock. This strategic financial maneuver transforms the company's equity position from a $24.6 million deficit to a positive shareholders' equity of approximately $0.4 million, marking a complete reversal of their capital structure weakness. The preferred shares come with a premium conversion price of $2.50 per Class A Common Stock and carry a 10% cumulative annual dividend.

The restructuring achieves three critical objectives simultaneously: First, it substantially improves the balance sheet by eliminating $25 million in debt liabilities. Second, it reduces ongoing debt service by over $3.5 million, immediately improving cash flow. Third, it addresses a critical regulatory requirement by helping the company progress toward regaining Nasdaq compliance regarding minimum stockholders' equity requirements.

The preferred stock's structure as perpetual but redeemable at the company's discretion provides financial flexibility, while the 10% dividend is payable only when declared by the board, avoiding mandatory cash outflows. This transaction signals potential further financial engineering as management indicated they are seeking additional funding and strategic opportunities to maximize value. For a company previously facing significant balance sheet distress, this represents a substantial financial lifeline that addresses immediate solvency concerns while buying time for operational improvement.

HOUSTON, Aug. 11, 2025 /PRNewswire/ -- Direct Digital Holdings, Inc. (Nasdaq: DRCT) ("Direct Digital Holdings" or the "Company"), a leading advertising and marketing technology platform operating through its companies Colossus Media, LLC ("Colossus SSP") and Orange 142, LLC ("Orange 142"), today announced the issuance of $25 million of a new series of Series A Convertible Preferred Stock, at a premium conversion price of $2.50 per share of Class A Common Stock.  The investment was made through the conversion of a portion of existing debt into the new class of perpetual convertible preferred stock. The preferred stock is redeemable in whole or in part at the Company's direction, votes on an as-converted basis with the Class A common stock, and carries a 10% cumulative annual dividend payable if, as and when declared by the Company's board of directors.

The investment results in a $25 million increase in the Company's stockholders' equity from a deficit of $24.6 million at June 30, 2025 to an estimated positive shareholders' equity of approximately $0.4 million (subject to any other period adjustments).  It further reduces the Company's ongoing debt service by more than $3.5 million and significantly reduces maturing debt obligations in December 2026.    

Mark Walker, CEO of Direct Digital Holdings, commented, "This investment bolsters our balance sheet, provides financial flexibility to support our growth strategy, and significantly closes the gap on the shareholders' equity needed to regain compliance with Nasdaq's listing requirement regarding minimum stockholders' equity.  We continue to actively seek additional funding and strategic opportunities that maximize shareholder value." 

Further details of the terms of the new preferred stock are disclosed in the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on the date hereof.

Cautionary Note Regarding Forward Looking Statements

This press release contains forward-looking statements within the meaning of federal securities laws that are subject to certain risks, trends and uncertainties. We use words such as "could," "would," "may," "might," "will," "expect," "likely," "believe," "continue," "anticipate," "estimate," "intend," "plan," "project" and other similar expressions to identify forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption "Risk Factors" and elsewhere in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "Form 10-K") and subsequent periodic and or current reports filed with the Securities and Exchange Commission (the "SEC").

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

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

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

About Direct Digital Holdings
Direct Digital Holdings (Nasdaq: DRCT) combines cutting-edge sell-side and buy-side advertising solutions, providing data-driven digital media strategies that enhance reach and performance for brands, agencies, and publishers of all sizes. Our sell-side platform, Colossus SSP, offers curated access to premium, growth-oriented media properties throughout the digital ecosystem. On the buy-side, Orange 142 delivers customized, audience-focused digital marketing and advertising solutions that enable mid-market and enterprise companies to achieve measurable results across a range of platforms, including programmatic, search, social, CTV, and influencer marketing. With extensive expertise in high-growth sectors such as Energy, Healthcare, Travel & Tourism, and Financial Services, our teams deliver performance strategies that connect brands with their ideal audiences.

At Direct Digital Holdings, we prioritize personal relationships by humanizing technology, ensuring each client receives dedicated support and tailored digital marketing solutions regardless of company size. This empowers everyone to thrive by generating billions of monthly impressions across display, CTV, in-app, and emerging media channels through advanced targeting, comprehensive data insights, and cross-platform activation. DDH is "Digital advertising built for everyone."

Contacts:

Investors:
IMS Investor Relations
Walter Frank/Jennifer Belodeau
(203) 972-9200
investors@directdigitalholdings.com

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SOURCE Direct Digital Holdings

FAQ

What is the size and terms of Direct Digital Holdings' (DRCT) Series A Preferred Stock offering?

Direct Digital Holdings issued $25 million in Series A Convertible Preferred Stock with a $2.50 per share conversion price and 10% cumulative annual dividend.

How does the Series A offering impact DRCT's shareholders' equity?

The offering transforms DRCT's shareholders' equity from a $24.6 million deficit to an estimated $0.4 million positive balance, helping address Nasdaq listing compliance.

What is the impact on DRCT's debt obligations?

The conversion reduces DRCT's ongoing debt service by over $3.5 million and significantly decreases debt obligations maturing in December 2026.

What are the key risks facing Direct Digital Holdings after this offering?

Key risks include going concern issues, potential Nasdaq delisting, need for additional funding, and new 10% cumulative dividend obligations.

How will the Series A Preferred Stock voting rights work?

The preferred stock votes on an as-converted basis with Class A common stock and is redeemable at the Company's direction.