Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Note 10. 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, Restricted cash, Accounts receivable, Income tax receivable, Accounts payable, Accrued expenses and Income taxes payable, approximate fair value because of the short-term maturity of those instruments.

Preferred Warrants

On March 29, 2023, the Company completed a securities purchase agreement (the “SPA”) with certain investors to purchase 80,000 shares of Series A convertible redeemable Preferred Stock (“Series A Preferred Stock”) and 60,000 shares of Series B convertible redeemable Preferred Stock (“Series B Preferred Stock”) for an aggregate purchase price of $14.0 million (the “Preferred Offering”), including $6.0 million of related party participation. The Company also issued to the purchasers in the Preferred Offering warrants to acquire 963 thousand shares of Class A Common Stock (“Preferred Warrants”).

The Preferred Warrants are exercisable for shares of the Company’s Class A Common Stock at any time at the option of the holder and expire five years from the date of issuance. The Preferred Warrants are exercisable on a cashless basis or for cash at an exercise price of $9.6795 per share of Class A Common Stock. The exercise price of the Preferred Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, subdivisions, combinations, reclassifications, or similar events affecting the Company’s Common Stock. The Preferred Warrants contain a put feature providing the right to the holder for a net cash settlement in the event of a fundamental transaction, which is defined as instances where the Company (i) effects any merger or consolidation of the Company, (ii) effects any sale, lease, license, assignment, transfer, conveyance, or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) completes any purchase offer, tender offer, or exchange offer that has been accepted by the holders of at least 50% of the outstanding Class A Common Stock, (iv) effects any reclassification, reorganization, or recapitalization of the Class A Common Stock or any compulsory share exchange pursuant to which the Class A Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) consummates a stock or share purchase agreement or other business combination in which more than 50% of the outstanding shares of Class A Common Stock is acquired. Under such a fundamental transaction, the holder can require the Company to purchase any unexercised warrant shares at the pro-rata share of the sales price or calculated value less the exercise price of the Warrant share.

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

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

The significant assumptions were as follows:


	December 31, 2023

Preferred Warrants Fair Value Per Share	$	0.06
Preferred Warrant valuation inputs:
Stock price - DMS Inc. Class A Common Stock	$	0.13

Remaining contractual term in years	4.25
Estimated volatility	150.0		%
Dividend yield	0.0		%
Risk free interest rate	3.87		%

Private Placement Warrants

Each Company Private Placement Warrant entitles the registered holder to purchase one-fifteenth (1/15) share of Class A Common Stock at a price of $172.50 per share, subject to adjustment. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire five years after the Business Combination, or earlier upon redemption or liquidation.

The Company may call the Company Private Placement Warrants for redemption as follows: (1) in whole and not in part; (2) at a price of $0.01 per warrant; (3) upon a minimum of 30 days’ prior written notice of redemption; and (4) only if the last reported closing price of the Class A Common Stock equals or exceeds $270.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

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

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

We record the fair value of the Private Placement Warrants as a liability in our consolidated balance sheets as of December 31, 2023 and 2022, respectively. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. Changes in fair value of the Private Placement Warrants are presented under Change in fair value of warrant liabilities on the consolidated statements of operations. As of December 31, 2023, the Company has approximately 4 million Private Placement Warrants outstanding (convertible into 267 thousand Class A Common Stock), the total value of which is not material to the financial statements.

Contingent consideration payable related to acquisitions

The contingent consideration payable for the Crisp acquisition was finalized on April 1, 2022, the end of the earnout period. As the full target was met, the payment was made on July 1, 2022 in the form of Class A Common Stock (see Note 7. Acquisitions).

The contingent consideration for the Aramis acquisition was finalized on December 31, 2022, the end of the earnout period, and became payable during the fourth quarter of 2023, in the form of cash or Class A Common Stock, at the election of the Company. The timing of payment of the Aramis earnout remains subject to resolution of certain outstanding indemnity issues relating to the acquisition (see Note 7. Acquisitions).

The contingent consideration for the Aimtell and PushPros acquisition finalized on December 31, 2023, the end of the earnout period, resulting in none of the metrics being met, thus no contingent consideration is to be paid to the sellers (see Note 7. Acquisitions).

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

The fair value of the contingent consideration payable for the ClickDealer acquisition (described in Note 7. Acquisitions) was 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 Change in fair value of contingent consideration liabilities on the consolidated statements of operations.

The following table presents the contingent consideration assumptions as of December 31, 2023:



















	ClickDealer
Revenue Volatility	50	%
Iteration (actual)	100,000
Risk Adjustment Discount Rate	23.75	%
Risk free / Credit risk	12.50	%
Days from period end to payment	90

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


		December 31, 2023
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:
Private placement warrants - Class B common stock	Warrant liabilities	$	—	$	—	$	24	$	24
Preferred warrants - Series A & B preferred stock	Warrant liabilities	—		—		58		58

Contingent consideration - Aramis	Contingent consideration payable - current	—		—		1,000		1,000


Contingent consideration - ClickDealer	Contingent consideration payable - non-current	—		—		512		512
Total		$	—	$	—	$	1,594	$	1,594


		December 31, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:
Private placement warrants - Class B common stock	Warrant liabilities	$	—	$	—	$	600	$	600
Contingent consideration - Aramis	Contingent consideration payable - current	—		—		1,000		1,000

Contingent consideration - Traverse	Contingent consideration payable - current	—		—		453		453


Total		$	—	$	—	$	2,053	$	2,053

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


	Private Placement Warrants		Preferred Warrants		Contingent Consideration
Balance, January 1, 2022	$	3,960	$	—	$	8,439
Additions	—		—		431
Changes in fair value	(3,360)		—		2,583
Settlements	—		—		(10,000)
Balance, December 31, 2022	600		—		1,453
Additions	—		8,667		2,457
Changes in fair value	(576)		(8,609)		(1,833)
Settlements	—		—		(500)
Other (1)	—		—		(65)
Balance, December 31, 2023	$	24	$	58	$	1,512

____________________

(1)Relates to the revision of the initial fair value of the ClickDealer contingent consideration. See Note 7. Acquisitions.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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