Stockholders’ Deficit and Stock-Based Compensation

3 Months Ended

Mar. 31, 2026

Stockholders' Equity and Stock-Based Compensation [Abstract]

Stockholders’ Deficit and Stock-Based Compensation

Note 4 — Stockholders’ Deficit and Stock-Based Compensation

Stockholders’ Equity

Following the completion of its organizational transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, the Company's Chairman and Chief Executive Officer and President, and (ii) noneconomic voting units of DDH LLC, 100% of which are held by the Company. During the three months ended March 31, 2025, members of DDM tendered 318 of its limited liability company units to the Company in exchange for newly issued shares of Class A Common Stock of the Company on a one-for-one basis. In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled. As of March 31, 2026, DDM held 42,160 shares of Class B Common Stock.

The Company is authorized to issue 760,000,000 shares of Class A Common Stock, par value $0.001 per share, 20,000,000 shares of Class B Common Stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. The number of authorized shares of Class A Common Stock increased from 160,000,000 to 760,000,000 pursuant to approval by the Company's stockholders on October 13, 2025 which became effective upon filing of a certificate of amendment to the Company’s Amended and Restated Certificate of Incorporation on November 5, 2025.

In connection with the Company’s initial public offering of units (“Units”), each consisting of (i) one share (subject to adjustment for the Company's Reverse Stock Splits) of its Class A Common Stock and (ii) one warrant (subject to adjustment for the Company's Reverse Stock Splits) entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $1,210.00 per share, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 636 Units at a per Unit exercise price of $1,452.00, which was equal to 120% of the public offering price per Unit sold in the initial public offering, and (ii) underwriter warrants to purchase 95 shares of Class A Common Stock at a per warrant exercise price of $2.64, which was equal to 120% of the public offering price per warrant sold in the offering. At March 31, 2026 and December 31, 2025, 318 Units and 47 underwriter warrants were outstanding.

The underwriter warrants had a fair value of $0 that was calculated using the Black-Scholes option-pricing model and were equity classified. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.94% based on the applicable U.S. Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66% based on the trading history of similar companies, and (4) zero expected dividends.

Committed Equity Facility

On April 28, 2026, the Company entered into a Common Stock Purchase Agreement (the “Roth Purchase Agreement” and the facility as a whole, the "Committed Equity Facility") with Roth Principal Investments, LLC (“Roth”). Pursuant to the Roth Purchase Agreement, and subject to the satisfaction of specified conditions, the Company has the right, but not the obligation, to sell to Roth up to an aggregate of $50.0 million of newly issued shares of the Company’s Class A common stock, par value $0.001 per share (“Class A Common Stock”), from time to time over a period of up to 36 months following commencement of the Roth Purchase Agreement. The Company will have sole discretion over the timing and amount of any such sales and is under no obligation to sell any shares under the Roth Purchase Agreement.

The Company’s ability to sell shares under the Roth Purchase Agreement will commence upon satisfaction of customary conditions, after which, the Company may direct Roth to purchase shares through one or more market open, intraday, pre‑market, or post‑market purchases, subject to specified pricing thresholds and volume limitations. The per‑share purchase price for shares sold under the Roth Purchase Agreement will be based on the volume‑weighted average trading price of the Class A Common Stock during the applicable valuation period, less a fixed discount of 8.0%. There is no upper limit on the price per share that may be paid, and purchase prices are subject to customary equitable adjustments for stock splits, reverse stock splits, dividends or similar transactions.

Under the Nasdaq Stock Market rules, the Company may not issue more than 19.99% of its outstanding Class A Common Stock under the Roth Purchase Agreement unless stockholder approval is obtained or the average price paid for shares issued under the Roth Purchase Agreement equals or exceeds $2.45 (representing the lower of (a) the official closing price of our Class A Common Stock immediately preceding the execution of the Roth Purchase Agreement and (b) the average official closing price of our Class A Common Stock for the five consecutive trading days immediately preceding the execution of the Roth Purchase Agreement, as adjusted in accordance with applicable Nasdaq Stock Market rules). In addition, Roth may not beneficially own more than 4.99% of the Company’s outstanding Class A Common Stock at any time. The Roth Purchase Agreement also includes a prohibition, subject to limited exceptions, on the Company entering into certain variable rate or equity line financings during the term of the agreement, and includes customary restrictions on short selling or hedging transactions by Roth.

The net proceeds, if any, from sales of Class A Common Stock under the Roth Purchase Agreement will depend on market conditions and the Company’s election to sell shares from time to time. The Company currently intends to use any net proceeds for general corporate purposes, which may include reducing outstanding indebtedness and funding working capital.

The Roth Purchase Agreement will terminate upon the earliest of the expiration of the 36‑month term, the sale of $50.0 million of shares under the agreement, certain events relating to delisting or bankruptcy, or termination by the Company upon prior written notice without penalty. The Roth Purchase Agreement contains customary representations, warranties, indemnification provisions and conditions.

In connection with entering into the Roth Purchase Agreement, the Company paid Roth a structuring fee of $25,000, agreed to reimburse certain legal fees and ongoing due diligence expenses of $75,000, and paid $50,000 to Digital Offering, LLC as a qualified independent underwriter for purposes of FINRA Rule 5121, with related fees subject to reimbursement up to specified amounts.

Equity Reserve Facility

On October 18, 2024, the Company entered into a Share Purchase Agreement (as amended, the “Purchase Agreement” and the facility as a whole, the “Equity Reserve Facility”) with New Circle Principal Investments LLC, a Delaware limited liability company (“New Circle”), and subsequently entered into an amendment with New Circle on October 24, 2025 (the “Amendment”) pursuant to which New Circle has committed to purchase, subject to certain limitations, up to $100 million (the “Total Commitment”) of the Company’s Class A Common Stock, par value $0.001 per share (the “Class A Common Stock”). Under the applicable Nasdaq rules, the Company was not permitted to issue to New Circle under the Purchase Agreement more than 19.99% of the shares of all classes of the Company’s common stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtained stockholder approval to issue shares of its Class A Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average purchase price per share paid by New Circle for all shares of the Company’s Class A Common Stock, if any, that the Company elected to sell to New Circle under the Purchase Agreement equaled or exceeded certain minimums

permitted under the rules of the Nasdaq Stock Market. The purchase price of the shares that may be sold to New Circle under the Purchase Agreement is based on an agreed upon fixed discount to the market price of our Class A Common Stock as computed under the Purchase Agreement. On December 27, 2024, October 13, 2025 and December 30, 2025, the Company’s stockholders approved the issuance and sale of up to 38,636, 227,272 and 454,545 shares, respectively, above the Exchange Cap to New Circle under the Purchase Agreement.

As consideration for New Circle’s irrevocable commitment to purchase shares of the Company’s Class A Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, the Company paid New Circle structuring and legal fees of less than $0.1 million. In addition, the Company issued 285 shares of the Company’s Class A Common Stock to New Circle in October 2024, and an incremental 454 shares of the Company’s Class A Common Stock on October 24, 2025 in connection with the Amendment. The Company sold 108,451 shares of the Company's Class A Common Stock for $7.3 million during the year ended December 31, 2025. During the three months ended March 31, 2026, the Company sold 216,250 shares of the Company's Class A Common Stock for $1.2 million. During the three months ended March 31, 2026, the Company incurred incremental issuance costs, which were recorded to additional paid-in capital.

On April 23, 2026, the Company and New Circle mutually agreed to terminate effective immediately the Equity Reserve Facility in order for the Company to enter into the Committed Equity Facility. The Company did not incur any prepayment fees or penalties as a result of terminating the Equity Reserve Facility.

Series A Convertible Preferred Stock

Pursuant to the terms of the Seventh Amendment and pursuant to authority expressly vested in the Company’s board of directors as set forth in the Company’s Amended and Restated Certificate of Incorporation, on August 8, 2025, the Board authorized and the Company filed the Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation’) with the Secretary of State of the State of Delaware, which established the Series A Convertible Preferred Stock in the amount of $25.0 million. Pursuant to the terms of the Ninth Amendment, on October 15, 2025, the Company filed the Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock (the “A&R Certificate of Designation”) with the Secretary of State of the State of Delaware, which amended and restated in its entirety the Certificate of Designation and established an additional $10.0 million of Series A Convertible Preferred Stock. The A&R Certificate of Designation sets forth the rights, preferences, powers, restrictions and limitations of the Series A Convertible Preferred Stock. Capitalized terms not otherwise defined in this item shall have the meanings given to such terms in the A&R Certificate of Designation. The Series A Convertible Preferred Stock is not redeemable outside of the Company’s control and is therefore classified in permanent equity as of March 31, 2026 and December 31, 2025.

The following is a summary of key terms of the Series A Convertible Preferred Stock, as amended by the A&R Certificate of Designation:

Designation and Amount. The number of shares initially designated as Series A Convertible Preferred Stock was 25,000. Under the A&R Certificate of Designation, the number of shares designated as Series A Convertible Preferred Stock was increased by 10,000 to a total of 35,000 shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock have a par value $0.001 per share and a stated value of $1,000 per share of Series A Convertible Preferred Stock (the “Conversion Value”), which shall be increased for any accrued and unpaid dividends.

Dividends. The shares of Series A Convertible Preferred Stock carry a cumulative Dividend, compounded monthly at a dividend rate of ten percent (10%) per annum.

Ranking. The Series A Convertible Preferred Stock will be senior to the Company’s Class A Common Stock, Class B Common Stock and all other series or classes of stock and equity securities of the Company that do not expressly rank senior to, or that are not pari passu with, the Series A Convertible Preferred Stock, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

Voting Right and Protective Provisions. Subject to certain limitations described in the A&R Certificate of Designation, the Series A Convertible Preferred Stock is voting stock with Holders entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock basis.

In addition, the A&R Certificate of Designation provides for certain protective provisions for Holders of Series A Convertible Preferred Stock, which apply at any time when at least 12,525 shares of Series A Convertible Preferred Stock

(subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Convertible Preferred Stock) are outstanding.

Conversion. At the option of the Holder thereof, each share of Series A Convertible Preferred Stock shall be convertible into the number of Conversion Shares equal to the Accumulated Conversion Value divided by $550.00 per share of Class A Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization), rounded down to the nearest whole share.

Liquidation. In the event of any Liquidation, the Holders of shares of Series A Convertible Preferred Stock then outstanding will be entitled to be paid out ahead of lower ranked securities and at an amount per share equal to three times (3.00x) the Accumulated Conversion Value thereof with ratable distribution if assets are not sufficient to pay out at Accumulated Conversion Value.

During the year ended December 31, 2025, Lafayette Square exchanged 7,923 shares of Series A Convertible Preferred Stock for 136,364 shares of Class A Common Stock pursuant to the Tenth Amendment to the 2021 Credit Facility. As of March 31, 2026, the amount of cumulative preferred dividends in arrears totaled $1.8 million representing $66.63 per preferred share of which $0.5 million was recorded as accrued liabilities in the condensed consolidated balance sheets.

In October 2025, the terms of the initial issuance of $25.0 million Series A Convertible Preferred Stock were modified by the A&R Certificate of Designation, as described above, and the exchange mechanism between Lafayette Square and the Company was introduced in the Ninth and Tenth Amendments, respectively. The Company analyzed whether the change in terms constituted a modification or extinguishment, pursuant to the related authoritative guidance, and engaged an independent third-party valuation firm to assist with determining the fair value of the Series A Convertible Preferred Stock immediately before and after the change in terms. Because the increase in fair value was substantive, the Company determined the change in terms resulted in extinguishment. Accordingly, the Company recorded the resulting difference in fair value of approximately $3.3 million as a deemed dividend for the holders of Series A Convertible Preferred Stock. Because the Company was in an accumulated deficit position, the deemed dividend was recorded to additional paid-in capital and increased, for the purpose of the EPS calculation, the net loss allocated to Class A shareholders in the fourth quarter of fiscal 2025. This treatment does not impact net loss per share in either period presented in the condensed consolidated statements of operations.

Continuation Capital Settlement Agreement

On November 20, 2025, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Continuation Capital, Inc. (“Continuation Capital”), pursuant to which we agreed to issue up to 227,272 shares of Class A Common Stock (the “Exchange Shares”) in exchange for the release of certain claims held by Continuation Capital related to third party vendor payables separately assigned to Continuation Capital in the amount of $3 million. The Exchange Shares will be sold to Continuation Capital at a price of 76% of the lower of (a) the volume weighted average sale price of the Class A Common Stock on Nasdaq during the “Valuation Period,” which is the five day trading period, inclusive of the day of the share request under the Settlement Agreement, which will be extended as necessary to account for multiple tranches of issuances or (b) the average of the four lowest of the most recent five closing prices during the Valuation Period, as defined in the Settlement Agreement. Additionally, as partial consideration for the entry into the Settlement Agreement, the Company paid Continuation Capital a settlement fee of 431 shares of Class A Common Stock. The Settlement Agreement was approved on November 21, 2025 by a court following a hearing held on that same date, in which the court determined that Settlement Agreement is fair to Continuation Capital. Accordingly, the issuance of securities under the Settlement Agreement will be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 3(a)(10) thereunder. For the three months ended March 31, 2026, $0.8 million has been paid to third party vendors and 152,041 shares have been issued pursuant to the Settlement Agreement. From the date the Settlement Agreement was executed through March 31, 2026, $1.6 million has been paid to third party vendors and 204,332 shares have been issued pursuant to the Settlement Agreement. The Company recognized a loss on settlement of accounts payable for the three months ended March 31, 2026 of $1.2 million for the difference between the value of the shares issued and the value of the liabilities settled. Because of the difference in stock price on the day shares were issued and the pricing mechanism based on the five trading days prior to the share request, the loss was different than the discount established under the Settlement Agreement.

Noncontrolling Interest

Direct Digital Holdings, Inc. is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC but does not own all the economic interests in DDH LLC. Therefore, Direct Digital Holdings, Inc. reports a

noncontrolling interest ("NCI") based on the common units of DDH LLC held by DDM. While Direct Digital Holdings, Inc. retains its controlling interest in DDH LLC, changes in its ownership interest in DDH LLC are accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Units by DDM will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when DDH LLC has positive or negative net assets, respectively.

Stock-Based Compensation Plans

In connection with the initial public offering, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors. The Company’s board of directors reserved 15,909 shares of Class A Common Stock for issuance in equity awards under the 2022 Omnibus Plan. On June 9, 2025 and December 30, 2025, the Company's stockholders approved amendments to the 2022 Omnibus Plan to increase the number of shares issuable by 18,181 shares and 40,909 shares, respectively. Information on activity for both the stock options and RSUs is detailed below. As of March 31, 2026, there were 4,363 shares available for grant under the 2022 Omnibus Plan.

During the three months ended March 31, 2026 and 2025, the Company recognized $0.2 million and $0.3 million, respectively, of total stock-based compensation expense in the condensed consolidated statements of operations in compensation, taxes and benefits.

Stock Options

Options to purchase shares of common stock vest annually on the grant date anniversary over vesting periods of one to three years and expire 10 years following the date of grant. The following table summarizes the stock option activity under the 2022 Omnibus Plan during the three months ended March 31, 2026:

	Stock Options
	Shares	Weighted Average Exercise Price		Weighted Average Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2025	4,074	$	337.58	8.27	$	—
Granted	59,938	$	3.32	—	$	—
Exercised	—	$	—	—	$	—
Forfeited and expired	(73)	$	261.16	—	$	—
Outstanding at March 31, 2026	63,939	$	24.29	9.86	$	—
Vested and exercisable at March 31, 2026	2,632	$	436.89	7.55	$	—

The total fair value of options vested during the three months ended March 31, 2026 was $0.1 million. As of March 31, 2026, unrecognized stock-based compensation of $0.3 million was related to 61,307 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 2.91 years.

Restricted Stock Units

RSUs generally vest annually on the grant date anniversary over vesting periods of one to three years. A summary of RSU activity during the three months ended March 31, 2026 and related information is as follows:

	Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested - December 31, 2025	4,301	$	247.21
Granted	—	$	—
Vested	(1,875)	$	354.24
Forfeited	(59)	$	306.75
Unvested - March 31, 2026	2,367	$	162.40

The majority of vested RSUs were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes. The total shares withheld were 504 (including 21 sold as of March 31, 2026) and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. As of March 31, 2026, there was unrecognized stock-based compensation of $0.2 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 0.68 years.