Direct Digital Holdings, Inc.

Good day, everyone, and welcome to the Direct Digital Holdings fourth quarter and full year 2023 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. And if you would like to withdraw your question, it is star 1 again. I will now turn the conference over to Brett Mellon, VP of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Direct Digital Holdings' fourth quarter and full year 2023 earnings conference call. My name is Brett Malotte, and I'm representing Direct Digital Holdings from ICR. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer Mark Walker and Chief Financial Officer Diana Diaz. Information discussed today is qualified in its entirety by the Form 8K and accompanying earnings release, which has been filed today by Direct Digital Holdings and may be accessed at the SEC's website and DRCT's website. Today's call is also being webcast, and a replay will be posted to DRCT's Investor Relations website. Immediately following the speaker's presentation, there will be a question and answer session. Please note that the statements made during this call, including financial projections or other statements that are not historical in nature, may constitute forward-looking statements. These statements are made on the basis of DRCT's views and assumptions regarding future events and business performance at the time they are made, and do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which can cause DRCT's actual results to differ from its historical results and forecasts. including those risks set forth in DRCT's filings at the SEC and on this call. I need you to refer to those for more information. This cautionary statement applies to all forward-looking statements made during this call. During this call, DRCT will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures with the most directly comparable GAAP measures is available in the earnings release that DRCT files in its Form 8K today. I will now hand over the conference to Mark Walker, Chief Executive Officer.

Mark? Thanks, Brett. Thank you to everyone joining our fourth quarter of full-year 2023 earnings call. 2023 was an inflection point for our company, and I'm incredibly proud to report our strong financial results and operational performance for the year, as we're now reporting our eighth quarter of double-digit revenue growth. As we discussed in previous earnings calls, we continue to make significant investments in direct digital holdings, technology stack, advertising platform, and operational structure throughout 2023. Our strong technology partnerships and our overarching business strategy have enabled us to meet a growing number of customers' demands and further the capabilities of our technology platforms. As a result, our open marketplace platform continues to benefit as middle market businesses seek our differentiated, thoughtful approach to advertising solutions. Before we get into more detail about our fourth quarter, I'd like to begin with a quick review of our year. We achieved total four-year revenue of $157.1 million, or 76% growth over the $89.4 million achieved in 2022, and 29% above our initial 2023 guidance. We also achieved adjusted EBITDA of $11.3 million, 11% higher than the $10.2 million adjusted EBITDA for the same period in 2022. In 2023, we had a number of achievements, a few of which I wanted to highlight today as we're proud of how our team was able to grow the overall business. Firstly, we announced our new collaboration with Amazon Publisher Services with our Colossus SSP division integrated with Amazon's Transparent Ad Marketplace, or TAM. The integration allowed Colossus SSP's roster of publishers to tap into the benefits of TAM and server-side header bidding solutions that offer a direct auction approach. We also announced our partnership with HPE GreenLake, providing an edge-to-cloud platform to build a highly reliable, scalable, and secure production environment across our technology stack. Throughout the year, we had significant growth of the buy side with strategic wins with growth of our overall client portfolio by 7% and increased revenue per customer up 10% for the year. We began the transition to a cookie-less environment and saw the integration rollout of our alternative ID solutions. In addition, we launched our AI yield management tool, which allows us to achieve bit efficiency and revenue optimization, and we continued the transition of DDH shared services function for increased operational scale and support. While we saw strong growth in Q4 2023 year-over-year with revenue of $41 million, which was 33% higher than the same period last year, we were down sequentially from Q3 with Q4 revenue, which was shy of our revised guidance due to two primary factors. In the fourth quarter, based upon value chain changes, it became clear cookie deprecation would begin at Q1 of 2024. In addition, we noted softer demand that our revised guidance called for. As such, our team proactively began our transition off of cookies for immediate transactions. As a result, we believe our strategic decision to accelerate our investments has positioned us well for the future and ahead of our peers. In addition, in Q4, we did not complete beta testing on our original schedule for several strategic publishers, including Dot Dash Meredith, Weather.com, NBCU, and Arena Group, which would have increased overall impression count. These strategic publishers have all been launched in Q1 of 2024. We continue to prioritize long-term successes for short-term gains, and we are confident the strategic measures and internal calibrations were made in Q4 2023 will position the company to build on the successes of 2023 and continue revenue growth and market share gains in 2024. Our fourth quarter 2023 adjusted EBITDA of 2.3 million likewise was affected by the information revenue impacts during the quarter. Our supply-side platform continues to increase publisher partner engagements in addition to increases in our impression inventory. In the fourth quarter, our sell-side advertising segment processed approximately 400 billion monthly impressions, an increase of 201% over the same period of 2022, with close to 1 trillion monthly bid requests for the quarter. In addition, the company's sell-side advertising platforms received over 83 billion bid responses In the fourth quarter of 2023, an increase of 367% over the same period in 2022. Our buyers within the platform did see some degradation due to our platform transition, decreasing by 50% to 84,000 buyers compared to last year's fourth quarter. However, our revenue per buyer increased by 133% to $397 per customer over the same period. On the buy side, these businesses serve approximately 234 customers, an increase of 7% compared to the same period of 2022, with buy side revenue per customer consistent with the same period last year. As it relates to 2024, our industry outlook and point of view is the following. We believe that the middle market, the digital ad tech space, remains fragmented and consolidation opportunities exist. We will continue to evaluate those opportunities for a creative platform integration, value creation, and strategic fit. We anticipate cookie deprecation will accelerate market consolidation and opportunistic investments. For our buy-side business, the introduction of AI and complex market dynamics will accelerate the market transition in digital media from traditional media. This transition will continue to present opportunities to expand our footprint and gain market share for tech-enabled services. In addition, alternative IDs will take on more importance to the industry as well as strong understanding of the impact of the Privacy Sandbox on campaign performance, reporting, and delivery. We also believe that the bifurcation of the marketplace between alternative ID, open CPM marketplaces, and wall guards will continue to exist along with continued market tension between DSP and SSP relationships. We expect a streamlining of the value chain. We aim to build strategic relationships with our focus on agency and brand partnerships continuing to be the cornerstone of our strategy. Finally, AI tools will continue to proliferate through the value chain, allowing companies to leverage these tools and offer these capabilities across both of our business segments, increasing ROI and enhancing performance. For 2024, we're providing revenue guidance for FY 2024 of $170 billion to $190 billion, or an increase of 50% over last year's performance at the midpoint. I will now hand things over to our CFO, Diana Diaz, who will walk through some of the financial highlights in further detail.