Direct Digital Holdings, Inc.

thank you for standing by this is the conference operator welcome to the direct digital holdings fourth quarter and fiscal year 2021 earnings conference call as a reminder all participants are in listen-only mode and the conference is being recorded after the presentation there will be an opportunity to ask questions to join the question queue you may press star then one on your telephone keypad Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Michael Grotel, investor relations at ICR. Please go ahead.

Good afternoon, everyone, and welcome to Direct Digital Holdings' fourth quarter and fiscal year 2021 earnings conference call. I am Michael Grotel, investor relations at ICR. Hosting today's call are Mark Walker, Chief Executive Officer, and Susan Eckhardt, Chief Financial Officer. The information discussed today is qualified in its entirety by the Form 8K that has been filed today by Direct Digital Holdings, which may be accessed on the SEC's website and on DRCT's website. Today's call is also being webcast, and a replay will be posted to DRCT's Investor Relations website. Please note that statements made during this call, including financial projections or other statements that are not historical in nature, may constitute forward-looking statements. Such statements are made on the basis of DRCT's views and assumptions regarding future events and business performance at the time they're made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks which could cause DRCT's actual results to differ from its historical results and forecasts, including those risks set forth in DRCP's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. 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 to the most directly comparable GAAP measures is available in the earnings release DRCT filed with its form 8K today. I will now open the call to Mark Walker. Mark, please go ahead.

Thanks, Michael, and good afternoon, everyone. It's great to be with you today to share our first update as a public company. For those of you who are new to Direct Digital Holdings, we're an advertising technology company that assists clients in driving ROI through the buying and selling of media. Our technology platform meets the demands of the underserved middle market and provides access to multicultural publishers. We're excited to share our results of continued execution against our vision of long-term organic and M&A field growth. Our company was founded in 2018 through the initial acquisition of Huddle Masses and Colossus SSP, which was the creation of our end-to-end programmatic platform. Colossus is our sell-side proprietary technology that enables publishers to sell media to buyers, while Huddle Masses, along with Orange 142, is our buy-side platform, which enables middle market businesses to purchase media to drive ROI. In 2020, we acquired Orange 142, to further develop and grow our buy-side platform and to expand our industry offerings into education, travel and tourism, financial services, and other verticals. I will begin the call providing our Q4 and our end-of-year performance and overall business strategy. After that, I'll turn it over to Susan Eckert, our CFO, who will share detailed financial results and our expectations for the full year of 2022, at which point the operator will turn the call over to your questions. Now I'm going to review the 2021 fourth quarter results. In the fourth quarter of 2021, we generated $12.9 million of revenue, an increase of $6.3 million, or 95% higher than prior year period. This was largely driven by acceleration on the sell-side platform, Colossus SSP, with growth also coming from our buy-side platform. For the full year of 2021, the company experienced steady accelerated growth And during the fourth quarter, our SSP platform processed an average of 70 billion monthly impressions and served approximately 80,000 buyers. Our buy-side customer count grew by over 30%, increasing the number of customers we serve from roughly 150 to 200 of our overall customer count. Our recent growth of the supply-side platform has been driven by a variety of factors, including increased addition of CTV, OTT, and video media and other types. For the year ended December 31, 2021, we processed approximately 2 trillion bid requests through 22 DSPs and increased our overall media properties to over 10,000. For all of 2021, Our total revenue was $38.1 million, an increase of $25.6 million, or 206% over the $12.5 million in 2020. We are profitable, and for the full year, we delivered an adjusted EBITDA of $6.4 million. All in all, 2021 was an incredible year for the company, and beginning with our IPO this year, we expect 2022 to be an even more exciting and dynamic time for Direct Digital Holdings. Let us now discuss our sell-side platform growth strategy. Our business strategy is aligned to capitalize on significant growth opportunities due to fundamental market shifts and industry inefficiencies. Several trends happening in parallel are revolutionizing the way that advertising is bought and sold. As digital media has grown and emerging marketing channels continue to gain adoption, audience segmentation, including on multicultural lines, has become more granular. A growing and increasing segment of those audiences is the multicultural audience who has been traditionally underserved in the industry. According to the US Census Bureau, racial minority and multiracial consumers represent 42% of the US population and are projected to be the numerical majority in the US by 2044. When we expand the definition of multicultural to include LGBTQ customers, the numbers are significantly greater. Advertisers and publishers alike face the same challenge. Advertisers are seeking new avenues and opportunities to connect with multicultural audiences in their natural media consumption environments while publishers are producing unique content to attract loyal consumers. The advantage will go to those innovative companies able to directly connect both sides to those audiences and leverage the insights flowing from those consumers. We believe being able to go into the programmatic platform and target general market and multicultural audiences at scale across all digital inventory is a major competitive advantage for direct digital holdings. Higher customer engagement translates into higher retention and extended customer lifecycle, representing the opportunity to sell and upsell consumers. Colossus ranks within the top five in the MediaMath Source Scorecard, which measures accountability, addressability, and transparency, and can be seen as a proxy for inventory quality and technology across 82 different SSPs as of August of 2021. With over 80,000 advertisers across more than 10,000 media properties, delivering over 70 billion monthly impressions, of which at least 5 billion monthly impressions are multicultural, and a majority being high-growth CTV OTT video inventory. Colossus is poised to benefit from shifts of digital marketing and shifts to programmatic and CTV OTT advertising within the digital marketing ecosystem. Given that most transactions take place in an auction bidding format, We continue to make investment across the platform to further reduce the processing time. In addition to the robust infrastructure supporting our platform, it is also critical that we align with key industry partners in the digital supply chain. Colossus is integrated into several leading DSPs, both directly and indirectly through BitSwitch, and partners such as Zander, AppNexus, Trade Desk, Google 360, Verizon Media, MediaMath, Samsung, and others our partners that we work with on a daily basis. We continue to add new DSP partners, especially where we believe the DSP might offer a unique advertising base seeking to target our multicultural audiences at scale. We help our advertiser clients efficiently reach diverse communities, including African American, Latin Americans, Asian Americans, LGBTQ customers in highly targeted campaigns. We partner with both large publishers, such as Hearst, Mediavine, Gannett, Newsweek, and several others, as well as smaller publishers, such as Blavity and Lenation and others. Colossus offers our publisher partners ad inventory to existing small and mid-sized buy-side clients at Huddle Masses and Orange 142, and other major DSP clients of Colossus, which enables our buy-side to curate and manage client outcomes more effectively. In addition, because it is a standalone platform, Colossus offers its ad inventory to larger multinational clients seeking more authentic advertising access to unique and often diverse and multicultural audiences. Our business strategy on the sell side also presents significant growth potential as we believe we are well positioned to be able to bring underserved multicultural publishers into the advertising ecosystem, thereby increasing our value proposition across all clients including our large clients. We believe that Colossus is the last model of delivery for our buy-side clients and that our technology curates unique, highly optimized audiences informed by data analytics and algorithmic machine learning technology. Now I'm going to provide you the growth strategy of our buy-side business. Due to COVID, small to mid-sized companies experienced the importance of having digital sales and marketing channels which has led to a wholesale change in the way that media is consumed and monetized at the local and regional levels throughout the United States. In traditional methods of advertising, such as broadcast TV, ads can target a specific network, program, or geography, but not a single household or individual as digital and OTV, CTV ads can. And each year, more and more households are watching OTT CTV rather than traditional TV due to cord cutting. Additionally, we expect that the continued destabilization, including the phase-out of digital cookies in 2023, will create more opportunities for technology companies that provide next-gen CTV and digital solutions and minimize performance disruption for advertisers and agencies. We expect to see continued benefits from the rapid transition of small and mid-sized businesses to digital marketing. These businesses are likely to achieve a higher ROI on their advertising spend by leveraging streaming service advertising, video and display, in-app, native, and audio advertisements that are delivered both at scale and on a highly targeted basis over the ROI of a traditional media campaign. Only recently have small and mid-sized businesses begun to leverage the power of digital media in a meaningful way as emerging technologies have enabled advertising across multiple channels in a highly localized nature. Campaign efficiencies yielding measurable results and higher advertising ROI, as well as the needs necessitated by the global pandemic, have prompted these small to middle market companies to begin utilizing digital advertising on an accelerated basis. We believe this market is rapidly expanding, and that small to midsize advertisers will continue to increase their digital spend. Our robust buy side has long-term client relationships and managed contracts, which allows us to have predictable and profitable revenue source with our high rates of customer retention. Our buy side provides access to first-party data management, media purchases, campaign execution analytics, and therefore helps drive increased ROI, across a wide array of digital media channels for the middle market segment. Because our company uses many of the large demand-side platforms, or DSPs, our team is able to leverage our campaign performance across multiple DSPs to drive campaign performance and ROI for our clients. By taking this DSP-agnostic approach, our platform provides the broadest market access for our clients so that clients can easily buy ads on desktop, mobile, connected TV, streaming, audio, and digital billboards. The BuySide offers technology-enabled advertising solutions and strategic planning to clients. And in particular, our BuySide focuses on small to midsize clients and enable them to leverage programmatic technology to engage their potential customers more directly on a one-on-one basis in any local market with specificity to media device and footprint. Serving the needs of approximately 200 small and mid-sized clients, the BuySite of our business leverages the insights of leading DSPs such as Xander, Google 360, MediaMath, and others to drive increased advertising ROI and reduce customer acquisition costs for our clients. The result is a benefit to our BuySite clients in that they enjoy a more even playing field compared to larger advertisers by driving more effective marketing advertising in local markets that are compatible to their business footprint. We believe that we have a unique competitive advantage due to our data-driven technology that allows us to provide front-end, by-side planning for our small and mid-sized clients, coupled with our proprietary technology, Colossus SSP, where we could curate the last mile in the execution process to drive higher ROI. Before we move over to the financial results with Susan, I want to answer a question we receive frequently. Why did we decide to go public? So to address that question, it's a very simple answer. We want to rapidly scale the DDH platform to take advantage of the favorable tailwinds we're seeing for the small to middle market digital advertising space. This market is underserved from the commercial perspective, and until our IPO, this opportunity wasn't reflected in the public markets. While we see incredible growth in organic business and results from our more recent acquisitions, we continue to see a compelling opportunity ahead of us, to accelerate the benefits to the end customer by participating as a leading player in the rationalization of the small business marketing services sector, while thus far we have focused our efforts on the first and last dollar in the programmatic value chain. We have opportunities to deepen our expertise as well as broaden across the entire ecosystem. Much like the consolidation at the upper range of the programmatic market in the recent past, there are no shortage of compelling and value-enhancing opportunities in our space. Now I'll turn over the call to Susan Eckert, our CFO, who will review our financial highlights.