Direct Digital Holdings, Inc.

Q4 2022 Earnings Conference Call


spk_0: greetings i welcome to the directors you're holding sport quarter and pull your two thousand twenty two earnings call at the sign other disciplines are now listen only mode a question and answer session will all the formal presentation if anyone should require operator sisters during the conference please press stars euro on your from keep that as a reminder this kaput is being recorded our knowledge on the carpet over to your host britain a lot senior vice president and us relations i see our good afternoon everyone to walk me to directed you holding the sports quarter and f y twenty twenty two earliest conference call my name is prevalent absent in directors or holdings from iseatz a base color drake usual holdings shimmery chief executive officer mark walker and she financial officer she's an eckerd information disgusted a is qualified it's entirety from the form ha an accompanying earnings release such a foul play by direct you to holdings which may be actually just the as he sees website and year cities of sight today's calls also be webcast and replay we pushed into the rcp the best relations website mealy found the speakers presentation of your question and answer session
spk_1: please at the same it's a during the call into financial projections are other statements are not you start by nature it constitute for that and statements estimates are made on basis of the our cities views and assumptions regarding future events is a form of the time they're made would you not undertake any obligation deputy statements or looking statements are subject to risk which would cause the or cities actual results to differ
spk_0: as much as dark was also forecast including those risks that for can geocities follies at the fcc he should refer to carefully consider these for more information this horse racing applies to all for that the seem it's a during this call do not place undue reliance on any for the same it's during it's called the or be referring to non gap financial measures he's don't get financial measures are not prepared in accordance with generally such an accounting principles reconciliation of a non get financial measures to the most directly comparable got measures is available in the earnings release of the or city fathers on a cake today i will now head over the conference call to mark walker chief executive officer mark
spk_2: face breath and good afternoon everyone that is our first queue for for your earnings call as a public company and i'm incredibly proud to report strong results for both the quarter and the year our first year as a public company demonstrated directors or holdings operational excellence expansion and market share growth which garnered robots financial performance before we get into more detail about the full year i like to begin with the quick summary of our fourth quarter and que for twenty twenty two our revenue increased to twenty nine point four million an increase of sixteen point five million or hundred twenty eight percent over the twelve point nine million in the same period of twenty twenty one and adjust even it was flat at one point eight million our supply side platform continues to increase publish your partner engagements in addition to increasing in our impression him a toy and the fourth quarter as sell side advertising segment process approximately hundred thirty two billion monthly prices an increase of eighty one percent over the same period of twenty twenty one with over eight hundred drake and thirty three billion bid requests for the quarter in addition the company cell size advertising platforms received over seventy billion bid responses in the fourth quarter twenty twenty two an increase of over twenty five percent over the same period twenty twenty one thorough hundred and seventy thousand buyers for the quarter which is a hunter
spk_0: nine percent increase over the same period of twenty twenty one on the by side these businesses served approximately two hundred and eighteen customers an increase of seven percent compared to the same period of twenty twenty one while q points historically are strong as quarter this year we began our process to expand our over overall capacity scale a performance to fuel growth for twenty twenty three and twenty twenty four
spk_2: we achieve these results while we began our transitions at h b green lake environment will allow us to continue expanding our growth for the next few years
spk_1: looking at the four year twenty twenty two was about a year in the attic space primarily driven by supply chain disruptions and larger economic issues also had a negative impact on industries operating a barn oh the marketplace cpm our platform strategy directly benefit it as walled garden saw difficulty ah
spk_2: the middle market businesses moved to look for alternatives dude so be less expensive less restrictive and more accessible with expansive breach in spite of these macro economic issues and changes our company was able to achieve total full year revenues of eighty eight million in line with our previously you guidance an increase of forty nine point nine million or hundred and thirty one percent growth over thirty eight point one million achieved at twenty twenty one we also achieved adjusted ebitda of eight point eight million or thirty eight percent higher than the six point four million the just to but up at the same period in two thousand and twenty one on the corporate side we had a number of achievement of view which on wanted to highlight the day first as mentioned before we successfully completed our i feel and raised fifty million of capital upon completion
spk_1: beckett we raise additional three point nine million not delude of capital to retired us to yep prefer an equity position on the organizational side we had a three new independent directors for our board of directors adding technology and the defeat that the as our advisors and we successfully constructed a shared services operation the caps or costs energy his across all of the directors or holding subsidiary companies
spk_2: and finally we read platform and transition colossus as as p b a groundbreaking partnership with h b bring like we firmly believe that are markedly performance and twenty twenty two was driven by three key strategic objectives are technology efficiency our processes in our people our technology configuration of the loudest to spend both financial and resource investments effectively adequately we internally call our strategy smart in a base since where we build borrow or by technology with the can use cases in my and we're directly focus on driving our wife are both our clients and partners if we can see a tangible outcome that is measured driven we do not have that we believe that has been one of that main contributors to our profitability and outpaced results
spk_3: then we have experienced since we have them public directors or holdings values the neglected and made and publishers that have not been added to the advertising ecosystem this is allowed us to the lever reach a performance that it's historically read additionally with our approach on the five by the sell side of the businesses we have been hyper focus on them
spk_0: never in our a wire for porn star clients and partners instead of clients spending money with a company and not delivering a return were always driving for results for them by the position they made that markets with our by side platform focus on the middle market in ourselves i've platform focus on both the general and multicultural publishers
spk_2: i've seen as in a strong position to capture market share that has historically been ignored within the united states the multicultural audience represents forty percent of the us population however according to the association of national advertisers marketers historically are only allocating five percent of the marching spend the reach those audiences it companies want to grow in the united states they will have to reach those markets through those publishers and therefore we believe the overall trend of this business location your work in our favor and were looking to continue to see that growth for the foreseeable future
spk_0: regarding our team members are employees come from corporate america consulting and other leading accept that we hire experts who have diverse views perspective them background but who are also highly experienced in their craft we believe that our diversity is our secret sauce and you will not by the company in this field that is
spk_2: more diverse across all levels of the organization from my board of directors to our leadership seems our staff are companies diverse environments bring up that the loses if subsequently positive results
spk_0: we plan to continue to preserve and promote a duffers concerts and the never plaza results are quiet partners in our shareholders targets a strategic growth for a moment we have a history of making succeeded acquisitions a we believe in the current market place with over eighty plus that this piece in a problematic ecosystem there is certainly an opera
spk_1: you need to explore an evaluation siege of growth opportunity however we want to make clear that any such opportunities must be strategic opportunistic and a creative to our company
spk_2: as the company or primary focus for twenty twenty three is they could say you are strong growth trajectory and the limber a hundred things seem to one hundred twenty two million dollars and topline revenue along with strong profitability in addition to our organizational bogus we believe the current market dynamics are favorable for director to a healthy because of a few macro time with the current increase in be it's been been targeted to reach growth multicultural audiences and middle market companies movie dollars away from traditional media spend the digital are proven operate
spk_1: no model combined with are stable capitalization and liquidity structure has strategically positioned our company to continue it's growth trajectory i will now here things over susan eckerd who is going to walk you through some of the financial highlights of further detail do that
spk_4: thank you march before i dive into our financial results i wanted to quickly make a correction to the full your earnings per share number we released this morning and our earnings press release four year twenty twenty two earnings per share should have read twenty three cents instead of the seventeen cents and we have consequently put out a corrected press release turning to topline revenue or revenue increased to twenty nine point four million in the fourth quarter of twenty twenty two an increase of sixteen point five million or hundred and twenty eight percent over the twelve point nine million in the same period of twenty twenty one we finished the year with total revenue of eighty eight million which was in line with our guidance an increase of forty nine point nine million or one hundred and thirty one percent growth over the thirty eight point one million achieved in twenty twenty one our sell side advertising segment ended the year with a strong fourth quarter and drove the majority of this increase colossus sfp grew to twenty two point three million for que for and contributed fifteen point six million of the increase or two hundred and thirty one percent over the six point seven million in in the same period of twenty one or the full year or sell side segment achieve fifty eight point seven million in revenue an increase of forty six point seven million or three hundred and eighty nine percent growth over the twelve million in twenty twenty one where the fourth quarter or by side businesses orange one forty two and huddled masses grew fifteen percent year over year and contributed zero point nine million of our increase finishing the quarter with seven point one million in revenue compared to six point two million in the same period of twenty one for the full here are by side segment grew to twenty nine point three million an increase of three point two million or twelve percent over the twenty six point one million and twenty twenty one for the fourth quarter of twenty twenty two gross profit dollars were seven point four million compared to five million for the fourth quarter of twenty one and increase a two point four million as a result of higher revenues gross margins for the fourth quarter of twenty two was approximately twenty five percent compared to thirty nine percent in the same period of twenty one gross profit dollars for the year where twenty eight million compared to eighteen point four million for twenty one an increase of nine point six million as a result of higher revenue growth margin for twenty twenty two with approximately thirty two percent compared to personally forty eight percent for twenty twenty one these margin results are in line with our margin expectations given the rate of accelerated growth in our cell site advertising segment or sell side segment who's revenues grew as a percentage of our overall revenue has a lower gross margin that are by side segment the by side advertising segment gross margins where sixty one percent for the fourth quarter of twenty twenty two compared to sixty percent in the fourth quarter of twenty twenty one the sell side advertising segment gross margins where fourteen percent for the fourth quarter of twenty twenty two compared to nineteen percent in the fourth quarter of twenty twenty one for the entire year of twenty twenty two the by side advertising same and gross margins were sixty four percent compared to sixty two percent in twenty twenty one and for twenty twenty two the sell side advertising segment gross margins where fifteen percent compared to eighteen percent in twenty twenty one as the south side business segment continues to grow the slight reduction in the margins are due to the continued investment in our technology and our overall mix of publishers with respect to the operating leaded leverage of the ssp programatic business the higher revenue does result in higher dollar a better contribution
spk_5: by the up felt like segment
spk_4: operating expenses increased to six point three million in the fourth quarter of twenty twenty two or an increase of two point six million over the three point seven million of expenses in the fourth quarter of twenty twenty one for the full year twenty twenty two operating expenses were twenty one point three million compared to fourteen million and twenty twenty one or an increase of seven point three million and twenty twenty one direct digital holdings was a private company as a result of r i p o in february of twenty twenty two the company has increased attack count in the shared services area and incurred higher costs related to being a public company i merely in the professional services and investor relations active id which in total we estimate the to be approximately three million over the course of our first year with are organic revenue growth we have also added stress strategic headcount in our sales an operational personnel operating income was one point two million for the fourth quarter of twenty twenty two compared to operating income of one point three million in the same period of twenty twenty one for the full year operating income increased two point three million or fifty two percent to six point seven million for twenty twenty two compared to an operating income a four point four million for twenty twenty one in looking at our organic growth of our three subsidiaries in twenty twenty two the operating income for the combined by side and sulfide advertising segments was fourteen million one hundred and two percent increase or seven point one million compared to the six point nine million for twenty twenty one net income for the fourth quarter or zero point two million compared to a lot of two point one million in the same period of twenty twenty one for the year net income with two point nine million in twenty twenty two compared to a lot of one point five million and twenty twenty one for the fourth quarter adjusted even i was flat at one point eight million in the fourth quarter of twenty two and twenty twenty one and for the full year adjusted the grew to eight point eight million or thirty nine percent higher than the six point four million a just leave it up for the same period and twenty twenty one notwithstanding the additional public costs mentioned earlier regarding earnings per share what we did have some investments in both our operations and personnel and queue for impacting or a yes we want to remind everyone that direct digital holdings is a high growth first year public company in the ad tech space as the alice on his call know management focus on focuses on to metrics to judge or performance topline revenue and adjusted ebitda both of which showed strong results this quarter turning to the balance sheet we ended the year with cash and cash equivalent of four million a slight decrease from the four point seven million as of twelve thirty one twenty one total cash plus our accounts receivable balance as a year and was twenty nine point one million compared to twelve point six million at the end of twenty one we continue to invest in colossus as as p technology and during the quarter we acquired the license from our third party developer for five hundred thousand dollars and invested in the transition of our servers to hp green lake as well as additional software to further mitigate ivy t as previously disclosed in our form eight k filing with the se si on january ninth twenty twenty three we did enter into alone and security agreement with silicon valley bank which provided for revolving credit facility we had not yet drawn any amount under this credit facility and as disclosed in our for make a filing on march thirteenth we have issued a notice of termination of the loan agreement and we're in the process of terminating the credit facility we have received a consent to terminate the credit facility and a waiver of the terms relating to the credit facility under our term loan and security agreement with lafayette square loan servicing based on our expectations of cash flows from operations and the available cash held we do believe that we will have sufficient cash resources to finance or operations and service any debt obligation until at least the end of fiscal year twenty twenty three
spk_6: now to touch on our guidance
spk_4: or guidance assumes that the us economy does not have any major economic conditions to deteriorate or otherwise significantly reduce advertiser demand we plan to offer annual guidance and updated throughout the year and a quarterly we estimate that for the fiscal year twenty twenty three weeks that revenue to be in the range of one hundred and eighteen million two hundred and twenty two million or thirty six percent growth year over year at the midpoint as we enter into our second year as a public company we remain disciplined in our strategic organic growth initiatives as well as a continued focus on delivering strong eva and providing maximum value for shareholders now i'd like to turn it back over to mark for some closing comment
spk_2: thank you susan and they viewed everyone for joining we sincerely appreciate your interests and directors were holding in an exciting visits an opportunity where building here
spk_0: we're not going over the line for some courses ladies gentleman that you like about question we're bros star one or years old phone keypad and a cop emissions orange to your lungs in a question here you may proceed start to if you will or to a movie questions long as you reports to them shooting speaker equipment and may be necessary to pick up your headsets before booking store geez one moment please we of the questions and first question comes from a lot of games to knows what about for coping with pursuit
spk_7: great thanks
spk_1: college finished to the you're going on odyssey uneven environment
spk_7: i guess you know mark aid
spk_1: and a lot of noise out there as well as the boring questions earth you know what you get some color you're prepared remarks around you know next away from walled garden and clearly you guys play in a whore performance oriented faith benefiting as well in of diversity initiatives without them positive trend there's specially other a badly group them even look i give you the confidence in the growth outlook this year and you give a kind of your view on mix of growth in by alberta thousand
spk_2: yeah no good question and good here for me dan i'm what we've been looking at is pretty much the overall market and where we were we have the really kind of carved out a niche in that's in in regards to the by side it's in the mid market and as you know where a nice and markets that are your tier two tier three mediamark it's am and we worked primarily with demos are just a smart league organizations in the we work with
spk_3: tier two agencies as well as with direct brands as it relates to the by side business or based upon what we saw at the last half of the year versus what we're starting to see at the beginning of this year we feel like the momentum that we have captured on the by side business is still there for am at least the first half
spk_2: for this year as well as and what we have seen in regards to the contract a business that we have the contract business that we have as well as the iowa and social order business that we see based upon what we have seen in those marketplaces we have seen that even in this recessionary pay period if you will that the
spk_0: market it seems to be stable and holding strong with the middle market as a really start by side business when we talk about ourselves side business we are focused on the multicultural space as well as the general markets and some of the components that we have put in place even if there is some what about a level of a downturn when you did think about the
spk_3: put your five hundred companies and pull back in marketing spend the amount of greenfield space that we actually are able to grow in adding new publishers as well as d s p's we feel like will be able to overcome any recessionary issues that we might experience and twenty twenty three and those are some of the contingencies we put in place and a dish
spk_2: into that and we have been as specifically and que for started the process of read platforming
spk_3: our colossus as as p to allow us to really build up that infrastructure that we need to maintain the growth that we're anticipating the route twenty twenty three as it relates to the addition of new publishers and d s p's working inside of our ecosystem so those are the pieces that we have in place that help as can
spk_1: carry on the growth in the moment of that we experience and twenty twenty two throughout the twenty twenty three year that's how we were getting comfortable with given the guidance that we have provided doubt that that's super helpful and i know you gave it a revenue guy but you know at least maybe at a high level can you give us the sensor and on how you think margins are able to trend throughout this year maybe some of the putting take on investment
spk_2: yeah absolutely so just to give we we will not be giving even a guidance or even a march and guidance for twenty twenty three am what i will tell you as we are as you know when we built this company we have been a self funded organization l we have been very judicious in the capital that we receive but we also believe maintaining some level of profitability is very important
spk_3: to give us organizational discipline but what we are also planning for the a level of investments and platform and in sales force in and people are for twenty twenty three to really position as for twenty twenty four and the growth that were anticipating two years out i would that be and stated what we will see say as we are am planning and managing to profitability but we will not be given even a guidance or even a march and projections as to what that will look like will be managing to topline top line revenue numbers on the go for what we have seen is because we are adding some of the larger publishers
spk_2: the even a margin on the i'm i'm sorry the gross profit margin on the south side business historically has been around the eighteen percent we are anticipating that to be around that fourteen fifteen percent range because of some of the hardware investments that were making as well as some that i would say preventative measures as it relates around i the t that were making and also adding the larger publishers you see some level marches but we are also planning on putting in new project a new projects to help us grow that margin and the twenty twenty four year
spk_0: got it that's actually really help or on and and maybe one kind of on one at the you can talk about for to strategic opportunity mean on one hand with guy you know the o j pressure on google on the other hand you know her bag i say that they're starting to see them on differentiated apathy
spk_1: start to fall by the wayside philly how are you thinking about targets for consolidation of that's what you're thinking at how do we view those target any with it brings her eyes with or structure what that might look like
spk_2: yep you know in regards to our corporate development our strategic am or strategic investment approach am what we really look for is a technology that we think that can add to our current technology stack we also like get something that can be a creative as well as that can leverage the operations that we've already built in today if we see process that we think that we could streamline in order to capture more of those are other opportunities that will be looking at but again it will be very opportunistic and dumb if we go down the path of future acquisition and if we see something that's opportunistic that we think we can both on and side of our platform it's the that will take a hard like get inside of it if it makes sense for business in the go forward
spk_8: got it i often think about the column i really appreciate it
spk_9: absolutely
spk_0: or next question comes from lima guarantee of talking with rock and can please proceed
spk_10: hi this is on for daring things her tail the questions one to the sort of fall apart and gross margins and the compression that you saw their ah i appreciate the color on a fourteen fifteen percent outlook ah but how how much of that is driven by sort of less favorable economics as you move upstream to work with pleasure publishers the gay that scale is some of the investments you may be making his some of the day side and hardware
spk_11: yup combo both
spk_2: it's a combo boat that we have been experiencing so am i would say it's dead even on both but what we will say as we have them tactics in an approach that would put in place so by twenty twenty four we think that we're going to see a reversal of those margins based on new products will be bring into the marketplace in that timeframe
spk_10: thanks on and on on on the dm side have you have you seen any expansion in your pipeline i guess i'm trying to say it is net new clients or some other growth that's happening there are you kidding greater add spent on from your existing dm oakland's
spk_2: yeah the question of guess would actually experience both we have won some new demo contracts
spk_1: city of spokane as what one of i'm i'm sorry spokane airport is one of the new ones that we're just recently one and there's we have a full fledged strategies to go after a more market share in the demo space i'm in addition some of our larger clients who have been historically favorable spends with us have actually increased their spent so we're growing customer count as well as market share inside of those accounts have also been expanding for as well and we think that that's a positive movement from the leadership team that has been pushing our by side business and we're excited about how we've been able to grow on that front
spk_10: great thank you is one more one more thing may in terms of the the sales games should we expect a similar trajectory incidence of last year where it's sort of much stronger in the second half the year and really to choose well with with one que soy bean
spk_3: annie quite look quite low compared to the rest of the the corridors
spk_2: absolutely we typically our business typically follows the typical seasonality band of most digital marketing were que one is the slowest period to for is the highest
spk_3: we have no reason to think that that seasonality trend is gonna deviate for this year and were actually planning our business accordingly with que one being are slow as period in a build from there
spk_12: thinking as it's me up as
spk_13: absolutely
spk_0: or next question comes from the line of michael to pinsky with nobel capital please proceed thank you i'm thanks for the i take my question can you talk with a bit more about your head count of what is currently and then what are your hiring plan for know that you said that you'd like to continue the hi higher to support factor revenue growth job i'm wondering if your current the doubt that you have and support support the one eighteen two hundred twenty two million or revenues for this year or do you are be like you need to hire on to achieve that from current levels
spk_4: a my god this is susan yeah thanks for the question about seventy people right now and the the headcount that's in place right now will support the growth and twenty three we normally higher those folks about sixty eight month ahead of time because the does take welfare these boots on the ground to ramp up and so we do have the sales team in place to deliver on that revenue and we're currently also planning on hiring additional people and twenty three as we look to the twenty four strategies
spk_0: regularly know that when i look at the out the quarter the compensation expenses were will higher than expected for me on i was just wondering at work the wizard and i know that email if heads smears would change of them one of your segments but i'm just wondering was that due to the hiring that you had worked with it simply play hiring teachers gotta give some color
spk_4: on that
spk_2: yeah no in the fourth quarter yeah of course we had to hire headcount in fourth quarter we made some investments and people and you know compensation plan and so yeah that's where we ended up for the year
spk_1: and in that just how hello a sweeter and just so you're aware we do hiring in the queue into for for us so that we have boots on the ground ready to run and come you want you to of the next year so part of our cue for planning on his to strategically higher in queue for so that we can have boots
spk_14: on the ground get the benefit of those people coming on board come to you want you to at the next year
spk_0: so absent for and you will continue to see on the go forward
spk_4: perfect and then adjusted a of just ask this question because i feel like i have to have you noticed any fallout from the us we be on i'm from a quiet prospective anything notable there
spk_15: yeah nothing notable i mean we have addressed all the concerns that our customers and vendors have had and we had no exposure there so we haven't seen any disruption in cash coming in and we haven't had any disruption and cash going out though we feel we're we're protected as far as any direct impact from that
spk_4: right and then on the transition to the new servers have had that gone as planned have you noticed any issues that have developed and then i believe you had duplicative cost in the quarter it you can just remind me about that in if there was duplicative cause can you had an outline of about the dollar amount would that might have been
spk_16: depths and yet go ahead have yet michael's that we did a difficult task as we want to make sure that we protect that transition and and not having interruptions whatsoever that was probably about one hundred k in the quarter that we spend with a a to make sure that we had some redundancy bills anywhere in a continues some of that into one as we finish up that
spk_0: transition
spk_2: gotcha and then you know tucker with a bit about the competitive landscape and i'm just wondering in terms of whether or not you're seeing any pricing pressures and just because of the environment or is it on or is it just simply the the larger customers that you're going after
spk_1: simply larger customers are going after they as a little bit of
spk_0: prices and seventy as it relates to to the volume of impressions that they're able to provide so that's part of the is a strategy and other clients up as other of our competitors of at the same
spk_15: components as well so at some standard
spk_17: gotcha the color have thank you
spk_0: think you get or next was she comes from the line of and would riley with the a hot pursuit the i think for take my question congressional the growth i'm the buyer base where with him self had someone during the quarter
spk_18: just wondering where you guys are doing committee and incentivize you buyers to continue using your platform vs and be going for some other social platforms
spk_1: yeah absolutely
spk_2: the brilliance the the relationships that were able to build on the by side of our business with the outrage and the strategy that we take years to build relationships now just with of the diaz peace but we go further upstream with the agencies in the brand's as well built in those relationships and them providing them with
spk_1: providing them access to a long tail publishers that are focused in on the multicultural ecosystems and giving them a one stop shop or where they could buy general market as well as a multicultural publishers from a trusted company like ours has proved to be beneficial in addition to that the level of technology and the relied
spk_0: oh the we've been able to provide the marketplace has also been a benefit for of customers wanting to do business with us so once they are engaged they typically stay in want to continue to transact with as because the way that we've been able to run our business has proven that level of efficiency and they have seen that the benefit of that performance in the long run
spk_19: okay got it thank you for that all my other questions were asked thanks
spk_0: thank you you're your own over the question that was fun as will conclude the topics

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