Direct Digital Holdings, Inc.

Good day, everyone, and welcome to the Direct Digital Holdings Third Quarter 2024 Earnings Call. At this time, I would like to hand the call over to Mr. Brett Malott. Please go ahead, sir.

Good afternoon, everyone, and welcome to Direct Digital Holdings Third Quarter Earnings Conference Call. My name is Brett Malott, 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 with the Form 10-Q and accompanying earnings release, which will be filed by Direct Digital Holdings, which will 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 Investment Relations website. Immediately following the speaker's presentation, there will be a question and answer session. Please note that the statements made during the 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 we 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 you should refer to these for more information. This cautionary statement applies to all forward-looking statements made during a call. During this call, DRCT will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally-sensitive accounting principles. Reconciliation of the non-GAAP financial measures to most directly comparable GAAP measures is available in the earnings release that DRC will file in its Form 10-Q. I'll now hand the call over to Mark Walker, Chief Executive Officer. Mark?

Thanks, Brett, and thank you to everyone joining our third quarter earnings call. We are pleased to return to our normal reporting cadence after the submission of our FY2023, Q1 2024, q2 2024 filings last month it goes without saying that has been a difficult few quarters for directors or holding on this call we believe it would be helpful to provide a quick recap to the past few months the current status of our company and why we're excited for the path and growth opportunities ahead in late march this year direct digital holdings released its q4 and full year results of 2023 announcing a top-line revenue guidance target for 2024 of $170 million to $190 million, representing 15% year-over-year growth at the midpoint. By early May, Direct Digital Holdings' supply-side platform Colossus SSP revenues were pacing ahead of the previously stated guidance, and the company was well on its way to record quarterly results. However, in mid-May 2024, Analytics Research LLC a for-profit digital advertising analytics firm run by one individual published a false and defamatory blog post against Colossus SSP. To be clear, this is a false blog post that we have refuted in both the marketplace and in court violence, and the post has been disproven by top experts. However, because of the blog post, Direct Digital Holdings had an unexpected business disruption amongst its partners, advertisers, and clients, including a major customer pausing its connection with our supply side platform, Colossus SSP. The connection has now resumed. However, volumes have not yet returned to pre-pause levels, and this has caused a meaningful reduction in our revenues. Analytics defamatory statements have impacted the business and caused the need to revise guidance downward for FY 2024. In May, we filed a defamation lawsuit, which we will continue to vigorously defend in court. However, DDH has been successful in turning on the POS customers in volumes through our sell-side platform. Our revenue is steadily increasing. Throughout these months, we have continued working with our multinational HOCO agencies, our Fortune 500 brand partners, and demand-side partners to resume business, which we already have. While we are confident we will return the company to normalcy, it will take time to rebuild. Consequently, the impact was felt in the second and third quarter of 2024 and in Q3. Direct digital holdings revenue was $9.1 million, a decrease of $50.4 million or an 85% decline compared to the $59.5 million in the same period of 2023. Colossus SSP saw revenue fall to $2.2 million for Q3 2024 compared to $51.6 million in the same period of 2023. a 96% decrease year-over-year. On our buy side, we saw revenue of $6.9 million compared to $7.9 million in the same period of 2023, a 12% year-over-year decline. For the third quarter of 2024, gross profit dollars were $3.5 million compared to $11.8 million for the third quarter of 2023, a decrease of 70%. Consolidated operating loss for the quarter was $3.7 million compared to operating income of $4.5 million for the same period, a decrease of $8.2 million or 181% year-over-year. Despite a dramatic impact to our revenue and non-recurring costs of $1.1 million related to the auditor change, we only saw a decrease in operating income of $8.2 million and a decrease in adjusted EBITDA of $8.3 million in third quarter compared to the same period of 2023. This is a testament to our cost saving initiatives and the company's operating structure, which is able to flex and adapt to shocks across our top line. In addition, over the past few months, we have also implemented an optimization strategy, diversifying our revenue and conducting a cost savings review, which will result in a more diversified and efficient business model. As part of the optimization strategy, we announced last month that Direct Digital Holdings entered into a 20 million equity reserve facility with New Circle Principal Investments, an affiliate of New Circle Capital, providing our company access to a fresh source of capital, enhancing our financial liquidity, and strengthening our shareholder equity, enabling the expansion of our technology and strategic capabilities, benefiting both publishers and advertisers. Earlier today, we were pleased to announce the launch of Colossus Connections, an aggressive initiative we were already executing to accelerate our direct integration efforts with leading demand-side platforms. This initiative will optimize supply path efficiency for advertisers, unlocking access to more potential demand and revenue, and will also save them money. While this has always been a priority of Direct Digital Holdings, in recent months we have made impressive inroads and are excited to share that we have already signed up two of the leading DSP partners in the marketplace, expected to go live later in 2025. On the demand side, We recently announced the unification of Direct Digital Holdings five-side divisions, Orange 142 and Huddle Masses. This will enable the delivery of new capabilities, particularly in helping clients navigate emerging technologies, such as artificial intelligence and machine learning, as well as emerging high-growth channels, such as marketing-enabled services, connected TV, social media, and retail media. Small and mid-sized clients will be a key focus for the combined entity. as the clients are increasingly shifting advertising budgets to digital and require support to navigate its complexities and optimize their ad spend. Currently, the company serves hundreds of small and mid-sized clients, enabling over 2,000 campaigns each year. Before our CFO, Diana Diaz, goes into details on the third quarter, I want to briefly touch on guidance. As a result of the prior events and the subsequent recalibration of our business, We are providing full-year revenue guidance of $60 to $70 million for FY2024 and full-year revenue guidance of $90 to $110 million for FY2025 as we rebuild the previous levels. With that, I would like to hand over the call to Diana Diaz to discuss our results in more detail. Diana?