Direct Digital Holdings, Inc.

I would now like to turn the conference over to Brett Malott, Investor Relations. You may begin.

Good afternoon, everyone, and welcome to Direct Digital Holdings' fourth quarter and full year 2024 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 8K and accompanying earnings release, which has been filed today by Direct Digital Holdings, which 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. Usually following the speaker's presentation, there will be a question and answer session. Please note that the statements made during the call, including any 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 could cause DRCT's actual results to differ from its historic results and forecasts, including those risks set forth in DRCT's findings of the SEC, and you should 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, the most directly compatible GAAP measures, is available in the earnings release that DRCT filed in its Form 8K today. I'll now hand the call over to Mark Walker, Chief Executive Officer. Mark?

Thanks, Brett, and thank you to everyone joining our fourth quarter and full year 2024 earnings call. For the full year, I'm pleased that we delivered revenue in line with our significantly revised guidance. 2024 proved to be a challenging year for the company, to say the least. But I'm incredibly proud of the team for responding quickly, initiating a clear strategy, and mobilizing to execute against that strategy. Today, Direct Digital is rescaling with a significantly strengthened business model for customers, partners, and shareholders alike. Just to remind everyone, at this time last year, Direct Digital Holdings released its Q4 full-year results for 2023, announcing a top-line revenue guidance target 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, had achieved revenues far ahead of the previously stated guidance and the company was well on its way to our record quarterly results. At that time, we were fighting what we believed was an ongoing short attack since December of 2023, and believed that the worst was behind us. Unfortunately, there was a secondary attack. A second false and defamatory blog post against our supply-side platform, Colossus SSP, in mid-May 2024 caused an unexpected business disruption amongst our partners, advertisers, and clients due to a major customer pausing its connection with Colossus. The connection with this major customer, who is an intermediary in the digital ecosystem, has resumed. However, volumes have not yet returned to pre-pause levels, and this caused a meaningful reduction in our FY2024 revenues. and is also expected to impact 2025. That said, despite the challenges faced this past year, we delivered fourth quarter results in line with our revised revenue guidance range. We have been working diligently with our multinational whole coat agency partners, our Fortune 500 brand partners, and demand side partners to resume business, which many already have. Starting last year, we initiated a plan to, one, further expand our sources of our revenue to create a more diversified business throughout all segments. And two, conduct a cost savings review, which has resulted in significant operating expense reduction sequentially when compared to the first half of the year. Concerning our diversification strategy, in the third quarter of 2024, we announced the launch of Colossus Connections, an aggressive initiative to accelerate our direct integration efforts with leading demand-side platforms, and we have already signed up two of the leading partners in the marketplace. This initiative will optimize supply path efficiency for our advertising clients through direct connections with top demand-side platforms, ultimately providing advertisers with improved access to demand and cost savings. In addition, we are pursuing alternative intermediaries and pathways to send buyer spend to our publishers. We've seen sequential improvement from existing direct connections, and we're expecting to see greater revenue impacts as we move through 2025, as alternative pathways are solidified and as integrations are completed in the second half of 2025. As part of our continuing sell-side strategy, we have worked diligently with our partners to keep our key sell-side relationships intact while building back ad spend in previous levels. This plan will continue to take shape over time through 2025 as we focus on diversifying, optimizing, and future-proofing our sell-side platform. On the buy side, since we unified our two divisions, Orange 142 and Huddle Masses, we have been keenly focused on small and mid-sized clients who are increasingly shifting advertising budgets to digital and require support to navigate its complexities and optimize their ad spin. Further, we see that small and mid-sized brands are looking for a more high-touch and tailored client-buy-side relationship. These clients are a key focus for our newly combined buy-side operation. We are now better equipped to deliver this level of premium service to our clients as they navigate emerging technologies and high-growth channels such as AI, connected TV, and retail media. We have already brought on clients and new verticals which are expected to generate additional incremental revenue of $5 million to $10 million in 2025, with full impact starting in the second quarter of 2025. With that, I will discuss some high-level points related to the fourth quarter, with Diana providing further details about the quarter later in the call. Revenue for the fourth quarter was down as expected compared to the prior year due to continuing negative impact on sell-side revenue resulting from business disruption in May of 2024. and continued impact on the buy side from certain customer spend declines, partially offset by new buy side customer growth and non-recurrent political spin on the sell side. Despite the overall decline in revenue, gross margin increased from 23% in the prior year to 32% in the fourth quarter of 2024 due to a higher mix of buy side revenue in the current quarter. We realized cost savings and operating expenses of $2.1 million in the fourth quarter of 2024, reflecting the flexibility in our cost structure. In addition to our focus on building back our top line, and as mentioned on our call last quarter, we have undertaken a series of cost savings and operational optimization strategies, which have resulted in a more diversified, efficient business model, positioning us for success in the coming years. We were able to withstand the dramatic impact to our revenue through improved gross margin and operating cost savings, which is a testament to our robust business model and the success of our cost-saving initiatives. Looking forward into 2025, we're encouraged by the growth we are seeing in segments of the ad tech arena, specifically around curation and data enrichment. We are reiterating revenue guidance of $90 million to $110 million for fiscal 2025, underscoring our confidence in our ability to scale up both our buy-side and sell-side businesses. In particular, we expect the second half of the year to deliver strong gains as we experience the full effect of new direct sell-side partners coming online, while our first quarter tends to be slower than the fourth quarter related to seasonality in our sell-side business. We are seeing sequential improvement in the first quarter of 2025 over November and December 2024. We believe our streamlined approach will continue to enable us to capture market share and strengthen our leading advertising marketing technology offer. I will now hand things over to Diana Diaz, our Chief Financial Officer, who will walk through some of the financial highlights in further detail.