Direct Digital Holdings, Inc.

Thank you for standing by. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Direct Digital Holdings first quarter 2025 earnings call. 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jennifer Bellido, IMS Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Direct Digital Holdings' first quarter 2025 earnings conference call. 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 the company'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 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 could 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 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 to the most directly comparable GAAP measures is available in the earnings release that DRCT filed in its Form 8-K today. Now I'll hand over the conference call to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Thanks, Jen, and thank you to everyone joining our call this evening. I'll start by reviewing some of the highlights of our operations and financial results during the first quarter before turning the call over to our Chief Financial Officer, Diana Diaz, for a more detailed look at our financial results. We'll conclude by opening the call for a brief Q&A. As we begin to move through 2025, our focus is on scaling our buy-side solution and rebuilding our sell-side business to drive consolidated revenue growth throughout the fiscal year. In the first quarter, we recognized consolidated revenue of $8.2 million, including $6.1 million in revenue from our buy-side segment, a 6% increase compared to buy-side revenue in the first quarter of 2024. The increase included growth from customers and new verticals of $1.2 million. Sequentially, our first quarter sell-side revenue of $2 million was relatively consistent with fourth quarter sell-side revenue of $2.7 million, demonstrating an encouraging trend given that our fourth quarter is typically the strongest driven by increased activity around the holidays, and our fourth quarter 2024 included $700,000 of political spend. So, we are pleased with the performance of our sell-side segment in Q1 and continue to focus our efforts on scaling this segment to drive consolidated revenue growth. In the first quarter of 2025, we continue to see the impact of the disruption of our sell-side business during the previous year resulting from multiple short attacks. As many of you are already aware, a market discredited blog post against our supply-side platform, Colossus SSP, in mid-May of 2024 caused an unexpected business disruption amongst our partners, advertisers, and clients. As we continue to repair the business and reconstitute our relationships, volumes have not yet returned to pre-pause levels, and this caused a meaningful reduction in our 2024 revenues and also impacted the first quarter of 2025. We have been working diligently with our multinational HOCO agency partners, our Fortune 500 brand partners, and demand-side partners to resume or increase activity once direct connections are fully integrated in the second half of 2025. and we're pleased by their ongoing commitment to direct digital as we build our business back to previous levels. Our focus in 2025 is on driving growth and value for our shareholders. We've launched several initiatives to drive our progress, including revenue optimization efforts to diversify our revenue base and cost-saving initiatives to drive reductions in operating expenses and enhance operational efficiency. In the first quarter of 2025, we reduced operating expenses by nearly $1.5 million, or approximately 19% when compared to the first quarter of 2024. We continue to evaluate the optimal personnel and cost structure for our business. At the business unit level, the unification of our two buy-side platforms into Orange 142 has allowed us to better service small to mid-sized clients who represent a significant growth opportunity for our business. Small and mid-sized clients are increasingly shifting their advertising dollars to focus more on digital advertising. By intentionally focusing on this segment of the market, Direct Digital can provide the support these clients need to help navigate the complexities of digital advertising and optimize their return on ad spend and emerging technologies and high-growth channels, including AI, connected TV, retail media, and more. As we mentioned last quarter, We brought on several clients across some of these new verticals, which are expected to generate additional incremental revenue in the range of $5 to $10 million in 2025. We expect to see the impact of these new clients continuing into second quarter 2025 revenues. On the sales side, we launched Colossus Connection in the third quarter of 2024 to accelerate direct integration efforts with leading demand-side platforms. We established this offering to optimize supply path efficiency for our advertising clients through direct connections with top demand side platforms, which ultimately provides advertisers with improved access to demand and cost savings. And we're seeing some encouraging early results. As we stated previously, we've already signed up two of the leading marketplace partners in this segment. We have also recently added several mid-tier DSP partners who are near completion with integration. We're also pursuing alternative intermediaries and pathways to send buyer spend to our publishers. We expect to see the impact of these new partners on our revenues once integration has been completed in the second half of 2025. In addition to our revenue diversification strategy, we've implemented cost-saving initiatives across our business with the goal of reducing some of our ongoing expenses and enhancing operational efficiency. In the first quarter of 2025, we reduced total operating expenses by 19% compared to the prior year period. Diana will elaborate on this in her prepared remarks, but at a high level, we've taken a close look at our cost structure and expenses, and we're strategically reallocating capital to invest in the long-term growth of our business. From a liquidity perspective, we continue to selectively pursue strategic financing, We're optimistic about our prospects for securing the necessary capital to support the growth of our business. We're encouraged by our progress in the quarter and excited about what's ahead for Direct Digital in 2025. We face significant challenges in 2024, and there is still a great deal of work to be done as we continue to recalibrate and rebuild our business. That being said, we believe that we are well positioned with the revitalized model prudent cost management strategies, and strong demand for our products and services. With our visibility today, we maintain our revenue guidance of $90 million to $110 million for full year 2025, supported by growth in both our buy-side and sell-side segments. And we look forward to driving enhanced value for our shareholders as we move through the balance of 2025. As we mentioned in our 2024 year-end earnings call, In particular, we expect the second half of 2025 to deliver strong gains as we experience the full effect of new direct sell-side partners coming online. 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.