Q4 2023 Direct Digital Holdings Inc Earnings Call
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Speaker Change: Good day, everyone and welcome to the direct digital holdings fourth quarter and full year 2023 earnings call. Today's call is being recorded in all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone.
Operator: Good day, everyone, and welcome to the Direct Digital Holdings fourth quarter and full year 2023 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise.
Operator: 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 1 on your telephone keypad. And if you would like to withdraw your question, it is star 1 again. I will now turn the conference over to Brett Milotte, VP of Investor Relations. Please go ahead.
Speaker Change: Keypad and if you would like to withdraw your question. It is star one again.
Speaker Change: I will now turn the conference over to Brett <unk> VP of Investor Relations. Please go ahead.
Brett Milotte: Thank you. Thank you. Good afternoon, everyone, and welcome to Direct Digital Holdings' fourth quarter and full year 2023 earnings conference. My name is Brett Milotte, and I'm representing Direct Digital from ICR. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer Mark Walker and Chief Financial Officer Diana Diaz. The information discussed today is qualified in its entirety by the Form 8K and accompanying earnings release, which was filed today by Direct Digital Holdings and may be accessed on the SEC's website under DRCT. Today's call is also being webcast, and a replay will be posted on DRCT's Investor Relations website. Immediately following the speaker's presentation, there will be a question and answer session.
Brett: Good afternoon, everyone and welcome to direct at the holdings fourth quarter and full year 2023 earnings Conference call. My name is Brett I'm, a lot and I'm, representing direct digital holdings from ICR on today's call I direct you to the Holdings', Chairman and Chief Executive Officer, Mark Walker, and Chief Financial Officer Jana DFS.
<unk> discussed today is qualified in its entirety by the form 8-K and accompanying earnings release, which has been filed today by direct Pico Holdings, maybe access at the Sec's website <unk> website.
Brett: Today's call is also being webcast and a replay will be posted to <unk> investor Relations website immediately following the speaker's presentation there'll be a question and answer session. 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. These statements are made on the basis of ticc's views and assumptions regarding future events and business performance.
Brett Milotte: Please note that the statements made during this 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 GRCT's views and assumptions regarding future events and business performance at the time they are made, and GRCT does not undertake any obligation to update these. Four lucky 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 with the SEC and on this call, and you can refer to those for more information. Discretionary statement applies to all forward-looking statements made during this call. During this call, GRCQ will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
Brett: They are made and do not undertake any obligation to update these statements.
Brett: Forward looking statements are subject to risks, which could cause <unk> actual results to differ from historical results and forecast, including those risks set forth in <unk> filings with the SEC on this call and you can refer to those for more information. This.
Brett: This cautionary Stephen applies to all forward looking statements made during this call.
Brett: During this call <unk>, you're referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles reconciliations of the non-GAAP financial measures most directly comparable GAAP measures is available in the earnings release at <unk> filed in its form 8-K today.
Brett Milotte: Reconciliation of the Non-Gap Financial Measures, the Most Directly Comparable Gap Measures, is available in the earnings release that DRCD filed in its Form 8K today. I will now hand over the conference to Mark Walker, Chief Executive Officer. Mark?
Brett: I'll now hand over the conference Tomorrow, Walker, Chief Executive Officer Mark.
Mark D. Walker: Thanks, Brett. Thank you to everyone joining us for our fourth quarter of full-year 2023 earnings call. 2023 was an inflection point for our company, and I'm incredibly proud to report our strong financial results and operational performance for the year as we're now reporting our eighth quarter of double-digit revenue growth. As we've discussed in previous earnings calls, we continue to make significant investments in Direct Digital Holdings' technology stack, advertising platform, and operational structure throughout 2023. Our strong technology partnerships and our overarching business strategy have enabled us to meet a growing number of customers' demands and further the capabilities of our technology platforms. As a result, our open marketplace platform continues to benefit as middle market businesses seek our differentiated, thoughtful approach to advertising solutions. Before we get into more detail about our fourth quarter, I'd like to begin with a quick review of our year.
Walker: Thanks, Brad and thank you to everyone, joining our fourth quarter and full year 2023 earnings call 2023 was an inflection point for our company and I am incredibly proud to report our strong financial results and operational performance for the year as we're now reporting our eighth quarter of double digit revenue growth.
Speaker Change: As we've discussed on previous earnings calls, we continue to make significant investments in direct is all these technologies that advertising platform and operational structure throughout 2023.
Speaker Change: Our strong technology partnerships and our overarching business strategy have enabled us to meet a growing number of customers demand further capabilities of our technology platforms. As a result, our open marketplace platform continues to benefit as middle market businesses seek our differentiated thoughtful approach to advertising solutions.
Speaker Change: Before we get into more detail about our fourth quarter I'd like to begin with a quick review of our year. We achieved total full year revenue of $157 1 billion or 76% growth over the $89 $4 billion achieved in 2022.
Mark D. Walker: We achieved total four-year revenue of $157.1 million, or 76% growth over the $89.4 million achieved in 2022 and 29% above our initial 2023 guidance. We also achieved adjusted EBITDA of $11.3 million, 11% higher than the $10.2 million adjusted EBITDA for the same period in 2022. In 2023, we had a number of achievements, a few of which I wanted to highlight today as we're proud of how our team was able to grow the overall business. Firstly, we announced our new collaboration with Amazon Publisher Services, with our Colossus SSP division integrated with Amazon's Transparent Ad Marketplace, or TAM. The integration allowed Colossus SSP's roster of publishers to tap into the benefits of TAM and server-side header bidding solutions that offer a direct auction approach. We also announced our partnership with HPE GreenLake, providing an edge-to-cloud platform to build a highly reliable, scalable, and secure production environment across our technology stack.
Speaker Change: 25% above our initial 2020 guidance. We also achieved adjusted EBITDA of $11 3 billion, 11% higher than the $10 $2 million adjusted EBITDA for the same period of 2022.
Speaker Change: If 2023, and we had a number of achievements a few which I wanted to highlight today is we're proud of how our team was able to grow the overall business. Firstly, we announced our new collaboration with Amazon publisher services with our Colossus FSP division integrated with episodic transparent ad marketplace or the.
Speaker Change: The integration allows <unk> roster of publishers to tap into the benefits of <unk> server side header bidding solution that offer direct auction approach.
Speaker Change: We also announced our partnership with HP <unk>, providing an edge to cloud platform to build a highly reliable scalable and secure production environment across our technology stack throughout the year, we had significant growth of the buy side with strategic wins with growth of our overall client portfolio by 7% and increased revenue per.
Mark D. Walker: Throughout the year, we had significant growth on the buy side, with strategic wins including growth of our overall client portfolio by 7% and increased revenue per customer up 10% for the year. We began the transition to a cookie-less environment and saw the integration rollout of our alternative ID solutions. In addition, we launched our AI yield management tool, which allows us to achieve bid efficiency and revenue optimization, and we continued the transition of DDH, Shared Services Function, for increased operational scale and support. While we saw strong growth in Q4 2023 year over year, with revenue of $41 million, which was 33% higher than the same period last year, we were down sequentially from Q3 with Q4 revenue, which was shy of our revised guidance due to two primary In the fourth quarter, based upon value chain changes, it became clear that cookie deprecation would begin in Q1 of 2024. In addition, we noted softer demand than our revised guidance called for. As such, our team proactively began our transition off of cookies for immediate transactions.
Speaker Change: Customer up 10% for the year, we began the transition to a cookie less environment and saw the integration of rollout of our alternative IV solutions. In addition, we launched our AI yield management tool, which allows us to achieve better efficiency of revenue optimization and we continue with the transition of Dth shared services function or increased <unk>.
Speaker Change: <unk> scale and support.
Speaker Change: While we saw strong growth in Q4 2023 year over year with revenue of 41 billion, which was 33% higher than the same period last year, we were down sequentially for Q3 with Q4 revenue, which was shy of our revised guidance is due to two primary factors.
Speaker Change: Fourth quarter based upon value chain changes it became clear cookie deprecation will begin to Q1 of 2024. In addition, we noted softer demand that our revised guidance called for as such our team proactively began our transition out of cookies for media transactions. As a result, we believe our strategic decision to accelerate our investments has been.
Speaker Change: <unk> as well for the future it ahead of our peers.
Speaker Change: In addition in Q4, we did a complete beta testing on our original schedule for several strategic publishers, including Dot dashboard, whether dot com <unk> at a rate of group, which would have increased overall are pressured cap. These strategic publishers have all been launched in Q1 of 2024, we continue to prioritize long term.
Mark D. Walker: As a result, we believe our strategic decision to accelerate our investments has positioned us well for the future and ahead of our peers. In addition, in Q4, we did not complete beta testing on our original schedule for several strategic publishers, including Dot Dash Meredith, Weather.com, NBCU, and Arena Group, which would have increased the overall impression count. These strategic publishers have all been launched in Q1 of 2024. We continue to prioritize long-term successes for short-term gains, and we are confident that strategic measures and internal calibrations were made in Q4 2023. We'll position the company to build on the successes of 2023 and continue revenue growth and market share gains in 2024. Our fourth quarter 2023 adjusted EBITDA of $2.3 million was likewise affected by the information revenue impacts during the quarter.
Speaker Change: For short term gain.
Speaker Change: We are confident the strategic measures at a turtle calibrations were made in Q4 2023 will position the company to build on the successes of 2023 and continue revenue growth and market share gains in 2024.
Speaker Change: Yes.
Speaker Change: Our fourth quarter 2023, adjusted EBITDA of $2 3 billion. Likewise was affected by the aforementioned revenue impacts during the quarter. Our supply side platform continues to increase publisher partner engagements. In addition to increases of our impression inventory in the fourth quarter, our sell side advertising segment processed approximately 401 billion buddleia precious it.
Speaker Change: Increase of 201% over the same period of 2022 with close to one trillion bid requests for the quarter. In addition to the company's sell side advertising platform has received over 83 billion bid responses in the fourth quarter of 2023, an increase of 367% over the same period of 2022, our buyers within our platform.
Mark D. Walker: Our supply-side platform continues to increase publisher-partner engagements in addition to increases in our impression inventory. In the fourth quarter, our sell-side advertising segment processed approximately $400 billion in monthly impressions, an increase of 201 percent over the same period of 2022, with close to $1 trillion in monthly bid requests for the quarter. In addition, the company's sell-side advertising platforms received over 83 billion bid responses in the fourth quarter of 2023, an increase of 367 percent over the same period of 2022. However, our buyers within the platform did see some degradation due to our platform transition, decreasing by 50 percent to 84,000 buyers compared to last year's fourth quarter. However, our revenue per buyer increased by 133 percent to $397 per customer over the same period.
Speaker Change: Did see some degradation due to our platform transition decrease about 50% to 84000 buyers compared to last year's fourth quarter. However, our revenue per buyer increased by 133% to $397 per customer over the same period.
Speaker Change: The buy side. These businesses served approximately 234 customers an increase of 7% compared to the same period of 2022 with buy side revenue per customer are consistent with the same period last year.
As it relates to 2020 for our industry outlook. Our point of view is the following we believe that the middle market. The digital AD Tech space remains fragmented consolidation opportunities exist. We will continue to evaluate those opportunities for accretive platform integration value creation, it's strategic that we anticipate.
Speaker Change: Cookie deprecation will accelerate market consolidator opportunistic investments.
Speaker Change: For our buy side business. The introduction of AI complex market dynamics will accelerate the market transition and digital media for traditional media. This transition will continue to present opportunities to expand our footprint and gain market share for tech enabled services and additional alternative Ids will take on more important to the industry as well as.
Mark D. Walker: On the buy-side, these businesses served approximately 234 customers, an increase of 7 percent compared to the same period last year, with buy-side revenue per customer consistent with the same period last year. As it relates to 2024, our industry outlook and point of view is the following. We believe that the middle market, the digital ad tech space, remains fragmented, and consolidation opportunities exist.
Speaker Change: Strong understanding of the impact of the privacy sandbox or can't pay performance reporting and delivery. We also believe that the bifurcation of the marketplace between alternative Baidu open CPA marketplaces of walled gardens will continue to exist along with the CD market tension between DSP and SSP relationships, we expect the streamlining of the value chain.
Mark D. Walker: We will continue to evaluate those opportunities for accretive platform integration, value creation, and strategic fit. Additionally, we anticipate cookie deprecation will accelerate market consolidation and opportunistic investment. For our bi-site business, the introduction of AI and complex market dynamics will accelerate the market transition in digital media from traditional media. This transition will continue to present opportunities to expand our footprint and gain market share for tech-enabled services. In addition, alternative IDs will take on more importance in the industry as well as a strong understanding of the impact of the privacy sandbox on campaign performance, reporting, and delivery.
Speaker Change: We aim to build strategic relationships with our focus on agency and our brand partnerships continuing to be the cornerstone of our strategy.
Speaker Change: Finally, AI tools will continue to proliferate through the value chain.
Speaker Change: <unk> companies to leverage these tools and offer these capabilities across both of our business segments, increasing ROI at enhancing performance for 2024, we are providing revenue guidance for FY 2024 of 170 billion to 190 billion or an increase of 50% over last year's performance at the midpoint I will now hand things off.
Speaker Change: So our CFO, Diana Diaz, who will walk through some of the financial highlights of further detail.
Diana P. Diaz: Thank you Mark.
Diana P. Diaz: As Mark stated our revenue increased to $41 million in the fourth quarter of 2023, an increase of $10 $3 million or 33% over the $37 million ml same period of last year. We finished the year with total revenue of 157 one.
Mark D. Walker: We also believe that the bifurcation of the marketplace between alternative ID, OpenCPM marketplaces, and wall guards will continue to exist along with continued market tension between DSPs and SSPs. However, we expect a streamlining of the value chain. We aim to build strategic relationships, with our focus on agency and brand partnerships continuing to be the cornerstone of our strategy. Finally, AI tools will continue to proliferate through the value chain, allowing companies to leverage these tools and offer these capabilities across both of our business segments, increasing ROI and enhancing performance. For 2024, we're providing revenue guidance for FY 2024 of $170 million to $190 million, or an increase of 50 percent over last year's performance at the midpoint. I will now hand things over to our CFO, Diana Diaz, who will walk through some of the financial highlights in further detail. Thank you, Mark.
Diana Diaz: Million.
Diana P. Diaz: Which was about 8% below the low point of our guidance range that was an increase of $67 $8 million or 76% cross over the $89 $4 million of revenue achieved in 2022.
Diana P. Diaz: As Mark mentioned revenue for the fourth quarter of 2023 was lower than anticipated due to lower than anticipated demand.
Diana P. Diaz: And the release of tier one publishers from beta testing and proactive efforts by the company during the fourth quarter to accelerate the transition towards a cookie less advertising platform.
Diana P. Diaz: Our sell side advertising segment ended the year with a strong fourth quarter and throughout the majority of the increase over the prior year.
Diana P. Diaz: <unk> SSP, Greg of $33 4 million for Q4, and contributed $9 $8 million of the increase of 41% over the $23 $6 million of sell side revenue and the same period of last year.
Diana P. Diaz: As Mark stated, our revenue increased to $41 million in the fourth quarter of 2023, an increase of $10.3 million, or 33%, over the $30.7 million in the same period of last year. We finished the year with total revenue of $157.1 million, which was about 8% below the low point of our guidance range but was an increase of $67.8 million, or 76% growth over the $89.4 million of revenue achieved in 2022. As Mark mentioned, revenue for the fourth quarter of 2023 was lower than anticipated due to lower than anticipated demand, a delay in the release of Tier 1 publishers from beta testing, and proactive efforts by the company during the fourth quarter to accelerate the transition toward a cookie-less advertising platform. Our sell-side advertising segment ended the year with a strong fourth quarter and drove the majority of the increase over the prior year. Colossus SSP grew to $33.4 million for Q4 and contributed $9.8 million to the increase of 41% over the $23.6 million of sell-side revenue in the same period last year.
Diana P. Diaz: For the full year, our south side segment achieved $122 $4 million in revenue, an increase of $62 $4 million or 104% of growth over the $60 million in sell side revenue in 2020.
For the fourth quarter, our buy side businesses, Orange $1, 42, and huddled masses grew 7% year over year and contributed $500000 overall increase finishing the quarter with $7 $6 million in revenue compared to $7 1 million in the same period.
2022.
Diana P. Diaz: For the full year, our buy side Sy med and created to $34 7 million, an increase of $5 $3 million or 18% over the $29 $3 million of buy side revenue in 2022.
For the fourth quarter of 2023 gross profit dollars were $9 3 million compared to $8 $7 million for the fourth quarter of 2022, an increase of about $600000 as a result of higher revenue.
Diana P. Diaz: For the full year, our sell-side segment achieved $122.4 million in revenue, an increase of $62.4 million, or 104% of growth over the $60 million in sell-side revenue in 2022. For the fourth quarter, our buy-side businesses, Orange 142 and Huddle Masses, grew 7% year over year and contributed $500,000 of the overall increase, finishing the quarter with $7.6 million in revenue compared to $7.1 million in the same period in For the full year, our buy side segment grew to $34.7 million, an increase of $5.3 million or 18% over the $29.3 million of buy side revenue in 2022. For the fourth quarter of 2023, gross profit dollars were $9.3 million compared to $8.7 million for the fourth quarter of 2022, an increase of about $600,000 as a result of higher revenue. Grants margins for the fourth quarter of 2023 were approximately 23% compared to 28% in the same period last year.
Diana P. Diaz: Gross margins for the fourth quarter of 2023 were approximately 23% compared to 28% in the same period of last year.
Diana P. Diaz: Most profit dollars for the year were $37 6 million compared to $29 $3 million for 2022.
Diana P. Diaz: That was an increase of $8 $3 million as a result of higher revenue gross margin for 2023 was approximately 24% compared to approximately 33% for 2022.
Diana P. Diaz: These margin results are in line with our margin expectations, given the rate of accelerated growth in our sell side advertising segment, our faster growing sulfide segment has higher cost of revenues compare to our buy side.
Diana P. Diaz: We also saw higher sulfide fixed costs related to an increase in server capacity and the amount of $1 $6 million for 2023 to support our growth.
Diana P. Diaz: Operating expenses increased to $9 $3 million in the fourth quarter of 2023, or an increase of $3 million over the $6 $3 million of expenses in the fourth quarter of last year.
Diana P. Diaz: Gross profit dollars for the year were $37.6 million compared to $29.3 million for 2022. That was an increase of $8.3 million as a result of higher revenue. Gross margin for 2023 was approximately 24% compared to approximately 33% for 2022.
For the full year 2023, operating expenses were $30 $9 million compared to $21 $3 million in 2022, an increase of $9 $6 million.
Diana P. Diaz: These margin results are in line with our margin expectations, given the rate of accelerated growth in our sell-side advertising segment. Our faster-growing sell-side segment has higher costs of revenue compared to our buy-side segment. We also saw higher cell-side fix costs related to an increase in server capacity and the amount of $1.6 million for 2023 to support a group. Operating expenses increased to $9.3 million in the fourth quarter of 2023, an increase of $3 million over the $6.3 million of expenses in the fourth quarter of last year. For the full year 2023, operating expenses were $30.9 million compared to $21.3 million in 2022, an increase of $9.6 million. Increases in compensation tax and benefits expense of $600,000 for the fourth quarter and $3.6 million for the year were primarily driven by headcount additions throughout 2023, mainly in our operations area to support our growth as well as in shared services.
Diana P. Diaz: Increases in compensation tax and benefits expense of $600000 for the fourth quarter and $3 6 million for the year were primarily driven by head count additions throughout 2023, mainly in our operations area to support our growth as well as in shared services.
Diana P. Diaz: The increases in general and administrative costs of $2 $5 million for the fourth quarter and $6 million for the year or due to expenses associated with supporting our growth and ongoing marketing initiatives as well as our continued transition to an operation as a public company beginning in February two.
Diana P. Diaz: 'twenty two we.
Diana P. Diaz: We expect to continue to invest and automation as well as additional head count to support sales initiatives.
Diana P. Diaz: As a consequence of the aforementioned revenue and operating expense impacts to our fourth quarter. We saw a net loss of $1 2 million in the fourth quarter compared to net income of $1 4 million in the same period of 2022 for the full year net income was $2 million in 2020.
Diana P. Diaz: Three compared to net income of $4 $2 million in 2022.
Diana P. Diaz: The increases in general administrative costs of $2.5 million for the fourth quarter and $6 million for the year were due to expenses associated with supporting our growth and ongoing marketing initiatives, as well as our continued transition to an operation as a public company beginning in February 2022. We expect to continue to invest in automation, as well as additional headcount to support sales initiatives. As a consequence of the aforementioned revenue and operating expense impacts on our fourth quarter, we saw a net loss of $1.2 million in the fourth quarter compared to net income of $1.4 million in the same period of 2022. For the full year, net income was $2 million in 2023 compared to net income of $4.2 million in 2022.
Diana P. Diaz: For the fourth quarter, adjusted EBITDA was $2 3 million compared to adjusted EBITDA of $31 million for the fourth quarter of last year.
Diana P. Diaz: For the full year, adjusted EBITDA grew to $11 $3 million or 11% higher than the $10 $2 million adjusted EBITDA for the full year of 2022.
Diana P. Diaz: Now turning to the balance sheet, we ended the year with cash and cash equivalents of $5 $1 million, an increase of $1 $1 million over the $4 million, we had as of the end of 2022.
Diana P. Diaz: Total cash plus our accounts receivable balance as of year end was $42 $3 million compared to $34 million at the end of 2022.
Diana P. Diaz: As part of our initiative to increase shareholder value and continue to facilitate our growth during the fourth quarter of 2023. We retired all outstanding warrants issued in connection with the company's IPO and we improved our liquidity by securing a revolving credit facility with capacity of $10 million in FY <unk>.
Diana P. Diaz: For the fourth quarter, Adjusted EBITDA was $2.3 million compared to Adjusted EBITDA of $3.1 million for the fourth quarter of last year. For the full year, Adjusted EBITDA grew to $11.3 million, or 11% higher than the $10.2 million Adjusted EBITDA for the full year 2022. Now turning to the balance sheet, we ended the year with cash and cash equivalents of $5.1 million, an increase of $1.1 million over the $4 million we had as of the end of 2022. Total cash plus our accounts receivable balance as of year-end was $42.3 million, compared to $30.4 million at the end of 2022.
Diana P. Diaz: $5 million and committed incremental capacity, we expect to continue to take steps in 2024 to improve liquidity in our balance sheet to support our business as well as facilitate inorganic growth opportunities.
Diana P. Diaz: Now I'll just touch on guidance our guidance is subject to a variety of factors that may change over the year and particular and assumes that U S. Economic conditions do not materially deteriorate or that the economy does not otherwise experienced significantly reduced advertiser demand we plan to offer annual guide.
Diana P. Diaz: As part of our initiative to increase shareholder value and continue to facilitate our growth during the fourth quarter of 2023, we retired all outstanding warrants issued in connection with the company's IPO, and we improved our liquidity by securing a revolving credit facility with a capacity of $10 million and up to $5 million in uncommitted incremental capacity. We expect to continue to take steps in 2024 to improve liquidity in our balance sheet to support our business, as well as to facilitate inorganic growth opportunities. Now, to touch on guidance. Our guidance is subject to a variety of factors that may change over the year. In particular, it assumes that U.S. economic conditions do not materially deteriorate or that the economy does not otherwise experience significantly reduced advertiser demand.
Diana P. Diaz: Send update it throughout the year at present, we expect fiscal 2020 for revenue to the end of the range of 170 million to $190 million or 15% growth year over year at the midpoint.
Diana P. Diaz: We are off to a good start for 2024 based on preliminary results through mid March 2024, we believe sell side revenue is on pace to grow at a rate of 10% to 20% over the prior year first quarter.
Diana P. Diaz: And now I'd like to turn it back over to Mark for some closing comments. Thank you Diana and thank you to everyone for joining as always we appreciate your interest in direct digital holdings and are looking forward to your questions. Operator, Please open up the line.
Diana P. Diaz: We plan to offer annual guidance and update it throughout the year. At present, we expect fiscal 2024 revenue to be in the range of $170 million to $190 million, or 15 percent growth year-over-year at the midpoint. We are off to a good start for 2024. Based on preliminary results through mid-March 2024, we believe sell-side revenue is on pace to grow at a rate of 10% to 20% over the prior year's first quarter. And now I'd like to turn it back over to Mark for some closing comments. Thank you, Diana, and thank you to everyone for joining us. As always, we appreciate your interest in Direct Digital Holdings and are looking forward to your questions. Operator, please open up the line. Thank you. If you would like to ask a question on the phone line, type a star 1 on your telephone keypad.
Diana P. Diaz: Okay.
Speaker Change: Thank you.
Speaker Change: To ask a question on the phone lines at a star one on your telephone keypad.
Mark D. Walker: And we will take our first question from Darren <unk> with Roth.
Darren: Hey, guys. Good afternoon, thanks for taking my questions.
Darren: Mark.
Darren: Okay.
The three kind of items you highlighted in terms of.
Darren: The fourth quarter, the lower demand.
Mark D. Walker: The pilots not coming out of them.
Mark D. Walker: Beta.
Mark D. Walker: The tier one publishers and then the proactive kind of moves on.
Mark D. Walker: Moving.
Mark D. Walker: Cookie list I'm, just kind of curious can you kind of handicap.
Mark D. Walker: And we'll take our first question from Darren Aftahi with RAW. Hey guys, good afternoon, thanks for taking my questions. Mark, the three kind of items you highlighted in terms of the fourth quarter, the lower demand, Pilot's not coming out of beta for the tier one publishers and then the proactive kind of moves on, moving to cooking lists. I'm just kind of curious, can you kind of handicap a couple things?
Speaker Change: A couple of things one like.
Speaker Change: How did each of those kind of impacts your quarter relative to your kind of initial thoughts with you guys gave guidance I believe on November nine.
And then as we have moved into 2024.
Speaker Change: I know you said some of those publishers, who come out of that data, but how are those items kind of change versus the fourth quarter.
Mark D. Walker: One, like, How did each of those kind of impact relative to the kind of initial thoughts when you guys gave guidance, I believe on November 9th? And then as we have moved into 2024, I know you said some of those publishers have come out of that data, but how have those items kind of changed versus the fourth quarter? Yeah, thanks for the question, Darren. I think about a couple of things. First, I will say that I think our transition to dealing with cookie deprecation was an important strategic move for us. What we're seeing and what we started to see in Q4 was that cookie deprecation was definitely occurring, even though it had four years of delay. And so switching over a platform in order to be able to manage and deal with that did take a lot of effort, and we did not anticipate that move until we got into 2024.
Speaker Change: Yeah. Thanks for thanks for the question Darrin I think a couple of things one.
Speaker Change: I will say that I think are transitioned to dealing with cookie deprecation was important strategic move for us.
Darrin: What we're seeing and what we have started to see in Q4 was that cookie deprecation was definitely occurring even though after it had four years of delay.
Darrin: So switching over our platform in order to be able to manage and deal with that.
Darrin: Did take a lot of effort and we did not anticipate that move until we got into 2024, but once we started seeing the transition in the marketplace and what we started hearing in the industry. We felt like it was a prudent approach for us to go ahead and make that transition in Q4.
Mark D. Walker: But once we started seeing the transition in the marketplace and what we started hearing in the industry, we felt like it was a prudent approach for us to go ahead and make that transition in Q4, versus waiting to 2024 before we started making that transition. Again, looking at long-term benefit versus short-term gain. The second thing is, if you look at the amount of impressions that we delivered between Q3 and Q4, as it relates to our SSP, it was roughly about $400 billion for each of those. And if you notice, we were flat.
Darrin: Versus waiting to 2024 before we started making that transition again looking at long term benefit versus short term game. The second thing is one of if you look at the amount of impressions that we deliver between Q3 and Q4 as it relates to our SSP was roughly about 400 billion for each of those.
Darrin: And if you notice we were flat so the way that we have been historically able to grow is really by the increase of impressions that we actually be able to introduce into the marketplace and so our delay in that beta was actually critical for us to ensure that we're able to grow especially in light of the transition.
Mark D. Walker: So the way that we have been historically able to grow is really by the increase of impressions that we are actually able to introduce into the marketplace. And so our delay in that beta was actually critical for us to ensure that we're able to grow, especially in light of the transition we were making with cookie deprecation. So, I would say that Q4, even though we still perform 33% year over year, and we were excited about that level of growth, it didn't meet the expectations that we initially thought, based primarily on those two factors and the impression count being really our hedge to make sure that we're able to maintain growth.
Darrin: We were making with cookie deprecation, so I would say that Q4, even though we still performed 33% year over year and we were excited about that level of growth. It didn't meet the expectations that we initially thought.
Darrin: Based upon primarily those two factors and being the impression count being really our hedge to make sure that we're able to maintain growth. What we are seeing in Q1 of 2024. After we have started making a move to alternative Ids and the cooking and our proactive measures for cookie deprecation.
Mark D. Walker: What we are seeing in Q1 of 2024, after we have started making our move to alternative IDs and our proactive measures for cookie deprecation, we're seeing a 10% to 20% growth as it relates to our SSP in comparison to last year's performance, which we feel is really justification for us making the right decision. And can you give any kind of color on maybe, I know January always starts off as a pretty dismal month in digital advertising, but can you can you talk about maybe the cadence of growth? Like, has it improved?
Darrin: We're seeing a 10% to 20% growth as it relates to our SSP and comparison of last year's performance, which we feel is really justification of us making the right decision.
Darrin: Okay.
And can you give any kind of color on maybe.
Darrin: I know January.
Darrin: It starts off as a pretty dismal months in digital advertising.
Darrin: Can you can you talk about maybe the cadence of growth like has it improved.
Mark D. Walker: Since you've kind of put in, since you switched the platform and working with alternative IDs, like, Is that what's driving the growth? Is it the new publishers coming off of beta driving the growth? And just going back to both of your comments, sorry. You talked about softer demand. I'm just kind of curious, is the softer demand correlated with the cookies, or is that something that's absolute and unique? Yeah, I would say the software demand was a combination of the change that we saw with making the transition over to cookies because of the platform impact that we actually had in Q4. And we also saw it being lighter going into the holiday season.
Since you've kind of put in he says he switched the platform and working with alternative Ids like.
Darrin: Is that what's driving the growth is it the new publishers coming off of a beta which drove the growth and that just goes back to your.
Darrin: It.
Darrin: Both of your comments are.
You talked about softer demand.
Darrin: Curious as the software demand.
Correlated with the cookies or is that something that's absolutely unique.
Darrin: Yeah, I would say the softer demand was a combination of the change that we saw with making the transition over cookies because of the platform impact that we actually had in Q4.
Darrin: And we also saw it being lighter going into the holiday season. So it was a combination of both as it relates to Q3, what we attribute the increase in performance in Q4 has everything to do with the increase in publishers that we've actually added the ones that were delayed in getting out of beta within Q4, and we move those.
Mark D. Walker: So it was a combination of both as it relates to Q3. What we attribute the increase in performance in Q4 has everything to do with the increase in publishers that we've actually added, the ones that were delayed in getting out of beta within Q4. And we moved those into Q1, coupled with the transition that we've made to the alternative IDs. We are seeing an impact based upon that in regards to the level of transactions that we're actually seeing. We also see the benefits of the technology changes that we made in the second half of 2023 as we compare the first quarter of this year to last year. That's helpful. Thanks, Dan.
Darrin: Into Q1, coupled with the transition that we've made to the <unk>.
Darrin: Alternative Ids, we are seeing an impact based upon that in regards to the level of transitions.
Darrin: The level of transactions that we're actually seeing we also see the benefits of the technology changes that we've made.
Darrin: In the second half of 2023, as we compare the first quarter to last year, yes that is correct.
Darrin: Yeah.
Speaker Change: That's helpful. Thanks, guys.
Speaker Change: Yep.
Mark D. Walker: Yep. We'll take our next question from Dan Kurnos on the Benchmark. Mark, can we stick with that for a second?
Speaker Change: Well take our next question from Dan Carlos with the benchmark company.
Speaker Change: Okay.
Dan Carlos: Mark can we stick with that for a second the Q1 SSP or sell side guide is.
Mark D. Walker: The Q1 SSP or sell-side guide is, It's lower than 2Q of last year. Either some revenue that you've decided isn't going to continue, and I don't want to put words in your mouth, it just, you know, because obviously, Q3 was big and we had a lot of momentum with the partner wins and yes, the impression growth. And your guidance for the year kind of implies that there is a scaling growth in the SSP over the course of the year, assuming the buy side is, I don't know, 10%, and maybe that's wrong. So if you want to parse out the kind of buy side and sell side in terms of the guidance for next year, that might be helpful. I'm just trying to understand sort of how the choices that you made organically to, let's call this a reset, which is fair as we move towards cookie deprecation, and how much of that volume then picks up or comes back to platform, you're assuming in the back half of the year, as we think about, you know, what you've just kind of laid out for us, if that makes sense. Yeah, absolutely.
Dan Carlos: I know, it's lower than <unk> of last year. It feels like there is.
There is some revenue that you've decided isn't going to continue and I don't want to put words in your mouth, but just you know because obviously Q3 was big and we had a lot of momentum.
Dan Carlos: With the partner wins, and yes, the impression growth and.
Dan Carlos: And your guidance for the year kind of implies that there is a scaling growth in the assets over the course of the year, assuming buy side is I don't know, 10% and maybe that's wrong.
Dan Carlos: So if you want to parse out kind of buy side sell side in terms of the guide for next year that might be helpful. I'm just trying to understand.
Sort of how the choices that you made organically to let's call. It a reset which is fair.
Dan Carlos: As we move towards Cookie deprecation, and how much of that volume then picks up or it comes back to platform, you're assuming in the back half of the year.
Dan Carlos: As we think about.
Dan Carlos: What you have just kind of laid out for us if that makes sense.
Speaker Change: Yeah, absolutely. So out parcels are buy side first and then I'll go into sell side by side, we're still anticipating and projected out the same 10% to 20% growth year over year, which is historically been how we performed this going into our third year of being public.
Mark D. Walker: So I'll parse this out by side first, and then I'll go into the sell side. So on the buy side, we're still anticipating and projecting out the same 10 to 20% growth year over year, which has historically been how we performed this going into our third year of being public. As it relates to the sell side, we think there are two factors that we're taking into consideration in regards to our projection, or pretty much the guidance that we've actually given. Number one, we're expecting the curve to maintain the same trajectory as it has historically in the past. We have no reason to think otherwise.
Speaker Change: As it relates to the sell side, we think two factors that we're taking into consideration in regards to our projection or pretty much our guidance that we've actually given.
Speaker Change: Number one we're expecting the curve to maintain the same trajectory as we have historically in the past we have no reason to think otherwise so we're still maintaining that same curve because that's how it's been for the last four years with Q1 being the lowest Q4 being the highest outside of last year's.
Mark D. Walker: So we're still maintaining that same curve because that's how it's been for the last four years, with Q1 being the lowest, Q4 being the highest, outside of last year's implication of what occurred. What we are seeing is 10 to 20% growth year over year as it relates to our sell side platform this year, and that's attributed to those two factors. One, our transition off of cookies, which is one important factor in regards to how DSPs and also how the marketplace are already making moves toward that transition. The second being the increase in publishers that we've added and has been a very important part of our growth trajectory. The third being, as Diana pointed out, really the platform change that we made last year and the increase in the capacity that we're actually able to handle the amount of transactions that we can.
Speaker Change: Implication of what occurred.
Speaker Change: What we are seeing is Tim that 10% to 20% growth year over year as it relates to our sell side platform. This year in there are attributed to those two factors one our transition off of cookies, which is one important factor in regards to how the DSP and also how the market places already making moves to that transition.
Speaker Change: Second being the increase and publishers that we have historic that we've added and has been a very important part of our growth trajectory.
Speaker Change: The third being as Dino pointed out really the platform change that we made last year and the increase in the capacity that we're actually able to handle the amount of transactions that we can so without going too far into the future. If you will we are anticipating the same level of growth curve and what we're seeing in Q1 is 10% to 20%.
Mark D. Walker: So without going too far into the future, if you will, we are anticipating the same level of growth curve, and what we're seeing in Q1 is 10 to 20% above year over year, and we're expecting and anticipating and working towards maintaining that level of growth trajectory to get to our recommended guidance for the year. Okay, and how should we think about, you know, SheMedia, Freewheel, all these other things that you guys have added since, you know, we've talked before about getting deeper into video? I know you guys, self-serve has been sort of on the table, but not necessarily where you want to go.
Speaker Change: <unk> above year over year, we're expecting and anticipate and working towards maintaining that level of growth trajectory to get to our recommended guidance for the year.
Speaker Change: Okay, and then how should we think about.
Speaker Change: She media.
Speaker Change: Freewheel all these other things that you guys have added since.
Speaker Change: We've talked before about getting deeper into video I know you guys self serve has been sort of on the table, but not necessarily where you want to go how do we think about kind of new initiatives and some of the announcement that you guys have made recently.
Mark D. Walker: How do we think about the kind of new initiatives and some of the announcements that you guys have made recently? Yeah, I think you're really going to start seeing the impact in Q2, Q3, as those are new ones that we are getting in staged and moving forward into monetization. So our team has been highly active in getting new publishers, specifically, like you had said, with SheMedia and also Freewill and others that we're working towards to really look at those monetizations for Q2 and Q3. One for you, Diana, just to finish up.
Speaker Change: Yeah, I think youre really going to start seeing those impact in Q2 Q3 as those are new wins that we're getting in staged in moving forward into monetization. So our team has been highly active in getting new publishers, specifically like you had said with C media and also free will.
Speaker Change: And others that we're working towards to really look at those monetization for Q2 and Q3.
Speaker Change: One for you Diana just to finish up how do we think about this restart how do we think about margins do we get margin expansion this year how.
Diana P. Diaz: How do we think about, you know, on this reset, how do we think about margins? Do we get margin expansion this year? You know, how do we think about kind of fixed leverage versus variable spend to kind of drive growth?
Diana P. Diaz: How do we think about kind of fixed leverage versus variable spend to kind of drive growth.
Diana P. Diaz: So I think we'll be at about the same range on margin by segment.
Diana P. Diaz: So I think we'll be about in the same range on margin by segment. It's just a matter of the mix of the sell side versus the buy side. And we had some hosting costs that we saw in the last three quarters of 2023. Those will continue in the first quarter but should tail off after that, and they are a fixed cost. Should we be looking at the Q4 margin as sort of representative or the full year margin for 23 as representative and then obviously adjusting that because the sell side will grow well? Actually, I guess the sell side and buy side could grow at similar rates this year, but historically, the sell side was growing faster.
Diana P. Diaz: Just a matter of the mix of sell side versus buy side.
Diana P. Diaz: And we had some.
Diana P. Diaz: Hosting costs that we saw in the last three quarters of 2023, those will continue and in the first quarter, but should tail off after that.
Diana P. Diaz: And from a fixed cost.
Diana P. Diaz: Yeah.
Diana P. Diaz: Should we be looking at the Q4 margin is sort of representative of the full year margin for 2003 is representative and then obviously adjusting back to the sell side will grow well actually I guess sell side buy side could grow similar rates this year, but historically sell side was growing faster.
Diana P. Diaz: Right.
Diana P. Diaz: Right. I think that if you look at the full year margins by segment, that would be a good indicator of what we'll see in 2024. Okay, guys. I appreciate it. Take that.
Diana P. Diaz: I think that if you look at that.
Diana P. Diaz: At the full year margins by segment that would be a good indicator of what we'll see in 2024.
Speaker Change: Okay. Thanks, guys I appreciate it.
Speaker Change: Hey.
Mark D. Walker: We'll take our next question from Michael Kupinski with Noble Capital Markets. Thank you. Thanks for taking my question. I appreciate that.
Speaker Change: Yeah.
Speaker Change: We will take our next question from Michael Kaplinsky with noble capital markets.
Michael A. Kupinski: Thank you. Thanks for taking my question I appreciate that.
Michael A. Kupinski: Going back to the cookies.
Mark D. Walker: Going back to cookies, I understand that you indicated that the marketplace is already making moves because of the deprecation of cookies. But it's also my understanding that Google has only deprecated cookies in 1% of its searches on Chrome in the last quarter. And I was just wondering, as we kind of cycle towards the deprecation and then full implementation of the deprecation of cookies from Google later this year, do you, how do you, I guess I'm just trying to understand how you see the market evolving and how that might impact you as we go, especially in the second half of the year when we start to see the full implementation of what, you know, the deprecation of cookies from Google. No, I think that's an excellent question.
Michael A. Kupinski: I understand that you indicated that the marketplace is already making moves.
Michael A. Kupinski: The deprecation of cookies, but it's also my understanding that Google is only that.
Michael A. Kupinski: Deprecated cookies in 1% of it searches on chrome.
In the last quarter and I was just wondering as we kind of cycled towards the deprecation and full implementation of the deprecation of cookies. Later this year do you how do you I guess I'm just trying to understand how you see the market evolving and.
Michael A. Kupinski: And how that might impact you as we go especially in the second half of the year when we start to see the full implementation of what.
Michael A. Kupinski: The deprecation of the cookies from Google.
Speaker Change: No I think that's a I think that's excellent question I think cookie deprecation is actually going to open up a host of I think it's actually the impact on two things I think one it is really introduced a significant amount of innovation as it relates into the AD Tech space.
Mark D. Walker: I think cookie deprecation is actually going to open up a host of – I think it's actually had an impact on two things. I think, one, it has really introduced a significant amount of innovation as it relates to the ad tech space. I think people looking for how to transact for the trade of media for dollars have really been this year, and starting at Q4 of last year, has really become a moment of innovation for the industry that I probably haven't seen in the last 10 years. That's number one.
Speaker Change: I think people are looking for how to transact.
Speaker Change: For the trade of media for dollars is really been this year and starting at the Q4 of last year has really become a moment of innovation for the industry that would probably havent seen in the last 10 years.
Speaker Change: That's number one I think number two.
Mark D. Walker: I think number two, even though Google has only deprecated 1% of the cookie, there are other media types that have already seen some level of deprecation as it relates to Apple, as it relates to some video, and some CTV. I think what you're going to see in the future, and what we've been experiencing is that other DSPs have already started changing how they transact off of cookies. We work with roughly about 20 to 25 different DSPs, and not all DSPs treat data the same.
Even though Google has only deprecated 1% of the cookie there are other media.
Speaker Change: Media types that have already seen some level of deprecation as it relates to Apple as it relates to some video some CTV I think what youre going to see now in the future and what we've been experiencing as other DSP have already started changing how they transact off of cookies and so we work with roughly.
Speaker Change: About 20 to 25 different DSP and not all dsp's treat data the same and so the new paradigm that we're actually seeing is that we are.
Mark D. Walker: The new paradigm that we're actually seeing is that we're adjusting how we treat each DSP differently, and we think that that is really part of what's fueling a lot of the innovation that's in the marketplace today. I think for the last half of the year, the more that you're able to customize and work specifically with certain DSPs, then we are actually in conversation and already running different tests and POCs with them. That is going to give us a competitive advantage in the future, and that's really what we're looking to capture. And thanks, Mark. And I was just wondering, in terms of the performance metric that these advertisers are getting, let's say the ROI on the advertising, has that gone down as a result of changes in the deprecation of cookies and things like that? I think every marketplace is seeing something different. We have not experienced any degradation of campaign performance from the conversations that we've had with our clients as they continue to work with us.
Speaker Change: Adjusting how we treat each DSP differently and we think that that is really part of what's fueling a lot of the innovation. That's in the marketplace. Today. So I think for the last half of the year. The more that you are able to customize our work specifically with certain DSP and we are actually in conversation already running different.
Speaker Change: Test and POC with them.
Speaker Change: That is going to give us a competitive advantage in the future and that's really what we're looking to capture.
Okay. Thanks, Mark and I was just wondering in terms of the performance metric.
Speaker Change: These advertisers are getting let's say the our eye on the advertising has that gone down as a result of changes in the deprecation of the cookies and things like that.
Mark D. Walker: I think every I think every marketplace is seeing something different we have not experienced the degradation of campaign performance from the conversations that we've had with our clients as clients continue to work with us.
Mark D. Walker: And so our anticipation is that there will be different workarounds when cookies completely go away as it relates to campaign reporting, and that's one of the things that we've been working towards with our tech team and with different partners to make sure that the reporting capabilities as well as the degradation of the campaigns actually don't occur, and actually the quality stays intact. So that's been an important proof point that we've been working with our clients on. In terms of the most valued publishers that you work with, where do you think they are in terms of this cookie-less environment in terms of implementing and planning for it? Because I know we talked about this in the past, but I was just wondering, do you feel like most of the publishers have already kind of adjusted for it at this point, or what are your thoughts?
Mark D. Walker: So our anticipation is that there will be different work arounds when cookies completely go away as it relates to campaign reporting and Thats one of the things that we've been working towards with our tech team and with different partners to make sure that the reporting capabilities as well as the degradation of the campaigns actually doesn't occur and actually the quality stays intact.
Mark D. Walker: So that's been an important.
Mark D. Walker: That's been an important proof point that we've been working with our clients on.
Mark D. Walker: And in terms of the most valued publisher.
Mark D. Walker: Publishers that you work with.
Mark D. Walker: Where do you think they are in terms of this cookie with environment and implementing.
Mark D. Walker: And planning for it because I know we talked about this in the past, but was just wondering do you feel like most of the publishers are already kind of adjusted for it at this point or what are your thoughts.
Speaker Change: Yeah, I would say I think the more the larger publishers have started making the transition as what we have seen and what comes through.
Mark D. Walker: Yeah, I would say I think the larger publishers have started making the transition, from what we have seen and what comes through with the partners that we work with. What we're seeing is that smaller to midsize publishers are a little bit behind, or they are behind, and so I think that small to midsize publishers have a lot of catching up to do in comparison to some of the larger, more sophisticated publishers that are out there in the marketplace.
Speaker Change: With the partners that we work with what we're seeing is the smaller to midsized publishers are a little bit behind or they are behind and so I think that the small to mid sized publishers have a lot of catch up to do.
Speaker Change: In comparison to some of your larger more sophisticated publishers that are out there in the marketplace.
Mark D. Walker: I think what you're going to see in the future, come Q3, Q4, is really a bifurcation of the marketplace as it relates to publishers that have the means and the capability to make those type of adjustments of going to alternative IDs and working with Privacy Sandbox, and you're going to have ones that can't. And that's really the opportunity that we think we can provide to the marketplace, helping those publishers that are the mid-tier Gotcha. Thank you. That's all I have.
Speaker Change: I think what youre going to see in the future.
Speaker Change: Q3, Q4 is really.
Speaker Change: Bifurcation of the marketplace as it relates to <unk>.
Speaker Change: Publishers that have the means and the capability to make those type of adjustments are going to alternative ideas and working with privacy sandbox and you have ones that can't and that's really the opportunity that we think we can provide to the marketplace is helping those publishers that are the mid tier publishers, who might not have the means or capability in workwear privacy sandbox our alternative Ids.
Speaker Change: And we're there to fill the gap for them.
Speaker Change: Gotcha. Thank you that's all I had.
Mark D. Walker: Thank you. Thank you. That does conclude today's question and answer session. I would like to turn the call back over to Mark Walker for any additional or closing remarks. All right. Well, thank you very much for joining us for the Q4 and full year 2023 results, and we look forward to talking to you at the end of Q1. Thank you. That does conclude today's presentation. Thank you for your participation today, and you may now disconnect.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you that does conclude today's question and answer session I would like to turn the call back over to Mike Walker for any additional or closing remarks.
Speaker Change: Okay.
Mark D. Walker: Alright, well. Thank you very much for joining us for the Q4 and full year 2023 results and we look forward to talking to you at the end of Q1.
Speaker Change: Thank you that does conclude todays presentation. Thank you for your participation today and you may now disconnect.
Speaker Change: Yeah.