Q1 2025 Direct Digital Holdings Inc Earnings Call
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Tina: 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 1st quarter 2025 earnings call.
Speaker Change: Philadelphia I M S Investor Relations. Please go ahead.
Speaker Change: Good afternoon, everyone and welcome to drive 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.
Speaker Change: Information discussed today is qualified in its entirety.
Speaker Change: Form 8-K, 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 <unk> investor Relations website immediately following the speaker's presentation. There will be a question and answer session. Please note.
Speaker Change: 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 Trc Ts 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 where look.
Speaker Change: These statements are subject to risks, which could cause <unk> actual results to differ from its historical results and forecasts, including those risks set forth in DRC Ts 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 DRC tea will be refer.
Speaker Change: Turning 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, the DRC T filed its form 8-K today now I'll hand over the conference call Tomorrow.
Walker: Walker Chief Executive Officer. Please go ahead Marc.
Speaker Change: Okay.
Marc: Thanks, Jim and thank you to everyone joining our call this evening.
Speaker Change: 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 will conclude by opening the call for a brief Q&A.
Speaker Change: As we began to move through 2025, our focus is on scaling our biocide solution and rebuilding our sell side business to drive consolidated revenue growth throughout the fiscal year.
Speaker Change: In the first quarter, we recognized consolidated revenue of $8 2 million, including $6 $1 million in revenue from our <unk> segment.
Speaker Change: A 6% increase compared to buy side revenue in the first quarter of 2024. The increase included growth from customers in new verticals of $1 2 million.
Speaker Change: Sequentially, our first quarter sell side revenue of $2 million was relatively consistent with fourth quarter sell side revenue up $2 7 million demonstrating an encouraging trend given that our fourth quarter is typically the strongest driven by increased activity around the holidays.
Speaker Change: Our fourth quarter 2024 included 700000 of political spend.
Speaker Change: So we're pleased with the performance of ourselves sized segment in Q1.
Speaker Change: Continue to focus our efforts on scaling this segment to drive consolidated revenue growth.
Speaker Change: 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 attack.
Speaker Change: As many of you're already aware of market. This credit of blog posts against our supply side platform collapses SSP in mid May of 2024, it caused unexpected business disruptions amongst our partners advertisers and quiet.
Speaker Change: As we continue to repair the business say reconstitute our relationships volumes have not yet returned to pre Pos levels and this caused a meaningful reduction in our 2020 for revenue and also impacted the first quarter of 2025.
Speaker Change: We have been working diligently with our multinational Holdco agency partners are 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.
Speaker Change: We're pleased by their ongoing commitment to direct digital as we build our business back to previous levels.
Speaker Change: 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 efficiencies.
Speaker Change: 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.
Speaker Change: We continue to evaluate the optimal personnel and cost structure for our business.
Speaker Change: 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.
Speaker Change: Small and mid sized clients are increasingly shifting their advertising dollars to focus more on digital advertising buying.
Speaker Change: 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 our return on AD spend and emerging technologies and high growth channels, including AI connected TV retail media 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 million to $10 million in 2025.
Speaker Change: We expect to see the impact of these new clients continuing into the second quarter 2025 revenues.
Speaker Change: On the sell side, we launched collapses connection in the third quarter 2024, so accelerating direct integration efforts with leading demand side platforms. We established this offering to optimize supply past efficiency for our advertising clients through direct connections with top demand side platforms, which ultimately provides advertisers.
Speaker Change: 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.
Speaker Change: We have also recently added several mid tier DSP partners, who are near completion with integrations were also pursuing alternative being immediate aries and pathways to send buyers 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 2020 five.
Speaker Change: In addition to our revenue diversification strategy, we are implementing cost saving initiatives across our business with the goal of reducing some of our ongoing expenses enhancing operational efficiencies.
Speaker Change: In the first quarter of 2025, we reduced total operating expenses by 19% compared to the prior year period.
Speaker Change: Diana will elaborate on this in our prepared remarks, but at a high level, we've taken a close look at our cost structure and expenses.
Speaker Change: And we are strategically reallocating capital to invest in the long term growth of our business.
Speaker Change: 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.
Speaker Change: We're encouraged by our progress in the quarter and excited about what's ahead for direct digital in 2025.
Speaker Change: We faced 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.
Speaker Change: That being said, we believe that we are well positioned with a revitalized model prudent cost management strategies and strong demand for our products and services.
Speaker Change: 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 segment.
Speaker Change: And we look forward to driving enhanced value for our shareholders as we move through the balance of 2025.
Speaker Change: 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 experienced the full effect of new direct sell side partners coming online.
Diana <unk>: I will now hand things over to Diana <unk>, our Chief Financial Officer, who will walk through some of the financial highlights in further detail.
Diana: Thank you Mark and good evening everyone.
Diana: I'll now provide a review of our first quarter 2025 results consolidated revenue in the first quarter of 2025 was $8 $2 million, a decrease of $14 $1 million compared with revenue of $22 $3 million in the first quarter of 2024.
Diana: Sell side revenue was $2 million in the first quarter compared with $16 $5 million in the first quarter of 2024, a decrease in sell side advertising revenue was primarily related to a decrease in impression inventory when compared to the first quarter of 2024.
Diana: As Mark said, a market discredited dogpatch against our supply side platform Colossus FSP in mid May 2024 caused an unexpected business disruption amongst our partners advertisers and clients and we continue to repair the business and reconstitute our relationships by them.
Diana: Not yet returned to pre pause levels and this caused a meaningful reduction in our fiscal year 2024, our revenues and also impacted the first quarter of 2025.
Diana: I sighed revenue of $6 $1 million increased approximately 6% compared with the first quarter of 2024, primarily driven by a 1.2 million dollar increase in spending from customers in new verticals.
Diana: Gross profit dollars decreased to $2.4 million in the first quarter compared with $5 million in the prior year period due to the shift in revenue mix and includes a larger portion of higher margin buy side revenue gross margin for the first quarter of 2025 increased.
Diana: 29% compared with 22% in the first quarter of 2024.
Diana: Moving now to operating expenses, our first quarter 2025, operating expenses were $6 $3 million, a decrease of 19% or $1 $5 million compared with $7 $8 million in the same period of 2024.
Diana: This reduction in operating expenses was primarily related to lower payroll costs and staff reductions made effective July 1st half 'twenty 'twenty four as part of our internal reorganization strategy and cost saving measures to reduce certain ongoing costs.
Diana: Total operating loss for the first quarter was $3 $9 million compared to a loss of $2 $8 million in the same period of last year net.
Diana: Net loss in the first quarter was $5 $9 million or a loss per share of 35 cents compared to a net loss of $3 $8 million or a loss of 22 cents per share in the first quarter of 2024.
Diana: Adjusted EBITDA for the first quarter was a loss of $3 million compared to an adjusted EBITDA loss of $1.7 million in the same period of 'twenty 'twenty four.
Diana: Turning to the balance sheet, we ended the year with cash and cash equivalents of $1 $8 million compared to $1 $4 million as of December 31st 2024.
Diana: Total cash plus our accounts receivable balance as of quarter end was $6 $2 million compared to $6 $4 million at year end 2024.
Diana: We are actively advancing multiple funding and equity financing pathway with the goal that these efforts will restore NASDAQ compliance strengthen the company's financial position and support our key growth initiatives.
Diana: Based on our current visibility we are maintaining our full year revenue guidance of 90 million to $110 million based on the expectation of consolidated revenue growth driven by enhanced buy side activity and the ongoing recovery of our cell sites and as Mark said, we expect the second half of the year.
Diana: To deliver strong gains as we experienced the full effect of new direct sell side partners coming online.
Diana: Our guidance assumes that the U S economy, just not have any major economic conditions deteriorate or otherwise significantly reduced advertiser demand, we plan to offer annual guidance and update it throughout the year.
Mark Walker: I'd like to turn it back over to Mark for some closing comments.
Mark Walker: Thank you Diana and thank you to everyone for joining as always we appreciate your interest in Directors' holdings and are looking forward to answering your questions. Operator. Please open the line.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad.
Speaker Change: We ask that you. Please limit your questions to one question with one follow up we will pause for a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Michael Pinsky with Noble capital markets. Please go ahead.
Speaker Change: Thank you and thanks for taking my questions I was wondering in terms of the sulphide customer that you cut back last year was just wondering if you can give us a sense of maybe in talking to that customer what they might build back in terms of the bearishness and maybe as a percent of 'twenty 'twenty four spending levels. If you have any.
Speaker Change: Get there and then it based on the revenue guide that you're giving for the full year can you kind of give us a sense of what percent of revenues will be derived from the buy side versus the sell side.
Speaker Change: Yeah, Yeah no I appreciate the question Michael in regards to the customer from last year. What we are focused in on is all direction is to really go forward strategy of direct connections. So what we believe is the most cost efficient way for us to continue to grow the sell side of our business is through direct relationships.
Speaker Change: Ships with different DSP partners that we actually have in the marketplace and so what we've been working diligently on is making those direct direct connections with those partners. We believe the overall impact of that direct connections will be and the strategy. We have with Colossus collections is really focusing on driving it.
Speaker Change: Additional topline revenue dollars, increasing our margin profile as it relates to the SSP business, because it's direct instead of through multiple intermediaries and then we also think that our clients and customers. We could see an increase in demand in the future state as it relates to the second half of the year. So that's why we maintain a bullish outlook.
Speaker Change: For Q3, and Q4 as we believe some of those reclamation is supposed to be coming online and then as it relates to your second question that you asked as it relates to the split between buy side sell side as you know we've been working diligently on growing the buy side of our business, we anticipate and what we have projected I was for that to be.
Speaker Change: At the $40 million range.
Speaker Change: Then for the sell side of the business to be north of that number in order to close out the 90 to 110 range.
Speaker Change: Thank you for that color and just as a quick follow up in terms of your cost cutting initiatives you mentioned about the payroll cost of I would assume that most of that would be variable do you anticipate that kind of give us a sense of maybe the extra efforts I think you're continuing to look at cost efficiencies and so forth is there a dollar amount that you're playing with.
Speaker Change: Food this year and are those mostly coming from your variable cost reductions or.
Speaker Change: Can you just kind of give us some color on on those efficiencies and when do you expect that you will continue to see those realized.
Speaker Change: Yes, I'm going to turn it over to Diane and answer that question.
Diane: Sure Michael we actually saw those cost reductions and the current quarter.
Diane: Our operating expenses were down 19%.
And those those costs are fixed cost there are our staff that's on on hand, I'm working every day and we did put our SAA.
Diane: 20% back on July 1st we saw savings and the second half of last year, and we continue to see those.
Diane: The first quarter and and those will be ongoing.
Diane: Not variable.
Speaker Change: Got you I appreciate that that's all I have thank you very much and good luck to you guys.
Speaker Change: Thank you thank you Michael.
Speaker Change: Again to ask a question simply press star one on your telephone keypad and our next question comes from the line of Daniel <unk> with benchmark. Please go ahead.
Speaker Change: Yeah, great. Thanks, just real quick Mark just.
Daniel: How quickly are these integrations going to ramp a DSP is and do you have any thoughts on sort of the broader marketplace given kind of harnessing the Google case.
Speaker Change: Thanks.
Okay.
Speaker Change: Yeah, absolutely yeah. Thank God.
Speaker Change: Yes.
Speaker Change: With the Cookie deprecation on again off again relationship.
Speaker Change: I think for the foreseeable future I don't think cookies are going to go anywhere I do think alternative ideas are still going to have an impact in the marketplace and I think we're already seeing.
Speaker Change: Other partners actually leveraging some of those third party cookies that are actually out there. So I think there's going to be a permanent part of the overall.
Speaker Change: Regards to.
Speaker Change: Breaking up with Google If you will between their AD tech business and all the rest of their businesses I think it so we'll wait and see mode on that I think theres a lot of moving pieces as it relates to the judicial process that they're going through so for US we are trading it is business as usual and we will wait.
Speaker Change: So we see definitive action from the judicial on how we're going to respond and deal with that accordingly.
Speaker Change: Yeah.
Speaker Change: With regards to the ramp up of the integrations.
Speaker Change: Each integration partner is different some move faster another somehow I'm a little bit of legacy code that they're working through so those are going to be variable in time and so what we're anticipating as we will see the impact of that come Q3, and Q4 of this year.
Speaker Change: Yeah.
There are no further questions at this time I will now turn the call back over to management for closing remarks.
Speaker Change: With that stated we thank you for your continued support of directors All holdings.
Speaker Change: That concludes our Q1 2025.
Speaker Change: So thank you very much and we'll look forward to.
Speaker Change: Next quarter.