Q3 2025 Direct Digital Holdings Inc Earnings Call

Speaker #1: 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 .

Speaker #1: These statements are made on the basis of Direct Digital's views and assumptions regarding future events and business performance . At the time they are made .

Speaker #1: We do not undertake any obligation to update these statements . Forward looking statements are subject to risks which could cause Direct Digital's actual results to differ from its historical results and forecasts , including those risks set forth in Direct Digital's filings at the SEC .

Speaker #1: 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 , Direct Digital will be referring to non-GAAP financial measures .

Speaker #1: 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 .

Speaker #1: That Direct Digital filed in its form 8-K today . I will now hand the call over to Mark Walker , Chief Executive Officer .

Speaker #1: Please go ahead , Mark .

Speaker #2: Thanks , Walter , 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 third quarter before turning the call over to our CFO , Diana Diaz , for more detailed look at our financial We'll conclude by opening the call for a brief Q&A .

Speaker #2: We saw another period of encouraging growth in our . Buy segment during the quarter , with Buyside revenue increasing 7% to 7.3 million , which represented the majority of our consolidated revenue subsequent to the close of the quarter , we announced a first of its kind partnership between orange 142 , our Buyside subsidiary , and reach TV , an award winning streaming network for live sports and lifestyle results .

Speaker #2: content , reaching over 50 million travelers per month . This partnership combines the data driven scale of reach TV's travel media networks with orange 142 media planning , buying and performance marketing expertise , providing our Buyside business with new inventory and valuable data targeting segments .

Speaker #2: Together , we're simplifying how brands reach the connected traveler through a scalable model that unites data , content , and context to drive measurable results for travel and tourism marketers .

Speaker #2: During the third quarter , our sell side revenue was negatively impacted by lower than anticipated impression inventory and engagement levels . As we continue working to rebuild publisher relationships and onboard new customers , however , we're taking a differentiated approach to this rebuild , one that leverages our unique position as one of the few companies operating at scale on both sides of the programmatic ecosystem .

Speaker #2: We're developing integrated solutions that combine our supply side platform technology capabilities with orange . 142 demand side marketing expertise , creating a full stack offering for clients .

Speaker #2: This dual approach can deliver tangible cost savings to customers by streamlining the programmatic supply chain , while also allowing us to capture incremental margin that wouldn't be possible with a single sided model we're currently in alpha testing with select clients , generating revenue , which fueled our quarter over quarter increase in Buyside revenue and early feedback has been positive .

Speaker #2: We believe this strategy positions us to grow company revenue in a more sustainable and profitable way . As many of you already know , over the last year we faced considerable external challenges related to our sell side business .

Speaker #2: Colossus SSP that resulted in the restructuring of teams and rethinking how we operate . A silver lining of this is that it accelerated our adoption of AI for the sell side of our business .

Speaker #2: Today , we've leveraged we're leveraging AI to drive innovation and agility to better position ourselves to win new opportunities . And though we're still in the very early stages , we're already seeing some encouraging results .

Speaker #2: Our overall feature set grew by nearly 40% this year, driven by the creation of ten plus new AI modules that support both internal operations and clients.

Speaker #2: What once took months can now happen in days . Projects that previously required 8 to 9 engineers in a year to build now take a few weeks or less to .

Speaker #2: Reach testing . We've achieved hundreds of thousands in annual savings through automation and streamlined infrastructure . These efficiencies allow us to reinvest more into innovation and client value .

Speaker #2: These results are driven by our phased approach to building smarter technology , using AI and real time analytics . We've optimized how ad requests flow through Colossus .

Speaker #2: Now we're taking that optimization step further , moving it to the edge of our infrastructure where requests first enter the system . This shift allows us to eliminate nonperforming traffic before it even reaches our servers , dramatically improving efficiency and reducing costs .

Speaker #2: Building on these breakthroughs , we're preparing a new suite of AI tools that will empower our existing clients in ways that weren't possible before .

Speaker #2: While supporting new customers . These are just the first steps in our AI journey , and they've already shaped , reshaped what's possible for our company .

Speaker #2: AI now touches every part of how we operate , from development and analytics to decision making and optimization . Finally , we continue to drive improved operational efficiencies and cost savings year to date .

Speaker #2: In 2025 , we've delivered total reduced operating expenses by 5.4 million , or approximately 20% decrease in expenses compared to the first nine months of 2024 .

Speaker #2: So we're seeing meaningful progress from our cost . Recognize that this has been a challenging period for our business and our shareholders , and we remain steadfast in our stated goals and strategy to rebuild and grow our business back to the strong year over year revenue growth that we drove consistently from 2018 through 2023 .

Speaker #2: Prior to the short attack , I will now hand the call over to Diana Diaz , our CFO , who will walk through some of the financial highlights and further detail .

Speaker #3: Thank you , Mark , and good evening , everyone . I'll now provide a review of our third quarter results . Consolidated revenue in the third quarter of 2025 was $8 million , compared to revenue of $9.1 million in the third quarter of 2020 .

Speaker #3: For sell side revenue was $600,000 in the third quarter , compared with $2.2 million in the third quarter of 2020 . For the decrease in sell side advertising , revenue was primarily related to a decrease in impression inventory when compared to the third quarter of 2020 .

Speaker #3: For Buyside , revenue increased approximately 7% to $7.3 million compared to buy revenue of $6.8 million in the third quarter of 2020 . For gross margin for the third quarter of 2025 was 28% , compared with 39% in the third quarter of 2020 .

Speaker #3: For operating expenses in the third quarter of 2025 were $6.1 million , a decrease of 25% , or just over $1 million compared with $7.2 million in the same period of last year .

Speaker #3: The reduction is primarily related to a decrease in general and administrative costs , expense reduction is a key strategic initiative for direct digital , and we're pleased with the progress that we've made so far .

Speaker #3: Our long term goal is to efficiently minimize our cost structure while simultaneously driving growth across our business . Total operating loss for the third quarter was $3.9 million , compared to a loss of $3.7 million in the same period of last year .

Speaker #3: Net loss in the third quarter improved to $5 million , or $0.24 per share , compared to a net loss of $6.4 million , or a loss of $0.71 per share in the third quarter of 2020 .

Speaker #3: For adjusted EBITDA for the third quarter was a loss of $3 million , essentially consistent with the adjusted EBITDA loss of $2.9 million in the prior year period .

Speaker #3: Now , turning to the balance sheet , we ended the quarter with cash and cash equivalents of $900,000 , compared to $1.4 million as of December 31st , 2024 .

Speaker #3: Total cash Plus accounts receivable balances as of September 30th , 2025 was $4.5 million , compared to 6.4 million at the end of 2024 .

Speaker #3: We remain focused on strengthening our capital structure through multiple financing pathways . During the third quarter , we successfully converted $25 million of existing debt into series A convertible preferred stock , substantially improving our shareholders equity position and enhancing our financial flexibility .

Speaker #3: This momentum continued after quarter end with an additional 10 million debt to equity conversion completed on October 14 , 2025 . We've also enhanced our capital access by expanding our equity line of credit facility to $100 million , a 50 million share increase in late October .

Speaker #3: Since the program's November 2024 inception , we've raised $8.9 million through this facility and the expansion provides meaningful additional financing capacity to support our strategic objectives .

Speaker #3: Now , I'd like to turn it back over to Mark for some closing comments .

Speaker #2: Thank you , Diana , and thank you to everyone for joining . We appreciate your interest in Direct Digital Holdings, Inc. and would like to now open the call for questions .

Speaker #2: Operator . Please open the line .

Speaker #4: At this time , I'd like to remind everyone , in order to ask a question , press star . Then the number one on your telephone keypad .

Speaker #4: Our first question comes from the line of Dan Kearns with Benchmark Company . Your line is open .

Speaker #5: Thanks . Good evening . Mark . Obviously not the sell side result you were looking for . We had talked about direct integration .

Speaker #5: You know , there's a lot of noise and DSP land right now with Trade Desk . Basically prioritizing open path . And I you know , they're obviously a big DSP partner .

Speaker #5: Could be do you think Amazon's making a bunch of noise . How do we think about your willingness to kind of pursue the historical business model and direct connect and drive volume from the DSP universe through philosophy ?

Speaker #5: And then you talked about this platform approach . Obviously , orange . 142 linking up and keeping everything sort of in the ecosystem makes a lot of sense , but you have to be able to drive both advertiser demand and publisher access and inventory to make the ecosystem grow .

Speaker #5: So just help us get a little bit more clarity on the thought process . There .

Speaker #2: Yeah , no . Good question . Dan . We see it as a combination of both . So we think , you know , the traditional business model of working directly with DSPs .

Speaker #2: We

Speaker #2: still see that as a viable path . We think that some of the tier two DSP partners that are out there are still interested in partnering , and then some of the tier ones are still subsequently interested in partnering and see that as a viable option .

Speaker #2: However , for the company and the way that we're viewing our go forward strategy , more of the ecosystem platform play , we're making more investments going down that path .

Speaker #2: And that's where we have already started testing and starting to see favorable results and favorable feedback from our clients . Due to the level of cost savings that we're able to provide to them .

Speaker #2: So we think that that it's going to be for us , multiple revenue streams into the SSP for the go forward , and we're looking for more opportunities and exploring different ways to continue to drive revenue through the SSP that we actually have autonomy to control .

Speaker #5: And do you have the on the on the from the buy side perspective , we've talked about category expansion , vertical expansion . You know , as you kind of go through this platform approach evolution , the change your go to market , does it change your ability to reach out to the buy side and suggest , hey , you know , you can get better , you know , SPO , you can get better yields , you can get better return Roas effectively for the buy side anyway by running this platform approach and how receptive have advertisers been to the new go to market ?

Speaker #5: Yeah .

Speaker #2: So far the advertisers have been the ones that were in alpha testing with have been pretty favorable with that approach . And then the test that we've run , they've seen the benefit from a performance perspective .

Speaker #2: And also from a Roas perspective . So the way that we're viewing it and we've it's one side of our business that we've been very strong on .

Speaker #2: And that is really the revenue generation side for our buy side business . And so we're going to continue to push towards that where we feed the top of the funnel to run more dollars in revenue to the bottom of the funnel .

Speaker #2: And then for us , maintaining the publisher relationships is important . So we're continuing to focus on that as well .

Speaker #5: And just any color , additional color you can give us on the orange . 142 and reach TV partnership , you flagged it .

Speaker #5: I think it's interesting . It's kind of an adjacent into travel , which you guys already have some tourism . There . So I don't know if you would consider that sort of an add on to where you already are or if we should be looking for more of these kinds of partnerships in the future , where you guys get creative with your platform .

Speaker #2: Yeah , the reach TV partnership , we viewed that as being strategic in nature . We have roughly about 70 partners that are in the DMO advertising space .

Speaker #2: And so having a reach TV with the data platform that they have , and also I will say the RTM component that they actually have in many of the different airports across the United States , and specifically content that they have , we saw that as being strategic as nature and a real compliment to the advertisers that are already buying with us already .

Speaker #2: So , yes , we are planning on continuing to find opportunistic opportunities like reach TV , but we felt like this one was definitely important for our platform .

Speaker #5: Got it . Thank you . Mark , I appreciate it .

Speaker #2: Absolutely .

Speaker #4: And your next question comes from the line of Michael Karpinski with Noble Capital Markets . Your line is open .

Speaker #6: Thank you and good evening . Just a couple of questions . You indicated that there was a 2.1 million in revenue from new verticals in the buy side in the latest quarter .

Speaker #6: And if I just extract that revenue out in the quarter , it seems like there's quite a . Bit of attrition . And I was just wondering if you can maybe provide a little color on where we saw the weakness .

Speaker #6: Was it particular customers verticals ? Maybe just add some color ? There ?

Speaker #2: Yeah . So for us , the way that we viewed it , we definitely are going after new verticals . We're taking a strategy of going after larger customers and purposely avoiding customers .

Speaker #2: That might be a little bit smaller in nature, just due to the churn and internal resources that's required to manage. So, strategically, we saw it as being valuable to go after different industries in different verticals and go after larger customers in those industries.

Speaker #6: And did those larger customers then have higher margin ? I would assume , or maybe can give us a flavor on what those larger customers brought to the table .

Speaker #2: Yeah , they bring more stability as they are performance based customers . And so therefore it's tied directly to results . And then we like holding ourselves accountable to deliver on performance .

Speaker #2: So be a performance based marketing and be a performance based client . We view those as being stickier in the long run .

Speaker #6: Gotcha . And then in terms of obviously , you guys have been aggressively rightsizing the business and focusing on your higher margin buy side business .

Speaker #6: I was just wondering if you can kind of give us your thoughts of when you might see the inflection point towards positive cash flow .

Speaker #2: Yeah , yeah . We believe 2026 is going to be a positive cash flow year for us . We continue to find optimization opportunities to reduce costs , specifically around the sell side .

Speaker #2: We want to rightsize that business to be able to baseline it and then return to growth, if you will, for that business.

Speaker #2: I mean , I'm sorry for the sell side by side business is quite profitable for us . And continues to be maintain that profitability .

Speaker #2: And so we believe really if we can keep streamlining the sell side business as well as work on top line performance and more of this ecosystem approach , which we saw favorable results in Q3 , we believe that 2026 will be a cash flow positive year for us .

Speaker #6: I'm curious , you know , given the fact that your buy side business carries such much improved margins that in that , you know , with , you know , the results that you saw in this quarter , particularly that the number of customers you say increased 5% , but yet revenues declined 70% .

Speaker #6: Why wouldn't you just concentrate most of your effort on the buy side instead of trying to rebuild and put so much effort into the sell side ?

Speaker #7: Yes .

Speaker #2: Yeah . I think I think what you're pointing to is just the revenue issue with the sell side of our business . The reason we like the sell side of the business is because once you get past the break even point , the operating leverage is actually quite favorable , where every incremental 20% actually falls to the bottom line .

Speaker #2: So for us , being able to figure out how to get back to profitability on the sale side , business helps the overall profitability of the entire entity .

Speaker #2: And that's really what we're going for .

Speaker #6: And then final question . I'm sorry .

Speaker #2: Oh yeah .

Speaker #3: Michael , a lot of the things that we've been doing with with AI are allowing us to , to grow on the sell side without significantly increasing our fixed cost to meet that capacity .

Speaker #3: So that's that's the positive part of being able to generate higher revenue on the sell side .

Speaker #6: Fair enough . And then obviously you made a mention and did a lot of financings and a lot of opportunities to raise equity .

Speaker #6: And so forth . Can you just kind of give us some thought about with the recent financings ? And so forth ? Where does the company stand ?

Speaker #6: Are you at positive shareholder equity at this point , or can you kind of just give us your thoughts of where you stand at this point ?

Speaker #3: Yeah . So we we completed another conversion of debt to preferred after the end of the quarter of $10 million . So we believe we're definitely positive after the end of the quarter .

Speaker #6: Gotcha . Okay . That's all I have . Thank you .

Speaker #3: Okay . Thank you . Thank you .

Speaker #4: And there are no further questions at this time . Mark Walker I turn the call back over to you .

Speaker #2: Thank you . And if there's no further questions , that concludes our conference for today . Thank you for participating . You may now disconnect .