Direct Digital Holdings(DRCT) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenue for Q3 2025 was $8 million, down from $9.1 million in Q3 2024, reflecting a decline in overall revenue [12] - Sell-side revenue decreased to $600,000 from $2.2 million in the same period last year, primarily due to lower impression inventory [12] - Buy-side revenue increased by approximately 7% to $7.3 million compared to $6.8 million in Q3 2024 [12] - Gross margin for Q3 2025 was 28%, down from 39% in Q3 2024 [12] - Operating expenses decreased by 25% to $6.1 million from $7.2 million in the prior year [13] - Total operating loss for Q3 was $3.9 million, slightly worse than the loss of $3.7 million in Q3 2024 [13] - Net loss improved to $5 million or $0.24 per share, compared to a net loss of $6.4 million or $0.71 per share in Q3 2024 [13] - Adjusted EBITDA for Q3 was a loss of $3 million, consistent with the loss of $2.9 million in the prior year [14] Business Line Data and Key Metrics Changes - The buy-side segment saw a revenue increase of 7% to $7.3 million, which constituted the majority of consolidated revenue [5] - The sell-side segment faced challenges with revenue significantly impacted by lower engagement levels and impression inventory [6] Market Data and Key Metrics Changes - The company is focusing on rebuilding publisher relationships and onboarding new customers in the sell-side segment [6] - The partnership with Reach TV aims to enhance inventory and data targeting for the buy-side business, reaching over 50 million travelers monthly [5] Company Strategy and Development Direction - The company is adopting a dual approach by leveraging its unique position in both buy-side and sell-side operations to create integrated solutions [6] - AI is being utilized to drive innovation and operational efficiencies, with a nearly 40% growth in feature sets due to new AI modules [9] - The company aims to minimize costs while driving growth, with a long-term goal of returning to strong year-over-year revenue growth [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in the sell-side business but remains committed to rebuilding and growing the business [11] - The company anticipates 2026 will be a positive cash flow year, driven by optimization opportunities and a focus on the profitable buy-side business [33] Other Important Information - The company successfully converted $25 million of existing debt into Series A convertible preferred stock, improving its equity position [14] - An additional $10 million debt-to-equity conversion was completed post-quarter-end, enhancing financial flexibility [15] - The equity line of credit facility was expanded to $100 million, providing additional financing capacity [16] Q&A Session Summary Question: Concerns about sell-side results and integration with DSPs - Management sees a combination of traditional business models and ecosystem platform play as viable paths for growth [20] Question: Impact of platform approach on buy-side outreach - Advertisers in alpha testing have responded favorably to the new platform approach, seeing benefits in performance and ROAS [23] Question: Details on the Orange 142 and Reach TV partnership - The partnership is viewed as strategic, complementing existing advertisers and enhancing the company's offerings in the travel sector [25] Question: Revenue from new verticals and customer attrition - The company is focusing on larger customers in new verticals to reduce churn and improve stability [29] Question: Inflection point towards positive cash flow - Management believes 2026 will be a positive cash flow year, with ongoing optimization efforts in the sell-side business [33] Question: Focus on buy-side versus sell-side - The sell-side is seen as important for overall profitability due to favorable operating leverage once past the break-even point [34] Question: Current status of shareholder equity - The company believes it is now positive in shareholder equity following recent debt conversions [38]