Earnings call transcript Q3 2022

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Operator

Thank you for standing by. And welcome to the Direct Digital Holdings’ Third Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation follow by a question-and-answer session. [Operator Instructions]

the conference turn to now will hand over the Mr. I please go Milotte, ahead. Brett

Brett Milotte

and Digital Milotte Good XXXX to Relations afternoon, welcome everyone, Direct Direct Holdings call. name from ICR. representing earnings My Holdings is I'm Brett and Digital Investor conference quarter third

and are Walker; Financial today's Officer, call and Executive Echard. Digital Direct On Officer, Chair Susan Holdings’ Chief Mark Chief

Digital be that’s The X-K and Form through entirety by been today website website. information filed the and discussed may today is qualified Holdings, by SEC’s the Direct earnings accessed in release which its DRCT's accompanying

is Today's there session. will website. will DRCT's being Immediately call posted Relations question-and-answer a also replay webcast and Investor presentation, be be a following speakers' the to

not during call, constitute update or made. statements may and financial And we assumptions are the forward-looking time to statements. made not note at statements. Such any events future are Please and on business DRCT's this views in performance obligation of these historical the undertake the statements regarding basis nature, that including are made projections other do statements they

DRCT's are the which in including risks filings forth subject risks SEC. to historical the results and could with to those set from cause forecasts, DRCT's statements results differ Forward-looking its actual

forward-looking information. any to statements. consider refer undue call. this and forward-looking You should statements during on statement those This for carefully applies more cautionary made all place to Do reliance not

today. measures are available financial DRCT recently reconciliation in most call be A earnings measures measures financial prepared will These referring Form not with DRCT GAAP its s the this non-GAAP with non-GAAP comparable to During non-GAAP X-K filed Accounting release Generally to accordance the of Principles. in Accepted measures.

Executive conference Walker, Chief over to I will Officer. hand to now Mark Mark?

Mark Walker

report as year. everyone. growth financial our afternoon the strong for continued incredibly good a performance to proud This call is And company the for and and Brett. quarter I'm public earnings third Thanks,

in first those for you I Before a joining brief and details, for provide the buying I leverages time. the Holdings technology media. company ROI is of into to a Direct assist overview through of that specific driving clients go selling Digital us want to

technology sell-side market and Our proprietary and underserved meets provides platform. our multicultural the access general publishers of market through demands platform to middle the

was Colossus drive founded Huddled proprietary technology which publishers genesis the businesses initial platform, of was to Our media buy-side market buyers along Huddled Orange middle to the sell-side end-to-end acquisition Colossus which sell enables while our United company's Masses, across of XXXX Masses with XXX in is SSP ROI. enables through SSP, media business to our programmatic platform. and is States that the to purchase our

and to offering In tourism, financial XXXX, and expand our into we services acquired verticals. industry Orange buy-side grow education, platform travel to develop other XXX and further and our

the and begin business CFO, will highlights quarter, main the then and will by to remainder for share brief turn a results overview we'll financial the providing XXXX. the revise Echard, of guidance it our who and for detailed over I call financial Susan

your We then to happy answer be will questions.

growth consequently driven segments, our have adjusted will we deliver revenue, the publishers, to expanding and increased the results on third model. sell-side our our able income, experience is on organic by Holdings to top net market business EBITDA. with middle been multicultural and line growth focus overall in quarter you Digital As both continuing our strong business and from focusing By Direct see buy

third revenue and the the XXXX, over of million $XX XXX% XXXX. period in we of generated of increase For quarter same

an of XXX% XXXX, XXX% Our net adjusted the we income was XXXX. same up achieved million, $XXX,XXX, and over over the $X.X period EBITDA period same up in in

monthly advertising count, increasing XXX% bid XXX,XXX at the billion platform XXXX In partner increase of engagement publisher our combination billion a for increase. over an growing XXXX, quarter. of significant base. over of impressions, the monetization and QX of sell-side impression XXX% our quarter, segment business XXX enhanced advertising over XX saw increase over an This segment and Our the advertisers sell-side over platform period strategies, for is growth our received processed publisher approximately requests in same with responses, through period bid year-over-year which XXXX trillion XXXX% X.X same over through the

in in our organic our current our believe continuing in to the future. and strong We platform XXX buy-side will to the for same of are We our had overall also customer in for count growth our firmly that an foreseeable customer see compared served engagement which buy-side fuel platform, XXXX period to increase growth base we customers, XXXX. the continue over for growth QX strategy X%

evidence company's we coupled been our publishers, As efficient higher by client Digital segments. clients' which measurement industry as companies gardens, and wall ROI and continues experience, cost Holdings business Google. advertising other focused Twitter, across and traditional Direct diminishing resulted and reports, with multicultural digital the have the compounded market earnings recent our solutions, see as middle returns mentioned from growth model open participants Consequently incredible general last quarter, such cost providing our is on both buy-side more and Meta market and underserved trend, and has and capabilities. advertisers mix, digital to and comprehensive The market efficient and sell- beneficiary

the grew up million XXXX. in of $XX.X Our XXX% business million of the to revenue, Colossus period SSP over same consisting the sell-side X.X in platform

to of same $X the Our consisting the million over Huddled XXXX. up Masses revenue, buy-side period and million in XX% Orange XXX platform $X.X in of the businesses grew

companies share a less overall and to uncertainty and as view in capture relates it market other As volatility the opportunity approach the unmatched marketplace. take aggressive trends, we to an clients as aggressively choose macroeconomic market to

downturns, we less brands media to into dollars efficient efficient digital adoption therefore businesses the and advertising year that market media, and searched for and XXXX. market moved middle see towards from believe in continue have will Historically, outlets traditional we throughout acceleration and

$XX year announce million. $XX pleased raising we Furthermore, are full QX has and factors been million combined to are quarter to to historically that our our stated above, guidance revenue strongest the we with XXXX

now quarter update further Susan to hand who will on of highlights walk guidance. to Echard, you a things some going through and is over for the financial I the

Susan Echard

Mark. Thank you,

into our right increase in the the an our revenue $XX the in period $XX.X Mark XXXX. XXXX, XXX% as stated, $X.X third increased million million of million Moving over same results, of quarter or to of financial

was in monetization sell-side inventory. same in Our said, increase the advertising well strategies to our contributed $XX.X million as segment by of drove this increase, million and this as million our XXXX. as the impression and QX, continued $X.X XXX% for the enhanced engagements partner in Mark of over grew in increases $XX.X publisher This increase driven, period or

driven segment and in by $X.X the spending increase contributed the the our of million existing increase, to as spending. well of or XX% higher buy-side grew base period million $X.X was This over market same advertising XXXX. Our $X customer customer by as million new primarily middle

$X.X as higher of increased million dollars result revenue. a profit Gross

of margin the for sell-side line were rate compared margins to XX% given expectations of These period quarter third results same are Gross accelerated XXXX with XX% in the segment. advertising in growth XXXX. our the our approximately margin of in

revenue, whose our of segment gross our overall segment margin has buy-side revenues lower sell-side a grew a than as percentage Our

compared margins quarter XXXX of compared to The quarter the The gross of were segment, for the XX% XX% third quarter were XX% margins buy-side segment, for to in sell-side XXXX. gross of XXXX XXXX. of third XX% advertising quarter the advertising in the third third

grow, of in the this reduction the results are segment continued and this mix operating the our continues slight As business contribution segment. in revenue in of investment due the higher to business, Due the higher our programmatic to the margins technology to overall publishers. EBITDA by dollar leverage sell-side

million approximately in third commissions, $X.X is expense QX This quarter from as XXXX, in revenue bonus of $X.X of due or strategic of headcount generating since charge of well $XXX,XXX, to to severance higher expenses third businesses added as being additions, million company. the expenses of our increase company an as the XXXX. to $XXX,XXX as public increased in XXXX, of is expense, operating $X.X a the costs. Operating resulting of an approximately increased quarter quarter costs third of and cost over million increase edition public Included the one-time a of our headcount well

February requirements costs. expand will as $XXX,XXX and the these of added higher infrastructure approximately our in insurance XXXX, have outpaces margins we our to company were in in and we revenue incurred to costs related that invest the operating Since quarter estimate public company and anticipate IPO public professional growth continued of We fees. expense

income Even with $X.X compared the these in increased the million million XXXX. to $X.X third additional of of costs, for same of quarter operating period to operating XXXX income

$X.X loss to Net compared the million of XXXX. for $X.X million third period the loss quarter of income in was same a

the in or million EBITDA to In XX.X% the compared increased margin third or $X.X quarter of XXX% quarter $X.X adjusted XXXX, margin of XXXX. million X.X% to third

as and approximately approximately increased points. expenses, mentioned costs of related As headcount to by EBITDA bonus severance basis around incurred costs well from resulting higher additions, margin above, which $XXX,XXX we costs, five commission as and impacted company-related the public $XXX,XXX

$X to balance and the Turning of quarter sheet, million. the equivalents with we cash cash ended

repaid of allowed debt of us transaction, $X the of and to approximately our in its redemption the owed the This debt credit reported loan million. us of units Loan cost with this transaction. our agreement delayed we our amend and August, remaining $X.X In with term million As worked in Square outstanding principal EastWest the pay the terminated balance Lafayette partner connection our Bank $XXX,XXX. off cover with the common line to and to draw with connection provide Servicing from of proceeds company

interest end These line actions, expect our will a position, We this ratio are line on and well credit improve working currently cash finalized reduce working our November. the of as along of and future as liquidity agreement be of to credit, with by capital new costs. new

$XX to annual year-over-year the touch midpoint. of growth initial we to of guidance the QX, $XX our year full call a to million year-over-year $XX in up to indicated of $XX XXX% our in the at in recall we on Now raised or the After XXXX midpoint. if our be year, range to or expected strong the be million million revenue that you XX% at million our guidance, range we

up adjusted for another the to quarter, strong the after we midpoint, revenue full while at double-digit million Now, to growth continuing or year increasing be $XX in XXXX the are year-over-year XXX% our our year of margins EBITDA to target million $XX yet range

look transition plan to we to a focus on growth executing publicly enhancing shareholder company, with continue a listed being keen to we forward As our value.

in our our to both continuing invest our anticipate strategies. infrastructure core further to in and we business rapid growth growth organic support Additionally, inorganic

continue line disciplined we growth cash positive increasing in remain our and to focus flow. and goal EBITDA our of We adjusted on top

back to comments. like over would turn Now Mark I to it closing some for

Mark Walker

where business appreciate continuing to everyone Holdings you and And We to Direct exciting in fast joining. Thank for Digital thank you, Susan. sincerely growing the build. your and interest

to We going are questions. now line open some for the

Operator

first The Thank Kurnos comes [Operator Please Dan Instructions] you. question go Your from ahead. from Benchmark Company.

Dan Kurnos

back that afternoon. thanks. actually the $XX went check data guide read Great, initial Good I point just for the the double year to of Susan million. out about actually

just that of what, some number If your you you modest already growth XXX% assume growth or in so and in by let's don't you those in not $XX do sell-side beat XXX% you, on QX QX, there. guys is telling there an buy-side something QX could growth know, I'm in guys variance guide platform but numbers, revenue, million. implied

this. hear win in the you that this doing environment. softening? is we about to generally raising is what to from you environment Nobody numbers You exactly Mark business, continue causing advertising are like when aggressive, that's talked others else differently being Like

Mark Walker

you. first Dan. it's Yes, from to off, hear good Yes,

been Our has consistent simple. formula and

well. said to accomplish our announcement, then in And we which and ecosystem continue same publishers ecosystem also through exact QX into with of our favorably and of push added the continue that, ecosystem our we're into we addition to we able benefited as CafeMedia, The in new new going Mediavine to us as rest throughout QX. into We into has DSPs actually the addition add year. to recent very have our were that

our has So worked. formula

of in. increase buyers have the we coming amount We continue that to

keep level also for continuing and saw, over we're XXX by had from serve. rewarding and very formula grow directly the to us then the us, the us, of continuing And are actually to to you with advertisers impressions that. continuing and we're who thankful us are working do that we're that As and advertisers buying business that we with buyers

Dan Kurnos

about would I I mean, hear, that's some particular here. announcement it love meaningful in a partnership catch is mark and because actually stuff press also to there forward a pretty did outperforming CafeMedia vertical good the like

Mark Walker

multicultural having growth a formula seeing Yes, continued we're CafeMedia partnership thankful in the actually segment of we are it. that was definitely our to strong ecosystem. publishers and our is into have The connected

more more those the continue roughly more see to to entire and starting we're African-American, favorably LGBTQ, in And push going and XX% beginning on the our You're going towards year interested therefore invest has DSPs is from fact that, offering XX% played continue targeting adding we're the towards the impressions going of a brands about putting in keep those and communities, geared more those. to and us that of audiences actually more Asian-American, in when Hispanic-American, then we're as also different to as well start adding XXXX. to in we invest to to

Dan Kurnos

last me, some healthy, very been for good Got have one it. you've margins just got And momentum.

just some reinvest uptick but balance growth speaking, the to you've think to the I in life strong got line redeploy you're willingness of your for generally we momentum, at seasonal investing as QX, Just the mean, cash we clear top or but be willingness how to up. do point? about of expected, putting this continue your at look future

Susan Echard

Yes, to happy we're Dan, time on in technology margin, and to growth. compression happy invest this we're a of seeing going the tradeoff keep again has and dollars proven we're more which EBITDA that this for to

as in want technology. we to with the comfortable protect making inventory, IVT, that in lowering so and publishers our as invest investing And our really well

of We that take a rate a profile. mix publishers also have different have

the see dollars keep you're that mix bottom margins, these to saying you the and to as dropping like So but along buy-side line. between some of those see to the going with keep of lower we are revenue going sell-side,

Dan Kurnos

numbers. helpful color. really Susan. and Thank to That's And you stellar Mark, congratulations thank you obviously Perfect.

Mark Walker

Absolutely. Thank you.

Operator

you. next ahead. Capital go from ROTH Aftahi The comes Thank question Darren from Partners. Please

Darren Aftahi

first well. the Where I budgets coming touched off on Hey the from of ad you macro moving you taking as guys, good you're rest think Mark going questions. platform? my are my curious, question. afternoon. dire. mean, Thanks do have a of congratulations shifting to for dollars small your I'm and pretty kind just I around. my base sounds the and That’s kind

I'm it saw your Growth so I Officer, kind year? unraveled the things Thanks. priorities about into I in hired kind a XXXX, at of like there you seems is humming the you business keep we what in risks platform? of things And where of just August, kind as are could thoughts curious are top along. maybe up of curious, then of kind that night Chief late I'm three get go think, on that any terms general

Mark Walker

on Yes, regards finishing Chief no, and time. into a then month the I'll of one Yes, half, tackle that for we're last absolutely. year, a Officer, off continual at XXXX. Growth In the strategy growth also investments to and going the this making our course, overall

costs and infrastructure investments overall the making in shared is in the overall build structure, allow we feel revenue putting which that we're manage that's us our grow run. So reduce generating we while going continue revenue to our really out organization, is in producing margins to to and for and services long

up about managing risk night, at are business our multiple ask sure night – make everything. and up to always us we're regards what keeps that you thinking hedging at fronts. we're we We In on

de-risk we perspective, so And de-risk to infrastructure platform try our a from we from try to perspective. it margin

grow keep we always so that are as we we our also contingency can continue up So plans to along business. coming with sure humming that business smoothly can and make the we plans overall

I strategy maintain plan we we term would the continue and the foreseeable then, say in and in so term, in is to also can And invest are our infrastructure to our for future. short on in near what growth focused continue to growth specifically the that

Darren Aftahi

Congrats. Thanks. helpful. That's

Operator

ahead. The Noble Capital from from question Please Markets. go Michael Kupinski you. comes Thank next

Michael Kupinski

my for well. questions me you congratulations taking and for as Thank

are trends in bit – verticals just inflation and bit to some this tough effect of through little certain feeling of softness. the terms businesses verticals certain So strength kind discounts what maybe little and and giving Dan's be companies you some macroeconomic and seeing be was advertisers might are actually where are of in where on the so some have seeing, you some question follows you them up to are and weather times, trying to a wondering just speak. seeing might I of a categories

Mark Walker

want and with that there's as trying the continually business, say can that media on fact is metric clients are business, taken, what market. middle the or and the KPIs we in that we've approach our buy-side and activities. the try in level things we're What dollars to to in see up value to hard are overall of drive always order we last tend to that to revenue that for I Because that partners in have that are ensure ourselves Yes. return to maintaining the ROI, revenue dollars as the they sure work to driving revenue they that the or found so the the sales, companies closer possible the those the to we investing at. we base into you spending. One, by a they we're not align two making they're and be some customer on you close we're in in would their are spend business downturn of look closer marketing focused market performance

we to ROI close activities driving as media for revenue possible as align deliver try to in and ourselves our And order so clients. to

and getting would then are say actually of softening the are us where appreciate the from invest That's major higher therefore focused gardens a properly they're are the with for clients heard CPMs reconstitute digital dollars away of shift. some working our really And in of think that to towards from see less as of channels. that are the open might those CPM directly into those impact customers level with competitors that shifting we buy-side dollars. well they dollars some really anecdotally are wall we positioned more different business some and been brand seen, Therefore, our those that are our And capitalize dollars marketing. we on looking on, the we seeing we sell-side we us also as have return, for marketplaces those performance seeing that to I and shifting into and they're we've as of that

Michael Kupinski

publishers, which beyond you. obviously that – tech, ability in say, how investor now in investments Obviously these you what addition wondering color. to looking investing okay, company is Got the year Q, give forth. strong the the in so the for support in if I always scale publishers, done thanks you another and us given great, was And all all growth types is the beyond to things type the all of can extraordinary these your community thoughts about looking at things, revenue opportunity, quarter, have just which is their and of infrastructure, XXXX. another And

give you in of XXXX If to could of growth. in like thoughts us you your see terms what might

Mark Walker

we continuing of double modeling believe I double-digit that's And business business, year-over-year with supporting to investors we're how Yes, double and that's pretty because that's the allows aligning comfort planning it. to discipline that seeing right we're organizational our say, XXXX. that margin would having running how gives now invest we them we're and that, how growth us and on are into the from EBITDA planning digit with formula much And and next year. on maintaining we're XXXX going

Michael Kupinski

point. thought you Have always identified that a that activity front? at guys might There anything be M&A there on some is some

Mark Walker

say now, something rolling at a as opportunities, happens Yes. dealing thought always is about that we of about or also to it But of significant and sight opportunities. a a activities. we realm of definitely on I that to And will inorganic that and one on in we us. in activities. the actually we inorganic guys keep those thing will management for that it's looking opportunities. amount possibility with We're experience it's those provide growth something for are eye of future team in and you have has always growth line have our eye the talk once position not And right a for notice know about here And targeting in and the but

Michael Kupinski

Great. Thank That's all I Congratulations. very have. much. you

Mark Walker

Thank you.

Operator

There Mark you. now I'll this further back Thank closing to are for no hand time. remarks. questions at

Mark Walker

thank All you. Well right.

to are you. We Digital with speaking the of very looking Direct with Thank you and we're forward Holdings pleased quarter. next performance

Operator

Thank Thank conference you does participating. you. That conclude our for today. for

disconnect. You may now

Direct Digital (DRCT) 10 Nov 222022 Q3 Earnings call transcript