Earnings call transcript Q2 2023

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Operator

Hello, everyone, and welcome to Direct Digital Holdings Second Quarter 2023 Earnings Call. At this time, I would like to hand the call over to Mr. Brett Milotte. Please go ahead, sir.

Brett Milotte

Good afternoon, everyone, and welcome to Direct Digital Holdings Second Quarter 2023 Earnings Conference Call. Milotte, presenting Brett from Digital is ICR. name and Direct I'm Holdings My are Chairman Diaz. Digital Officer, today's Direct On call Holdings and Financial Mark Chief and Officer, Diana Walker; Executive Chief

entirety to also Information is website. website posted accompanying release, replay be Investor Digital has discussed which and accessed being Today's website. a Direct Form filed we by Which qualified its DRCT's earnings today today been webcast, Holdings. Relations X-K and with DRCT's in at and is the call may SEC's the

and following speaker's session. time future at any These may business performance nature financial are statements are and the Immediately they obligation the be that presentation, a assumptions statements. regarding in do statements on to DRCT's are including Please made made constitute there not the question-and-answer events And the forward-looking made. call, projections will statements we historical basis these the or statements. other undertake update note views that not of during

subject are could you consider call. results results made differ those to which statements refer DRCT's And more at carefully for this Forward-looking cautionary This should to information. applies all actual the risks forward-looking historical to forecasts, including filings SEC. from and forth those cause to statement during in its DRCT's set risks, statements

not place statements. do You undue reliance forward-looking on any

Executive Mark Mark? X-K today. over now the in earnings accounting with to accepted that Form non-GAAP filed These measures measures Officer. the Walker, non-GAAP measures. generally referring Reconciliation DRCT in hand measures available non-GAAP financial call, prepared this GAAP its will is to will Chief not in DRCT most the During accordance comparable be the of conference to directly the I are financial principles. the release

Mark Walker

half seasonally quarters, I'm Brett. to as first expect strong Thank and our performance typically to QX, see X report results proud year call. quarter increase joining earnings slow advertising for you and the progresses. XXXX. QX second is of Similar of demand operational Thanks, financial our XXXX to everyone to we the

growth buy-side strong our saw we and both across top sell-side quarter, This line businesses.

market considerable As in well increases as share.

to Our expensive, open businesses less advertising platform representative solutions. middle marketplace and market CPM look benefit accessible for as restrictive, continues more more less

our In $XX.X an XX% the revenue same million, in $X.X million increase $X.X $XX.X XXXX, of EBITDA quarter million of period to of million the in over million for was increased $XX.X period or XXXX. to Adjusted compared QX same the in XXXX.

higher in did businesses explain will Diana more sell-side margin quarter, by some impact mix As and this operating see some driven and shortly, expenses. we our buy-side detail

performance quarter Our driven buy-side by substantial revenue growth. saw sell-side this segments, strong was and by advertising both our which

processed revenue segment same increases same the period We of pleased advertising in period second XX%, XX% quarter, billion approximately and of the over impressions, monthly growth XXXX. our $XXX to are an increase sell-side respectively, of segment of report In XXXX. XXX% over by the

increase over addition, XXX,XXX In sell-side advertising period same is the a received XXXX, the advertisers the company's increase year. bid same XX% for quarter, monthly XX% in period over billion an platform responses, over XX.X this through of which quarter, last the

growth side, customers, a year-over-year. our of saw decrease the buy On slight businesses approximately XXX

However, period revenue same increased the XX% year. to per last customer compared

middle growth Direct and spend being remainder simultaneously current dynamics media moving to in believe audiences are the see multicultural XXXX. market are as traditional from spend market to while for to of digital. We we dollars Turning increase away companies the favorable holdings an targeted media Digital reach

digital deepened seeing portfolio investments In addition, we're of with in customers, marketing. our

carry the benefits and to which the mentioned XXXX. As we of through we have we in remainder will which through us quarters, year have and starting see been making investments in previous services, infrastructure our the are of

strategy, replatforming server we transitions considerable capturing our make all the growth incremental This market business to our with progress share. well maintaining continued while quarter, overall as and as

across size of continue As certain will certain reaches able and we continue our to of efficiencies segment realizing forward, levers, company year. pull outperform U.S. that and market a second to our we're aspects move to also in platform. will economy believe many the scope, the the our In combination, half

Consequently, XXXX will our CFO, now the million walk financial to year of million. some things full through over to hand Diaz, I highlights to further upwards revenue in we're who $XXX revising detail. guidance our $XXX will Diana

Diana Diaz

Thank you.

second year. to period of or same $XX.X last million an increased XXXX, of Mark of and in stated, As million XX% over the $XX.X the increase quarter our million revenue in $XX.X

majority strong a had segment the increase. advertising quarter drove the and sell-side of Our

in to $XX.X year. contributed Colossus last increase the of million the XX% and grew the $XX.X revenue $XX.X same in of million million for period or over QX

Our sell-side continues publisher or in our to engagements platform addition partner to impression increasing SSP increase monetization.

in to of and Our of buy-side Orange of continued XXXX. Huddled primarily a upsell in compared share grew a million within and our for to market current $X.X drive and customers contributed new core businesses, Masses from $X.X The the period our XX% customers in million increase million opportunities finishing XXX segments. the same revenue, through quarter year-over-year result revenue capture with $XX.X was increase effort our industry

the dollars for as $XX.X $X.X $X.X XX% result of An year. the as Related XX% to profit in period quarter of Primarily the to of revenue million same million last of for profit million last XXXX, second of quarter approximately gross a year. second of of were a increase gross were margins the quarter result second our mix, gross compared overall revenue. to XXXX for compared higher

XX% and X XX% QX margin accelerated line in and the side. of advertising sell-side revenue segment XXXX, margin these rate our discussed year, buy buy-side was on growth and our resulting in results around mix mix approximately of sell sell the side revenue profile. In expectations on we the in As last quarter the last the side our XX% are XX% mix was with the while given quarter, of

revenues segment. ended Gross was -- buy-side in our X XXXX margin a in an the increase XX, negatively overall lower by XXXX. costs of June impacted It's incurred approximately margin segment fixed sell-side our $XXX,XXX months gross grew has also of than percentage in a as Our revenue

an in to these advertising the XXXX. quarter to server of prior XX% expected of buy-side quarter to costs incremental year segment increase gross second continue Related through support are our March advertising sell-side segment. were of for The each Approximately half to growth in the compared in XXXX, XX% period. margins capacity

the on strategic retention value. margins customer the customer that sustainable, is a mix Buy-side we for range with gross strategy level campaigns buy-side timing XXXX margin This increasing impact and our the to lifetime as can in believe and line customer of decreased in is focus reflecting our result.

sell-side of gross to quarter for XX% XXXX The in the last year. margins advertising XX% segment second of were second the quarter compared

grow, continues the of publishers. margins segment reduction investment slight business due and the this are continued in to in our As overall mix to our technology

to revenue the the contribution business, higher SSP sell-side in the operating by the respect of dollar programmatic higher leverage results EBITDA With segment.

As XX% stated historical in saw should the QX to of previously, by half next XX% reduce of fixed targets the back the resort second X should we the over to in costs of XXXX, by quarters XXXX. end margin increase quarter and then

increase operating second reflects expenses. quarter benefit Now million million and increase of in in general in million second to expenses quarter expenses million compensation, expenses Operating a the expenses $X of I'll about increased over tax $X.X million operating last and increase year. the of an of $X.X increase a talk million XXXX or in administrative The $X.X in and $X.X expenses. $X.X

support expense services growth count employee in initiatives. to The ongoing mainly to by severance driven increase and our administrative public as benefits was well quarter. $XXX,XXX our as marketing and this expenses head expense compensation in in additions, a Increases and tax supporting costs shared was general company infrastructure with primarily due associated onetime

automation We with to associated expenses requisite required the and a professional to in additional fees, internal company, increased invest transition investment continue to expect compliance public associated costs controls. infrastructure our including with developing operating for incur as and in

income income last the Net $X.X compared $X.X million period million of second XXXX same quarter was in net the to of year. in of

operating buy-side of in segments period growth organic That's XXXX. increase measured operating XXXX segments of XX% $X.X of income the our for year-over-year. to same Our business income compared of million second million business our is our the of was an results. income by and quarter operating the The sell-side $X.X year-over-year of

the was second compared by to year. was This expenses, items quarter, million partially increase last of $X.X quarter EBITDA million described adjusted impacted second For before, offset the $X.X in we in in profit. the operating the gross by increase including

of quarter cash million with sheet. to equivalents $X.X cash of million, had and the XX, the XXXX. $X million Turning an December $X.X as of from that increase ended we We the balance

million $X facility increase principal credit Additionally, second uncommitted $X West that quarter the Bank to facility which XXXX, a revolving million. of revolving the $XX an into the we credit includes additional in entered with East facility incremental aggregate amount may of million

source continue it over for of capital This to us grow now and to provides turn us nondilutive a with for to like to Mark business. closing back the I'd And comments. some invest new

Mark Walker

Direct to everyone looking please sincerely you forward and Thank to Holdings and open for thank We line. interest your Diana, joining. Digital you, appreciate the in Operator, your are questions.

Operator

first our question Roth Aftahi, Darren We'll Instructions]. [Operator MKM. from take

Unidentified Analyst

for on Darren. Dylan is This

it from? the -- color that's I strength you with First, the I larger of advertisers now, could sort more with is are growth you the as you efficient just see, on provide what you market? demand? could working strength where Is sell wanted seeing to you're you driving coming think the anything talk about extra mean to ad something it sort you're in it with help any on side? -- is spend that Just think return really there? of Is

Mark Walker

question. new and we're an Dylan. impact programmatic that you seeing into Good the thanks we're from from our to bringing increase ecosystem. hear things. Two in definitely the One, actually for publishers Yes,

that growth I fuel year-over-year and the helps count our has actually increased, think overall can that you see definitely growth impression strategy.

that, to we're we're into community, our to marketing subsequently starting rest definitely for QX sales the see our that actually addition advertising known pay coming much more the the and is in QX We're benefits in and efforts to in off. then and of putting the and of investments year. of starting the marketing In level that

that think that a growth we've to going remainder mix, the of we've is that see starting in pay actually we're and off, the then for the of that publisher continue marketing the to year. level the effort in we put So put to and definitely investments

a In architecture, as we're overall bit that's and come that our addition to we're benefit we're infrastructure more see that we're to light investment the making of efficient servers, to with more and getting part actually our and starting efficient, well. little and that, getting in

Unidentified Analyst

of progresses. year demand the a about increase expecting when as And it. ad the make comment sort Got as you follow-up, in

seasonality standard where at -- it same of look almost revenue half better I XQ new you second that midpoint if your anything year, looking there XQ? typically take this the gets If your that I the Or implies sort the is the at of of of I sort mean, there? level the implies in is in sticks wrong? as am it out XQ at you are and mean, dollars guidance,

Mark Walker

No.

see think to million and range. the right goal. feel is achieve as And bullish guidance of I we being raise the to why $XXX able our what we we that's very of us able now, $XXX about to confident year, in the we're feel that remainder do million,

Operator

Kurnos We'll question the -- Dan take Company. the from next Benchmark

Daniel Kurnos

from we categorical category know advertising. been you're in provide a different ask unevenness in DMOs the I spend, but now, sort to if especially expected question know want market on a way. there's right I improvement there's commentary may in pretty perspective, of seeing, clearly uneven strong, Dylan's are performance given broader what broader been lot color some a some your around of Mark, you

get it's are to have easier maybe us we a for seeing think seasonality there the I year. But QX, of from better. a we of comps, progressively looking QX? We trying not in strength kind this but are video of just yours, guess, help year, you're it you understand a unfolds? didn't see last in perspective. obviously, standard so category it sense some how what Do Just Does a get year step-up typical

Mark Walker

level the in that step-up Yes. expecting some seen have see seasonality Yes, we of historically. to we're typical

demand happened. said, the But year, historically you some of anticipating has our was are a of As QX little hearing and some from different last bit that we we're feedback than stronger partners to is have seasonality in see same and past strong QX. of we that that or QX historically QX the seen the level where anticipating and QX we're are than what

and to right we now, the year. X $XXX the raising went because guidance present as And our we've the rest we reasons stepped why that's of the of of that expect itself. guidance And seasonality of million, is why million $XXX to remainder the up for

Daniel Kurnos

just it's it's very strength terms uneven of or that what like categories just seeing keep you're kind -- but environment, I saying know of categorical or a kind I weakness, on Mark, thoughts or from that any of And in a word, help perspective?

Mark Walker

refer I'll to the more as of the you the kind the side actually on we're that sitting DMO in the our of performance We spaces the business side saw, to on in, And strong. buy side business what that buy Yes. believe it we're because seeing buy do relates as space. was

in We the regional that we to people local to actually destinations. way why market that benefits drive the this we X and that lends in favorably travel to believe service this seen we've we're economy are. markets positioned are and where That's and itself the of actually vacation tending

from swath in performance somewhat Which actually and then itself Those sector. energy recession-proof. that the the space. us lend be customers for have tended seen good a Also, of educational we also industries X good to have there we've

it has performed year. the half then the As subsequently for ourselves how the of first and to for over positioned favorably the this forward we relates year, last of think were the go we economy remainder the in year

And would have region, addition slowdown that that, to marketing last seen of market we not in then One spend. a our out for the that is in advertising points and middle call

pretty -- going one and the that's So QX why of about we are play we're how itself reasons out. still feel to QX optimistic

Daniel Kurnos

the of around up point. know don't what's Versus just topic weigh on FSP helpful. the super in on you some to -- sort I of on DSP But it the larger kind That's that as obviously, going guess to I evolving if sort of care you're of who wrap given narrative with win. And competitors.

taken outperformed in You approach particular, a have your has platform and quarter. sell-side guys obviously every business,

not you and/or time. over of think platform or thoughts are an you're you adding it's I and outperform you comparison. I'm if side That's the balance know of But still the new where kind that think stages? early just which apples-to-apples the of guys in one about necessarily lies how will approach the of kind so your other publishers, in curious power or equation

Mark Walker

we XXXX, back Yes. we've actually economic buy approach think We I seen in XXXX, since that would say for platform more taken of you've into a of side. believed the and more side thesis us, sell move having that market in and domain. and the

on going we side, side. actually going ahead were for We of we multicultural the or think middle advantage but advantage. have works I think on market and is another buy strategy competitive or micro that niche the tail also we it, believe we the that would publishers that call the niche our what our long But sell we're of for for the to focused

advertise With side has and like trying being to those XX% think States ecosystem to multicultural that for the in the We the of the large reach our United into domain. audiences. those given in a favorable advantage publishers us advertisers adding sell

having strategy and unfold side seeing our to that actually side. think the a that implemented the like up with market seeing start sell And going we catching buy what platform the is is I strategy you're what XXXX. and in of back we So you're

Operator

in And next Pat McCann Noble we'll from Capital hear Markets.

Unidentified Analyst

I question the question. for with My This guess transition to first the servers. on is Mike Pat has twofold a new to do Kupinski. it's

as trailing -- cost your as with and servers? off to the those sort with the On hand, expectations other what on then seeing impacts regard new are on for far one redundancies for of here? you dramatically forth the so what's processing And the that positive the hand,

Mark Walker

Yes. Yes.

that to the last over We we've X.X we've to public. that level market years, years place. sure able order growth that maintain the for of felt us well in the being as make have the been of us that also experience required we to level some as in momentum profitability was like X maintain to the was redundancy able the the maintain way approach that perform it to prudent for company and have it what to been that, managing -- business Our has, to

So we the structure to those way designed point been, that XX% that way expect we for to and can so those has that the relationships the the business, we XX%, our margin which range. bring been we've we off the back tail in

So was immediate the see on margin believe to we that And side to of wanted business. expect give level we some and impact the sell have course, the to on what the of Street. expectation exceed correct -- guidance as itself -- they to in future. when it seen they can our what

able some we margin QX to and be manage grab make want to that sure out in to we'll go QX, figure Hopefully, expectations the on back but forward. how we of that

Unidentified Analyst

the also impacted you. maybe sort on when to which to on related about margin then by characterize publisher the margins could you the you but a the talk investments on between impact factors? side, sell is the Got also greater And being side mix, X technology margins those of the

Mark Walker

It's a growth business. place in that level of company the actually side on of redundancy sustainability our to put that the ensure the existed sell and of specifically we've

it see we a more redundancy of So play. as

business, why and we're margin about bullish there's feel impact So we there. like a don't that's still our

Unidentified Analyst

you. Got

yes, just X had Okay. And I question. final then

early returns audio processing that was began there? that medium? just gone wondering you are advertising. recently You I How And what the added since has

Mark Walker

We're point not will We're testing the definitely of out. you Yes. we let once guys do, But know. scale. still at that we

Operator

remarks. our hand for or no there time, the closing to are any I'll this additional questions. further At call speakers back

Mark Walker

Nothing from us.

So you. thank

Operator

your for participation And to that Holdings today. you conclude We call. Direct gentlemen, does Digital the ladies all thank and like would

Direct Digital (DRCT) 10 Aug 232023 Q2 Earnings call transcript