Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Direct Digital Holdings Inc (NASDAQ:DRCT) has resumed its normal reporting cadence after previous disruptions.
• The company has successfully resumed connections with major customers on its supply side platform, Colossus SSP.
• Direct Digital Holdings Inc (NASDAQ:DRCT) has implemented a cost-saving initiative and optimization strategy, resulting in a more diversified and efficient business model.
• The company entered into a $20 million equity reserve facility, enhancing financial liquidity and strengthening shareholder equity.
• Direct Digital Holdings Inc (NASDAQ:DRCT) announced the launch of Colossus Connections, aiming to optimize supply path efficiency and unlock more potential demand and revenue.

Negative Points

• Direct Digital Holdings Inc (NASDAQ:DRCT) experienced a significant revenue decline, with a 96% decrease in Colossus SSP revenue year over year.
• The company faced a major business disruption due to a false and defamatory blog post, impacting partnerships and client connections.
• There was a substantial decrease in gross profit and operating income, with a 70% drop in gross profit dollars and a 181% decrease in operating income year over year.
• Direct Digital Holdings Inc (NASDAQ:DRCT) reported a net loss of $6.4 million in the third quarter compared to net income in the same period of 2023.
• The company had to revise its full-year revenue guidance downward due to the impact of the defamatory statements and subsequent business recalibration.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with DRCT.

Q: Can you discuss the confidence in the marketplace after the tumultuous period, including the auditor change and the analytics report? A: Mark Walker, CEO: Confidence is being restored both in financial markets and with our partners. The quick transition to BDO as our auditor and timely public filings have helped. In the marketplace, feedback from major partners has been favorable, and buying patterns are picking up momentum. Many partners have stuck by us, and we're seeing incremental growth in spending levels each month.

Q: How does the diversification strategy look now, especially with the focus on third-party DSPs? A: Mark Walker, CEO: The total addressable market (TAM) remains the same, but the delivery mechanism is evolving. On the buy side, we're targeting new markets to increase our customer base. On the sell side, we're expanding connections with agency and brand partners. This diversification will be crucial for future growth.

Q: How do you view the opportunity in audience curation as publishers come back online? A: Mark Walker, CEO: Audience curation is a hot topic, and we plan to focus more on it around Q1 2024. We see opportunities to leverage partners for curation, and you'll hear more about this from us soon.

Q: Can you elaborate on the cost optimization strategy and when we might see results? A: Diana Diaz, CFO: We made staffing reductions and paused hiring to manage costs. We also reduced discretionary spending while rebuilding. We aim to remain lean as we rebuild over the next year, focusing on efficiency.

Q: What are the fixed cost implications of scaling infrastructure, particularly on the sell side? A: Mark Walker, CEO: Our business model allows us to scale up or down based on demand, which has helped us adjust costs and reach profitability faster. This flexibility is a key advantage and will support our growth into 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.