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Operator: Good afternoon ladies and gentlemen and welcome to the Direct Digital Holdings’ First Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. [Operator Instructions] This call is being recorded on Thursday, May 11, 2023. I would now like to turn the conference over to Brett Milotte. Please go ahead.

Brett Milotte: Good afternoon, everyone, and welcome to Direct Digital Holdings first quarter 2023 earnings conference call. My name is Brett Milotte, and I’m representing Direct Digital Holdings from ICR. On today’s call are Direct Digital Holdings’ Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Susan Echard. Information discussed today is qualified in its entirety from its Form 8-K and accompanying earnings release, which have been filed today by Direct Digital Holdings, which may be accessed through the SEC’s website and DRCT’s website. Today’s call is also being webcast and a replay will be posted to DRCT’s Investor Relations website. Immediately following the speakers’ presentation, there will be a question-and-answer session.

Please note that statements made during the call including financial projections or other statements that are not historical in nature, may constitute forward-looking statements. These statements are made on basis of DRCT’s views and assumptions regarding future events and business performance at the time they are made. We do not undertake any obligation to update these statements. Forward-looking statements are subject to risks which could cause DRCT’s actual results to differ from its historical results and forecasts, including those risks set forth in DRCT’s filings with the SEC. You should refer to and carefully consider these for more information. This cautionary statement applies to all forward-looking statements made during this call.

Do not place undue reliance on any forward-looking statements. During this call, DRCT will be referring to non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available on the earnings release of DRCT filed in Form 8-K today. I will now hand over the conference call to Mark Walker, Chief Executive Officer. Mark?

Mark Walker: Thanks, Brett, and thank you to everyone joining our first quarter 2023 earnings call. I’m once again proud to report strong financial results and operational performance to start off 2023. While Q1 is typically our seasonally slowest quarter, we saw strong top line growth across both our sell side and buy side businesses as well as considerable increases in market share. Our open marketplace CPM platform continues to benefit as middle market businesses look for less expensive, less restrictive, more accessible and more representative advertising solutions. In Q1, 2023, a revenue increased to 21.2 million, an increase of 9.9 million or 87% over the 11.4 million in the same period of 2022. Adjusted EBITDA for the quarter was 0.5 million compared to 1.1 million in the same period of 2022.

As Susan will explain in more detail shortly, we did see some onetime expenses this quarter driven by unusual events as well as higher expenses year-over-year associated with being a new public company. Our revenue this quarter was driven by strong performance by both our buy side and sell side advertising segments, which saw record growth. We’re pleased to report an increase in revenue growth of 149% and 28% respectively, over the same period of 2022. In the first quarter, our sell side advertising segment processed approximately 207 billion monthly impressions an increase of 130% over the same period of 2022. In addition, the company’s sell side advertising platform received over 6 billion bid responses in the first quarter of 2023, an increase of over 81% over the same period in 2022.

Through 153,000 advertisers for the quarter, which is 121% increase over the same period in 2022. We saw a new publisher customer in DSP wins, notably with the additional publisher gourmet ads, which has 3.5 billion monthly requests, along with other niche publishers to grow our overall impression count. In Q1 we also expanded offerings to include audio within SSP and our testing some new DSPs currently. As mentioned on the buy side, our businesses also saw record growth growing 20% year-over-year in serving approximately 231 customers an increase of 3% compared to the same period of 2020. Orange 142 launch campaigns for visit Tucson and Spokane airport, while Huddled Masses saw its highest single revenue month ever in March. During the quarter we saw a number of achievements, a few of which I want to highlight today.

Operationally starting in Q4, 2022 and continuing into Q1 of 2023 we made considerable progress with our server transition to HP green light in our overall replatforming strategy, all the while maintaining business growth and capturing incremental market share. On the corporate side we continue to fortify our personnel with the strategic board appointment. In January advertising industry pioneer [indiscernible] joined our board of directors, bringing more than 20 years of experience in digital performance and brand marketing following successful 10 years as the CMO of [indiscernible]. Turning to the remainder of 2023. We believe the current market dynamics are favorable for direct digital holdings, as we see an increase in media spend being targeted to reach growth and multicultural audiences.

While simultaneously middle market companies are moving dollars away from traditional media spend to digital. As a company our primary focus for the years to continue our strong growth trajectory and we are reaffirming our estimate as disclosed in our year end 2022 update of 118 million to 122 million in top line revenue. I will now hand things over to Susan Echard who is going to walk you through some of the financial highlights in further detail.

Susan Echard: Thank you. As Mark stated, our revenue increased to 21.2 million in the first quarter of 2023, an increase of 9.9 million or 87% over the 11.4 million in the same period of 2022. Seasonality in our business results in the first quarter typically being our lowest quarter of the year. Our sell side advertising segment had a strong first quarter and drove the majority of this increase. Colossus grew to 13,8 million for Q1 and contributed 8.3 million of the increase or 149% over the 5.5 million in the same period of 22. Our SSP continues to increase publisher partner engagements, in addition to increasing our impression monetization. For the first quarter of 2023 our buyside businesses Orange 142 and Huddled Masses grew 28% year-over-year and contributed 1.6 million of our increase, finishing the quarter with 7.4 million in revenue compared to 5.8 million in the same period of 2022.

The increase was primarily a result of driving higher spending, as well as new middle market customer acquisition. For the first quarter of 2023 gross profit dollars were 6.4 million compared to 4.8 million for the first quarter of 2022 an increase of 1.6 million as a result of higher overall revenue. Primarily as a result of our revenue mix gross margins for the first quarter of 2023 were approximately 30% compared to 42% in the same period of ’22. These margin results are in line with our margin expectations given the rate of accelerated growth in our sell side advertising segment and the resulting mix in our revenue profile. Our sell side segment whose revenues grew as a percentage of our overall revenue has a lower gross margin than our buyside segment.

In Q1, ’22, the revenue mix was approximately 51% buy side, 49% sell side well in Q1 of ’23 the mid profile was 35% buy side and 65% sell side. The buy side advertising segment gross margins were 60% for the first quarter of ’23 compared to 65% in the first quarter of ’22. This range for the buy side margins are in line with our expectations as the mix and timing of the customer campaigns can impact this result. The sell side advertising segment gross margins were 14% for the first quarter of ’23, compared to 18% in the first quarter of ’22. As the business segment continues to grow, this slight reduction in the margins are due to continued investment in our technology and our overall mix of publishers. With respect to the operating leverage of the SSP programmatic business this higher revenue results in higher dollar EBITDA contribution by the sell side segment.

Operating expenses increased to 6.6 million in the first quarter of 2023 or an increase of 2.4 million over the 4.2 million of expenses in the first quarter of 2022. Since our IPO in February of ’22 the company has increased its headcount over the course of the year, with strategic headcount primarily added in our sales and operations personnel. We have also added individuals to our shared services area. In total, these additions represented represented approximately 45% of our operating expense increase in the first quarter. The general and administrative costs increased 1.3 million to 2.9 million in the first quarter of 23, compared to the 1.6 million in the same period of 22. Included in general and administrative expenses, our quarterly onetime expenses totaling approximately 0.5 million or $0.03 per share associated with ongoing transition to HPE Greenlake incremental growth opportunities for the company servers and additional one time company expenses.

In addition to this onetime costs in G&A we also saw a loss from the early termination of the Silicon Valley Bank line of credit. And these costs in total were approximately 0.8 million or $0.05 per share, which has an impact on our net loss results for the quarter. Net loss was 1.3 million in the first quarter of 2023, compared to a net loss of 0.7 million in the same period of 2022. We believe that evaluating the impact of these onetime charges on earnings per share provides a useful measure of the company’s operations, allowing better evaluation of underlying business performance and better comparability to previous periods. Our organic growth year-over-year is measured by our buy side and sell side operating income results. The operating income of our business segments for the first quarter of 2023 was 2.8 million, compared to operating income of the segments of 1.7 million in the same period of ’22, an increase of 61% year-over-year.

For the first quarter adjusted EBITDA was 0.5 million, compared to 1.1 million in the first quarter of 2022, impacted by the aforementioned onetime expenses seen in the quarter. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of 6.7 million, an increase of 2.7 million from the 4 million as of December 31, 2022. As we previous disclosed on January 9, 2023, we entered into a loan security agreement with Silicon Valley Bank, which provided for revolving credit facility. On March 13, we issued a notice of termination of the loan agreement, which was subsequently terminated. We are currently working towards a new line of credit facility and expect to have a new agreement in place in the near future. Based on our expectations of cash flow from operations and the available cash held, we believe we will have sufficient cash resources to finance our operations and service any debt obligations until at least the end of fiscal year 2023.

On April 21, 2023, the company filed a registration statement on form S-3 with the Securities and Exchange Commission which was subsequently declared effective by the SEC. This perspective will allow the company to issue from time to time at prices and on terms to be determined at or prior to the time of the offering up to 300 million in aggregate principal amount of our class A common stock, preferred stock, debt securities, warrants, and our units in one or more offerings. The company is not currently engaged in any transactions that would utilize the shelf registration statement. But the form S-3 provides us flexibility for a variety of potential strategic initiatives, and is considered good corporate housekeeping following our year end anniversary as a public company.

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

Mark Walker: Thank you, Susan. And thank you to everyone for joining. We sincerely appreciate your interest in direct digital holdings, and are looking forward to your questions.

Brett Milotte: We’re now going to open the line for some questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of [indiscernible] from ROTH MKM. Please go ahead.

Operator: Thank you. Your next question comes from the line of Daniel Kurnos from Benchmark. Please go ahead.

Operator: Thank you. Your next question comes from the line of Edward Reily from EF Hutton. Please go ahead.

Operator: Thank you. Your next question comes from the line of Michael Kupinski from NOBLE Capital Markets. Please go ahead.

Operator: Thank you. That will be for our last question. Thank you so much presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.