Direct Digital A Stock

Good day, everyone, and welcome to the Direct Digital Holdings Second Quarter 2026 Conference Call. As a reminder, this call is being recorded. At this time, I would like to hand things over to Walter Frank, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Direct Digital Holdings Second Quarter 2026 Earnings Conference Call. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Diana Diaz. Information discussed today is qualified in its entirety with the Form 8-K and accompanying earnings release, which has been filed today by Direct Digital Holdings, which may be accessed at the SEC's website and the company's website. Today's call is also being webcast, and a replay will be posted to Direct Digital's Investor Relations website.

Immediately following the speaker's presentation, there will be question and answer session. Please note that the 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 the basis of Direct Digital's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could cause Direct Digital's actual results to differ from its historical results and forecasts, including those risks set forth in Direct Digital's filings with the SEC, and you should refer to those for more information.

This cautionary statement applies to all forward-looking statements made during this call. During the call, Direct Digital will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release that Direct Digital filed in its Form 8-K today. I will now hand over the conference to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Thanks, Walter, and thank you to everyone joining our call today. I'll start by reviewing some of the highlights of our operations and financial results during the second quarter and first half of 2026. Before turning the call over to our Chief Financial Officer, Diana Diaz, for a more detailed look at our financial results, we'll conclude by opening the call for a brief Q&A. We saw encouraging progress in our core business during the second quarter. To recap, during the first quarter of 2026, we announced a comprehensive shift in our strategy that saw us aggregate our operations to a streamlined model to sharpen our focus on the areas where we believe we can create the greatest value for both our clients and our shareholders. We believe that by diversifying our pipeline, broadening our customer relationships and enhancing our product capabilities, we're positioning ourselves to drive more consistent, scalable long-term growth.

We successfully unveiled AI search and GEO offerings this past quarter and are seeing strong demand from current clients and prospective new clients as well as our AI support and web infrastructure technology services, which will both expand our addressable market. These products unlock new technology budgets and the technical upgrades we provide clients service performance multipliers that improves conversion performance and lowers cost to acquire for our new clients. We're seeing our technical expertise position us with clients as a comprehensive digital growth partner rather than just supporting the media needs and leaning into helping companies facing conversion bottlenecks. Demand is strong, but it's important to remember that we're still in the early stages of this shift.

Total revenue was down in the quarter related to decreased activity from our demand-side platform customers, which is expected as we continue to shift our strategy. In fact, excluding the impact of reduced spending from DSP customers, total revenue increased approximately 5% year-to-date when compared with the first 6 months of 2025. While these numbers seem small compared to our historical results, they are trending in the right direction. Our value proposition is heightened by complete alignment across our digital supply platform. We're technology and media agnostic and our clients rely on us to provide the best opportunity their brands and businesses to achieve enhanced market reach through strategic digital advertising.

Strong relationships we have built are evidenced in our client retention rate of approximately 80% among clients that represent approximately 80% of our revenue for the 6 months ended June 30, 2026. We still have a tremendous amount of work to do, but we're operating from a much stronger foundation and driving measurable results. Additionally, we have the flexibility to evaluate strategic partnerships and opportunities that complement and enhance the strength of our platform with the goal of driving shareholder value. As always, I sincerely appreciate your support of Direct Digital Holdings. I will now hand the call over to Diana Diaz, our Chief Financial Officer, who will walk through some of the financial highlights in further detail.

Thank you, Mark, and good evening, everyone. I'll now provide a review of our second quarter results with some commentary on year-to-date results where relevant. Consolidated revenue in the second quarter of 2026 was $7.8 million compared to revenue of $10.1 million in the second quarter of last year. As Mark mentioned, revenue declined in the quarter related to a decrease in spending by demand-side platform customers of $2.5 million. On a year-to-date basis, revenue of $14.5 million decreased compared to $18.3 million in the first half of last year. Excluding the decrease in sales to DSP customers of $4.5 million for the first half of the year, revenue grew about $700,000 or 5% year-over-year.

Gross profit was $2.7 million for the second quarter of 2026 or 34% of revenue compared with $3.6 million or 35% of revenue in the second quarter of 2025. Operating expenses in the second quarter of 2026 decreased 7% to $5.6 million compared to $6 million in the second quarter of 2025. Total operating loss for the second quarter was $2.9 million compared with an operating loss of $2.4 million in the second quarter of 2025. Net loss in the second quarter was $3.6 million compared to a net loss of $4.2 million in the second quarter of last year. And the adjusted EBITDA loss for the second quarter was $2.3 million compared with adjusted EBITDA loss of $1.5 million in the second quarter of last year. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $500,000 compared to $700,000 at the end of December 2025.

Total cash plus our accounts receivable balance as of June 30, 2026, was $3.2 million compared to $3.9 million at the end of 2025. Related to our current credit facility, we were not in compliance with certain financial covenants as of the end of the quarter. We are actively engaged with our lender and have requested a waiver. Discussions have been constructive. And while the process remains ongoing, our current focus is on improving operating performance and working toward a mutually acceptable resolution. We will provide further updates when appropriate. Our focus continues to be on driving operational efficiencies and managing the business with financial discipline, and we're strategically investing in the business to capitalize on opportunities and drive sustainable long-term growth. Now I'd like to turn it back over to Mark for some closing comments.

Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings and I would like to now open the call for questions. Operator, please open the line.

[Operator Instructions] Everyone, there are no questions. That does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Direct Digital Holdings' First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Walter Frank, Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Direct Digital Holdings' First Quarter 2026 Earnings Conference Call. On today's call are Direct Digital Holdings' Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Diana Diaz.

Information discussed today is qualified in its entirety with the Form 8-K and accompanying earnings release, which has been filed today by Direct Digital Holdings, which may be accessed at the SEC's website and the company's website. Today's call is also being webcast, and a replay will be posted to Direct Digital's Investor Relations website.

Immediately following the speaker's presentation, there will be a question-and-answer session. Please note that the 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 the basis of Direct Digital's views and assumptions regarding future events and business performance at the time they are made, and we do not undertake any obligation to update these statements.

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

During this call, Direct Digital will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release that Direct Digital filed in its Form 8-K today.

I will now hand the conference over to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Thanks, Walter, and thank you to everyone joining our call this morning. I'll start by reviewing some of the highlights of our operations and financial results during the first quarter of 2026 before turning the call over to our Chief Financial Officer, Diana Diaz, for a more detailed look at our financial results. We'll conclude by opening the call for a brief Q&A.

We remain focused on organically growing our sales pipeline by enhancing how we reach and support customers across a broader set of go-to-market channels. Alongside product innovation initiatives such as Ignition+, our sales teams are seeing encouraging engagement through expanded enterprise outreach, diversified combination of enterprise sales, inside and outside sales efforts, and new distribution and lead generation channels.

This multichannel approach is broadening our reach, improving sales efficiency and positioning us to drive more consistent, scalable growth over time. In March, we launched Ignition+, a unified, transparent platform for programmatic media built to maximize efficiency, reduce costs and combine AI-driven optimization with a proven team of experienced specialists.

Since launching, we've seen strong initial interest from mid-market enterprise clients who value the transparency and efficiency this platform offers and its ability to maximize the value of their marketing budget without compromising our transparency or scale. We believe that we are well positioned to benefit from this demand as we transition the interest we're seeing into long-term partnerships.

Importantly, Ignition+ combines the strength of our business across the entire advertising ecosystem and reflects a key strategic shift in focus as we continue to rebuild in the wake of the challenges that we faced over the last couple of years. We're executing on a new strategy to return to revenue growth by driving intentional digital marketing spend with current and future customers as well as mid-market and large enterprise customers understand the value our offerings can bring to their business.

We've aggregated our operations in a streamlined model that we believe position us to drive improved results as we scale. With a more streamlined operating model and a clear focus on our core strengths, we believe we are positioned to thoughtfully evaluate strategic opportunities that could complement our existing platform. While our primary focus remains execution and organic growth, we continually assess potential partnerships or acquisitions that align with our long-term objectives and shareholder value creation. As always, we sincerely appreciate your support of Direct Digital Holdings.

I will now hand the call over to Diana Diaz, our Chief Financial Officer, who will walk through some of the financial highlights in further detail.

Thank you, Mark, and good morning, everyone. I'll now provide a review of our first quarter results. Consolidated revenue in the first quarter of 2026 was $6.7 million compared to revenue of $8.2 million in the first quarter of 2025. Although revenue declined due to a decrease in spending by demand-side platform customers of $2 million, we saw an increase in spending by other customers of $500,000 or 8% over the prior year.

As Mark stated in his remarks and as we mentioned in our fourth quarter call, we have shifted our focus to driving intentional digital marketing spend with current and future customers historically classified by the company as buy-side customers as well as new enterprise customers accessing the digital advertising market through our recently launched Ignition+.

As part of this shift in focus, we have reassessed our reportable segments and determined that we have one reportable segment, digital advertising. This new focus to streamline operations is expected to enhance the customer experience and better reflects the economics of our current business where revenues reflect primarily contracts for managed advertising campaigns, which may or may not access curated publisher audiences managed by the company's sell-side platform.

Gross profit was $2.3 million for the first quarter of 2026 or 34% of revenue compared with $2.4 million or 29% of revenue in the last year. Operating expenses in the first quarter of 2026 decreased 13% to $5.5 million compared to $6.3 million in the first quarter of last year. Total operating loss for the first quarter was $3.3 million compared with operating loss of $3.9 million in the first quarter of 2025. Net loss for the first quarter of 2026 was $5.6 million compared to a net loss of $5.9 million in the first quarter of last year. Adjusted EBITDA for the first quarter was a loss of $2.6 million compared with adjusted EBITDA loss of $3 million in the first quarter of last year.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $800,000 compared to $700,000 as of the end of December 2025. Total cash plus our accounts receivable balance as of March 31, 2026 was $3.6 million compared to $3.9 million at year-end 2025. Our efficiency and cost reduction initiatives drove operating results that were in line with our internal expectations and exceeded analyst estimates in the quarter, demonstrating the progress we're making as we continue to execute on our strategy and goals.

We continue to manage the business with a strong emphasis on capital discipline, liquidity and cost control as we navigate our next phase of execution. While our focus remains on operating performance and organic progress, we believe it is important to retain flexibility to evaluate strategic opportunities that align with our long-term objectives, provided they meet our financial and risk return thresholds.

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

Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings. I would like to now open the call for questions. Operator, please open the line.

[Operator Instructions] Your first question with Dan Kurnos from StoneX.

Maybe a couple just fundamental questions. First, Mark, just on the -- are the DMOs seeing any budgetary pressure from where gas prices are right now? I mean it sounds like local travel is actually pretty healthy, all things considered. But just curious what you're seeing there. And then last time we talked about some category expansion. Obviously, we're starting to rescale the buy-side here, focus on the buy-side. Have your thoughts at all changed on sort of the opportunity set or your ability to kind of penetrate new verticals to get to the growth you want to see on the buy-side?

Yes. No, good question, Dan, and thanks for it. What we're seeing right now in the -- when it comes to the DMO marketplace and like local travel, we haven't seen a reduction or any kind of headwinds, if you will, in that marketplace. As a matter of fact, we're seeing it meet the expectations and what we anticipate to see for the go forward. So we still are pretty bullish on the DMO marketplace. We're looking at expansion in those markets and as well as we've been able to win new business in the DMO market space recently.

So we're feeling pretty optimistic about it and what we have seen in other historical downturns in the overall marketplace, when there has been some headwinds of the overall macroeconomic market, we actually have seen the local regional travel and tourism space actually become very resilient as people cut down on the airline travel and go mostly to driving. So that's what we're anticipating to see for this year during the vacation market. And so far, it's been holding up.

As it relates to your second question about category expansion. We continue to do a push into some of those new verticals, and we're starting to see some more success as we continue to push into those new verticals, we're attaching to as well as attacking. The way that we're looking at strategically going after new verticals, which is our goal for 2026 is twofold. One, we're looking at organic pushes into those new verticals. But then on secondly, we're also open to strategic partnerships and inorganic growth in order to actually grow and expand in those marketplaces, and we're still holding to that strategy for this year as well.

So if we just take that last point, Mark, and just dive a little bit deeper into that. Obviously, there's a lot of assets that are in similar positions to yours. Somebody's got to do something at some point, although PE sits on a bunch of stuff forever and eventually decides to make a move. Why are you the right aggregator? Do you have a facilitator? How are you -- how are conversations going? Anything that -- understanding that these are all sensitive processes and things never go as fast as you like, anything you can share in terms of timing or thought process there?

Yes. I mean in regards to timing, sooner is always better than later is the way that we like to think of it. It's never fast enough, especially when you talk about consolidation and strategic inorganic growth. We're actively in that marketplace. We're having active conversations literally every week. And as soon as we feel comfortable enough to announce anything, we're planning on doing so. But as of right now, the way that we view it, as you said, there's a significant amount of activity in the marketplace that we plan on being a part of it.

Our next question comes from Michael Kupinski with NOBLE Capital Markets.

I have a couple of questions. I was just wondering, have you noticed any difference in advertising behavior, for instance, have advertisers shortened campaign duration or reduced visibility, particularly into future spending? Anything of note there?

Nothing that's been noticeable as it relates to change in tactics. We are seeing a significant amount more interest in campaign performance and performance marketing where clients are anticipating and wanting to see a return on investment. However, the way that we have set up our internal processes at our organization, we have always had a mind towards metrics. And so we're just seeing a little bit more focus and some pencil sharpening, if you will, as it relates to performance, but it's nothing that we haven't been dealing with over the last few years and nothing that we can't manage. That's probably been the biggest turn that we have seen, I would say, starting at the end of last year to this year, but it's actually worked favorably for us.

Got you. And then obviously, the buy-side business had some pretty decent margins. And I was just wondering, what are the biggest drivers preventing EBITDA margins from returning to prior levels?

Yes. I think it's really more about the mix and I think what you will also see as it relates to margin growth, it's going to take a little bit more time for us to continue to expand those margins. But that has been in our growth trajectory over the next couple of quarters. So we think you're going to start seeing a mix change, if you will, as well as us working to get more efficient as it relates to our campaign management, which we anticipate we'll start seeing the results of that margin growth over the next few quarters.

And then how many -- are you seeing increased advertising demand for AI-driven campaign optimization at this point?

I would say people -- clients are still trying to get a better understanding and step their toes in the water as it relates to AI, specifically for campaign management. We have internal tools that we leverage and use on a consistent basis that we've seen that actually perform for us who provide a tech-enabled service. We think that, that's also an area where we're going to get more efficiency and margin optimization, if you will, out of campaign performance. And so we'll be passing those savings on to clients, which we think will benefit the entire value chain.

There are no further questions at this time. I will now turn the call back over to Mark Walker for closing remarks.

Thank you very much for joining the call, and we look forward to speaking to you next quarter. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Direct Digital Holdings Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] And I would now like to turn the conference over to Walter Frank of IMS Investor Relations. You may begin.

Good afternoon, everyone, and welcome to the Direct Digital Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Diana Diaz. Information discussed today is qualified in its entirety with the Form 8-K and accompanying earnings release, which was filed on Wednesday, April 1, by Direct Digital Holdings and may be accessed at the SEC's website and the company's website. Today's call is also being webcast, and replay will be posted to Direct Digital Holdings Investor Relations website.

Immediately following the speaker's presentation, there will be a question-and-answer session. Please note that the 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 the basis of Direct Digital's views and assumptions regarding future events and business performance at the time that they are made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could also cause direct actual results to differ from its historical results and forecasts, including those risks set forth in Direct Digital's filings with the SEC, and you should refer to those for more information. This cautionary statement applies to all forward-looking statements made during this call.

During this call, Direct Digital will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release that Direct Digital filed in its Form 8-K last week.

I will now hand the call over to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Thanks, Walter, and thank you to everyone joining our call this evening. I'll start by reviewing some of the highlights of our operations and financial results during the fourth quarter and full year before turning the call over to our Chief Financial Officer, Diana Diaz, for a more detailed look at our financial results. We'll conclude by opening the call for a brief Q&A.

For the full year, we reported $34.7 million in sales. While we saw a decrease in our sell-side revenue during the year, we grew full year buy-side revenue, maintained strong gross margins for the year and importantly, drove considerable efficiency and cost reduction in the business.

Finally, we made significant strides in improving our balance sheet.

We still have a lot of work to do, but I'm encouraged that many of our strategic initiatives position us very well as we move into 2026.

We're a focused, more nimble organization with a realigned structure and a clear strategy to drive returns for shareholders. Over the past 1.5 years, we've noticed a shift to the overall digital advertising market that prioritizes buy-side transactions as well as increasing demand from our customers for more accessible buy-side media.

During 2025, we began to lean into this demand, resulting in increased buy-side revenue, which offered some early confirmation from what we're seeing in the market.

Fast forwarding to where we are today, buy-side revenue grew 28% in the fourth quarter of 2025 compared to the fourth quarter of 2024, and has increased 10% year-over-year, supported by a combination of new and existing customers and the demand we're seeing across our verticals, including travel and tourism, higher education and energy to provide a few examples.

As we move through 2026, we'll continue to increase our focus on driving more digital marketing spend among our buy-side and new enterprise customers.

To this end, in March of 2026 we launched Ignition+, our AI-enabled programmatic media solution, which provides enhanced accessibility for large enterprise clients in the buy-side network. We'll also prioritize the transparency, efficiency and cost reduction through AI-driven optimization and side securation. We believe the launch of Ignition+ and our focus on driving digital marketing spend among buy-side and new enterprise customers will allow us to more nimbly address changing market dynamics and capitalize on the many emerging opportunities that we're seeing.

Specifically, Ignition+ takes the sell-side intelligence data and expertise that we've collected and built over many years within our Colossus business to inform supply side access and combines it with Orange 142's end-to-end programmatic media technology stack. The result is centralized buying that enables brands to buy media instead of markup, significantly increasing the value of their marketing budget. Ignition+ is supported by a team of on-demand programmatic experts and designed to focus on solutions for mid-market enterprise brands who have traditionally been forced to choose between transparency and scale when selecting an ad tech solution. This has streamlined operating structure that enables us to more efficiently go to market and drive value creation for our shareholders.

As a result of these changes, we are consolidating our operations into a single reporting segment beginning in 2026. We believe the streamlined structure, combined with the growth strategies we have put in place our restructured balance sheet, targeted operational improvements and ongoing cost discipline, positions us to return to positive platform growth and achieve breakeven or better quarterly performance by the second half of this year.

Thanks to all the hard work, dedication and support from our team, we entered 2026 on full stride with the refresh and revitalized strategy that allows us to expand our market share and meet the growing demands of both current and new customers.

As always, we sincerely appreciate your support of Direct Digital Holdings. We're encouraged by the many exciting opportunities ahead of us in 2026.

I will now hand the call over to Diana Diaz, our Chief Financial Officer, who will walk through some of the financial highlights in further detail.

Thank you, Mark, and good evening, everyone. I'll now provide a review of our fourth quarter results with some context on full year trends were relevant. Consolidated revenue in the fourth quarter of 2025 was $8.4 million compared to revenue of $9.1 million in the fourth quarter of last year. Buy-side revenue increased approximately 28% to $8.2 million compared to buy-side revenue of $6.4 million in the fourth quarter of last year. Sell-side revenue was $200,000 in the fourth quarter compared to $2.7 million in the fourth quarter of last year. The decrease in sell-side advertising revenue was primarily related to a decrease in impression inventory when compared to the fourth quarter of last year.

Gross margin for the fourth quarter of 2025 was 27% compared with 32% in the fourth quarter of last year.

Operating expenses in the fourth quarter of 2025 and were $6.7 million, a decrease of 12% compared with $7.7 million in the same period of last year.

On an annual basis, operating expenses decreased 18% to $25.2 million for the full year of 2025, a decrease of $5.4 million compared with operating expenses of $30.6 million in the full year of 2024.

Expense reduction remains a key strategic priority and we're pleased with the progress achieved in 2025. Total operating loss for the fourth quarter was $4.5 million, consistent with the fourth quarter of 2024.

Net loss for the fourth quarter was $12.6 million compared to a net loss of $6.6 million in the fourth quarter of last year. This year's quarterly net loss included nonoperational financing-related costs of $7.4 million.

Adjusted EBITDA for the fourth quarter of this year was a loss of $3.6 million compared with adjusted EBITDA loss of $3.4 million in the fourth quarter of last year.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $700,000 compared to $1.4 million at the end of last year. Total cash plus our accounts receivable balance as of December 31, 2025, was $3.9 million compared to $6.4 million at the end of last year.

Throughout the quarter and the year, we've taken several steps to enhance our balance sheet.

[Technical Difficulty]

Ladies and gentlemen, please stand by while we work through our technical difficulties. Ladies and gentlemen, thank you for your patience. We are now reconnected. Ms. Diaz, you may continue.

Okay. Thank you. Adjusted EBITDA for the fourth quarter was a loss of $3.6 million compared with adjusted EBITDA loss of $3.4 million in the fourth quarter of last year.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $700,000 compared to $1.4 million as of the end of last year. total cash plus our accounts receivable balance at the end of December 31, 2025, was $3.9 million compared to $6.4 million at the end of last year.

Throughout the quarter and the year, we've taken several steps to enhance our balance sheet, our capital structure and our access to capital. In the third quarter of 2025, we announced the issuance of $25 million of a new series of convertible preferred stock through the conversion of a portion of existing debt into the new class of perpetual convertible preferred stock.

In the fourth quarter, we issued an additional $10 million of Series A preferred stock and expanded our equity reserve facility by 50 million shares or $100 million. We raised a total of $7.3 million through the equity reserve facility in 2025. And on December 30, 2025, our Board of Directors and shareholders approved a 55:1 reverse stock split of all classes of our common stock which was implemented on January 8, 2026.

With that said, earlier today, we filed an 8-K to disclose a receipt of a listing deficiency notice from Nasdaq regarding our stockholders' equity as of December 31, 2025, as reported in our Form 10-K, which we filed last week. We're working closely with our team and advisers on next steps intended to bring us back into compliance, and we will provide material updates as they become available to us.

As we said before, our Nasdaq listing is a key asset that provides heightened visibility among institutional investors, which is foundational to our go-forward strategy to build and maintain a strengthened investor base. We will continue to prioritize our listing on Nasdaq and evaluate and take the necessary steps to preserve our status.

And now I'd like to turn it over to Mark for some closing comments.

Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings. I would like to now open the call for questions. Operator, please open the line.

[Operator Instructions] And our first question comes from the line of Dan Kurnos with Benchmark, a StoneX company.

I guess, I'll keep it quick here and just ask how should we think about the sell-side at this point, wind down, deemphasized, utilize your data?

And then subsequently, on the buy-side, as you guys pivot, just curious, as you think about channel expansion, COGS was up. You mentioned kind of your key priority categories was the specific categories, travel, the primary driver? Were there some ancillary categories that added? And just how do we think about your ability to scale up from the current base level based on the Q4 results.

Yes. Good question. Yes, twofold. One, the way we think of the sell-side business is really is a margin capture opportunity. As we've talked about before, we have moved more towards a unified structure where we leverage as much and try to run as much as we can of the buy-side demand dollars into our sell-side platform to the benefit of our customers. So I would view it as more of a margin capture strategy, which helps us capture an extra 20% to our bottom line with more -- that flows through there.

As it relates to how should we think about expansion and growth and growth accelerants, the expansion into new verticals is important to us. So as you know, Dan, since you've been following us for a while, the DMO/travel tourism space or regional and local travel tourism space is important to us, definitely a strong segment that we're continuing to see growth and opportunity there.

In addition to that, the education space has been strong for us with some of the educational clients that we've brought into the fold.

The third that we have had a heavy focus in is the energy sector, which is a new category that's helped us grow. We believe with the headwinds of the macroeconomic view that, that mix is a stable mix for our company and is 1 that we're going to continue to expand and lean into on a go forward.

In addition, for growth strategy, we're also exploring inorganic opportunities on the demand side of the business where we feel like we have a real opportunity to add on new verticals.

And just, I guess, as we think about new sources of revenue, obviously, right now, the space is super focused on the buy-side anyway on getting away from sort of the legacy DB Plus focused on CTV. You've got a bunch of DSPs focused on trying to drive dollars away from social and SMB is a huge talking point. You clearly have a lot of regional and smaller buyers. I understand you're not a DSP yourself, but I mean that seems to be where the buy-side is focused. I wonder if you guys can kind of tap into the trends that are going on in the space right now?

No. I think we've been ahead of the trend in the mid-market space. I think you're starting to see more and more players. As you know, some of the larger guys starting to move down into the mid-market space where we have a strong foothold, specifically in those Tier 2, Tier 3 media markets. So we're going to continue to expand there. We think that the opportunity we have, which allows us some flexibility as the opportunity to do that organically, which we've historically have proven that we can do. And I think we also are looking at inorganic opportunities that add different regions into our mix as well. We do believe that similar to what other people are saying, yes, we think that the fact that we're able to service social as well as programmatic is important to us, and we're going to continue to focus in on both of those.

And our next question comes from the line of Michael Kupinski with NOBLE Capital Markets.

First of all, congratulations on seeing the acceleration in the buy-side revenue. That's very encouraging. I was just wondering if you can just break down the sustainability of that 28% buy-side growth in Q4? You mentioned that it was driven by new customers and expansion with existing accounts. I was just wondering if you can just share with us how much was driven by the new customers versus the existing accounts?

Yes. In regards to new customers, I don't have that number off the top of my head on the specific percentage. But I can say that what we are seeing is with the new mix of customers that we have brought in, specifically in the energy sector, it is helping to change our typical curve that we have seen where we used to have the tail off between 3 and 4. Now we're seeing where it's starting to maintain within quarters 3 and 4. And so we anticipate that we're going to see that same type of curve within 2026. And that's really driven mostly from new customers that we brought into the fold for us.

And just to clarify, Michael, the fourth quarter included $1.7 million from customers in new verticals. And for the year, we had -- hold on to that number. But that was the fourth quarter was $1.7 million. It was about $7 million for new customers for the year.

For this year. That's terrific. And then how scalable is the current buy-side platform? And is there -- are there any bottlenecks to see some acceleration in the growth there? If I know you've main seeing some pretty decent margins there. I'm just wondering how sustainable those are?

Yes. So we're -- as we said before, we have actually more cost saving measures that are going to come into fold that we should see the benefit in Q2, which we're looking forward to, to help expand our margins some. We do believe that the buy-side still has more upside growth potential for us in regards to the expansion on current customers and the growth that we're seeing from them and then also new customers that we're bringing into the fold. So do we think we can maintain a trend? Yes, we think Q1 is going to be positive growth as well. And we still hold to on an annualize basis of 10% growth over year-over-year is what we're focused in on.

Got you. And then in terms of the traction or KPIs, can you kind of give us share us your thoughts about ignitions in the AI platform since its launch? If you can just give us some sense of what KPIs are you looking at there?

Yes. We're looking for large enterprise customers that we could bring in specifically under that program. We view it as more sizable, larger than our current average revenue per customer that we bring in on that, and we run test pilots within 2025 that we're hoping to come in fruition as full blown customers within 2026. The KPIs that we look for there are going to be larger spend ratios that come from them at a more shared margin opportunity for them due to the transparency.

Got you. And then you were speaking about inorganic growth going back to the buy-side, what kind of verticals are you looking at that would be interesting to you to add beyond the current scope of what you currently have in your verticals?

Health care is 1 that we're definitely have a keen eye on as well as some CPG to move us more in the retail space on those verticals as well. And then financial services, banking services is the other one.

Got you. And then you said that you're taking additional steps to reduce costs. Can you kind of just talk us through about what those additional steps might be? And if there's a dollar amount you might be able to put around that?

Yes. Diana, would you like to take that one?

Sure. So some of the cost reductions that we're looking at had been historically on the sell-side, and we have some contracts that are winding down in that business that we think we can live without. And so that's the bulk of it, it's probably starting in the second quarter about $0.5 million a quarter reduction.

And that concludes our question-and-answer session. I would like to now turn the conference back over to Mr. Mark Walker for closing remarks.

Thank you. That concludes our conference call for today. Thank you for participating. You may now disconnect.

Ladies and gentlemen, once again, this concludes today's call. We thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Direct Digital Holdings Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Walter Frank, Investor Relations. You may begin.

Thank you. Good afternoon, everyone, and welcome to Direct Digital Holdings Third Quarter 2025 Earnings Conference Call. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Diana Diaz. Information discussed today is qualified in its entirety with the Form 8-K and accompanying earnings release which has been filed today by Direct Digital Holdings, which may be accessed at the SEC's website and the company's website. Today's call is also being webcast, and a replay will be posted to Direct Digital's Investor Relations website.

Immediately following the speaker's presentation, there will be a question-and-answer session. Please note that the 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 the basis of Direct Digital'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 Direct Digital's actual results to differ from its historical results and forecasts, including those risks set forth in Direct Digital's filings at the SEC, and you should refer to those for more information. This cautionary statement applies to all forward-looking statements made during this call.

During this call, Direct Digital will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release that Direct Digital filed in its Form 8-K today. I will now hand the call over to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Thanks, Walter, and thank you to everyone joining our call this evening. I'll start by reviewing some of the highlights of our operations and financial results during the third quarter before turning the call over to our CFO, Diana Diaz, for a more detailed look at our financial results. We'll conclude by opening the call for a brief Q&A. We saw another period of encouraging growth in our buy-side segment during the quarter, with buy-side revenue increasing 7% to $7.3 million, which represented the majority of our consolidated revenue. Subsequent to the close of the quarter, we announced the first of its kind partnership between Orange 142, our buy-side subsidiary and ReachTV, an award-winning streaming network for live sports and lifestyle content reaching over 50 million travelers per month. This partnership combines the data-driven scale of ReachTV's travel media networks with Orange 142's media planning, buying and performance marketing expertise. Providing our buy-side business with new inventory and valuable data targeting segments.

Together, we're simplifying how brands reach the connected traveler through a scalable model that unites data, content and context to drive measurable results for travel and tourism marketers. During the third quarter, our sell-side revenue was negatively impacted by lower-than-anticipated impression inventory and engagement levels as we continue working to rebuild publisher relationships and onboard new customers. However, we're taking a differentiated approach to this rebuild, one that leverages our unique position as one of the few companies operating at scale on both sides of the programmatic ecosystem. We're developing integrated solutions that combine our supply-side platform technology capabilities with Orange 142's demand-side marketing expertise, creating a full stack offering for clients.

This dual approach can deliver tangible cost savings to customers by streamlining the programmatic supply chain while also allowing us to capture incremental margin that wouldn't be possible with the single-sided model. We're currently in alpha testing with select clients generating revenue, which fueled our quarter-over-quarter increase in buy-side revenue and early feedback has been positive. We believe this strategy positions us to grow company revenue in a more sustainable and profitable way. As many of you already know, over the last year, we faced considerable external challenges related to our sell-side business, Colossus SSP that resulted in the restructuring of teams and rethinking how we operate.

A silver lining of this is that it accelerated our adoption of AI for the sell side of our business. Today, we're leveraging AI to drive innovation and agility to better position ourselves to win new opportunities. And though we're still in the very early stages, we're already seeing some encouraging results. Our overall feature set grew by nearly 40% this year, driven by the creation of 10-plus new AI modules that support both internal operations and clients. What once took months can now happen in days, projects that previously required 8 to 9 engineers and nearly a year to build now take a few weeks or less to reach testing.

We've achieved hundreds of thousands in annual savings through automation and streamlined infrastructure. These efficiencies allow us to reinvest more into innovation and client value. These results are driven by our phased approach to building smarter technology. Using AI and real-time analytics, we've optimized how ad requests flow through Colossus. Now we're taking that optimization a step further, moving it to the edge of our infrastructure where requests first enter the system. This shift allows us to eliminate nonperforming traffic before it even reaches our servers, dramatically improving efficiency and reducing costs.

Building on these breakthroughs, we're preparing a new suite of AI tools that will empower our existing clients in ways that weren't possible before while supporting new customers. These are just the first steps in our AI journey, and they've already shaped -- reshaped what's possible for our company. AI now touches every part of how we operate from development and analytics to decision-making and optimization.

Finally, we continue to drive improved operational efficiencies and cost savings. Year-to-date in 2025, we've delivered total reduced operating expenses by $5.4 million or an approximately 20% decrease in expenses compared to the first 9 months of 2024. So we're seeing meaningful progress [Technical Difficulty] we recognize that this has been a challenging period for our business and our shareholders, and we remain steadfast in our stated goals and strategy to rebuild and grow our business back to the strong year-over-year revenue growth that we drove consistently from 2018 through 2023 prior to the short attack. I will now hand the call over to Diana Diaz, our CFO, who will walk through some of the financial highlights in further detail.

Thank you, Mark, and good evening, everyone. I'll now provide a review of our third quarter results. Consolidated revenue in the third quarter of 2025 was $8 million compared to revenue of $9.1 million in the third quarter of 2024. Sell-side revenue was $600,000 in the third quarter compared with $2.2 million in the third quarter of 2024. The decrease in sell-side advertising revenue was primarily related to a decrease in impression inventory when compared to the third quarter of 2024. Buy-side revenue increased approximately 7% to $7.3 million compared to buy-side revenue of $6.8 million in the third quarter of 2024.

Gross margin for the third quarter of 2025 was 28% compared with 39% in the third quarter of 2024. Operating expenses in the third quarter of 2025 were $6.1 million, a decrease of 25% or just over $1 million compared with $7.2 million in the same period of last year. The reduction is primarily related to a decrease in general and administrative costs. Expense reduction is a key strategic initiative for Direct Digital, and we're pleased with the progress that we've made so far. Our long-term goal is to efficiently minimize our cost structure while simultaneously driving growth across our business. Total operating loss for the third quarter was $3.9 million compared to a loss of $3.7 million in the same period of last year.

Net loss in the third quarter improved to $5 million or $0.24 per share compared to a net loss of $6.4 million or a loss of $0.71 per share in the third quarter of 2024. Adjusted EBITDA for the third quarter was a loss of $3 million, essentially consistent with the adjusted EBITDA loss of $2.9 million in the prior year period. Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $900,000 compared to $1.4 million as of December 31, 2024. Total cash plus accounts receivable balances as of September 30, 2025, was $4.5 million compared to $6.4 million at the end of 2024.

We remain focused on strengthening our capital structure through multiple financing pathways. During the third quarter, we successfully converted $25 million of existing debt into Series A convertible preferred stock, substantially improving our shareholders' equity position and enhancing our financial flexibility. This momentum continued after quarter end with an additional $10 million debt-to-equity conversion completed on October 14, 2025.

We've also enhanced our capital access by expanding our equity line of credit facility to $100 million, a $50 million share increase in late October. Since the program's November 2024 inception, we've raised $8.9 million through this facility and the expansion provides meaningful additional financing capacity to support our strategic objectives. Now I'd like to turn it back over to Mark for some closing comments.

Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings, and we would like to now open the call for questions. Operator, please open the line.

[Operator Instructions] Our first question comes from the line of Dan Kurnos with Benchmark Company.

Mark, obviously, not the sell-side result you were looking for. We had talked about direct integration. There's a lot of noise in DSP [ land ] right now with Trade Desk basically prioritizing OpenPath, and they're obviously a big DSP partner could be. Do you think Amazon is making a bunch of noise? How do we think about your willingness to kind of pursue the historical business model in direct connect and drive volume from the DSP universe through Colossus. And then subsequently, you talked about this platform approach. Obviously, Orange 142 linking up and keeping everything sort of in the ecosystem makes a lot of sense, but you have to be able to drive both advertiser demand and publisher access and inventory to make the ecosystem grow. So just help us get a little bit more clarity on the thought process there.

Yes. No, good question, Dan. So we see it as a combination of both. So we think the traditional business model of working directly with DSPs, we still see that as a viable path. We think that some of the Tier 2 DSP partners that are out there are still interested in partnering. And then some of the Tier 1s are still interested in partnering and see that as a viable option. However, for the company and the way that we're viewing our go-forward strategy, more of the ecosystem platform play, we're making more investments going down that path. And that's where we have already started testing and starting to see favorable results and favorable feedback from our clients and doing some level of cost savings that we're able to provide to them. So we think that, that it's going to be for us, multiple revenue streams into the SSP for the go forward, and we're looking for more opportunities and exploring different ways to continue to drive revenue through the SSP that we actually have autonomy to control.

And do you have the -- on the -- from the buy-side perspective, we've talked about category expansion, vertical expansion. As you kind of go through this platform approach evolution, it change your go-to-market? Does it change your ability to reach out to the buy side and suggest, hey, you can get better SPO, you can get better yields, you can get better return, ROAS effectively for the buy side anyway by running this platform approach? And how receptive have advertisers been to the new go-to-market?

Yes. So far, the advertisers have been -- the ones that we're in alpha testing with have been pretty favorable with that approach. And then the test that we've run, they've seen the benefit from a performance perspective and also from a ROAS perspective. So the way that we're viewing it, we've -- it's one side of our business that we've been very strong on, and that is really the revenue generation side for our buy-side business. And so we're going to continue to push towards that where we see the top of the funnel to run more dollars in revenue to the bottom of the funnel. And then for us, maintaining the publisher relationships is important. So we're continuing to focus on that as well.

And just any color -- additional color you can give us on the Orange 142 and ReachTV partnership. You flagged it. I think it's interesting. It's kind of an adjacent into travel, which you guys already have some tourism there. So I don't know if you would consider that sort of an add-on to where you already are or if we should be looking for more of these kinds of partnerships in the future where you guys get creative with your platform?

Yes. The ReachTV partnership, we view that as being strategic in nature. We have roughly about [ 70 ] partners that are in the DMO advertising space. And so having a ReachTV with the data platform that they have and also, I would say, the RTM component that they actually have in many of the different airports across the United States and specifically concert that they have, we saw that as being strategic in nature and a real complement to the advertisers that are already buying with us already. So yes, we are planning on continuing to find opportunistic opportunities like ReachTV, but we felt like this one was definitely important for our platform.

And your next question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Just a couple of questions. You indicated that there was $2.1 million in revenue from new verticals in the buy-side in the latest quarter. And if I just extract that revenue out in the quarter, it seems like there's quite a bit of attrition. And I was just wondering if you can maybe provide a little color on where we saw the weakness. Was it particular customers, verticals? Maybe just add some color there.

Yes. So for us, the way that we viewed it, we definitely are going after new verticals. We're taking a strategy of going after larger customers and purposely avoiding customers that might be a little bit smaller in nature just due to the churn and internal resources that's required to manage. So strategically, we saw it as being valuable to go after different industries and different verticals and go after larger customers in those industries.

And did those larger customers then have higher margin, I would assume? Or maybe can you give us a flavor on what those larger customers brought to the table?

Yes. They bring more stability as they are performance-based customers. And so therefore, it's tied directly to results and then we like holding ourselves accountable to deliver on performance. So be a performance-based marketing and be a performance-based clients, we view those as being stickier in the long run.

Got you. And then in terms of -- obviously, you guys have been aggressively rightsizing the business and focusing on your higher-margin buy-side business. I was just wondering if you can kind of give us your thoughts of when you might see the inflection point towards positive cash flow?

Yes. Yes. We believe 2026 is going to be a positive cash flow year for us. We continue to find optimization opportunities to reduce costs, specifically around the sell-side. We want to rightsize that business to be able to baseline it and then return to growth, if you will for that business -- I mean, I'm sorry, for the sell-side. Buy-side business is quite profitable for us and continues to be -- maintain that profitability. And so we believe really, we could keep streamlining the sell-side business as well as work on top line performance and more of this ecosystem approach, which we saw favorable results in Q3, we believe that 2026 will be a cash flow positive year for us.

I was curious, given the fact that your buy-side business carries much improved margins that -- and that with the results that you saw in this quarter, particularly the number of customers you say increased 5%, but yet revenues declined 70%. Why wouldn't you just concentrate most of your effort on the buy-side instead of trying to rebuild and put so much effort into the sell-side?

Yes. I think what you're pointing to is just the revenue issue with the sell-side of our business. The reason we like the sell-side of the business is because once you get past the breakeven point, the operating leverage is actually quite favorable, where every incremental 20% actually falls to the bottom line. So for us, being able to figure out how to get back to profitability on the sell-side business helps the overall profitability of the entire entity, and that's really what we're going for.

And then final question. I'm sorry.

Michael, a lot of the things that we've been doing with AI are allowing us to grow on the sell side without significantly increasing our fixed cost to meet that capacity. So that's the positive part of being able to generate higher revenue on the sell-side.

Fair enough. And then obviously, you made -- mention and did a lot of financings and a lot of opportunities to raise equity and so forth. Can you just kind of give us some thought about with the recent financings and so forth, where does the company stand? Are you at positive shareholder equity at this point? Or can you kind of just give us your thoughts on where you stand at this point?

Yes. So we completed another conversion of debt to preferred after the end of the quarter of $10 million. So we believe we're definitely positive after the end of the quarter.

And there are no further questions at this time. Mark Walker, I turn the call back over to you.

Thank you. And if there's no further questions, that concludes our conference for today. Thank you for participating. You may now disconnect.