Direct Digital Holdings (DRCT) Q4 2025 earnings call transcript

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, our 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 8k and accompanying earnings release, which was filed on Wednesday, April 1st 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 a 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 digital's actual results to differ from its historical results and forecasts, including those risks set forth and direct digital filings of 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-GAP financial measures. These non-GAP measures are not prepared in accordance with generally accepted accounting principles.

Reconciliation of the non-GAP financial measures to the most directly comparable GAP measures is available in the earnings release. That direct digital filed in its form 8K 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 of 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 four-year bi-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 real-line structure and a clear strategy to drive returns for shareholders. Over the past year and a half, we've noticed a shift in the overall digital advertising market that prioritizes bi-side transactions as well as increasing demand from our customers for more accessible bi-side media.

During 2025, we began to lean into this demand, resulting in increased bi-side revenue which offered some early confirmation from what we're seeing in the market. That's forwarding to where we are today, bi-side revenue grew 28% on 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 continue to increase our focus on driving more digital marketing spend among our bi-side and new enterprise customers.

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

Specifically, Ignition Plus 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 and the end programmatic media technology stack. The result is centralized buying that enables brands to buy media instead of markups significantly increasing the value of their marketing budget. Ignition Plus 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 is 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're 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 improvement and ongoing cost discipline, positions us to return to positive platform growth and achieve break even or better quarterly performance by the second half of this year.

Thanks to all the hard work dedication and support from our team, we enter 2026 on full stride with the refresh and revitalize 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 supported 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 contacts on full-year trends where well then. 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. Bicyte revenue increased approximately 28% to $8.2 million compared to Bicyte revenue of $6.4 million in the fourth quarter of last year. Cell-side revenue was $200,000 in the fourth quarter compared to $2.7 million in the fourth quarter of last year. The decrease in cell-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 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 of $5.5 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 non-operational 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. Toggle cash plus our accounts receivable balance as of December 31st, 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. 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. Toggle cash plus our accounts receivable balance at the end of December 31st, 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. On December 30th, 2025, our Board of Directors and shareholders approved a 55 to 1 reverse stock split of all classes of our common stock, which was implemented on January 8th, 2026.

With that said, earlier today, we filed an 8K to disclose a receipt of a listing deficiency notice from NASDAQ regarding our stockholder's equity as of December 31st, 2025, as reported in our form 10K, which we filed last week. We're working closely with our team and advisors on next step 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 visual holdings and would like to now open the call for questions. Operator, please open the line.

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 two tier three media markets, and we're going to continue to expand there. We think that the opportunity we have, which allows us some flexibility is the opportunity to do that organically, which we 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 somewhat of what other people are saying, yet we think that the fact that we're able to serve a social as well as programmatic is important to us, and we're going to continue to focus in on both of those.

Got it. Thanks, Mark.

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 three and four. Now we're seeing where it's starting to maintain within quarters three and four. 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 to clarify, Michael, the fourth quarter included $1.7 million from customers in new verticals. And for the year, we have that number, but that was the fourth quarter was 1.7. It was about $7 million from new customers for the issue.

Yeah, 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 bi-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 the trend? Yes, we think Q1's going to be positive growth as well.

And we still hold two on the AO line spaces of 10% growth over year over years, what we're focused in on.

Yes, we're looking for a large enterprise customers that we can 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. We run test pilots within 2025 that we're hoping to come and fruition as full-blown customers within 2026. The KPIs that we look for there are going to be larger spin ratios that come from them at more shared margin opportunity for them due to the transparency.

Health care is one 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, or the other one.

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 half a million a quarter reduction.

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.