Earnings call transcript: Direct Digital Holdings Q2 2025 reports mixed results

Direct Digital Holdings reported its Q2 2025 earnings, revealing a net loss of $4.2 million, or $0.23 per share, against a revenue of $10.1 million. The company’s performance showed a significant decline in sell-side revenue year-over-year, but an increase in gross margin and a reduction in operating expenses offered some positive news. Meanwhile, the stock saw a modest 0.49% increase in the aftermarket session. According to InvestingPro data, the company operates with a significant debt burden and has been quickly burning through cash, with a concerning current ratio of 0.51.

Key Takeaways

• Direct Digital Holdings reported a net loss of $4.2 million, with an EPS of -$0.23.
• Revenue for Q2 2025 was $10.1 million, down from $11.7 million in Q2 2024.
• Gross margin improved to 35% from 27% year-over-year.
• The stock price saw a slight increase of 0.49% after earnings release.
• The company withdrew its previous revenue target for 2025 due to ongoing challenges.

Company Performance

Direct Digital Holdings faced a challenging quarter with a decrease in consolidated revenue to $10.1 million, down from $11.7 million in the same quarter last year. The sell-side revenue saw a significant drop to $2.5 million from $14.3 million, while buy-side revenue slightly increased to $7.7 million. Despite these challenges, the company achieved a sequential revenue growth of 24% and a 25% reduction in operating expenses.

Financial Highlights

• Revenue: $10.1 million (↓ from $11.7 million YoY)
• EPS: -$0.23
• Gross Margin: 35% (↑ from 27% YoY)
• Net Loss: $4.2 million
• Adjusted EBITDA Loss: $1.5 million
• Cash and Cash Equivalents: $1.6 million

Earnings vs. Forecast

Direct Digital Holdings did not meet the revenue forecast of $18.23 million, reporting $10.1 million instead. The EPS forecast was -$0.05, but the actual EPS was -$0.23, indicating a larger-than-expected loss. This miss reflects ongoing challenges in the company’s operations and market conditions.

Market Reaction

Following the earnings announcement, Direct Digital Holdings’ stock experienced a 0.49% increase in the aftermarket session, closing at $0.61. This movement reflects investor sentiment that, while the earnings report showed challenges, there were positive signs in terms of cost management and future potential. InvestingPro data shows the stock has fallen significantly over the past year, with a beta of 6.02 indicating high volatility. The stock is currently trading near its InvestingPro Fair Value, suggesting a balanced valuation despite recent market challenges.

Outlook & Guidance

The company withdrew its previous revenue target of $90-110 million for 2025, citing macroeconomic uncertainties and slower integration of DSP partners. However, Direct Digital Holdings remains optimistic about stronger performance in the second half of 2025, focusing on buy-side activities and sell-side recovery.

Executive Commentary

CEO Mark Walker highlighted, "We will grow likely substantially in the back half of the year, but it now looks unrealistic that we will meet that target." He also noted, "An unexpected benefit to our belt tightening has been increased innovation, including the use of artificial intelligence."

Risks and Challenges

• Macroeconomic uncertainty continues to impact business operations.
• Slow integration of DSP partners could delay revenue recovery.
• The company faces challenges in rebuilding sell-side business relationships.
• Seasonality and market saturation may affect future performance.
• Operational restructuring and staff reductions pose potential risks.

Q&A

During the earnings call, analysts inquired about the integration timeline of DSP partners and the company’s strategic focus on direct connections. Executives acknowledged the integration challenges but expressed confidence in the positive movement in advertiser quantity and publications.

Full transcript - Direct Digital Holdings Inc (DRCT) Q2 2025:

Karen, Conference Operator: Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Direct Digital Holdings Second Quarter twenty twenty five Call. I will now turn the call over to John Lisbeth from Investor Relations. Please go ahead.

John Lisbeth, Investor Relations, Direct Digital Holdings: Good afternoon, everyone, and welcome to Direct Digital Holdings’ Second Quarter twenty twenty five 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 eight ks 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 on Direct Digital’s Investor Relations website. Immediately following the speakers’ 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 Securities and Exchange Commission, and you should refer to those for more information. This cautionary statement applies to all forward looking statements made during the call. During this call, Direct Digital will be referring to non GAAP financial measures.

These non GAAP measures are 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 of Direct Digital filed in its Form eight ks today. I will now hand over the conference call to Mark Walker, Chief Executive Officer. Please go ahead, Mark.

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Thanks, John, 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 second quarter 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 and A. Our focus in the 2025 has been on rebuilding and growing our business back to historical revenue levels and profitability. To that end, we saw encouraging progress in the quarter, underscored by sequential revenue growth of 24% and enhanced adjusted EBITDA when compared with the 2025.

Our buy side segment demonstrated modest growth year over year, which contributed to improved gross profit margins of 35% in the quarter and on the sell side, we continue to build back from the pause in several key sell side relationships back in May 2024. These partners have since resumed their relationships, but it will take some time for us to restore sell side revenue to previous levels. With the disruption now behind us, we’ve set our sights firmly on what’s ahead for our business. As I mentioned, buy revenue increased slightly in the quarter. Our buy side segment has a lower cost of revenue than the sell side, which is reflected in our improved gross margins in the first half of this year.

We’re intent on driving enhanced growth in this segment going forward as we execute on our revenue diversification strategy. Our sell side business is showing encouraging progress as we work diligently to rebuild this part of our business. Historically, our sell side business was the key driver of our revenues and profitability. The sell side drove the double to triple digit annual consolidated revenue growth we achieved from 2018 through 2023. Looking ahead, Direct Connections are a key priority for our sell side segment and the main driver of our return to historical revenue levels.

Colossus Connections, which we launched in the 2024 to accelerate integration efforts with leading demand side platforms is performing well and we’ve added several mid and top tier DSP partners who are near completion with integration. As we stated last quarter, we expect to see the full impact on our revenues once integration is completed in the 2025. While last year’s disruption impacted our trajectory, we’re confident that we’ve placed the foundational pieces to put our business back on the path to enhance growth, value and profitability. So the back half of the year should be strong driven by enhanced buy side activity through Orange one hundred forty two and the ongoing recovery of the company’s sell side business as it rebuilds to historical levels. We had previously laid out a revenue target range of 90,000,000 to $110,000,000 for 2025.

We will grow likely substantially in the back half of the year, but it now looks unrealistic that we will meet that target. For the time being, we’re going to abstain from providing specific revenue guidance given some uncertainties in the macro environment and the specific timing around integrating DSP partners via Colossus connections. We will revisit providing revenue guidance as we get better visibility on the growth of the sell side of the business. Our cost savings initiatives remain a priority as reflected in a 25% reduction in total operating expenses in the second quarter compared to the prior year. We continue to strategically evaluate our cost structure and expenses to maximize efficiencies and support the long term growth of our business.

An unexpected benefit to our belt tightening has been increased innovation, including the use of artificial intelligence or AI to supplement our reduced staffing levels during the time of rebuilding. 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.

Diana Diaz, Chief Financial Officer, Direct Digital Holdings: Thank you, Mark, and good evening, everyone. I’ll now provide a review of our second quarter results. Consolidated revenue in the 2025 was $10,100,000 a decrease of $11,700,000 compared with revenue of $21,900,000 in the second quarter of last year. Sell side revenue was $2,500,000 in the second quarter compared with $14,300,000 in the 2024. The decrease in sell side advertising revenue was primarily related to a decrease in impression inventory when compared to the 2024, which we attribute to the unexpected business disruption amongst our partners, advertisers and clients in May 2024 caused by a market discredited blog post against our supply side platform, Colossus SSP.

Buy side revenue of $7,700,000 increased slightly from $7,600,000 in the 2024. While consolidated revenue was down year over year, revenue increased sequentially by 24% over the 2025, demonstrating our progress and our efforts to rebuild our business back to historical revenue levels. Gross margin for the 2025 increased to 35% compared with 27% in the 2024. This increase in gross margin was primarily attributable to our revenue mix as our buy side, which has a lower cost of revenue, comprised the majority of our consolidated revenue in the quarter. Operating expenses in the 2025 were $6,000,000 a decrease of 25% or just over $2,000,000 compared with $8,000,000 in the same period of last year, primarily related to a staff reduction and internal reorganization program that we made effective on 07/01/2024.

As Mark said, expense reduction remains a key priority for our business, and we continue to strategically evaluate ways that we can efficiently minimize our cost structure while continuing to drive growth. Further, scarcity of personnel resources has contributed to increased innovation throughout our organization as we continue to rebuild. We believe this will make us stronger in the long run. Total operating loss for the second quarter was $2,400,000 compared to a loss of $2,100,000 in the same period of last year. Sequentially, operating loss decreased by 38% from $3,900,000 in the 2025.

Net loss in the second quarter was $4,200,000 or $0.23 per share compared to a net loss of $3,100,000 or a loss of $16 per share in the second quarter of last year. Adjusted EBITDA for the second quarter was a loss of $1,500,000 compared to an adjusted EBITDA loss of $1,300,000 in the second quarter of last year. Importantly, our second quarter twenty twenty five adjusted EBITDA loss improved significantly on a sequential basis compared with $3,000,000 in the 2025. As we continue to make strides towards rebuilding our business, we expect adjusted EBITDA to improve in tandem. And turning to the balance sheet.

We ended the quarter with cash and cash equivalents of $1,600,000 compared to $1,400,000 as of 12/31/2024. Total cash plus our accounts receivable balance as of 06/30/2025, was $5,500,000 compared to $6,400,000 at year end 2024. From a liquidity standpoint, we continue to actively advance funding and equity financing pathways with the goal of strengthening the company’s financial position and supporting key growth initiatives as we rebuild our business. We are working towards a strong back half of the year, driven by enhanced buy side activity through Orange one hundred forty two and the ongoing recovery of the company’s sell side business as it rebuilds to historical revenue levels. We are encouraged by the revitalization of our sell side business driven by Colossus Connections, and we’ve added several mid- and top tier DSP partners who are near completion with their integration.

We expect to see the full impact of our revenues once integration is completed and partnership levels are fully resumed in the 2025. Also, it’s important to remind everyone that there is seasonality to our business, which typically sees strength, particularly in the fourth quarter. Now I’d like to turn it back over to Mark for some closing comments.

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings and would like to now open the call for questions. Operator, please open the line.

Karen, Conference Operator: The first question comes from Dan Kurnos from The Benchmark Company. Your line is open.

Dan Kurnos, Analyst, The Benchmark Company: Great. Thanks. Good afternoon, guys. Mark, I guess, obviously, a couple of things just in terms of the revenue outlook. Is it taking longer to integrate DSP partners?

Is it, macro? Is it, just certain timing issues, and when they ramp? Can you just give us a sense of kind of what’s changed from the last time you talked? And I know, obviously, there’s a lot of sell side, lack of visibility out there right now, but, just any thoughts on on sort of what’s changed in in in terms of the the guidance outlook?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yes. I would say it’s a combination of both. I mean the macroeconomic issues and uncertainty in the marketplace definitely brought us to the decision to look at our guidance for the fourth half of the year. Historically, over the last five years, I can say that we were

Diana Diaz, Chief Financial Officer, Direct Digital Holdings: in

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: a strong position and get better insight into the visibility of how Q3 and Q4 were going to play out. With a lot of the macroeconomic issues that are affecting many companies today, we thought it would be prudent for us to look at our guidance for the outcast of the year and make adjustments accordingly against that. The second piece I would also say is the integrations. Of course, I’ve been working with multiple partners upstream and downstream from us. It definitely takes time for us to be able to predict when we will be live and through testing and through all those different phases that you go through for integration.

And since that pause, we had to reconstitute many of those connections and do them direct. So looking at the timing, looking at the macroeconomic issues, we thought it’d be prudent for us to pull guidance at this time.

Dan Kurnos, Analyst, The Benchmark Company: And just in terms of the timing of those integrations, I mean, are you seeing some slide into ’26? Do you have any line of sight on any of the the big ones that you talked about? And I guess just in terms of maybe it’s a longer ramp, but do you think there’s any delta or difference in what you saw before in terms of the revenue opportunity between what, you know, you’re seeing now?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yes. No, the way that we look at it, we think it’s just probably a little bit longer ramp than what we originally anticipated. We do see positive movement as it relates to the quantity of advertisers that are coming in. We’re also seeing positive movement on the level of publications that we have access to and that we’re actually representing at Colossus SSP. We’re looking for the ramp up of the spend from the individual to start ramping up and the algorithms to work in our favor, and that ramp up is taking a little bit more time than normal.

So that’s what we’re working through right now, and then we’ll get that sorted out. And we believe it’s more of a function of time, of when more so than if.

Dan Kurnos, Analyst, The Benchmark Company: Got it. And just in terms of any other incremental initiatives you’re working on, I know you and I have talked about some things you kinda have in the pipe, but just is there anything else you’d care to share in terms of, you know, incremental opportunities, adjacencies, ways to go to market strategies that, might be helpful as people think about sort of the exit run rate when we finally get through ’25?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yeah. Yeah. We think, you know, we think that there’s a couple of different opportunities of we have, we think that in regards to the buy side of the business, we’ve opened up in multiple segments, which we believe will help us with growth and we’ve already seen positive impact from multiple clients in the energy sector. That has been a benefit to us. We also think that with the push inside of the industry for SPO, we think that there’s SPO opportunities, supply path optimization opportunities that we’ll be able to dovetail into with some of the assets that we have inside the organization that we think late twenty twenty five to 2026 will bear fruit for us.

So some of those are in incubation, but we’re seeing positive movement in that direction. And so we’re looking forward to those actually contributing to the top line and to our profitability in the future.

Dan Kurnos, Analyst, The Benchmark Company: Great. Thanks, Mark. I appreciate it.

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yep. Thank you.

Karen, Conference Operator: Next question comes from Pat McCann from NOBLE Capital Markets. Your line is open.

Pat McCann, Analyst, NOBLE Capital Markets: Hey, thanks for taking my questions. This is Pat McCann on for Mike Topinski. First question had to do with, I believe, it’s one particular key client on the sell side where you where you lost some business there. And I was wondering if rebuilding volumes with that particular key client had, you know, had a large part to do with your guidance your previous guidance? And did that did were there any impacts there that affected your reasons for for pulling guidance?

Could you kinda give any update with regard to that, key client?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yeah. No. The, we had started, back in 2024, looking for direct connections versus leveraging indirect partners. So we have been for the last year building those direct relationships and looking at sending the most of the majority of our revenue through those direct relationships as well as multiple indirect partnerships that we also have in place. So that specific relationship was not one that had an impact, for us to actually revise our guidance for, 2025.

Pat McCann, Analyst, NOBLE Capital Markets: Got it. Okay. And then, I was also just wondering, you know, maybe kind of a little bit of an overview question with regard to with Direct Connections. Could you do anything to quantify could you say anything to quantify, you know, when an ad impression is sold through direct connection versus, you know, on a traditional exchange, what is the approximate revenue uplift? Is there a way that you kinda look at how much the the efficiencies from direct connection on a kind of an apple to apples basis improves your revenue per per impression or per per client relationship compared with with the previous the Yes.

The way you previously did it?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yeah. Typically, you, when you leverage a direct connection, you you’re introducing about five to five to 10% just giving ballpark numbers of savings, through the value chain. That typically gets extracted out. And right now with the large push in the industry, for SPO, supply path optimization, we believe having those direct relationships is actually beneficial for us. So that’s why starting in 2024, we knew that for and we had planned on for a while to work on Direct Connections as being and Colossus Connections as being our primary push.

So we’ve just accelerated that initiative, and we started seeing favorable returns out of it from our partners.

Pat McCann, Analyst, NOBLE Capital Markets: Gotcha. And then and then final question, also with regard to Direct Connection. Could you talk about to what extent that initiative is sort of you keeping current versus, versus giving you a leg up on competitors? You know, could you kind of frame that initiative in the broader landscape of your of your peers?

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Yeah. I I would say that, when we see the agency partners and brand partners, they are looking for the most efficient path, to purchasing media. And so by us having Colossus Connections and removing as much, I would say, transaction costs in the in the exchange of media, it actually proves to be a benefit. And it has helped us, win and partner with some of the large holdco agencies. So I would say it’s definitely, Colossus Connections has been a a net add and a net positive for us, in building out some of the large holdco agency partnerships and help us get those reconstituted.

Pat McCann, Analyst, NOBLE Capital Markets: Excellent. Thank you so much.

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Thank you.

Karen, Conference Operator: And that concludes our Q and A session. I will now turn the call over to management for closing remarks.

Mark Walker, Chairman and Chief Executive Officer, Direct Digital Holdings: Well, thank you very much for participating on our Q2 twenty twenty five call, and we look forward to speaking to you next quarter. Thank you.

Karen, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.

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