Executive Summary

Q2 2025 revenue was $10.14M, up 24% sequentially but down 54% year over year; gross margin improved to 35% vs 29% in Q1 and 27% in Q2 2024, aided by higher buy-side mix and lower cost of revenue . Operating expenses fell 25% YoY to $6.0M, driving a 38% sequential reduction in operating loss to $2.43M .
EPS beat consensus: diluted EPS of -$0.23 versus Wall Street consensus of -$0.485; revenue missed consensus ($10.14M vs $11.84M). Bold beat on EPS, miss on revenue. Values retrieved from S&P Global.*
Management withdrew full-year revenue guidance due to macro uncertainty and integration timing for Colossus Connections DSP partners; Q1 guidance had been $90–$110M for FY25 .
Rebuild of sell-side continued; sell-side revenue was $2.48M (down 83% YoY) as impression inventory remains below prior-year levels following the 2024 disruption; buy-side revenue was $7.66M, slightly up YoY, and new verticals contributed $1.0M in Q2 .
Post-quarter liquidity actions: $25M Series A preferred converted from debt improved shareholders’ equity from a $(24.6)M deficit to ~+$0.4M and cut annual debt service by >$3.5M, a positive balance sheet catalyst .

What Went Well and What Went Wrong

What Went Well

Gross margin expanded to 35% (from 29% in Q1 and 27% YoY) due to buy-side mix; CFO noted improved adjusted EBITDA sequentially (-$1.45M vs -$3.02M in Q1) .
Operating expenses down 25% YoY to $6.0M, reflecting reorganization and cost savings; CEO highlighted “an unexpected benefit to our belt tightening has been increased innovation, including the use of artificial intelligence or AI to supplement our reduced staffing” .
Buy-side resilience and diversification: $7.66M revenue (+$0.1M YoY) and $1.0M from new verticals; management cited energy sector client wins contributing positively .

What Went Wrong

Sell-side revenue fell to $2.48M (down 83% YoY) on lower impression inventory tied to the May 2024 disruption from a market-discredited blog post; volumes have not returned to pre-pause levels .
Guidance withdrawn for FY25 due to macro uncertainty and longer-than-expected DSP integration ramp for Colossus Connections; management lost visibility on timing of revenue recovery .
Net loss widened YoY to $4.20M (from $3.14M) and interest expense rose to $1.79M; leverage and financing costs remained a headwind prior to preferred conversion actions after quarter-end .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$9.083	$8.157	$10.144
Gross Margin (%)	32%	29%	35%
Operating Expenses ($USD Millions)	$7.651	$6.317	$5.987
Operating Loss ($USD Millions)	$(4.704)	$(3.924)	$(2.426)
Net Loss ($USD Millions)	$(6.569)	$(5.940)	$(4.196)
Adjusted EBITDA ($USD Millions)	$(3.395)	$(3.024)	$(1.452)
Diluted EPS ($USD)	$(0.54)	$(0.35)	$(0.23)
Cash and Equivalents ($USD Millions)	$1.445	$1.789	$1.593

Segment revenue breakdown:

Segment Revenue ($USD Millions)	Q4 2024	Q1 2025	Q2 2025
Sell-side	$2.659	$2.028	$2.483
Buy-side	$6.424	$6.129	$7.661

KPIs:

KPI	Q4 2024	Q1 2025	Q2 2025
Avg monthly impressions (sell-side)	~200B	~188B	~182B
Avg sell-side media properties per month	28,000	24,000	30,000
Sell-side advertisers YoY change	+137% vs Q4’23	+13% vs Q1’24	+30% vs Q2’24
Buy-side customers served	~230	>220	>220
Buy-side revenue from new verticals	n/a	$1.2M	$1.0M

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2025	$90M–$110M (Q1 maintained)	Withdrawn; no specific revenue guidance due to macro and integration timing	Lowered/Withdrawn
Commentary	H2 2025	Expect stronger back half driven by buy-side and sell-side recovery	Still expect stronger H2; but timing/ramp less certain	Tone more cautious

Earnings Call Themes & Trends

Topic	Q4 2024 (Prior 2Q)	Q1 2025 (Prior 1Q)	Q2 2025 (Current)	Trend
Colossus Connections (direct DSP integrations)	Launch announced; two leading partners signed; expected H2’25 impact	Added mid-tier DSP partners near completion; H2’25 impact reiterated	Integrations progressing but ramp taking longer; timing uncertainty led to guidance withdrawal	Positive but delayed
Supply Path Optimization (SPO)	Emphasized efficiency benefits and alternative pathways to demand	Continued pursuit of direct/alternative pathways	Direct connections add ~5–10% savings; competitive advantage with holdco agencies	Strategic advantage building
Sell-side recovery after 2024 disruption	Major customer resumed but volumes below pre-pause; rebuild plan in place	Sequential signs of stabilization; seasonality noted	Rebuild ongoing; sell-side revenue still depressed; advertisers up 30% YoY	Gradual progress
Buy-side growth/diversification	SMB focus and new verticals targeted for $5–$10M in 2025	$6.1M buy-side (+6% YoY); $1.2M new verticals	$7.66M buy-side; $1.0M new verticals; energy sector traction	Consistent growth
Cost structure/AI	Cost-saving review; adjusted op ex narrative	OpEx down 19% YoY; ongoing efficiencies	OpEx down 25% YoY; AI used to supplement staff	Structural improvements
Capital structure/liquidity	$20M equity reserve facility announced	Financing pathways under evaluation	Post-Q2: $25M debt-to-preferred conversion, equity turned positive, debt service reduced >$3.5M	Strengthened post-Q2
Legal/regulatory	Defamation suit allowed to proceed	—	Class action dismissal by U.S. District Court (subject to appeal)	Reduced legal overhang

Management Commentary

“We saw encouraging progress… sequential revenue growth of 24% and enhanced adjusted EBITDA… buy side… contributed to improved gross profit margins of 35%… sell side partners have since resumed… but it will take some time” .
“Operating expenses… decreased 25%… Sequentially, operating loss decreased by 38%… We expect adjusted EBITDA to improve in tandem… seasonality typically sees strength in Q4” .
“We will grow likely substantially in the back half… but it now looks unrealistic that we will meet [the $90–$110M] target. For the time being, we're going to abstain from providing specific revenue guidance” .
“Direct Connections… we’ve added several mid and top tier DSP partners who are near completion with integration… full impact… in the 2025” .
“An unexpected benefit to our belt tightening has been increased innovation, including the use of AI to supplement our reduced staffing” .

Q&A Highlights

Guidance withdrawal rationale: combination of macro uncertainty and integration timing; visibility into Q3–Q4 less certain than prior years .
Integration ramp: positive movement in advertisers and publications; algorithms ramp “taking a little bit more time than normal”—more a matter of “when” than “if” .
Direct Connections economics: management indicated ~5–10% value-chain savings via direct paths, aligning with SPO priorities and aiding large holdco agency wins .
Buy-side adjacencies: multiple segments opened; energy sector clients already showing positive impact .
Key-client query: specific prior relationship not the reason for revised guidance; broader shift to direct vs indirect partners underway .

Estimates Context

Q2 2025 vs consensus: Revenue $10.14M vs $11.84M consensus (miss); Diluted EPS -$0.23 vs -$0.485 consensus (beat). Two estimates for each metric. Values retrieved from S&P Global.*

Metric	Q2 2025 Actual	Q2 2025 Consensus Mean*	# of Estimates*
Revenue ($USD Millions)	$10.144	$11.836*	2*
Primary EPS ($USD)	-$0.23	-$0.485*	2*

Seasonality and integration timing were cited as drivers for near-term estimate risk; management expects stronger H2 but withdrew guidance, implying sell-side forecasts likely shift right and EPS trajectories improve more gradually than previously anticipated .

Key Takeaways for Investors

Mixed print with constructive internals: EPS beat and margin expansion offset by revenue miss; sequential progress and OpEx discipline are supportive of ongoing EBITDA improvement .
Narrative pivot: formal revenue guidance withdrawn; integration ramp for Colossus Connections is the key swing factor for sell-side recovery and 2025 trajectory .
Buy-side resilience: SMB/vertical expansion continues to underpin gross margin and topline stability while sell-side rebuilds .
Liquidity de-risking post-quarter: $25M preferred conversion strengthens equity and reduces debt service by >$3.5M, improving financial flexibility into integration completion and peak seasonal Q4 .
Tactical setup: Watch for additional DSPs going live and evidence of SPO-driven direct path uptake (advertiser count, publisher access); these are catalysts for sell-side volumes .
Estimate implications: Lower near-term revenue forecasts likely, but EPS estimates may move modestly higher on cost actions and mix; model seasonality (Q4 strength) with a tempered sell-side ramp curve .
Risk monitor: Macros, debt costs, and any delays in integrations; legal overhang reduced by class action dismissal (subject to appeal) .

Footnote: Values retrieved from S&P Global.*

Direct Digital Holdings, Inc. (DRCT)·Q2 2025 Earnings Summary