Direct Digital Holdings Inc. - DRCT

Weren't we due a 10-K by now?

Direct Digital Holdings shares are now down over 70% from where I pointed it out just last month. After delaying their earnings release and then missing their own revenue estimates horribly, the company was subsequently unable to file their 10-K on time, essentially blaming their auditors.

Their auditors happen to be Marcum LLP which I believe is also currently working on the late audit of B. Riley Financial (RILY), a target of the activist crowd. So while the issue may certainly lie with Marcum, which tends to take a lot of flak due to their less-than-stellar client base, it makes a bit more sense to assume Marcum found something a bit odd in the company’s financials and needed some added clarity before signing off on them.

This is also not the first time DRCT is delinquent with their 10-K filings. Just last year, the company also notified the SEC that they would be late and utilized the full 15 day grace period before making their filing.

Does any of this mean anything? Last year they told us that they had “material weakness” in their financial reporting controls.

A year later and they apparently have yet to correct them. The company goes on to say that:

In my original spiel, I asked if having an Amazon as your overwhelmingly large concentrated customer was always going to be a good thing. In the case of DRCT, the jury is still out.

Assuming the audit doesn’t change anything, revenues may have increased by 76% due to Amazon but net income declined by 50%. A year later and their financial controls still aren’t up to snuff, making the case that they will need to continue spending in order to bring them under control, decreasing profitability even further.

Large contracts can be a mixed blessing, as DRCT is currently finding out.