AdTheorent Holding Company, Inc.

Gentlemen, thank you for standing by, and welcome to the Adverant Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that this conference is being recorded. I would now like to turn the conference over to your first speaker, David DiStefano, Investor Relations. David, please go ahead.

Good afternoon and welcome to Ad Therent's fourth quarter and fiscal year 2021 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me are Ad Therent's Chief Executive Officer, Jim Lawson, and Chief Financial Officer, Chuck Jordan. Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties. and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and other reports and filings we file from time to time with the Securities and Exchange Commission. All of our statements are made as of today, based on information available to us today, and, except as required by law, we assume no obligation to update any such statements. We'll also refer to both GAAP and non-GAAP financial measures during the call. You can find the reconciliation of our GAAP to non-GAAP measures included in our press release posted to the investor relations section of our website at www.adtherent.com. All of our non-revenue financial measures we discussed today are non-GAAP unless we state that the measure is a GAAP measure. With that, let me turn the call over to Jim.

Thank you, David, and good afternoon, everyone. Thank you all for joining us for our fourth quarter and fiscal year 2021 earnings call, our first as a public company. During today's call, Chuck and I will provide an overview of company results of the fourth quarter and full year 2021. I will go through the business drivers in the fourth quarter, our immediate priorities, and our strategic focus areas before turning it over to Chuck for a more in-depth look at our results. We will close with guidance for the first quarter and full year 2022, and then take your questions. We are extremely pleased with our performance. For the fourth quarter of 2021, we delivered $55 million in revenue, which represents 17% year-over-year growth. Adjusted EBITDA for Q4 came in at $15.2 million, representing 8% year-over-year growth which included growth investments across all facets of the business in preparation for our public listing in December 2021. For full year 2021, revenue grew 37%, reaching $165.4 million, and adjusted EBITDA totaled $43 million. This materially exceeded our prior guidance, $161.6 million of revenue and at least $35 million of EBITDA, and was driven by multiple factors, including revenue outperformance and strong adjusted gross margin performance. Later in the call, Chuck will walk through the drivers of our rule of 55 plus performance for the quarter and our rule of 75 plus performance for the full year 2021. Before I dive into fourth quarter highlights, I would like to provide a brief overview of what we do the market in which we compete, and how we win. At a high level, Adtherent is a demand-side platform, or DSP, operating in a real-time digital ad auction system. Our platform connects publishers looking to monetize digital real estate with advertisers looking to buy digital impressions as part of successful digital advertising campaigns. We are focused most on the performance subset of the digital advertising market, the so-called lower funnel of advertising, which deals with driving business conversions for advertiser customers. Our advanced machine learning and vertical specific algorithms allow advertisers to make the best possible media buying decisions in just microseconds, optimizing ad buys, driving strong conversions, and providing superior ROI, all in a privacy-forward way. And this is a big market. U.S. programmatic digital media is a $90 billion market, and roughly $13 billion of that is hyper-focused on those performance-driving executions that Adtherent is uniquely suited to serve. This market is growing nearly 20% per year, and Adtherent continues to outpace industry growth based on the strength of our technology and the power of our solutions and go-to-market organizations. Our strong results in the fourth quarter and full year are driven by numerous factors, most notably the measurable value we are delivering to our brand and agency customers. Put very simply, Adtheorant-powered digital campaigns drive more sales, store visits, registrations, travel bookings, online orders, drug prescriptions, insurance policies, the business outcomes advertisers actually care about. Campaign performance and ROI matter to advertisers, and our ability to deliver in this area has created great demand for what we are doing. In 2021, our average active customer spend increased by 19%, and approximately 72% of our total active customer revenue was from long-tenured customers, defined as customers with tenure of three or more years, versus 69%, in 2020. Additionally, we grew our client base from 270 as of December 31, 2020 to 309 as of December 31, 2021 among clients with $5,000 or more in revenue for the year. I would like to note a few platform and product enhancements which drove customer success and demand in the fourth quarter. These include, first, continued advancements in our ability to attribute business conversions to ad exposure in a privacy-forward manner without dependence on user IDs. Second, improvements to our first-party visitation models, which allow Adtherent to use device location in more nuanced ways to drive campaign performance. Third, enhancements to our highly differentiated CTV service. And fourth, ongoing deployment of vertical-specific products which continued to drive advertiser ROI. I'd like to take a moment to talk about each of these. First, furthering our independence from cookies and other device identifiers, we expanded our attribution modeling capabilities to include high performing probabilistic models. Put more simply, we expanded our ability to prove the efficacy of our ad targeting methods. Now, more than ever, We can show that adherent campaigns are causing desired business events without depending on user IDs to do that. Our probabilistic attribution methods use a proprietary combination of impression, site, and other data. We tested our probabilistic attribution models extensively prior to deployment, analyzing, comparing data sets with both probabilistic and deterministic, or ID-based, methods. In addition to further positioning Adtheorant to thrive in a post-cookie marketplace, these methods provide immediate benefits by allowing Adtheorant to capture and report on conversions that occur using cookie-less browsers such as Safari and Firefox. Very recently, Google announced that it plans to deprecate the Android advertising ID within two years. As the volume of available cookies and mobile advertising IDs continues to erode, adherent probabilistic attribution is positioned to fill the created gap. And our ID agnostic capabilities are helping us drive new demand for our services. Also in the fourth quarter, we advanced the number of platform initiatives to further drive ad performance. For example, we deployed updated and enhanced first party visitation modeling and attribution capabilities, which allow us to use physical location and point of interest or POI visitation more precisely. Specifically, adherence machine learning methods now more precisely distinguish meaningful physical world visitation from tangential or passing through types of visitation, assigning confidence scores about whether a given device has visited a particular physical location or POI. AddTherent customer campaigns benefit from these precise insights in a number of important ways. Significantly, our platform uses the fact of visitation as an additional input or data object in our predictive models. In this sense, as part of our impression level scoring process, we can correlate a given point of interest, for example, presence in a Starbucks, with other bid request data objects. In addition, the output of our visitation modeling is incorporated into our attribution processes, allowing Adtheorant to attribute ad exposure to verified brick-and-mortar visits by customers. The more precise and accurate are the model inputs, the more predictive value they will have. Our customers benefit from these ongoing improvements, and as a result, they make greater investments in our offerings. For a national dining customer, we utilized our enhanced visitation modeling capabilities as part of a CTV campaign to supplement the brand's linear TV buy with the goal of driving customers to dining locations in key markets. In the markets with combined CTV and linear, we drove 3.2% higher in-store sales and a more than 3% higher guest check average as compared to markets with linear TV only. Third, in the fourth quarter, we continued to iterate and improve our ML-powered connected TV or CTV solution to drive differentiation and revenue growth in this rapidly dynamic and expanding channel. We are moving fast to capitalize on this opportunity. During the fourth quarter, our CTV revenue grew 149% to $3.7 million versus $1.5 million in Q4 2020. Before explaining one of our recent accomplishments in this area, I'd like to provide a bit of context regarding the status quo for programmatic CTV. A significant amount of CTV inventory in the programmatic space comes from pre-installed TV apps or apps from TV networks. Unlike mobile app and site inventory, the information provided by content providers to programmatic partners has historically been insufficient often limited to the CTV app name, such as Pluto TV, Tubi TV, AT&T TV, et cetera. This data vacuum made programmatic CTV less appealing to advertisers. In a sense, advertisers were being asked to target ads with insufficient tools. As of recently, CTV publishers have the ability to pass more granular content information in the bid request. But since this advancement is fairly new, there has been no industry approach to normalize this more granular data or any mandate to pass it to programmatic partners. In the fourth quarter of 2021, Adtheon completed a number of development projects related to normalizing and activating this additional CTV content metadata. As a result of this work, we will make these additional signals available and actionable for real-time targeting including signals such as content genre, app bundle, rating, language, et cetera. In addition, we are able to leverage this CTV content data as object inputs for our predictive models, driving greater campaign performance. Equally valuable, these signals enable more granular reporting regarding the type of content in which ads are played. This allows us to provide clients with a more linear TV service while still leveraging the benefits of programmatic. These advancements reflect our market leading efforts to make CTV a performance channel. These advancements also translate to positive customer experiences and revenue growth. By way of example, in the fourth quarter, we executed a CTV campaign for a leading national CPG brand, which drove more than 35% point of sale lift. I would like to note quickly three other Q4 advancements in our CTV capabilities. We continue to invest in anti-fraud capabilities unique to CTV inventory, including proprietary pre-bid and post-bid machine learning techniques and third-party integrations. As a result, our CTV fraud rate, 0.18% in the last four months, according to a sample from our third-party partner, DoubleVerify, is best in class and in Q4, we obtained DoubleVerify's CTV targeting certification for programmatic platforms. Also in the fourth quarter, we completed a partnership with Comscore. This enables us to leverage insights from their media consumption data. Through this partnership, we can customize audiences to obtain stronger match rates and in turn drive scale and better delivery for CT advertising clients. Utilizing the comp score data in conjunction with our machine learning and predictive targeting enables us to identify and reach those most likely to engage, driving superior results for CTV advertising clients. Finally, during the fourth quarter, we rolled out CTV with QR code functionality. This is another way we are using CTV to drive measurable performance. It works like this. Our platform serves a CTV ad which includes a QR code overlay. The consumer opens his or her native camera app and scans the code. This then drives the consumer to a web landing page on his or her mobile device where the consumer can complete one or more actions desired by our advertiser customer. We executed a number of great campaigns in Q4 where this QR code functionality really brought performance CTV to life. For example, For a major CPG brand, we developed and executed a CTV campaign with a QR code overlay, driving consumers to the product detail page of selected online stores. The campaign included a third-party measured sales lift report, which proved the efficacy of our approach. In addition to driving 26 million views and a high video completion rate of 95%, we drove 7.9% sales lift amongst the category non-brand buyers, defined as consumers who typically purchase competitive brand products. We are continuing to roll out related capabilities, including interactive landing page content, and we are exploring additional QR code capabilities like click-to-cart and click-to-call. In the end, these are additional ways for AdTherent to make CTV more performance-focused, with a data feedback loop that allows us to optimize campaign delivery in real time. Finally, I'd like to briefly highlight a few examples of our ongoing efforts to create and refine vertical specific offerings. As I mentioned previously, we completed our direct integration with Comscore to access their media consumption data, which allows us to offer compelling vertical specific solutions. With this partnership, Comscore will inform adherence machine learning models with cross-platform signals to enable customized solutions for each marketer and their respective industry vertical. Also during the fourth quarter, we launched a first to market audience verification solution for the auto vertical, which for us is an early stage vertical opportunity with tremendous upside. We are excited to share that we partnered with a leading data provider, which has access to 30 plus years of vehicle transaction data from more than 700 data sources and 125 million U.S. households. We are now using this extensive data set to validate the effectiveness of our predictive targeting, confirming for our customers that our campaigns are reaching in-market auto shoppers. As a result of this new partnership, our customers will gain a deeper understanding of in-market shopper campaign effectiveness, including insights such as matched and total in-market impressions, matched and total in-market households, buy rate of matched households, and number of purchases likely driven by the campaign. In summary, we are proud of our results in the fourth quarter and full year 2021. Prior to becoming a public company, we were already an established business with strong profitability and cash flow characteristics. We fully expect to maintain that efficiency and discipline that has contributed greatly to our success. But we became a public company for two primary reasons. One, to expand our product and platform development to further differentiate our capabilities and get them to market faster. And two, to grow our revenue organization and sales presence in order to capture a greater piece of the rapidly growing digital advertising opportunity. We entered 2022 with an unprecedented amount of opportunity. Our strong momentum from 2021 continues. As we scale our revenue teams, we are realizing company records for pipeline and opportunity generation. And our volume-based customer spend agreements have never been greater at this point in the year. We're in the early stages of implementing our growth strategy, following our public launch at the end of December 2021. As our new team members ramp throughout the year, and as we market our new capabilities and offerings, we believe that we will convert our sharply growing customer pipeline and our rate of revenue growth will accelerate. I'd like to take a moment to review the focused investments we're making in 2022 behind our go-to-market organization, our platform differentiation, our first-party data infrastructure, and enhanced verticalized product offerings. These investments are each being made to position Adtherent for sustained revenue and profitability growth, beginning with a strong 22. First, we are actively expanding our sales footprint to keep up with the demand we are seeing for our solutions. In 2021, we increased our sales team by a net add of 12 sales reps, close to a 23% increase. Of these, seven were added in the second half of the year. Given a typical ramp period of six to nine months, We expect this investment to materially support growth over the course of 2022, and we are seeing strong current pipeline generation trends accordingly. In addition, our 2022 hiring plans include the addition of a similar number of net new sales reps, perhaps most relevant to our 2022 outlook. By July 2022, we expect to have 14 more fully ramped quota carrying sales representatives than we had in January. Second, we are continuing to invest in our platform and expanding our capabilities to roll out more products faster, generating even higher demand for our solutions. Earlier, I cited a few examples of our Q4 platform and product advancements, the high-performing probabilistic models, the enhanced visitation models, our CTV development. These launches were all proven out in Q4 21 but we will see a full year contribution from them in our 2022 results. Most exciting for the AdDurant team, our 2022 product roadmap is extensive, and we have made significant investments in our tech, product, and data science organizations to support steady and impactful product deployments throughout the year. To that end, we are executing on a plan to increase team resources in these functional areas by over 35 full-time employees in 2022, representing more than 60% year-over-year growth. This is approximately double the rate of already substantial investments made in 2021. And we expect new product and tech capabilities throughout 2022 to contribute to our 2022 financial results. Within this context, I would also like to highlight a few of our most important immediate term platform and product priorities. each driven by market needs and built on top of core capabilities that AdTheon is uniquely able to deliver. We will deploy these new capabilities and thus realize new opportunities as the year unfolds. These efforts will help us sustain strong double-digit revenue growth for the foreseeable future while maintaining extremely strong EBITDA margins. First, CTV. I talked about our enhanced CTV offerings in reference to our fourth quarter highlights. but these efforts are ongoing, and it is worth noting here the size of the long-term opportunity. In 2021, roughly two-thirds of the U.S. population had a connected TV, yet monetizing streaming content via ad placement is still in its infancy. Our performance-focused CTV product is being received enthusiastically by the market. I'm proud to report that we delivered 230% year-over-year growth, and investments we have made to date have been limited. With focused investment and additional product specialization, we can capture this opportunity even more quickly and at greater scale. Second, I'm excited to talk about a number of new data and data infrastructure investments embedded in our 2022 plan. Each of these investments will yield new, highly differentiated verticalized targeting and measurement products in 2022. Also, We believe each of these investments will further our vertical specialization goals, which I'll briefly discuss in a moment. The first is an exciting enhancement to our efforts across the pharmaceutical vertical, Adtheron Rx, which we believe will further solidify Adtheron as a leading provider of privacy-forward, data-driven healthcare advertising. Given the size of the pharma advertising market opportunity, We believe that this offering alone would be a valuable foundation for a highly successful growth business. In 2022, rolling out to the market in Q3, our platform will leverage more granular, anonymized medical data for use in a number of innovative ways, including audience creation and measurement. Our approach to audience creation will be rooted in machine learning and differentiated in the marketplace, addressing our customers' demands for unique data in the pharma space. Longer term, we will also utilize this data to deliver custom measurement solutions that will provide insights into customer marketing efforts. Collectively, these capabilities address growing customer demand for HIPAA-compliant and privacy-forward methods to target pharma products to likely condition sufferers, while proving campaign efficacy with accurate and complete data. Our 2022 plan also contemplates several other exciting new investments, which will provide adherent with unique data sets and adherent predictive audiences to form the foundation for verticalized offerings. One such investment relates to licensing raw device location data to better understand real-world visitation behavior for use in predictive modeling. Another significant 2022 data investment relates to our access to robust new demographic data, which we will ingest and activate for a variety of campaign use cases. Among other benefits, this will significantly multiply the number of data objects available as part of bid requests to be considered by Adtherent predictive models. Programmatic advertisers are increasingly demanding unique first-party and data insights, and Adtherent's ML capabilities have provided distinct advantages. With the benefit of significant new raw data and valuable seed data sets, we will be able to offer unique first-party data sets that will further differentiate and advance our proprietary predictive modeling and measurement capabilities. Third, I would like to talk about our ongoing efforts to expand significantly our current target addressable market through add-their-direct access. Historically, most customers have used Adtheorant as an end-to-end, full-service, in-house digital partner, leveraging our various teams, including strategy, ad operations, campaign optimization and yield, client success, data and analytics, data science, creative, and more. We manage and optimize sophisticated campaigns and have many great client partnerships where we provide a variety of services and offerings to drive success for advertisers. We also recognize that some customers, both agencies and brands, have some of these media execution resources in-house. And in those cases, they may prefer to have their internal teams execute and manage campaigns with our platform. Now, through AddTherent Direct Access, we are able to transact with customers using an enterprise pure platform offering model, giving clients a choice. Direct access clients have already begun to successfully tap the power of our platform. A recent customer leveraged direct access for a cross-device campaign to drive online enrollments. The customer also ran a concurrent social campaign with another partner. Notably, the direct access campaign greatly outperformed the social campaign, driving 175% lower cost per lead. We are excited to begin scaling add their direct access for a net new base of customers which we have not engaged previously. We think this is a significant market opportunity and we are already making the tech product and team investments needed to make our powerful offerings available for direct access users in a more self-service capacity. We are excited to roll out enhancements as 2022 progresses. Another exciting long term investment deals with our data processing infrastructure and our exciting engagement with Palantir Technologies. We partnered with Palantir's Foundry platform to deliver data-driven insights and products to internal end users in a more operational and cost-efficient manner. We are a data-heavy business. Bid stream data, first and third-party data, platform delivery data, Salesforce data, more. Consolidating these data streams and into a common ontology for real-time informed decision-making will enable internal teams and customers to interface directly with data, models, and tools to further identify which machine learning model variables drive performance lift without the need for heavy technical resources or skills. We are excited to share more about this exciting opportunity. Finally, we are actively expanding our vertical capabilities. focusing on making our offerings unique and value-adding, including through the investments I've noted. We believe each vertical represents a discrete business opportunity and allows us to more deeply penetrate the customer base within these verticals and do more business with current customers that operate in them. Past verticalization efforts in pharma and banking financial services and insurance, or BFSI, prove this out. We're excited to continue investing in new verticals including unique data sets that improve modeling and targeting, new inventory partnerships, plus new measurement and attribution partnerships, which prove the ROI we drive for customers. The key is that we can create custom solutions based on each vertical. These custom, vertical-based, hands-on, full-service offerings are a big and sustainable differentiator for AdDarent. I would like to conclude my remarks by thanking the AdDarent team. As with every other major accomplishment in our 10-year history, our significant successes in 2021 reflect a seamless group effort by a smart, collegial, ambitious, and scrappy team. It is very early in 2022, but our team has never been more motivated. We have never had a more clear understanding of our immense opportunity, and we have never been more optimistic about what we can achieve. We are grateful for our investors, our customers, and our partners who have given this opportunity to us, and we will continue to work tirelessly to drive our business to the next level of success while generating meaningful incremental value for our stakeholders. I will now turn the call over to Chuck to talk about our financial results and the exciting momentum we see in the business.