AdTheorent Holding Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Ed Therent's first quarter 2022 earnings 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 first quarter 2022 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 our other reports and filings with the Securities and Exchange Commission. All of today's statements are made based upon information available to us today, and we assume no obligation to update any such statement except as required by law. We will 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, including in our press release posted to the investor relations section of our website at www.addtherent.com. All of our non-revenue financial measures we discussed today are non-GAAP unless we state otherwise. With that, let me turn the call over to Jim.

Thank you, David, and good afternoon, everyone. Thank you for joining our first quarter 2022 earnings call. We are extremely pleased with our performance in the quarter. We delivered $34.2 million in revenue, 11% year-over-year growth, and in line with our guidance, increasing wallet share with existing customers and bringing new logos onto the platform. Adjusted gross profit of $23 million was also up 11%, exceeding the high point of our guidance. We are pleased with our performance in the first quarter Demand for our machine learning-driven solutions remains extremely strong, and as a result, we are on track to meet or exceed our guidance for full year 2022. Before I dive into first quarter highlights, I'll provide a brief overview of what we do and how we win. While other DSP platforms focus on targeting users, AdTorrent predicts the performance of media opportunities. using the industry's most advanced machine learning-powered media buying platform. And we do it in a privacy-forward way. Unlike other targeting approaches, adherent targeting does not rely upon third-party data licenses, cookies, device IDs, or any of the new unified or individualized IDs being discussed in the market now. Most important, our platform and products drive industry-leading performance for our customers' campaigns measured in real business terms such as incremental sales, store visits, registration, travel bookings, online orders, drug prescription bills, insurance policy sales, and other business outcomes. We believe we are poised to lead the digital advertising industry into the post-ID era where machine learning and statistics give advertisers unprecedented levels of targeting accuracy but consumers are not alienated by corporate monetization of their identities. So that is why we win. And it is not just that we have a superior platform today. Our platform gets better every quarter as we operationalize and automate new and innovative machine learning advancements within our platform and verticalized solutions. Every enhancement we launch, every data partnership we bring on, and every campaign that we run improves our ability to drive campaign KPI performance for our brand and agency customers. As these improve, the gap between the return on ad spend we deliver relative to what our peers can produce continues to increase. The immediate result is increased wallet share as existing customers spend more of their campaign dollars with ad clearance, and this momentum will increase. as we start to see the real benefits from our sales and marketing investments. Importantly, we have and will continue to drive this growth profitably. Adjusted EBITDA came in above the high point of our guidance at $1.3 million for the quarter, despite meaningful growth investments across all facets of the business. Later in the call, Chuck will walk through the drivers of this performance, Before I turn it over to him, I want to highlight a few wins from the first quarter, including strong connected TV or CTV growth, several meaningful platform innovations, a new data partnership, and some news on direct access. Starting with connected TV or CTV, AdSense's unique ML-powered advancement, which we discussed on our last call, further increased the differentiation of our solution in this dynamic and rapidly growing channel. As a result, we delivered 42 percent CTV revenue growth during the quarter. This exceeds projected 2022 industry growth, and it's better than the growth many leading market participants have reported for the quarter. As it does on other screens, our data-driven and performance-focused CTV product and platform capabilities and the meaningful enhancements we continue to release are a competitive advantage that will sustainably drive above industry revenue growth. Now let's talk about some of our platform enhancements for the first quarter. These further exemplify our dedication to enhancing our existing technology advantages using focused innovation. There are many, but I would like to talk about three meaningful platform enhancements from the quarter. deployment of our inventory marketplace, a big leap forward in our optimizer technology, and groundbreaking advancements in our cost per action, or CPA, model and full funnel capabilities. First, our new inventory marketplace lets customers bundle and package publisher digital inventory across campaigns, addressing a significant deficiency in the programmatic ecosystem caused by the fragmentation and inconsistency in publisher and content details. For example, CNN programmatic bid requests can appear in many ways, as a site domain, CNN.com, as an Android or iOS mobile app, or as a CTV app, to name a few. This fragmentation makes it difficult for advertisers to target a desired publisher's content. Our inventory marketplace unifies this publisher inventory into a single targetable entity, unlocking operational efficiency and ease of use. It also allows customers to create and activate customized groupings of publishers and content, like grouping CNN into a news package for an end user who wants to target news content, or groupings by rating or language. And all of this lives within a robust and easily activated library within the AdSense platform. Another meaningful platform enhancement relates to our optimizer technology. Our suite of optimizers provides automated algorithm-based campaign decisioning far more quickly and effectively than peer solutions, which are more reliant on the behaviors of individual traders. This is a big deal because widely varying media prices across the programmatic ecosystem often cause marketers to overpay for inventory if they bid too high or exclude inventory if they bid too low. This is especially true for CTV, where pricing variation can be extreme. In Q1, we released a price optimizer enhancement tool. that can dynamically adjust a single user-entered bid price using details about the CTV publisher, content, genre, and rating. This frees our customers from managing multiple, often widely-variant bids. In the first quarter alone, this generated 1.5 million bid price adjustments, or an average of 12 bid price changes per minute, without a trader. We also launched the first iteration of a multi-goal optimizer. which is designed to optimize campaign delivery simultaneously towards both bid price and KPI performance. Typically, price and performance are independent and inconsistent variables, requiring multiple tactics to manage a campaign. In other words, frequent and ongoing manual decisions about how to balance the usually competing goals of price and performance. Combining both price and performance into a single model obviates the need for multiple tactics, creates operational efficiencies, and advances advertiser goals. During the first quarter, campaign data showed that the multi-goal optimizer improved campaign KPI performance by over 30% and cost efficiency by almost 20%. During the quarter, we also made great progress expanding our full funnel approach to campaign and KPI optimization. By way of background, advertisers invest their media budgets across the entirety of the purchase funnel, meaning from preliminary awareness to investigation and discovery to pre-sales or sales activities. And different tactics are required at each funnel depth. For example, when we help an airline looking to optimize bookings, We may use CPV capabilities to drive upper funnel conversions, such as landing page visits, rich media to drive middle funnel conversions, like browsing deals, and targeted display to drive lower funnel conversions, such as bookings. AdFerent's full funnel capabilities center around using machine learning intelligently to activate all these tactics as part of an integrated media plan. driving conversions at each funnel depth, deriving learnings at each stage of the funnel, and increasing our revenue opportunity. During the quarter, we launched important enhancements to our full funnel approach, including introducing funnel depth features into our CPA models, expanding on our already advanced model inheritance capabilities, and we introduced conversion influence reporting, to validate the efficacy of our performance at each stage of the funnel and illustrate how exposure throughout the funnel drives performance. These initiatives increase our ability to leverage the upper and middle funnel to drive superior lower funnel KPI conversion for our customers. I will briefly unpack each of these advancements and note how they will help us drive revenue. The new funnel depth enhancements improve how activities indicated as upper or mid-funnel conversion events inform our cost per action or CPA model, driving more efficient CPAs for the campaign's ultimate business goal or KPI. Prior to implementing funnel depth features, our model did not differentiate between engagement at the different depths of the funnels. As a result, they initially optimized toward landing page views, for example, or other high-volume upper funnel actions until this generated sufficient KPI conversions to switch to a KPI-based model. With our new funnel depth information, as soon as we have enough next-level events within the funnel, the model dynamically switches, getting us from zero to 60 much more quickly. in some early campaigns, getting to KPI or conversion-based targeting in just a couple days. Bucketing activities by low, mid, or upper funnel, as well as recency and frequency, also allows us to score engagement at various funnel depths and have a more data-driven understanding about conversion at each phase of the funnel. These new funnel depth enhancements represent a key advancement to our existing model inheritance capabilities, which is essentially our platform's ability to use the predictive score from one model as an input or variable to another model. For example, we can use a click-through rate model or brand safety model as a variable or input in the CPA model. In the end, this drives operational efficiencies by reducing the number of tactics needed to create and manage the conversion funnel. And most important, the ability to guide consumers through the conversion journey is paramount to advertisers seeking demonstrable ROI on their media spend. And the better we do this, the more advertiser budgets we earn. Equally exciting and building on our full funnel capabilities During Q1, we introduced our conversion influence reporting, which highlights the effectiveness of upper and mid-funnel media exposure on the resulting conversion events by showing how different media types, line items, creatives, and strategies work together to drive conversion. For example, these reports can highlight that one media type drives a user to a landing page, while another takes the user from landing page to KPI conversion. or it could show that a combination of creatives and tactics are required to drive the conversion event. In Q1, we executed a campaign to drive home an auto insurance quote complete for a national insurance company, running a mix of cross-device display and video tactics. Our conversion influence reporting showed that users exposed to both video and display media converted at a 612% and 112% higher rate than those exposed to just video or display, respectively. This reporting illustrates the efficacy of the AdSense capabilities and drives customer retention and revenue growth. Moving on to our data infrastructure and how we are expanding our 1P data to drive results for customers. In the first quarter, we finalized an important new partnership with a leading consumer data provider. This critical integration gives us more than 700 additional data signals for bid request scoring and modeling. In addition to more than tripling the number of available signals, these high-quality signals are indicating strong relevance to conversion uplift and increasing the predictive ability of our models. As we noted in our last call, programmatic advertisers value unique first-party data and data insights, and our ability to leverage our ML capabilities across valuable seed datasets allows us to offer unique first-party data insights which further differentiate us and advance our proprietary predictive modeling and measurement capabilities. This continuous innovation produces unmatched ROIs for our customers and drives our market share. Finally, I want to share some news on the ongoing investments we are making behind direct access. As we have noted, our platform is our product, and our customers can transact with our platform in different ways. Historically, most have used Adtheorant as an end-to-end, full-service, in-house digital partner. leveraging our teams for strategy, ad operations, campaign optimization and yield, client success, data and analytics, data science, creative, and more. However, we recognize that some customers, both agencies and brands, have some of these media execution resources in-house. They have not historically been ad-serving customers, as they would prefer to leverage their internal teams to execute and manage campaigns with our platform. As a result, Offering direct access enables us to transact with a whole new subset of potential customers using an enterprise pure platform offering model. Our direct access offering does not cannibalize our end-to-end offering. We are not transitioning existing customers to it, and it does not pressure our financial model. We are simply expanding our addressable markets. We are excited to note that we hired Paul Dolan during the quarter, in part to help spearhead the growth of this initiative. Paul is an industry veteran with a long, successful track record in programmatic ad tech. Prior to Adtheorant, Paul was the founding member of programmatic media company, Zaxis, as well as CEO of MBC Partners media platform consultancy, Veric. His expertise will help guide our direct access efforts through the next phase of development as we continue to scale this offering and bring it to market. I would like to conclude my remarks by thanking the AdSeren team, which is working harder and is more motivated than at any point in our 10-year history. Our team appreciates the immense business opportunity that our profound market differentiation makes possible. And despite broader macroeconomic uncertainty, we are tirelessly pushing the boundaries to increase our competitive advantage in the DSP landscape. This has been instrumental to the strong quarter just reported, and it's the reason we are able to reiterate confidently our guidance today. I will now turn the call over to Chuck to talk about our financial results and the exciting momentum we see in the business.