AdTheorent Holding Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to AdFerent's third 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. At this time, I'd like to turn the conference call over to your first speaker, David DiStefano, Investor Relations. David, please go ahead.

Good afternoon and welcome to AdSerent's third quarter 2022 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are AdSerent'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 statements except as required by law. We will refer to both GAAP and non-GAAP financial measures during the call. You can find a reconciliation of our gap to non-gap measures included in our press release posted to the investor relations website at www.adderrick.com. All of our non-revenue financial measures we discussed today are non-gap 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 third quarter 2022 earnings call. During today's call, I will discuss our high-level results and business highlights, and then turn the call over to Chuck, who will provide a more detailed look at our third quarter results and provide guidance for the fourth quarter and full year 2022. I am pleased we were able to generate financial results in line with our guidance and grow active customers 11% year over year, despite macro-driven pullbacks and ad spend. In the third quarter, we generated 37.6 million in revenue, adjusted gross profit of 24.7 million, and adjusted EBITDA of 3.6 million, or 14.5% of adjusted gross profit. Performance continues to be led by strong demand across connected TV, or CTV, and the healthcare vertical. In particular, we are pleased to see momentum across products and capabilities recently introduced into the market which were the subject of investment and development in 2022. As we discussed on the Q2 call, the low end of our forward guidance contemplated continuing weakness in the macroeconomic environment and further pressure on ad budgets. Unfortunately, we did see this in Q3, leading to revenue results toward the lower end of our guidance range. We are pleased to note that our performance began to inflect at the end of the quarter, and that we are seeing increased demand for our offerings, including record pipeline generation in September. Despite these positive signals, we believe it is prudent to narrow our 2022 guidance towards the lower end of our prior range, factoring in the macro uncertainty as well as more conservative assumptions about the holiday advertising season and the amount of incremental or unforecasted ad budgets that we expect to receive in Q4. Our 2023 planning assumes no material macro rebound, but our strong balance sheet and cash flow characteristics will enable continued focused investment and position us to capture greater wallet share when ad spend normalizes. In prior quarters, we have highlighted investments in data, technology, and new products that drive valuable differentiation versus other DSPs and provide meaningful growth opportunities for our business. During the third quarter, we saw positive customer responses to several of these strategic investments, including the mid-October launch of our highly differentiated predictive audience suite of targeting products. The first of which is a highly customized offering for health advertisers. Equally encouraging, our ongoing CTV focused product development continues to drive consistent quarter over quarter growth and pipeline generation, which we see is just the beginning. Finally, we are successfully scaling our direct access business as we continue to develop and deploy enhanced capabilities, including robust verticalized ad solutions. This self-service platform revenue is net new to add there. Opens up immense opportunity and customer types and sets a foundation for developing longer term strategic relationships with organizations controlling large and sustained media budgets. Let me speak to each of these and the results they're driving. First, I'd like to discuss adherent predictive audiences, adherent health, and our continued advancements towards platform verticalization. We've previously discussed the adherent health product initiative and our focused efforts to build a dedicated health product and go-to-market infrastructure, heightened scrutiny around the use of personal health information, combined with our ability to use privacy-forward ad targeting methods to drive healthcare advertising outcomes more efficiently than other platforms, positions us to capture a sizable portion of the nearly $16 billion in annual healthcare advertising spending. In Q3, our platform's deep health capabilities helped us win sizable deals with some of the U.S. and Canada's leading digital healthcare agencies and brands. some moving their full programmatic media spend to add there. We expect even greater momentum in the healthcare vertical going forward, given our mid-October launch of add there and health predictive audiences. We built this product in consultation with leading healthcare advertisers based on their stated interests and needs. And the early feedback is very encouraging. This first of its kind product allows programmatic advertisers to target audiences in a more precise, data-driven, and less opaque manner than previously possible. Adtherent health predictive audiences are fully customized based on advertiser requirements. They use primary sourced healthcare data to identify, using machine learning and statistics, the most qualified audiences for targeting consideration, without relying on personalized information or user IDs. This de-identified data is aggregated from hospital and healthcare provider claims, electronic health records, and pharmacy and contextual data representing more than 300 million patients and healthcare professionals, which equates to more than 90% of the US population. This aggregated health data is mined to create statistical representations of desired target audiences. For example, condition sufferers, caregivers, or prescription users. based on non-sensitive data such as age, location, or gender. Using our platform, an advertiser could create a statistical representation of a target audience comprised of, for example, people who have been diagnosed with high cholesterol within the last 12 months, who were prescribed a given drug, and who had the prescription filled at a specific pharmacy location. From there, step two of the process, activating these audiences as part of a customer campaign on our platform, focuses on executing Adtherent's unique KPI-specific impression scoring within the created audience. We believe our launch of Adtherent Health Predictive Audiences provides a blueprint for delivering unique value through our platform across a variety of growth verticals. As we have discussed in the past, in addition to Adtherent's core machine learning-powered platform and ID-independent impression scoring capabilities, we offer customized vertical solutions to address the needs of advertisers in specialized industries. We continue to see the strongest growth from sectors where we have launched these vertical specific solutions, such as health. Importantly, we are also working actively to verticalize the platform's tools, resources, and workflows for self-service or direct access users, with health being an immediate focus. The continued verticalization of our solutions and our platform will allow us to compete against generalist DSPs with greater value-added differentiation. And we believe it will drive more rapid adoption of our platform. And ad-fair and predictive audiences are foundational to this, as our audience builder tool in the platform enables users to create custom ML-powered predictive audiences, which are focused and unique to specific verticals. Next, I'd like to briefly highlight our progress with CTV. Our commitment to innovation helped drive 36% year-over-year CTD revenue growth during the third quarter, a remarkable achievement given the meaningful compression in advertising budgets during the period. CTD was nearly 10% of revenues during the third quarter of 2022, up from less than 3% in 2020 and nearly 7% in 2021. Our use of machine learning models to drive post CTV ad exposure business outcomes for clients is truly cutting edge and differentiating. We believe we have a sustainable competitive advantage in this channel, and we are already seeing a return on the 2021 and 2022 investments that we made to deliver a more performance focused CTV offering. Marketers are continuing to shift significant dollars from linear to programmatic CTV. due to increased precision of targeting and the ability to report measurable ROI, both of which are core to AddDurant's CTV offering. Feedback from the market remains enthusiastic, and customers are continuing to choose the AddDurant CTV solution for five key reasons. First, performance. We build machine learning models for CTV campaigns using the wealth of data we have obtained in order to drive towards business outcomes instead of simply delivering video views or completes. One of the ways we have achieved this is by committing development and other resources to maximizing and normalizing data attributes available for programmatic CTV. We have discussed this in prior calls, but the more data our machine learning models have access to, the better ROI we are able to drive for our customers. Second, attribution. We have built our own attribution solution that allows us to tie viewership on CTV devices to outcomes on mobile and desktop devices. This data feeds into custom machine learning models on CTV and also allows us to report back valuable insights to our customers. Third, privacy. We use data science and machine learning for ad impression analysis and targeting, not to build user profiles or ID-focused targeting segments relying on sensitive or individualized personal data. Fourth, omni-channel activation. We can run CTV as part of an omni-channel campaign, and CTV can be used either as an upper funnel or lower funnel driver for our customers. In a prior call, we discussed Adderon's full funnel approach and how we drive greater lower funnel campaign performance, for example, sales, by leveraging data about consumer engagement with upper funnel campaign tactics. And finally, creative. We have a talented in-house design team that allows us to deploy innovative creative executions on CTV. For example, we have the ability to run CTV ads with QR codes, allowing consumers to interact with CTV units in a more meaningful way. We are also able to run dynamic CTV ads that provide a more personalized experience based on a user's location, time, or weather signals. Innovation will continue to drive our success in this channel. and we are already seeing strong uplifts from innovations deployed in the first half of 22. In particular, we are seeing strong demand for our predictive audiences across the CTV channel. Predictive audiences are a natural fit for CTV because customers are moving from linear to CTV for more precise targeting. And our predictive audiences drive both traditional audience targeting benefits, such as audience quality or reach validation, as well as machine learning-driven campaign outcomes, such as online sales. During the third quarter, we also expanded our reporting capabilities for CTV and developed custom analyses to demonstrate how CTV can empower brands to reach both known and potentially high value users. For example, we partnered with a luxury hotel brand and through a custom website analysis identified more than 160,000 households associated with devices that visited a website but did not complete a booking. In partnership with this luxury hotel brand, Adderent reengaged these households with CTV media as an upper funnel tactic, building brand loyalty among a high qualified audience. For this brand, as part of a true full funnel strategy, our campaign performance was 24% better than the cost per booking benchmark. Our CTV offering gets better every quarter as we operationalize and automate new and innovative machine learning advancements. and this will drive our continued success. Looking forward, with sustained investment in the channel, we expect our outsized growth in CTV to continue. Moving to direct access. Direct access is our margin accretive self-service business offering. As discussed previously, we've invested meaningfully here, and while we will not see a significant revenue benefit until 2023, it is already attracting net new customers and we are excited to begin scaling this meaningful growth initiative. Third quarter progress in market was notable. Nine new brand or agency customers began actively setting up and working towards launch of their first campaign. 21 new brand or agency customers had campaigns actively running through the platform, most of them sophisticated global advertisers. And digital ad impressions served for direct access clients rose 72% quarter over quarter. We are also in late stage discussions with a number of large organizations about potential 2023 engagements. Importantly, direct access is complimentary to our managed programmatic offering. It expands our addressable market to include those brand and agency customers who wish to transact in a self-service capacity, allowing us to now transact with all advertisers, regardless of size, internal resources, or campaign complexity. Direct access addresses the needs of customers with media trading expertise and execution resources, whereas the managed programmatic model is well suited for customers focusing on complex KPIs who desire additional support and value-added benefits, including strategy, creative, and campaign optimization and execution. We are also very pleased with the market validation we are seeing. Customers appreciate our industry-leading price transparency. our platform optimizers and tools which drive performance and efficiency, and the intuitiveness of our enhanced workflows and UI, which operationalize complex ML capabilities. We are having business development discussions with bigger players, and we have a value-adding case for inclusion in their programmatic tech stacks. We are encouraged that sophisticated agencies and brands are telling us that our platform and capabilities fill needed gaps and provide incremental value as compared to DSPs and other solutions they are using now. We are making progress proving our value explicitly through platform evaluations and we are highly confident that customers can leverage our platform to meaningfully improve return on ad spend. I also want to talk briefly about one new capability introduced during the third quarter and provide a quick update on another. First, we introduced search and social capabilities. expanding into YouTube, Google search, and meta platforms to accommodate our customer's desire to activate with Adtherent across the entire digital ecosystem. Adtherent's data-driven approach to advertising is well suited for this expansion because we are able to leverage our data and machine learning to connect the dots between search and social investments and programmatic media, inform our programmatic media buying with search and social data, and capture a larger percentage of customers' media budgets. Also, I'd like to give a quick update on our previously discussed work to leverage natural language processing and keyword analysis as part of our impression scoring system. During the third quarter, we scaled our NLP framework to scrape and extract keyword attributes from 500,000 sites daily. Additionally, these contextual signals, which are not dependent on user IDs, have been incorporated into all of our CPA predictive models. Since introducing these attributes, 92% of our CPA models, as part of the automated feature selection processes, have adopted keyword signals as a model feature, impacting model performance. And in A-B testing, we have seen significant increases in KPI performance by models leveraging keyword attributes. Our industry-leading campaign KPI performance does not happen by accident. It is the result of hard work and the expertise of our team in building and using technology to drive positive outcomes. In our next phase of this work, we will incorporate sentiment analysis into our NLP framework. Switching to the macro backdrop and looking ahead. Many of the dynamics we discussed last quarter remain unchanged. including reduced ad budgets, campaign deferments, and diminished visibility. But as I noted at the outset of the call, although we are closing out 2022 in a challenging spending environment, we approach the end of the year with optimism and high confidence that we'll perform very well in categories that we can control. Advertiser sentiment appeared to bottom out in late August and improved incrementally throughout the balance of the quarter. September showed the strongest demand in the quarter and these slightly more robust trends have continued in the fourth quarter to date. In light of the ongoing uncertainty and economic crosswinds impacting our industry and business, we took measures to further reduce operating expenses during the quarter. These actions will save us over $3 million annually starting in the fourth quarter. As the macro headwinds subside, the steps we are taking both in terms of investments and innovation and operating with a leaner cost structure will enable us to fulfill our commitment to generating strong top line growth and returning to historical levels of profitability. We remain convinced that especially in periods of economic volatility, the ability to drive industry leading performance and deliver best in class return on ad spend, all using ID agnostic privacy forward methods that customers crave will ultimately prove the value of Adderent's unique product portfolio. We have no debt, we operate profitably, we have a high-performing platform, and we are bringing to market platform capabilities that customers want and need. Today, I discussed a few of the advantages we bring to market, which we believe will fuel adoption and growth. Our platform is our product, and there are now many new ways for customers to receive the value we deliver. Timing is everything. We used Q3 to complete and deploy critical enhancements to our direct access line of business and expand and refine our vertical offerings, including launching adherent health predictive audiences and establishing a foundation to deliver predictive audiences across a range of growth verticals. We are confident that these focus areas will be a big part of our success in 2023, and our excellent team is locked in on getting that done. With that, I'll turn it over to Chuck.