AdTheorent Holding Company, Inc.

Thank you for standing by and welcome to Ed Therent's fourth quarter and full year 2023 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 Ed Therent's fourth quarter and full year 2023 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are AdParrott's Chief Executive Officer, Jim Lawson, and Chief Financial Officer, Patrick Elliott. 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 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 based upon information available to us today, and we assume no obligation to update any such statements 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 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 otherwise. With that, let me turn the call over to Jim.

Thank you, David, and good afternoon, everyone. Thank you for joining our fourth quarter 2023 earnings call. During today's call, I will discuss our high-level results for the fourth quarter and the full year 2023, provide a progress update on our key areas of investment and finish up with a discussion about our exciting product innovation plans, including how we expect Adderen's machine learning platform to benefit from Google's cookie deprecation and other regulatory pressures and market dynamics which disfavor ID-focused ad targeting. I'm pleased to report that in the fourth quarter, we generated revenue, adjusted gross profit, and adjusted EBITDA above the high end of our outlook ranges. Our differentiated machine learning approach to scoring ad impressions, which delivers consistent best-in-class return on ad spend for our customers, continues to generate heightened interest and engagement, leading to greater spend on our platform. In the fourth quarter, we generated $59.7 million in revenue, a 15% year-over-year growth rate. This accelerated growth, combined with prudent cost management, drove significant operating leverage, yielding $13.6 million of adjusted EBITDA, a 34% margin, and 35% growth year-over-year. Once again, we outperformed in our high-priority growth sectors, including self-service, adherent health, which saw revenue growth of 89% in Q4, and our predictive audience products, all of which continue to see robust customer adoption. Over the past year, we have meaningfully accelerated our growth trajectory by layering these incremental innovations on top of our highly differentiated ML-powered DSP. As a reminder, we have been productizing and operationalizing advanced machine learning, a branch of artificial intelligence, since early 2012. Now with a macro picture that appears to be in the beginning stages of stabilization, and a greater technological lead in algorithm-based programmatic ad targeting, we look to the future confident in our ability to drive durable growth. I'll now discuss each of these growth pillars in more detail. First, on self-service. As I've stated in prior calls, developing and scaling our self-service platform is helping AdTherent more fully monetize the industry's most sophisticated ad decisioning engine. Momentum continued to build in Q4, with self-service revenue up 136% year-over-year, driven by record activity, impressions served, and platform spend. Overall revenue contribution remains relatively small, but our self-service delivery platform is already opening doors and attracting and retaining larger media buying customers. In particular, we're excited to note that several large media buyers adopted our self-service platform in the fourth quarter. In addition, two global holding companies completed platform evaluations and signed post-evaluation platform agreements in the first quarter. And a third hold co-evaluation is in progress. Adding the self-service delivery model enables us to generate the same outstanding campaign results regardless of how customers choose to transact on the platform. keeping customers on the platform longer. As our independent agency customer base grows and their internal ad buying and campaign management capabilities evolve, we can seamlessly include self-service as a component. These customers still access our managed service and creative resources as needed, translating to higher overall spend on the Adtherent platform. And with larger global holding companies, our self-service offering is an exciting driver of meaningful revenue growth as those customers scale their use of the platform. Second, I'd like to talk about our progress with Add Theron Health. Despite being our largest industry offering, Q4 Add Theron Health revenue grew 89% year-over-year as a number of industry cross-currents and Add Theron innovations accelerated demand. Nowhere is the need for a powerful and privacy-forward demand-side partner more acute than in a highly regulated healthcare industry. Many Adtheron Health customers are subject to stringent privacy regulations with tight restrictions on the use of personal data, driving them towards Adtheron over ID-dependent DSPs. Because our algorithms score and serve ad impressions based on statistical insights and probabilities and not individualized user data, We believe we represent the future of healthcare programmatic advertising. On our Q3 call, we discussed strong early demand for trials and demos using our Health Audience Builder product, or HABI. These and subsequent demos have converted into increased demand and incremental revenue. We are confident we will continue to gain share within the large and growing healthcare advertising space as other generalist DSPs lack our domain expertise, privacy benefits, and advanced machine learning capabilities. Moving to adherent predictive audiences. We are thrilled with the market validation we have witnessed since the launch of these innovative solutions in late 2022. Advertisers continue to adopt our proprietary ID-independent methodology for audience creation. citing the superior results we deliver without the need to license expensive third-party audiences and our ability to expand their reach beyond traditional ID-based segment populations, which are the focus of other platforms. In Q4, we saw another record increase in attach rates for predictive audiences, with 85 active campaigns running at their predictive audiences, a 29% sequential increase from the 66 active campaigns in Q3. Strong demand and customer uptake trends are driven by our ability to demonstrate repeatedly an uplift in campaign performance versus third-party audiences, and our ability to perform in a transparent and privacy-conscious manner. To cite one example, in a campaign for a national wine brand, our custom predictive audiences sought to reach consumers age 21+, with a high likelihood of visiting wine and liquor stores, as well as a high likelihood of browsing wine and cooking websites and publications. The campaign drove an 18% sales lift, with 49% of buyers being new to the brand or category, and a five times return on ad spend for the brand, as measured by an independent third party. Ad-their predictive audiences deliver better ROI for customers and drive greater adoption of our platform. which in turn drove greater profitability in Q4. We believe significant runway remains as we drive higher adoption across our advertiser base over time. Finally, I would like to discuss our enthusiasm around CTV and the foundation for growth that we have established in this important market opportunity. Our differentiated performance-oriented CTV offering continues to resonate with advertisers, driving higher demand. As previewed with third quarter earnings, in Q4, we introduced a normalized network and channel taxonomy for targeting, reporting, and modeling. This is important because there is no standardization in CTV content data across publishers. In other words, the data received by DSPs from publishers is fragmented and messy. By leveraging our proprietary approach to analyzing and normalizing this content data, The vast majority of our live television impressions have a targetable and reportable network and channel. This has created a scalable solution for CTV buyers seeking a more precise way of ensuring that ads are adjacent to the desired content. Network and channel data is also leveraged in our machine learning modeling, adding valuable signals for our custom models to maximize performance. Our ability to utilize advanced machine learning and impression scoring capabilities on CTV to deliver a transparent and granular solution is industry leading and advertisers are leaning in. CTV momentum remains strong within self-service with advertiser count up 87% compared to the third quarter of 2023, driving 12% sequential growth of CTV advertisers. As the demand composition shifts towards self-service, however, revenue is recognized more heavily on a net basis. While this is pressuring near-term CTV revenue, which was down 12.5% year-over-year, we believe overall CTV growth will re-accelerate as we continue to enhance our CTV solutions and as advertisers continue to ramp up spend. Moving to Outlook. In 2024, we plan to build on our notable progress in 2023. Despite a mixed environment and pressure on ad budgets, we returned to meaningful growth in the second half of the year. We also remained very profitable despite high levels of investment behind initiatives that will drive growth in 2024 and beyond. The broader economy remains mixed, but we are engaged and active with larger customers, and we are encouraged by what we are seeing relative to 2024 budgets and customer planning. Also, as we have discussed in the past, a major industry development, cookie deprecation, will reinforce Ad Theran's value proposition in 2024. I'd like to update investors on recent events and how Ad Theran is positioned to benefit from these cross-currents. At the beginning of January, Google officially began eliminating cookies from the Chrome browser. As of last month, Cookies are now restricted for 1% of Chrome users, and the remaining 99% will be eliminated by the end of the third quarter. This isn't new news, but the reality of cookie deprecation and other concerns around privacy are going to force advertisers to reevaluate their approach to targeting consumers. As noted in a January Wall Street Journal article, Many advertisers still aren't ready for this change, showing that industry media buying behaviors have yet to shift, despite the imminent deadline to do so. For Adtheorant, this is a huge opportunity. We have a clear view of the post-cookie future, including how our machine learning systems will leverage Google's APIs and aggregate data exchanges as part of the post-cookie privacy framework. And we've been active with our customers preparing for the opportunity. As we have discussed, Adtheron is immune to cookie deprecation because unlike other DSPs, we are data agnostic. And in our 12-year history, we have never relied on cookies for targeting. We've always used machine learning, algorithms, and statistical models which draw inferences from patterns in data to score ad impressions. We are not in the ID targeting business. Other demand-side platforms have historically used cookie-based IDs and are now scrambling to backfill with other, even less effective and scale-challenged, alternate user IDs. As cookies are phased out over the next few quarters, adherence to competitive moat and superior value proposition will naturally expand versus other solutions in the market. Before I conclude, I want to highlight a few meaningful innovations that we plan to bring to market over the next four quarters. First, as I mentioned, we are excited by the opportunity to lead digital advertisers into the post-cookie world, and our tech product and data science teams are hard at work configuring our machine learning systems to leverage Google APIs and aggregate data exchanges as part of the post-cookie privacy framework. Second, in parallel with our introduction into market of a custom health version of our platform, we are excited to be incorporating generative AI and large language models into HABI, our health audience builder, to facilitate user health audience research and creation. Using this advanced AI functionality, non-experts can explore complex health and patient data to develop audience algorithms for ad campaigns. Third, as we work to enhance our video and CTV offering, We are excited to be incorporating video transcription data into our performance modeling. Extracting keywords from video creative transcripts, introducing such additional contextual signals will make our CTV and video campaigns more data-driven. Fourth, we expect significant business upside from our enhanced UI UX rollout across our health and non-health lines of business, so our teams remain highly focused there. And finally, before turning the call over to Patrick, I'm pleased to note that we received more industry recognition for our work elevating the state of programmatic advertising across the open internet. Frost and Sullivan, a 63-year-old business consulting and market research firm, named Adtherent a leader in the Frost Radar for Demand side platforms. The Frost Radar evaluated the top 13 DSPs, and Adtherent was ranked number three in innovation trailing just two much larger competitors. I would like to conclude my remarks by acknowledging the AdDarren team, whose expertise, dedication, and resilience enabled us to finish 2023 and open 2024 on a high note with great optimism for what is to come. Now I'll turn the call over to Patrick.