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spk02: Ladies and gentlemen, thank you for standing by and welcome to the Digital Media Solutions third quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Edward Parker, Head of Investor Relations. Thank you. Please go ahead.
spk01: Thank you for joining us to discuss EMS's financial results for the third quarter of 2020. With me on the call are Joe Maranucci, co-founder and CEO, and Randy Kubik, CFO. By now, everyone should have access to our earnings announcement. This announcement may also be found on our Investor Relations website. Before we begin, I would like to call your attention to our safe harbor provision for forward-looking statements in our financial results press release. The Safe Harbor version identifies risk factors that may cause actual results to differ materially from the contents of our forward-looking statements. For a more detailed description of the risk factors that may affect our results, including disclosure about the effects of the coronavirus outbreak, please refer to our financial results press release and our SEC filings, including the registration statement filed on Form S-1 in August. Also during this call, management's commentary will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for our reported results can be found in the tables of our financial results press release, which have been posted to our investor relations website at investors.digitalmediasolutions.com. The additional financial and other information to be discussed on this call can also be found on our investor relations website. Now, I'd like to turn the call over to Joe.
spk03: Thank you, Edward, and good afternoon. And thanks to everyone for joining us today on our second earnings call as a publicly traded company. We are happy to report another quarter of strong growth as we execute on our proven strategy of providing digital performance advertising solutions that connect digital advertising clients with their prospective customers. During Q3, we saw significant expansion in our insurance vertical, and we reached a meaningful volume milestone as we grew both our client base and the revenue from existing clients. More to come on that ahead. Because our digital performance advertising solutions effectively de-risk ad spend while helping our advertiser clients connect with more consumers to expand the number of customers to whom they deliver products and services, we are anticipating over-index growth in Q4 as the digital advertising transformation intersects with an anticipated record-setting OEP and holiday season. Execution continues to be strong, delivering robust sequential growth with particular strength in auto insurance, health insurance, including Medicare and private insurance, and e-commerce, with the pandemic proving to be an accelerator for our business. With that said, coronavirus continues to be a health challenge for the United States, and our thoughts continue to be with everyone who has been impacted. Turning back to our results, as we near the end of 2020, we're seeing many encouraging trends, including consumer shopping for more products online, which has hastened the ongoing shift from offline to online advertising, continued and growing strength in many of our core verticals, and the resumption and acceleration of ad budgets that were delayed and deferred earlier in the year as a result of COVID-19. We experienced strong results as we closed Q3 in September and have continued to see additional linear expansion in October and into November and are expecting a very strong finish to the year. I'll expand on this in a moment. We're clearly excited about BMS's strong position to serve the large and growing digital advertising market, with U.S. digital ad spend expected to reach $130 billion in 2020. By leveraging our proprietary advertising technology and first-party data assets, we help our advertiser clients efficiently deploy ad dollars that result in them interacting and engaging with new customers. Let me begin with some third quarter highlights. In the face of unprecedented volatility and uncertainty, we're pleased with our execution in the quarter, as our business benefited from sustained secular demand from digital performance advertising solutions. Our Q3 adjusted revenue finished at $85 million, representing growth of 11% quarter over quarter and 43% year over year. Specifically, we've seen outpaced growth within the insurance segment of our business. Again, we'll touch on this a bit more later in the call. Our adjusted EBITDA for Q3 totaled $14 million, representing growth of 8% quarter-over-quarter and an adjusted EBITDA margin of approximately 16.5%. Randy Kubik, our CFO, will provide more detail on Q3 2020 financial results in a moment. Now, I will drill down a bit more into our third quarter results. As I mentioned, we are pleased with our strong sequential growth. Against the backdrop of an accelerating shift from offline to online advertising, marketers are increasingly demanding partners that can prove clear ROI on ad spend. Because DMS works on a pay-for-performance model, our digital performance advertising solutions provide a transparent ROI measurement and predictive capabilities for our advertiser clients. As a result, there is clear attribution with regard to media dollars spent on consumer engagement and customers acquired, and we continue to see these trends play out in our favor. The more success advertiser clients have with a DMS solution, the more ad budget they shift to DMS to scale their campaigns. In fact, our top 20 advertiser clients scaled their ad spend by 4% quarter over quarter and our top 10 insurance advertiser clients increased their spending with us eight percent from q2 to q3 additionally many of our verticals such as insurance financial services healthcare and automotive are still in the early stages of a transition away from advertising on traditional media channels like tv to advertising on digital media channels that we utilize to better illustrate this point the auto insurance industry is projected to invest 72% of its advertising budget in digital by 2024. For example, during Q3, we saw continued strong momentum in our auto insurance vertical. Using numbers to quantify this momentum, On our Quotes of Marketplace, we saw quote request volume scale 52.3% from Q2 to Q3 2020. This increase in quote requests resulted in quotes of related revenue climbing by 88.3% during the same period. During Q3, we surpassed a meaningful milestone for the number of consumer insurance quote requests provided by ZipQuote, our insurance agent platform. As of July, 6 million consumers have been connected with auto insurance carriers through ZipQuote. Our insurance vertical exists across both brand direct and marketplace solutions. The stats previously mentioned are with regard to our marketplace insurance business. For our brand direct solutions, Business serving the auto insurance market increased by 48% in Q3, a $3.9 million increase over Q2, with major insurers who leverage our digital media platform, engaging more consumers across a wide range of digital channels at scale to increase their quote requests. Shifting away from auto insurance, our business also serves the life insurance, health insurance, and Medicare categories. and for the last two categories we've made necessary investments in q3 which set us up for the aep and oep period happening this quarter more to come on that later Across our entire business, we signed on 33 new advertising clients in Q3, including two Fortune 100 insurance providers and other leading brands across insurance, home services, e-commerce, consumer finance, education, nonprofit, and other verticals. While we experienced revenue growth during Q3 as a result of this new business, we anticipate that much of the benefit of those new advertiser clients will be recognized in Q4 and beyond. In addition to being in the midst of their transition to digital advertising, these verticals I just mentioned are highly competitive verticals because of their significant ad spend. As we continue to expand our wallet share in these areas, we sometimes must do so at lower margins for a period of time. This is the result of expanding existing distribution channels like search, social, display, and native, while at the same time adding new media channels like connected TV. Moving on to Q4, the SmarterCAS acquisition has been integrated and harmonized into the broader DMS ecosystem, and one of our new e-commerce advertiser clients is a global platform for custom tech accessories, delivering high-quality products to millions of consumers around the world. Their latest collection is benefiting from alignment with the recent iPhone 12 launch. On behalf of this advertiser client, we are leveraging digital performance advertising to promote their iPhone 12, iPhone 12 Mini, iPhone 12 Pro, iPhone 12 Pro Max accessories for which sales are currently at escalated levels. In addition, this e-commerce brand has recently launched mobile phone accessories made from and packaged within recycled materials. and they also have a new anti-microbial phone case product line. We expect demand for the mobile handset accessories, including the iPhone 12, to continue throughout the holiday season. The DMS advertiser client roster also includes many well-known and trusted nonprofit organizations who work with DMS to recruit sustained donors. Sustained donors are donors who make recurring monthly donations, like subscriptions. Compared to 2019, we've added four new nonprofit advertiser clients, and we have grown sustained donor volume by more than 60% over 2019 for our core nonprofit advertiser clients. This sustained donor growth is very important this year as the pandemic has forced nonprofits to suspend their face-to-face canvassing and other in-person fundraising efforts. As a result, many nonprofit organizations have shifted large portions of their donor recruitment budgets to digital performance advertising, which delivers results while de-risking media spend. Previously in this call, I mentioned the positive impact digital advertising has experienced as a result of COVID-19. During the early days of the pandemic, we saw major brands pulling and deferring ad budgets while prioritizing resources for a work-from-home transition. Starting in late April and through the summer, coronavirus has been an accelerator for digital ad spending. Advertisers within our core verticals are now spending more to leverage our audience reach and achieve significant impression volume across digital media channels, including social, search, display, and native to target, connect with, and convert high intent consumers. COVID has hastened the adoption of online shopping across all generations, and we believe this is a trend that will continue for the long term, with people prioritizing online shopping for all products and services even once life returns to normal in a post-COVID environment. As a result of consumers shopping more online and advertisers continuing to transition their advertising spend to digital channels, we've experienced linear month-over-month revenue growth since the end of Q2. We've expected and planned for advertisers to defer a significant amount of ad spend to the second half of 2020, and this has come true as advertisers continue to increase digital ad spending to achieve their 2020 business goals. Already, we are seeing early signs of a super seasonality bump that will lead to Q4 over-indexing in comparison to prior years. As a result, we believe that our full-year revenue will be weighted more towards the fourth quarter than we previously expected. We expect an approximate 50% increase in Q4 2020 versus the prior year. As we look ahead to Q4, I want to spend a minute digging into the dynamics that underpin our confidence in what we believe will be a very strong end to our fiscal year. The fourth quarter is our seasonally strongest quarter of the year, as Medicare annual open enrollment and the broader open enrollment are both housed in Q4. Holiday-related e-commerce spending drives a significant quarter-over-quarter increase in demand for digital performance advertising. First, with regards to the holidays, it's an understatement to say that 2020 is not a typical year. As a result of the pandemic, we expect the surge across the e-commerce landscape throughout the summer to continue, driving a record holiday spending season. While in-store retail overall is expected to be soft this year, e-commerce holiday sales are projected to be up 35.8%, or $50 billion, to $190.47 billion, according to eMarketer data. Holiday season e-commerce has been steadily rising in the past decade, but this year's projected holiday season increase is more than double last year's growth. Second, we are expecting momentum in our insurance vertical to continue with rapid growth in the fourth quarter. Specifically, we expect the significant growth in Medicare Advantage plans and the corresponding decrease in premiums will drive more online applications as consumers look to price shop for the right coverage. And due to coronavirus concerns, only 9% of Medicare recipients said they plan to meet with a broker in person this year, which means the digital ad spend against online Medicare Advantage enrollment is expected to be up substantially. Shopping online for health insurance during open enrollment has also been predicted to be high this year, which is the result of more health plan choices in 2020 compared to prior years, plus anticipated modest cost increases and the increased desire of consumers to shop online. we have prepared for a record-setting AEP and OEP season internally by leveraging our brand direct and marketplace solutions. To provide some context to these health insurance drivers, as of September 30th, we had matched 1 million consumers with health insurance providers that meet their specific needs. And we are seeing data which supports our expected 165% growth in revenue in AEP and OEP in 2020 versus the $3.9 million in revenue in 2019 across both our marketplace and brand direct solutions. Furthermore, we've had a strong start to the current quarter as we are seeing continued acceleration led by super seasonal ad spend and brand direct and marketplace solutions in excess of our initial forecast. We particularly expect to see over-indexing inside of the insurance and e-commerce categories. As a result, we believe we are in a good position to deliver strong results in Q4 as the extended digital advertising transformation intersects with COVID-driven online shopping growth during the open enrollment and holiday shopping seasons. Plus, we believe the current environment is adding pressure for advertisers to spend their dollars as effectively as possible. And even the largest brands have shown a need to quickly pivot to optimize advertising spend and performance to match audience mindsets and preferences. Only digital performance advertising offers this type of agility and ROI transparency. I'd now like to take a quick moment to present a new scorecard concept we are preparing to launch for Q4. As previously mentioned, through our sequential and long-term growth performance, we continue to scale the breadth of our consumer engagement as we connect our advertiser clients with consumers across the country. Our reach was approximately 70% of the U.S. adult population in Q3. And across this audience, our campaigns tallied approximately 10 engagements per consumer, gathering more than 6 billion data points. This expansive reach and frequency puts us in a unique position to measure the efficacy of digital advertising spend. With the amount of time Americans spend online, and especially on social media continuing to grow, consumers are increasingly researching products and services, shopping and spending online. Advertisers are following the consumers. hastening the transition of their advertising spend to digital channels to connect with consumers where they are. BMS digital performance advertising solutions provide linear ROI calculations, but not all digital advertising allows for the same transparency. Leveraging our sophisticated proprietary advertising technology, Beginning with our Q4 earnings report, we plan to share our new benchmarks, what we will call the DMS Consumer Engagement Score, or CES. The DMS Consumer Engagement Score will precisely define and demonstrate our total engagement by solution and vertical. The CES will also report on the directly correlated efficacy and ROI of engagements in the form of numerical KPIs. Our objective with the DMS consumer engagement score is twofold. First, we plan to quantifiably demonstrate the increasing scale of our digital performance advertising solutions, the acceleration of our consumer reach, and the ROI impact of our solutions. And second, due to our expansive reach and the scale of our business, We believe the DMS Consumer Engagement Score will serve as a benchmark for the digital advertising industry, providing metrics related to conversion rates and ROI. In summary, I'm proud of the results we posted during Q3, including record quarterly revenue and meaningfully scaled insurance growth. We're excited about the breadth of opportunities that our large and growing addressable market strong competitive position diverse client base and robust suite of differentiated services and solutions provide us for what we anticipate to be over index growth in q4 and we look forward to continuing to drive long-term shareholder value with that let me turn it over to randy kubek good afternoon everyone we hope that you're all keeping safe and healthy
spk05: I'll start by providing a brief overview of our business model, and then I'll go through our third quarter results before moving on to our guidance for fiscal 2020. DMS is a global solutions provider providing top-down, omnichannel, digital performance advertising solutions. Our business generates revenue primarily through the delivery of a variety of performance-based digital advertising services, which include our brand direct and marketplace solutions, as well as our other solutions, which encompass our SaaS technology. We primarily provide services on a principal basis, with the result that we recognize revenue on a gross basis for those services. With regard to certain contracts associated with one of our prior acquisitions, however, due to technical accounting practices, we are deemed to be acting on an agency basis, and a small portion of our revenue is recognized on a net basis. However, we view our business holistically and build our guidance based on performance with that regard to accounting treatment of individual contracts. While over time we expect to transition most of these contracts to a principal basis, we have introduced adjusted revenue as a non-GAAP measure to be able to compare our actual performance against our forecast. This measure treats all our contracts on a consistent basis. Note that adjusting for the treatment of these contracts has no effect on gross profit, EBITDA, net income, or earnings per share. Adjusting for these contracts, adjusted revenue for Q3 is $85.1 million, up sequentially by $8.4 million, or 11%, and $59.4 million, or 43%, from Q3 prior year. On a year-to-date basis, adjusted revenues are $236.5 million, an increase of $58 million, or 33% year-over-year. On a reported basis for the third quarter, revenue was $82.8 million, an increase of 10.2% from Q2 2020, and approximately 44% over the same quarter last year. On a year-to-date basis, reported revenues of $230.8 million increased $58 million, or 33%, year-over-year. The sequential increase in our revenue was primarily due to growth within the insurance vertical and growth in consumer brands across both the marketplace and brand direct solution segments, in addition to the Q3 2020 Swarter Chaos acquisition. This is best highlighted by the continued growth in our top 10 insurance customers, up 2 million or 8% sequentially from Q2. As Joe mentioned, we are pleased with our execution given a challenging environment, and we are seeing customers deploying previously deferred ad dollars at an increasing rate. Breaking down our revenue by segment. Brand direct performance solution revenue in the quarter was $49.2 million, up 9% sequentially and 11% year-over-year. Marketplace solutions revenue of $39.5 million increased 12% from Q2 due to the growth in insurance sector revenues. Marketplace solutions increased 154% year-over-year, propelled by growth in the insurance market. Other solutions revenue of $2.9 million is up 112% from Q2 and of 99% year-over-year. Contributing to this growth was the Q3 acquisition. Other solutions revenue as adjusted to the treatment of former agency contracts previously noted was $5.2 million, an increase of 86% from prior quarter as adjusted. In regards to gross margin and gross profit, The company has experienced rapid revenue expansion and is focused on high growth, highly competitive verticals with significant digital advertising spend. As we continue to expand in such areas, we sometimes have to do so at relatively lower margins to gain market share, which lowers segment and consolidated margins. Our margin is subject to quarterly variation, primarily due to changes in sales mix, as segments of our business carry different margin profiles. We do believe that over longer periods of time, margins will remain stable and consistent with prior trends. In the third quarter, reported gross margin was 30.2%, similar to Q2, and compared to 32.1% for the same quarter a year ago. Year-to-date reported gross margin was 30.5%, compared to 32.4% for the prior year-to-date. Breaking down GAAP reported gross margin by segment. Q3 brand direct gross margin was 23.1%, down from 24.1% in Q2 2020, and down slightly from 24.5% the same quarter last year. The margin was influenced by substantial diversification in our distribution channels as we continued to scale growth. Q3 marketplace solutions gross margin was 30%, in line sequentially and down from 39.7% a year-ago period. This segment is heavily weighted by a rapid expansion into the insurance market, which carries gross margins approximately 30%. It is important to note in the prior year, this segment reflected the net revenue accounts noted previously at 100% margin, while current quarter reflects the 2020 Q3 Smarter Chaos acquisition at an approximate 30% margin. On an adjusted revenue basis, other gross margins normalized for these contracts was 35.4% in Q3, down from 43.1% sequentially. And year-to-date gross margin was 29.8% versus 31.4% for the same period in 2019. We are focused on driving efficiency and expect to continue to see cost benefits as we scale our business. As such, we believe that over time we are targeting to maintain a gross margin of 30% or higher. Turning to operating expenses, we remained focused on improving leverage in our business while balancing our investments for growth. Our total operating expenses were $22.2 million in the third quarter, an increase of $5.2 million, or 30.8% from Q2 2020, and down 11.3% year-over-year. The increase in the prior quarter is largely attributable to $3.2 million of business combination expenses and acquisition-related costs, and $1 million in facilities contract termination reserves. Exclusive of these non-recurring and acquisition expenses, the net increase in operating expenses from the prior quarter was approximately $900,000, attributable to increased insurance, professional fees, and other public company regulatory expenses. As a percent of revenue, total OpEx was 26.8% in the third quarter, up from 22.5% in Q2 2020. Exclusive of the above-mentioned restructuring and business expenses, operating expenses are 22.1% down slightly from 22.5% from prior quarter, illustrating continued operating leverage initiatives. Salaries and related costs in the third quarter were $7.9 million, an increase of 19.4% year-over-year, and essentially flat from Q2 2020. The year-over-year increase was due to workforce expansion in our marketplace segment, an increase in commissions due to our revenue increases, and the Q3 2020 acquisition of Smarter KS. In addition, salaries are down as a percent of revenue, representing 9.5% of total revenue, down from 11.5% of total revenue for the same period in the prior year. The sequential decline in salaries and related costs as percent of revenue reflect efficiency gains in our platform. SG&E expense was $6.4 million for the quarter, representing 7.7% of total revenue and in line with previous year. We ended the quarter with a total headcount of approximately 380 full-time employees. In terms of profitability, Adjusted EBITDA in the third quarter was $14 million, or an adjusted EBITDA margin of approximately 17%. This represents growth of 8% from Q2 and 4% increase from Q3 2019. The sequential improvement is attributable to a 10% increase in reported revenues quarter over quarter. Net loss in the third quarter was $2.2 million, down 202% from Q2 due to the business combination plus acquisition-related and restructuring expenses of 4.2 mentioned previously. Q3 earnings per share of 4 cents of Class A common stock is based on 32.3 million shares outstanding. Shares of the company's Class B common stock, totaling 25.9 million shares, the non-controlling interest in DMS Inc. do not participate in the earnings or losses of the company. and are therefore not participating in securities for earnings per share purposes. Only earnings from 7-15, the date of recapitalization, through 9-30 are used to determine EPS. Prior to the business combination that closed on 7-15, 2020, and resulted in DMS becoming a public company, the equity structure of DMS holdings included multiple classes of units with different economic interests. that do not correspond to the current equity structure. Calculations of earnings per unit for periods prior to the business combination, therefore, would not provide meaningful comparison to earnings per share for periods after the business combination. For this reason, earnings per share information has not been presented for periods prior to the business combination. We have an effective tax rate of 74.2% in the quarter, which varies greatly from the statutory tax rate of 21% due to a significant portion of our operations in digital media solutions holding. A partnership for federal and state income tax purposes, which is not applicable to DMS Inc., and therefore not subject to the statutory tax rate of 21%. Cash flow from operations was $3.7 million, or 4.4% of net revenue. This has improved by $1 million sequentially. Unlevered free cash flow was $11.6 million in Q3, up sequentially from $11 million in the second quarter of 2020, and in line with $11.8 million last year. Lastly, turning to the balance sheet and liquidity, we ended the quarter with $24.5 million cash, cash equivalents, and marketable securities. And our total debt net of issuance cost was $197.1 million. At September 30 of 2020, our total net leverage ratio is 3.87x. Additionally, we have an available balance on our revolving credit facility of $11 million and $6.5 million available in delayed term loan draw for future acquisitions. Looking forward, we expect continued positive cash flow generation with similar high returns unlevered free cash flow conversion rates in line with historical performance of 80% to 90% of adjusted EBITDA. To note, most of our adjusted EBITDA drops to normalize free cash flow due to the relatively low capital requirements of our business model. We are comfortable that these factors will provide sufficient cash generation and liquidity, and we do not anticipate needing additional financing with the exception for potential acquisition activity. Now, turning to our outlook for fiscal 2020, we continue to be excited about the momentum we're seeing for our digital advertising solutions, especially in the insurance vertical, demonstrated by record quarterly revenue in Q3. We believe we are in a good position to deliver strong results for Q4 as the digital advertising transformation intersects with COVID-driven online shopping growth during the open enrollment and holiday seasons. As Jill noted, the resumption of ad budgets that were delayed and deferred earlier in the year as a result of COVID-19 has accelerated, but there's still uncertainty around the total spend we will see heading into unique holiday season as we approach year-end. With this in mind, we currently expect 2020 adjusted revenues of $335 to $340 million, including adjusted revenues noted previously amounting to approximately $7 million. and adjusted EBITDA of $54 to $57 million. This guidance contemplates an ongoing strong secular backdrop for e-commerce and digital performance advertising, typical seasonal strength for digital ad spending during the holidays, the aforementioned catch-up spending of deferred budgets, and the continuation of our strategy for organic growth discussed earlier by Joe. In summary, we are pleased with our financial performance and remain optimistic about the underlying strength of our business over the long term. PMS is a highly resilient business model, and we've proven our ability to perform well. With that, Joe and I are happy to take questions.
spk02: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. And your first question comes from the line of Nick Jones from Citigroup. Your line is open.
spk04: Great. Thanks for taking the questions, a couple, if I can. I guess first, can you talk about some of the other channels? You know, it's clear that insurance has been pretty strong, but maybe, you know, autos outside of auto insurance and retail. You know, what trends are you seeing there? You know, auto is plagued with kind of supply constraints. How is that kind of impacting, I guess... the auto segment and auto insurance in terms of being able to convert people into auto insurers. And then, you know, anything you're seeing across the retail channel, you know, maybe traction on DMS exchange. You know, we've heard favorable rates in terms of customer acquisition within the retail channel from, you know, larger e-commerce players. I guess any color there and then a follow-up. Thanks.
spk03: Hey, Nick. Good evening. This is Joe Marinucci speaking. Good to be on with you again. So with regards to, I guess I'll take the auto insurance question first. I think the question was specifically what are we seeing there? What trends are we noticing? I think specifically you're noting that it is a competitive marketplace. So you know we look at quote volume as a key performance indicator there and we saw quote request volume scale from q q to q3 as noted uh by over 50 exactly 52.3 percent uh and that translated into a revenue increase for us on the marketplace side specifically inside our marketplace by almost 90 percent specifically 88.3 percent so we look at that from two perspectives, gaining impression share and then gaining wallet share, both being true here. We've continued to gain impression share, which is what's driving the increase in request volume, and we continue to gain WalletShare, with existing customers, and as noted, we've also picked up a couple of new customers in the insurance vertical this year. Outside of that, as noted on the call, we do quite a bit of work in other lines of insurance. We noted Medicare and short-term health as well as life. All of those categories are growing for the same reasons that automotive insurance is growing. So maybe I'll pause there because it seemed like we had a three-part question, and I want to make sure I hit every part equally.
spk04: Yeah, I think that's helpful on autos. I think the next is really just around what you're seeing or hearing from your clients on the retail side and then, I guess, any commentary on DMS Exchange, which you guys announced back in October.
spk03: Right. So I'll take on the e-commerce side. So we have a lot of consumer brands that we work with. We had a mini case study in there in terms of the study itself, and then they are clearly an accessory provider to the mobile handset marketplace. You know, one of those accessories being cases themselves. And, you know, generally we're seeing, as is expected and has been publicized, very strong demand on the e-commerce side. And, you know, for us, it's really a matter of just matching up with the specific advertiser client's KPIs and in terms of what their allowable spend versus lifetime value of the customer is against customer acquisition costs. So, you know, with retail falling off pretty precipitously as a result of the pandemic and a variety of other factors which are very unfortunate, you know, e-commerce trends continue to be strong. We continue to be able to gain impression share to serve those markets, much like I mentioned in the insurance segment. And we're seeing very encouraging results there as a result of just current trends, secular backdrop, and then the holiday season rapidly approaching. So very consistent across all the different verticals, especially in consumer brands. And there's a lot of diversity inside of consumer brands for us. Your next question. Okay. And then I guess just quickly on the DMS Exchange, it's really a self-service way to connect supply and demand across all verticals in the markets that we participate in. And the focus now is on the open enrollment periods, both AEP and OEP, that are open right now during this Q4. So we're seeing very encouraging trends as well with DMS Exchange, although, as you mentioned, that is relatively new.
spk04: um but again it is a self-service way to help connect supply and demand across all the verticals that we participate in great thanks and just uh one last question i wanted to sneak in if i could on this kind of uh you know capital allocation you know dms has been pretty aggressive in acquiring you know previous years how should we be thinking about the you know your appetite for acquisition and what the funnel looks like uh from here are you know our multiples too high
spk03: um any color there would be great thank you sure um so we've made the one acquisition this year which we commented on during the call which is the smarter chaos acquisition from the beginning of q3 and that's gone well uh it's been harmonized and integrated into the larger ecosystem we continue to be very active and inquisitive in terms of outreach with potential M&A targets. I wouldn't say that there is a competitive market that prohibits us from executing on future M&A. active discussions at all times. We're inquisitive. The fact that we've done one acquisition this year doesn't really say anything other than we thought very highly of that company, and it was a good match for us, and we thought it would be additive to our existing service solutions, which is why we executed on it. And first and foremost, organic growth is going to be our primary focus. And we really look at M&A as an accelerator behind that. And we're going to continue to opportunistically execute when we see good quality companies out there that match up with our service offerings that we know that we can acquire, integrate, and harmonize inside of our ecosystem. So we think that there are a number of good quality targets out there. We think that pricing is in line. We feel that we have sufficient resources to go out and to continue to execute on M&A, and I guess that's all I have to say there.
spk04: Great. That's helpful. Thank you.
spk02: Again, if you'd like to ask a question, press star 1 in your telephone. Your next question comes from the line of Maria Ripps from Canaccord. Your line is open.
spk00: Great. Thanks for the questions. I wanted to ask you about your consumer finance vertical. Some of your peers recently highlighted strength in that vertical. Can you just maybe share with us what you've seen on your end? And then I have a follow-up.
spk03: Yes. So, you know, for us, consumer finance is not as meaningful a category, say, as insurance is. or home services, or even the general consumer brands category, but it is still a category that we have clients in that we service. And I guess depending on which segment of the market you service, whether it's the card segment of the market, the mortgage segment of the market, or perhaps the personal lending segment of the market, the trends are different. For what we're seeing there, Maria, we're just seeing general stability across the clients that we currently service. We did not have a significant growth forecast for that segment of the business. The majority of our growth is coming out of insurance, consumer brands, and categories like home services and health and wellness. So it is a smaller category. It has been stable inside of the business. We do expect, as the I would say the economic recovery coming out of COVID picks up steam that we will see growth in that category in 2021. That's very helpful. Thank you.
spk00: And in the past, I think you highlighted sort of technology integration with clients as one of the key drivers going forward. Can you just please remind us what percent of your clients or what portion of your spend is sort of flowing through partners with tech integration? And how far along are you in the process? And are there any examples you can share with us in terms of sort of conversion improvement or better ROI for those partners that do have technology integrations?
spk03: Right. So we're always going to have a technology integration. I guess the difference would be the degree to which the depth of that technology integration is going to go with a particular client. And I would say it would go from a basic technology integration to a deep technology integration. And we have deep technology integration with Fortune 100 companies. And then all of the companies that we're dealing with, as I mentioned, we're going to have to have some level of technology integration with. And Even in the base technology integrations, you are talking about having two systems talking to each other, and the primary reason for that is the establishment of feedback loops so that we can effectively have our system speak to the advertising client system so that we can effectively measure the efficacy of the work that we're doing and help them achieve KPIs that have been pre-established prior to the engagement. In insurance, you're basically talking about cost per policy written as being a key performance indicator there. And in other verticals, you know, the KPIs vary. But it is that technology integration that allows us to manage those relationships and to measure the efficacy in the spend itself. So we're going to have those integrations with every client. And regardless of whether it is a base technology integration or, say, a deep technology integration, we effectively couldn't do work without a technology integration because we wouldn't be able to measure, again, the efficacy of the work we're doing. So I guess when you ask me a question about what is the degree of result vary based on those integrations, so long as we have the technology integration, which we're always going to have, And so long as we are getting the information back through those feedback loops so that we can measure against those KPIs, we're going to see a great deal of success. And I think the best statistic that I can give you is client retention rates when they come on the platform and we've moved through what I would call a test period where, you know, we have effectively integrated the technology solution and had customers let's say, a 90-day period of time go by where we have been able to calibrate the systems and establish those KPIs, once we get through that period, our client retention rates are in excess of 90%, which, you know, the reason for that is the efficacy of the solution itself and our ability to consistently meet or exceed those KPIs.
spk00: Great. That's very helpful. Thank you for the call.
spk03: You're welcome.
spk02: And there are no further questions. Ladies and gentlemen, this concludes Digital Media Solutions third quarter 2020 earnings conference call. Thank you for participating. You may now disconnect.
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