Digital Media Solutions, Inc.

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Thank you for joining us to discuss DMS's financial results for the second quarter of 2021. With me on the call are Joe Marinucci, co-founder and CEO, and Vasantra Srinivas, CFO. We posted our earnings announcement this morning in a press release and also on our investor relations website. By now, everyone should have access. 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 provision 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. 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 we have posted to our investor relations website at investors.digitalmediasolutions.com. The additional financial and other information to be discussed in this call can also be found on our Investor Relations website. Now, I'd like to turn the call over to Joe Marinucci, our CEO.

Thank you, Tom, and good morning to everyone joining the call today. Q2 was a record-breaking quarter for DMS, and I'm excited to dive into the reasons behind our success. This morning, we issued a press release with many details on our financials, so we will do our best not to duplicate that information. Ms. Sundar will provide additional color on the published numbers in her remarks. I'm going to talk to you today about why and how our second quarter, especially including our VMM, was so strong and how our actions and results put us in a really good spot for the remainder of the year and beyond. Just quickly to frame this call, during the second quarter, we set records and beat expectations for revenue, gross profit margin, and EBITDA. Reported revenue was 105.1 million, and adjusted revenue was 109.3 million. Total revenue growth was 42.4%. Adjusting for acquisitions was 19.9%. Gross profit margin was 32.1%. and our variable marketing margin or VMM was 38.2%. I'll talk in detail about this number in a moment. Lastly, our adjusted EBITDA was 16 million and our balance sheet remains healthy with net leverage of three times. So this morning, I'm going to provide the top three reasons we had such a strong quarter, and then I'll provide the top three highlights for the remainder of 2021. Here we go with Q2. First, we expanded our margin during the quarter. Despite what's on the horizon regarding privacy and cookies and recognizing how changes will lead to concentrated demand within the walled gardens of Google, Facebook, and the like, we grew margins by more effectively targeting consumers, improving our engagement with these consumers, and driving more efficient conversions. Our Consumer Engagement Score, or CES, continues to demonstrate our strong ability to efficiently create engagements and conversions that result in transactions and customers for our advertising clients. The CES for the period was 72, up from 69 in Q1, indicative of more targeted consumer engagement. We're able to create these efficiencies across all our verticals because we continue to increase our leverage within the digital advertising ecosystem using superior consumer insights, our marketplace brands, our first-party data, our proprietary technology, our vast distribution capabilities, and the many other tools in our arsenal that drive engagement. And as our advertiser clients spend more with us because of our effectiveness, we deploy more media dollars, which in turn engages more consumers, grows our first-party data asset, and delivers enhanced ROI. The more our first-party data asset grows, the better we become at targeting and engaging consumers, and that leads to better ROI for our advertiser clients, which leads them to spending more with us. But the other benefit of our efficiency gains is margin expansion for us, as demonstrated by our increasing variable marketing margin, or VMM, that is happening even as CPMs across digital media, but especially within the walled gardens, go up. Our VMM in Q2 was 38.2%. That is up from 32% in Q1. Second, we continue to play from strength to strength within our largest vertical of insurance. Our insurance revenue, which now accounts for almost two-thirds of our revenue, grew by 92.2% in Q2 and by 73.1% organically. Insurance is showing strong growth for us for a number of reasons. Consumer demand for all insurance products is strong, and consumers are increasingly shopping online to determine the best options, promotions, and savings available to them. Helping consumers connect with the insurance providers that meet their needs is what we do best, and our growing auto insurance quote request volume, up 107% from Q2 of last year, shows this. The three-digit increase in quote request volume is also indicative of the cross-section between consumer demand and auto insurance advertiser demand, which brings me to my next point. Advertiser demand for insurance also remains very strong. We work with all the top insurance providers, and we've been actively growing a list of insurance agents who buy from us. In addition, during Q2, we launched ZipQuote Ignite, a loyalty and retention program that encourages individual agents to invest larger budgets. This program has already had a measurable impact. We closed our previously announced acquisition of assets from Chris Results at the beginning of April. As a result, we benefited from a full quarter of contribution concentrated within health insurance. CRISP results has had a positive impact across our revenue and margin numbers in Q2 and will have an even stronger impact the remainder of the year. And that's a perfect segue to, third, our strategic investments boosted both our revenue and efficiency during Q2. Growth requires innovation and evolution, and we're not afraid of that challenge. Our investment strategy, including our M&A strategy, is deliberate and designed to help us be the most efficient, most effective growth-focused company we can be. This year, we've completed two transactions, Intel in February and the assets of Crisp Results in April. The timing of the Crisp Results transaction was important to set us up for a strong Medicare open enrollment period coming in the fourth quarter of the year. The early Q2 close of the acquisition gives us time to integrate Crisp Results, enhancing its already strong health insurance business with the leverage achieved from our first-party data asset, proprietary technology, and expansive media reach. We've already seen synergies between the Crisp Results team and the rest of VMS with a positive impact on Q2 as a result. Our earlier acquisition, AIMTEL, is a proprietary web-pushed marketing technology with sophisticated AI and machine learning that we acquired in February. The Intel technology is part of our efficiency story for Q2, as Intel allows us to re-engage consumers by encouraging them to complete their information requests or by stirring up future demand by delivering personalized messages designed to stimulate actions. Intel also brings added value to our publishing partners by encouraging website traffic to our direct-to-consumer and e-commerce advertiser clients by allowing them to retarget consumers who have abandoned their shopping carts. This is important year-round, but is magnified during the seasonally significant Q4 online shopping period. During the second quarter, we also made strategic investment to bring call center software in-house and launch EMS Voice. DMS Voice adds to our already strong proprietary technology stack and presents additional solutions to our advertiser clients. More importantly, DMS Voice enables us to boost our gross margin immediately during Q2 due to the cost savings on our call center expenses that have been booked in to cost the goods sold. And DMS Voice will continue to boost our gross margin in Q3 and beyond. Lastly, we made strategic hires last quarter to strengthen some of the capabilities and experience sets on our teams, including the finance and legal teams. So shifting into the remainder of the year, I'm enthusiastic about what's to come for the rest of 2021 and beyond. And just like I highlighted three things about Q2, I will now spotlight three things coming in Q3 and Q4. First, everything we talked about for Q2, margin efficiency, playing from strength to strength within insurance, and strategic investments are expected to stay in play throughout the remainder of the year. Remember, as our advertiser clients continue to spend more with us, our first-party data asset grows and our consumer targeting and engagement improves. This growing advertiser client spend and first-party data asset boosts ROI for our clients, and it boosts efficiency measured through the VMM for us into Q3, into Q4, and beyond. Our insurance business continues to grow on the back of strong consumer and advertiser demand, and the strongest demand for health insurance during the open enrollment period is yet to come this year. Especially with crisp results within the folds of DMS, we are confident we are well positioned to partake in the tailwinds of the digital transformation happening in health insurance advertising, especially in Medicare. The investments we made in Q2 and prior to enhance our people, our processes, and our toolbox, including our first-party data asset, our proprietary technology, and our expansive media reach, were all made with an eye toward future growth. Much of the anticipated growth, including a scaled-up OEP period and innovative re-engagement funnels that lead to stronger e-commerce conversions, will be recognized this year. Second, Protect.com, our flagship consumer portal, continues to grow. When we rolled out Protect.com, we started with just auto insurance. During Q2, we added life insurance, home security, and mortgage refinance. By the end of Q3, we expect to see additional growth in adjacent verticals like home services, and we plan to launch the completed site design and consumer portal, which will allow people to log in to personalize their experiences and results. And the future of Protect.com is to be recognized as the premier destination for people looking for a fully integrated experience to protect their personal property, their health, and their finances all in one place with a brand they know and trust. This integration makes the consumer experience more sticky, especially as we introduce loyalty benefits and programs. Why does this matter? Because as Protect.com becomes a known consumer brand, it becomes easier to attract consumers to Protect.com and to keep them. More consumers that are more loyal will mean greater advertising spend, and you know the story already. This all leads to even stronger margins. And the third and final point I'd like to highlight is that the end of the year is historically seasonally strong for us, and we've taken actions to amplify our strengths this year. You may remember that we talked about super seasonality for Q4 last year, and we anticipate to see that again this year with the open enrollment period for health insurance and the e-commerce holiday shopping season happening at the same time. Insurance is our largest vertical, with health insurance experiencing significant growth thanks to the efforts we already had in place, plus the addition of crisp results. And e-commerce is our second largest vertical, with significant e-commerce revenue hitting at the end of the year, especially within the following categories. Nonprofits scaling their sustained donor bases, direct-to-consumer and subscription brands seeking to scale customer and subscriber acquisition, and seasonal e-commerce brands that need advertising support to achieve their end-of-year revenue metrics. Of course, there are uncertainties with regard to how the pandemic will impact in-store shopping this holiday season, but we anticipate e-commerce will be strong whether or not the pandemic subsides again in the United States. Before summarizing, it is worth noting that in May, we refinanced our credit facility to provide increased financial flexibility to support our growth initiatives. And in late Q2, DMS joined the prestigious Russell 3000 index, expanding our visibility within the investment community. Bring us back to the top before I hand over the call to the syndra. Q2 was a record quarter for us because we took action to expand our margin as shown by our strong 38.2% DMF. We played from strength to strength, especially within the insurance vertical, leveraging consumer and advertiser demand to grow. We made strategic investments that had immediate impact and expectations of long-term benefit. And we're looking forward to the remainder of the year because the actions we took during Q2 set us up for success in Q3, Q4, and beyond. Tech.com continues to grow in terms of everyone it touches, consumers, publisher partners, and advertiser clients, and its ability to grow revenue and EBITDA. And finally, the end of the year, inclusive of both OEP and the holiday season, are historically strong for us, and we are confident we've taken steps to make them even stronger this year. With that, I'll pass the call over to Vicindra.