Digital Media Solutions, Inc.

Good afternoon, ladies and gentlemen. Thank you for attending today's Digital Media Solutions first quarter 2022 earnings call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I will now pass the conference over to your host. Tom Bach, Executive Vice President of Corporate Strategy and Investment Relations with Digital Media Solutions. You may proceed.

Thank you for joining us to discuss DMS's financial results for the first quarter of 2022. With me on the call are Joe Marinucci, Co-Founder and CEO, and Basindra Srinivas, CFO. We posted our earnings announcement this afternoon in the 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 effect of the coronavirus pandemic, 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 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 afternoon, everyone. Welcome to our first quarter of 2022 earnings call. We posted our press release earlier this afternoon, and I am now happy to announce that thanks to our dynamic diversification, The scaled spend of our top clients and our technology-enabled data-first approach to digital performance advertising, we delivered a solid first quarter with growth across all of our key metrics. During the first quarter, we were very focused on revenue growth, variable marketing margin, and gross margin, and we delivered on all lines. Plus, despite increases in public company costs and significant wage inflation, we still delivered even on range. Our first quarter gap revenue of $109 million was up 13% year-over-year and was the most DMSs generated in any quarter ending March 31st. Excluding the CRISP acquisition, the organic revenue growth rate was 5%, and we're happy with our gross margin and variable marketing margin, which came in at 29% and 35% respectively. During the quarter, we generated a adjusted EBITDA of $10.5 million, or a margin of approximately 10%. Basundra Srinivas, our CFO, will be adding more details and we'll also dig deeper into the numbers and go over our guides for the second quarter and full year 2022 later in the call. During Q1, we delivered despite facing market volatility, which included slower than expected auto insurance recovery and difficulties in the senior health space. In fact, in the first quarter, our insurance revenue grew 22% versus Q1 2021, which is 8% on an organic basis. Insurance also contributed 60% of our total revenue, of which auto represented 60% and health came in at 29%. Let's quickly take a look at the volatility we're facing within auto and health insurance. Auto insurance bid pricing bottomed out in Q4 and showed a solid increase in January before giving up some gains in February. We hope that'd be short term, but March and April remained soft. Why is this? Well, because some states have not yet approved insurance price increases for all carriers, so campaigns for certain advertiser clients have remained paused in those states. And these regional pauses directly impact our gross profit, as we must continue to run our campaigns nationwide. Given inflation and continued supply chain issues, it also appears loss ratios are continuing to climb, and as such, auto insurance rate increases will likely be needed across every state, likely multiple times throughout the year. This all means that while we are hoping to see a full auto insurance recovery by year end, we recognize it could take longer with a full recovery likely coming sometime inside 2023. Furthermore, the auto insurance sector continues to cycle against tough comparisons versus the year ago period. These comparisons should ease in the second half of the year as we begin to cycle against more comparable periods starting in late July 2021. Within health insurance, we saw solid linear growth on a comparable basis versus the year-ago period due to a combination of organic growth and accretive acquisitions that expanded our health insurance business, especially within Medicare. However, we see uncertainty on the horizon for health insurance, especially for this year's Medicare AAP season. Across the industry, customer churn is creating volatility due to declines in retention rates that led to lower LTVs. The ramifications within the broader health insurance ecosystem are still undetermined. Possibilities include consolidation, a higher degree of accountability on spend and ROI, or an increase in digital advertising as non-viable traditional channels are cut. In fact, to this last point, advertisers are already on record saying they are pulling back non-digital spend, including direct response TV due to poor performance, and reallocating that budget to the areas of digital advertising that have shown consistent ROI. We believe EMS is well-positioned to take advantage of this spend. That said, the bottom line remains that currently the Medicare business is difficult to predict, and our full-year estimates are seasonally weighted towards the second half of the year, with the fourth quarter, the quarter that includes the Medicare open enrollment period, typically the strongest. So, yes, there are headwinds within the auto and health insurance verticals. That said, I want to reiterate the importance of our ability to remain dynamically diversified. We're a technology-enabled, data-driven business that's both vertical agnostic and channel agnostic, and we've demonstrated our ability to pivot with our publishers and advertiser partners towards the most viable current opportunities. This is across both channels and across verticals. It includes auto insurance, health insurance, e-commerce, careers in education, and consumer finance. Likewise, we continue to win more wallet share from our top advertiser clients. Year over year, revenue from our top 20 clients was up 46% because these advertisers know they can rely on us to help them achieve a strong return on ad spend. And we're not just diversified within the verticals. We also have diversification of buyers within verticals. For example, in addition to working directly with many of our nation's property and casualty insurance providers, we work with a significant roster of agents. almost 6,500 in Q1 2022. And we just onboarded a large insurance provider that will be leveraging our solutions and technology to connect their agents with consumers that are actively shopping for insurance products. Therefore, we expect significant growth over the next 12 months to our already substantial insurance agent base. Lastly, our tool set, including our first-party data asset, our proprietary technology, and our expansive media reach, continues to help us be more efficient and more effective with our digital performance advertising solutions. This tool set was key to us achieving our strong VMM of 35% during the past quarter. Our data technology and media reach are synchronized to help us, to help us better understand the intentions of consumers, including when they are shopping and what offers they want to see from our advertisers. to help us better engage and re-engage high intent audiences with personalized offers that encourage action, to help us better support the retention efforts of our advertiser clients that are seeking solutions to reduce churn and improve lifetime value metrics. Activated by our proprietary technology, our data program is a key component to our growth as our data and technology enable us to deliver on the four R's, right person, right offer, right place, and right time to achieve gross margin efficiency for ourselves and better ROI for our advertisers. To give more context on what our data asset is, we receive over 1 billion consumer intent signals per month. Those consumer intent signals append our data asset, which at the end of last month included 240 million opted-in U.S. adults with as many as 1,100 data points per individual. Internally, we are expanding and refining the use of data signals, and we're beginning to recognize consumer acquisition cost savings, both from targeting efficiency and from reduced cost of goods sold. This ties back to comments I previously made about our variable marketing margin. Our data and technology help us map current consumer actions against prior consumer behaviors, which help us to better predict future consumer shopping patterns. And once again, this goes back to the four Rs, right person, right offer, right place, right time. Externally, we're increasingly partnering with our strategic data providers, publisher partners, and advertiser clients to expand and leverage our data and technology to enhance advertising performance, including customer retention efforts. These types of programs enhance performance and ROI for our publisher and advertiser partners, creating stickiness and scale. For example, With our consumer intent signals activated, we can help advertiser clients know when their current customers are actively shopping around so they can take action by messaging those customers to retain them. Given the current dynamics of the health and auto insurance verticals, customer retention is a main priority for many of our large advertiser clients. So we expect retention-focused monetization or data signals to ramp up later this year and into 2023. As you may have seen, we announced our acquisition of Traverse Data in a separate press release from our earnings release. We are very excited about this transaction because we believe the addition of the Traverse Data technology platform into our already meaningful proprietary tech stack will be strategically important for us. We're not releasing financial details of the acquisition because it will have a negligible effect on the P&L of a company the size of DMS. what we expect from the acquisition of Traverse. And the reason we're excited about it is for Traverse to accelerate our use of data, both in terms of volume and our ability to execute on our data roadmap. This ties back to the prior comments I made about the importance of efficient reactivation, reengagement, and retention. Plus, the Traverse acquisition includes an existing base of strategic advertiser and publisher partners actively subscribing to the power of signal activation for client nurturing and remarketing. This will complement and expand our current customer nurturing and remarketing strategies beyond just the current activation and media buying strategies we employ against our first-party data asset. In conclusion, we continue to be optimistic about our business despite current headwinds and future uncertainty. We acknowledge that there are a lot of macro factors impacting our business that we do not control, but Our dynamic diversification continues to allow for growth. Retention rates for our top customers remain incredibly strong at 100% for our top 20 customers, demonstrating the efficacy of our solutions. Our data and technology are increasingly providing new opportunities to engage consumers, and we're very focused on continuing to control and cut costs where we can to create efficiencies and help us continue to operate profitably. We believe the current headwinds we're facing will subside later this year, early next year, and because of that, we remain bullish on our 2023 and longer-term prospects as our total addressable market growth remains strong with a CAGR of 17%. Before turning it over to Basindra to dig deeper into the financials, I want to offer a quick update on our strategic review. As previously discussed, in August of last year, we announced plans to evaluate strategic alternatives for DMS to further maximize shareholder value, and we were hoping to have an update for you today. However, we have still not finished this process. We have nothing to share other than to state that we're working towards the best result possible. We appreciate your patience, and as soon as we are able to, we will provide updates. Now we'll turn it over to DMS CFO, Lissandra Srinivas.