Digital Media Solutions, Inc.

Good afternoon, my name is Hannah and I will be your conference operator today. At this time, I would like to welcome everyone to the Digital Media Solutions first quarter financial results 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star two. Thank you. Now I would like to pass the call over to Tony Saldana, DMS General Counsel.

Thank you for joining us to discuss financial results for DMS for the first quarter of 2023. With me on the call are Joe Maranucci, co-founder and CEO, and Vanessa Guzman-Clark, our interim CFO. Early this afternoon, we posted our earnings announcement in a press release and 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, please refer to our financial results press release and our SEC filings. In addition, management's commentary will include non-GAAP financial measures Reconciliations between GAAP and non-GAAP financial measures 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 on this call can also be found on our investor relations website. Now, I'd like to turn the call over to Joe Maranucci, our CEO.

Thank you, Tony, and good afternoon, everyone. Welcome to our first quarter of 2023 earnings call. Our first quarter results are as follows. Our first quarter net revenue was 90.3 million, which, while down 17.2% year over year, was within our guidance of 90 to 92 million. Our gross margin and variable marketing margin came in at 24.7% and 29.8% respectively. Adjusted EBITDA came in at 3.4 million, or a margin of approximately 4% also within our guidance. Vanessa will add more details, dig deeper into the numbers, and go over our guidance for the second quarter of 2023 later in this call. We kicked off 2023 with a modestly positive first quarter, which highlighted the effectiveness of our diversified strategy across multiple verticals within DMS. In Q1, we carried out a strategic reorganization of our business and a thoughtful reduction in our workforce a move that considerably cut our operating costs. The goal here was clear and simple, to focus more intently on the key solutions that are poised to drive our long-term growth. Stepping into Q2, our momentum has slowed as the positive trends from Q1 have reversed inside of our largest vertical, insurance. Typically, our Q2 is cyclically impacted as health insurance demand slows, and we tend to see trough level performance for the year in this period. We're now seeing this coupled with unprecedented pressure in the auto insurance vertical, which has led to additional significant pullback in client marketing spend. That said, we remain optimistic as we anticipate the P&C insurance markets will normalize when loss ratio is correct. And in health insurance, we are now outside of enrollment period windows when marketing spend would be higher. When those enrollment periods open again later this year in Q3 and Q4, we expect to regain momentum in this vertical. Despite these temporary fluctuations, we also maintain a positive long-term outlook as a diversified approach gives us the agility to swiftly adjust to market trends that result in shifts in ad spend. This is true for both our brand direct and marketplace solutions and is visible in our verticals as well. As a reminder, those verticals are property and casualty insurance, health insurance, career and education, e-commerce, consumer finance, and home services, which we added with the recent acquisition. As we've discussed in the past, we monitor both our enterprise customers and our SMBs, which include the insurance agents we serve. For Q1, exclusive of our recent acquisition, we closed with a significant enterprise customer count of 291, up from 285 last quarter. For Q1, ARPU per significant enterprise customer was 1.3 million, flat from last quarter. SMBs on the DMS platform totaled 6,477 active insurance agents, down from 7,712 agents in Q4 2022. The reduction in active SMBs in the quarter is tied to volatility insurance and various state pauses at the carrier level. We expect our SMB count to recover once stability returns to insurance. The breakout by vertical of revenue for Q1 is as follows. Property and casualty insurance, 38 million in Q1 revenue, which was 39% of total revenue for the quarter. E-commerce, 18 million in Q1 revenue, which was 19% of total revenue for the quarter. Career and education, 15 million in Q1 revenue, which was 16% of total revenue for the quarter. And consumer finance, 18 million in Q1 revenue, which was 19% of total revenue for the quarter. To comment further on property and casualty insurances, our largest vertical, although down significantly quarter on quarter, performance was mostly in line with our expectations for what we expected in the vertical in Q1. However, with pressure continuing to mount and the negative trend we see here in Q2, the floor is once again moved and the stability we thought was settling in appears to have faded. This continues to pressure our business here in Q2. The volatility of this underwriting cycle has been extraordinary. At some point, this shall pass as inflation subsides and rate increases cycle through. With consumers continuing to price shop, we do continue to believe that property and casualty carriers will eventually aggressively return to growth mode once loss ratios normalize and underwriting stability is restored. Outside of property and casualty, diversity in our customer mix and our verticals is what continues to differentiate DMS. With the recent acquisition, we've added another vertical marketplace solution in home services, and we expanded our brand direct business internationally. During the quarter, we saw positive trends in both e-commerce and consumer finance, with both verticals showing quarter-on-quarter growth of 14% and 43% respectively. These are areas we're going to continue to focus on. I'd also like to reinforce that we're continuing to invest in our technology, data, and media capabilities, which empower us to innovate and create solutions that provide value for consumers and advertisers alike. In Q2 2023, we plan to continue to focus on developing these vertical agnostic data-first solutions, which power growth across our customers in a multitude of verticals in our brand direct and marketplace segments. And again, we believe that digital performance marketing which is the primary DMS solution, will win as it is a pure play for ROI performance, thus de-risking customer ad spend. As noted during last quarter's call, and as noted earlier in this call, we closed the acquisition of ClickDealer and HomeQuote at the end of Q1. Moving into Q2, we've seen stability in both the home services vertical and the international markets we now cater to. Although we're in the early stages, we feel this stability demonstrates the likelihood of positive progress and growth in both of these areas. To summarize, for our Go Forward 2023 plan, we will drive business growth through the following strategies. Expanding the number of existing significant enterprise customers along with average spend per customer, helping our clients acquire, grow, and retain their customers. Continuing to add SMBs to our platform. Investing in our technology, data, and media capabilities. managing costs, and finally, focusing on the integration of the recently closed ClickDealer acquisition to further diversify our customer base and vertical serve while strengthening our brand-directed marketplace solutions. Now, to the pleasure of turning the call over to Vanessa, who will provide more details on our financial results.