Digital Media Solutions, Inc.

Thank you for standing by, and welcome to the Digital Media Solutions, Inc. second quarter 2023 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'll need to press star 1-1 on your telephone. If you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Tony Saldana, DMS General Counsel. Please go ahead, Sarah.

Thank you for joining us to discuss our financial results for the second quarter of 2023. With me on the call are Joe Maranucci, co-founder and CEO, and Vanessa Guzman-Clark, our interim CFO. Earlier this afternoon, we posted our earnings announcement in a press release and 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 earnings 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 earnings 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 on the tables of our earnings release. 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 Marinucci, our CEO.

Thank you, Tony, and good afternoon, everyone. Welcome to our second quarter of 2023 earnings call. Our second quarter results are as follows. Second quarter net revenue was 82.6 million, down 9.5% year over year. Our gross margin and variable marketing margin came in at 23.3% and 27.4% respectively. Adjusted EBITDA came in at 902,000, which was down 3 million from last year. Vanessa is going to add more details, dig deeper into the numbers, and go over guidance for the third quarter of 2023 later in the call. In Q2, we continue to navigate market challenges by prioritizing progress and growth within areas we control. While our actions will not fully show their impact within the Q2 results, they're aligned with our long-term strategy, which is going to create durable, scalable, and sustainable growth across both our marketplace and brand direct solutions. Our second quarter results we're discussing today reflect continued market challenges we're experiencing. Despite a decrease in net revenue and adjusted EBITDA due to the challenging business cycle, gross profit margin for Q2 2023 was within our guidance range. We're continuing to face pressure in our insurance vertical as P&C carrier loss ratios persist. This is an impact we're seeing across agent counts, bid prices, and overall advertiser spend. That said, we do see positive trends here inside the P&C segment in Q3, and therefore, we maintain a positive long-term outlook and expect P&C carrier spend to start to recover in 2024. We believe that recover should ultimately result in PNC advertising spend surpassing previous peak levels. And since DMS has continued to invest in our core solutions in this category, and since we maintain strong relationships with the major carriers, we believe we're well positioned to capture our share of this spend. In other segments of our business, we remain optimistic. We're encouraged by growth in our home services vertical stemming from our recent quick dealer acquisition. We also have the health insurance enrollment periods opening again in Q4, where we expect to see an increase in revenue pull through from carrier marketing spend. As we've discussed in the past, we monitor both our enterprise customers and our SMBs. The SMBs include the insurance agents we serve. For Q2, we closed with a significant enterprise customer count of 379, including the Click Dealer acquisition, which is up from 291 last quarter. As a reminder, are significant enterprise customers or advertisers spending in excess of $100,000 annually with DMS. For Q2, ARPU per significant enterprise customer was $1.1 million, down from $1.3 million last quarter. For Q2, SMBs on the DMS platform totaled 4,406 active insurance agents, down from 6,477 agents in Q1 2023. Most of this reduction in active SMBs in the quarter is tied to volatility in insurance and various state pauses at the carrier level. We do expect our SMB count to remain stable at or above these levels and then to recover once stability returns to insurance. The breakout of vertical revenue for Q2 is as follows. Insurance, which includes property and casualty along with health, 21 million in Q2 revenue, which was 25% of total revenue for the quarter. Consumer finance, $14 million in Q2 revenue, which was 17% of total revenue for the quarter. Career and education, $14 million in Q2 revenue, which was 16% of total revenue for the quarter. International revenue, $14 million in Q2 revenue, which was 17% of total revenue for the quarter. And e-commerce, $12 million in Q2 revenue, which was 15% of total revenue for the quarter. Outside of insurance, diversity in our customer mix and our verticals is what continues to differentiate DMS. We did see growth in consumer finance over the comparable period the prior year, and we also see home services as an emerging category for us. So to summarize, for our Go Forward 2003 plan, the main objective is to foster business growth in our core business by executing on the following strategies. Prioritizing our significant enterprise customers in key verticals as we head into our seasonal high point of the year here in Q4. Marketplace diversification. Here our focus will be on enhancing existing marketplaces and owned and operated websites and PNC insurance, education, home services, consumer finance, and health insurance. Brand direct consolidation and unification. This is where we're going to focus on enhanced advertiser integrations, leveraging DMS owned and operated assets to build exclusive campaigns that create strong value for both the consumer and the advertiser. And finally, continuing to streamline our operations and enhancing efficiency. So far in 2023, our team has commissioned $10.3 million in annualized cost savings across operating expenses. As a final note, we also announced today that we've reached an agreement in principle with a substantial majority of our bank group to amend the company's credit agreement. This agreement will provide flexibility to the business while we navigate the challenging business conditions that we've discussed. We're currently in the process of finalizing this amendment, which is subject to unanimous lender consent. We'd like to thank our lender group for their continued confidence and support as we position the company for future growth. Now I have the pleasure of turning the call over to Vanessa, who will provide more details on our financial results and also give an update on guidance.