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Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group By: Digital Media Solutions, Inc. via Business Wire March 31, 2023 at 18:00 PM EDT Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network Add after last paragraph of release: SUPPLEMENT section to include quarterly data for the Non-GAAP Financial Measures tables. The updated release reads: Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network Digital Media Solutions, Inc. (NYSE: DMS), a leading provider of technology-enabled digital performance advertising solutions connecting consumers and advertisers, today announced financial results for the fourth quarter and full year ended December 31, 2022, along with the completion of asset purchases from Customer Direct Group. DMS serves 285 scaled enterprise customers and over 7,000 SMBs across the P&C Insurance, Health Insurance, Ecommerce, Career and Education, and Consumer Finance verticals with digital performance marketing solutions. “We are proud of our results in a dynamic operating environment, exceeding guidance for full year 2022 net revenue. Our results demonstrate the strength of our agnostic solutions, which are highlighted by the diversity in our customers and the end markets we serve. We are excited to add the HomeQuote.io marketplace and ClickDealer’s international performance ad network to the DMS ecosystem,” said Joe Marinucci, CEO of DMS. “Home improvement and related home services represent an enormous addressable market opportunity for future growth. ClickDealer’s international ad network will expand our Brand Direct business globally, allowing us to serve more advertisers and consumers in key verticals and end markets. Both businesses will continue to benefit from our proprietary technology, first-party data, and expansive and agnostic media reach.” “Diversity in both our customer base and verticals we serve allows DMS to remain agile to move as markets dictate, giving us a competitive advantage. Earlier this year, we focused on strengthening our balance sheet, which provides ample flexibility to continue to invest in our strategic growth initiatives. Given the length of the current market cycle, we continue to be diligently focused on managing our operating expenses as a major financial performance lever that is fully under our control,” Rick Rodick, CFO, added. Additionally, DMS successfully raised new equity financing to strengthen the company's balance sheet. This financing includes participation by DMS co-founders along with strategic investors and will better position the company to execute on its growth initiatives in 2023 and beyond. For additional information, see the private placement of convertible preferred stock press release at https://investors.digitalmediasolutions.com. Fourth Quarter 2022 Performance: (All comparisons are relative to the fourth quarter of 2021) Net revenue of $100.8 million, down 15.3% Gross profit margin of 24.8%, a decrease of 4.9 PPTS Variable Marketing Margin of 30.6%, an increase of 0.2 PPTS Operating expenses totaled $50.1 million, a decrease of $4.7 million Net loss of $25.1 million compared to net income of $3.9 million Adjusted EBITDA of $7.1 million compared to $14.7 million EPS of $(0.38) compared to $(0.11) Ended the quarter with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Fourth Quarter 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the fourth quarter of 2021) Brand Direct Solutions generated revenue of $55.9 million, down 23.1%. Gross margin was 21.3%, down from 23.7%. Marketplace Solutions generated revenue of $50.3 million, down 14.6%. Gross margin was 22.0%, down from 28.4%. Technology Solutions generated revenue of $2.3 million, down 37.4%. Gross margin was 83.4%, up from 37.6%. Full Year 2022 Performance: (All comparisons are relative to the full year of 2021) Net revenue of $391.1 million, down 8.6% Gross profit margin of 26.4%, a decrease of 2.8 PPTS Variable Marketing Margin of 32.7%, a decrease of 2.7 PPTS Operating expenses totaled $155.8 million, a decrease of $29.3 million Net loss of $52.5 million compared to net income of $6.2 million Adjusted EBITDA of $25.7 million compared to $58.0 million EPS of $(0.84) compared to $0.06 Ended the year with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Full Year 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the full year of 2021) Brand Direct Solutions generated revenue of $204.2 million, down 19.5%. Gross margin was 21.0%, down from 23.0%. Marketplace Solutions generated revenue of $216.4 million, down 3.5%. Gross margin was 24.1%, down from 27.0%. Technology Solutions generated revenue of $9.8 million, up 1.7%. Gross margin was 85.4%, up from 63.2%. First Quarter and Second Quarter 2023 Guidance: DMS anticipates Revenue, Gross Margin, Variable Marketing Margin and Adjusted EBITDA to be in the following ranges: Our guidance for Q1 2023 reflects typical seasonality along with continued challenging market conditions in our P&C vertical. Q2 reflects the financial contribution we expect to realize from closing the Homequote.io and ClickDealer acquisition. We are not providing full year 2023 guidance at this time. First Quarter 2023: Net Revenue: $90 – $92 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $3 – $5 million Second Quarter 2023: Net Revenue: $108 – $112 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $6 – $8 million Adjusted EBITDA and Variable Marketing Margin are non-GAAP financial measures. Management believes that Adjusted EBITDA and Variable Marketing Margin provide useful information to investors and help explain and isolate the core operating performance of the business — refer to the “Non-GAAP Financial Measures” section below. For guidance purposes, the Company is not providing a quantitative reconciliation of these non-GAAP measures in reliance on the “unreasonable efforts” exception for forward-looking non-GAAP measures set forth in SEC rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated without unreasonable effort and expense. Conference Call and Webcast Information: The U.S. toll-free dial-in for the conference call is 1-844-200-6205, and the international dial-in number is 1-646-904-5544. The access code is 437128. A live webcast of the conference call will be available on the investor relations page of the company's website at https://investors.digitalmediasolutions.com. A replay will be available after the conclusion of the call on March 31, 2023, through April 7, 2023. The U.S. toll-free replay dial-in number is 1-866-813-9403, and the international replay dial-in number is 1-929-458-6194. The replay access code is 447159. Forward-Looking Statements: This press release includes “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and are made in reliance upon such acts and the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1955. DMS’s actual results may differ from its expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. These forward statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its and ClickDealer’s future performance and its ability to implement its strategy and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) DMS’s ability to attain the expected financial benefits from the ClickDealer transaction, (2) any impacts to the ClickDealer business from our acquisition thereof, (3) the COVID-19 pandemic or other public health crises; (4) management of our international expansion as a result of the ClickDealer acquisition; (5) changes in client demand for our services and our ability to adapt to such changes; (6) the entry of new competitors in the market; (7) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (8) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers, and to ensure compliance with data privacy regulations in newly entered markets; (9) the performance of DMS’s technology infrastructure; (10) the ability to protect DMS’s intellectual property rights; (11) the ability to successfully source, complete and integrate acquisitions; (12) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate material weaknesses therein, including any integration of the ClickDealer business; (13) changes in applicable laws or regulations and the ability to maintain compliance; (14) our substantial levels of indebtedness; (15) volatility in the trading price on the NYSE of our common stock and warrants; (16) fluctuations in value of our private placement warrants; and (17) other risks and uncertainties indicated from time to time in DMS’s filings with the SEC, including those under “Risk Factors” in DMS’s Annual Report on Form 10-K and its subsequent filings with the SEC. There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks. DMS cautions that the foregoing list of factors is not exclusive. DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. About DMS: Digital Media Solutions, Inc. (NYSE: DMS) is a leading provider of data-driven, technology-enabled digital performance advertising solutions connecting consumers and advertisers within the auto, home, health, and life insurance, plus a long list of top consumer verticals. The DMS first-party data asset, proprietary advertising technology, significant proprietary media distribution, and data-driven processes help digital advertising clients de-risk their advertising spend while scaling their customer bases. Learn more at https://digitalmediasolutions.com. DIGITAL MEDIA SOLUTIONS, INC. Consolidated Balance Sheets (in thousands, except per share par value) December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 48,839 $ 26,394 Accounts receivable, net of allowances of $4,656 and $4,930, respectively 48,109 51,578 Prepaid and other current assets 3,296 3,698 Income tax receivable 1,626 2,078 Total current assets 101,870 83,748 Property and equipment, net 17,702 19,168 Operating lease right-of-use assets, net 2,187 — Goodwill 77,238 76,558 Intangible assets, net 27,519 66,228 Other assets 765 889 Total assets $ 227,281 $ 246,591 Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 39,908 $ 42,073 Accrued expenses and other current liabilities 7,101 9,473 Current portion of long-term debt 2,250 2,250 Income taxes payable (340 ) 103 Tax Receivable Agreement liability 164 1,310 Operating lease liabilities - current 2,175 — Contingent consideration payable - current 1,453 7,370 Deferred acquisitions consideration payable - current — 4,785 Total current liabilities 52,711 67,364 Long-term debt 254,573 215,505 Deferred tax liabilities 1,112 4,786 Operating lease liabilities - non-current 2,232 — Private Placement Warrant liabilities 600 3,960 Contingent consideration payable - non-current — 1,069 Other non-current liabilities — 1,725 Total liabilities 311,228 294,409 Stockholders' deficit: Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at December 31, 2022 — — Class A common stock, $0.0001 par value, 500,000 shares authorized; 39,957 issued and outstanding at December 31, 2022 4 3 Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at December 31, 2022 3 3 Class C convertible common stock, $0.0001 par value, 40,000 shares authorized; none issued and outstanding at December 31, 2022 — — Additional paid-in capital (14,054 ) (25,239 ) Treasury stock, at cost, 138 and 0 shares, respectively (181 ) — Cumulative deficit (32,896 ) (944 ) Total stockholders' deficit (47,124 ) (26,177 ) Non-controlling interest (36,823 ) (21,641 ) Total stockholders' deficit (83,947 ) (47,818 ) Total liabilities and stockholders' deficit $ 227,281 $ 246,591 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Operations (in thousands, except per share data) Years Ended December 31, 2022 2021 Net revenue $ 391,148 $ 427,935 Cost of revenue (exclusive of depreciation and amortization) 287,820 303,025 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 (Loss) income from operations (42,467 ) 8,382 Interest expense 17,366 14,166 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Loss on disposal of assets 7 8 Net (loss) income before income taxes (56,605 ) 25,504 Income tax (benefit) expense (4,105 ) 19,311 Net (loss) income (52,500 ) 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc. $ (31,952 ) $ 2,202 Weighted-average shares outstanding - basic 38,252 35,249 Weighted-average shares outstanding - diluted 38,279 35,764 (Loss) earnings per share attributable to Digital Media Solutions, Inc.: Basic and diluted - per common shares $ (0.84 ) $ 0.06 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities Net (loss) income $ (52,500 ) $ 6,193 Adjustments to reconcile net income to net cash from operating activities Provision for bad debt 1,761 4,798 Depreciation and amortization 28,242 25,401 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities (315 ) 18,787 Cash flows from investing activities Additions to property and equipment (6,744 ) (9,114 ) Acquisition of businesses, net of cash acquired (2,502 ) (25,129 ) Net cash used in investing activities (9,246 ) (34,243 ) Cash flows from financing activities Proceeds from borrowings on revolving credit facilities 40,000 11,000 Proceeds from issuance of long-term debt — 220,840 Payments of long-term debt and notes payable (2,250 ) (200,977 ) Payments of borrowings on revolving credit facilities — (15,000 ) Payment of debt issuance costs — (3,565 ) Tax withholding on share based awards — (994 ) Payment of equity issuance — (493 ) Payment of early termination — (188 ) Proceeds from warrants exercised — 11 Purchase of treasury stock related to stock-based compensation (181 ) — Distributions to non-controlling interest holders (563 ) (196 ) Payment of deferred consideration payable (5,000 ) — Other — 15 Net cash provided by financing activities 32,006 10,453 Net change in cash and cash equivalents 22,445 (5,003 ) Cash and cash equivalents, beginning of period 26,394 31,397 Cash and cash equivalents, end of period $ 48,839 $ 26,394 Supplemental Disclosure of Cash Flow Information Cash Paid During the Period For Interest $ 15,574 $ 12,926 Income taxes 1,214 4,442 Non-Cash Transactions: Contingent and deferred acquisition consideration $ 3,014 $ 11,903 Stock-based compensation capitalized in property and equipment 469 447 Capital expenditures included in accounts payable 151 410 Issuance of equity for AAP and Crisp Results 10,000 35,000 Impairment of lease asset 528 — NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income % of revenue (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 24,470 26,383 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Acquisition costs 1,650 1,967 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on disposal of assets 7 8 Loss on debt extinguishment — 2,108 Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Total adjustments 180,298 145,100 Variable marketing margin $ 127,798 $ 151,293 Variable marketing margin % of revenue 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Adjustments Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of warrant liabilities (1) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Stock-based compensation expense 6,656 6,463 Restructuring costs 2,312 1,118 Acquisition costs (2) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expense (3) 5,117 6,520 Adjusted net income 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) — 31 Pro forma cost savings - Acquisitions (5) — 3,330 Acquisitions EBITDA (6) — 2,711 Accounts reserved (7) — 944 Adjusted EBITDA 25,656 57,965 Less: Capital Expenditures 6,744 9,114 Unlevered free cash flow $ 18,912 $ 48,851 Unlevered free cash flow conversion 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Years Ended December 31, 2022 2021 Unlevered free cash flow $ 18,912 $ 48,851 Capital expenditures 6,744 9,114 Adjusted EBITDA 25,656 57,965 Accounts reserved (1) — 944 Acquisitions EBITDA (2) — 2,711 Pro forma cost savings - Reorganization (3) — 31 Pro forma cost savings - Acquisitions (4) — 3,330 Adjusted net income 25,656 50,949 Impairment of intangible assets 21,570 — Acquisition costs (5) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expenses (6) 5,117 6,520 Stock-based compensation 6,656 6,463 Restructuring costs 2,312 1,118 Change in fair value of warrant liabilities (7) (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Subtotal before additional adjustments (10,872 ) 49,782 Less: Interest expense 17,366 14,166 Less: Income tax (benefit) expense (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 125 (15,289 ) Provision for bad debt 1,761 4,798 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability - Consolidated statements of cash flows (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Years Ended December 31, 2022 2021 Numerator: Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan 27 389 Add: dilutive effects of public warrants — 126 Weighted average shares - diluted 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 SUPPLEMENT NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income % of revenue (25 )% (3 )% (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 5,879 7,527 24,470 26,383 Salaries and related costs 11,261 13,586 49,872 48,014 General and administrative expenses 9,257 14,368 41,878 40,040 Acquisition costs 1,344 147 1,650 1,967 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liabilities (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on disposal of assets 7 — 7 8 Loss on debt extinguishment — — — 2,108 Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Total adjustments 55,966 40,040 180,298 145,100 Variable marketing margin $ 30,831 $ 36,117 $ 127,798 $ 151,293 Variable marketing margin % of revenue 31 % 30 % 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Adjustments Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of warrant liabilities (1) (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on debt extinguishment — — — 2,108 Stock-based compensation expense 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Acquisition costs (2) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expense (3) 1,177 2,320 5,117 6,520 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) $ — $ — — 31 Pro forma cost savings - Acquisitions (5) — 674 — 3,330 Acquisitions EBITDA (6) — — — 2,711 Accounts reserved (7) — 944 — 944 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Less: Capital Expenditures 1,497 1,239 6,744 9,114 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Unlevered free cash flow conversion 78.8 % 91.6 % 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Capital expenditures 1,497 1,239 6,744 9,114 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Accounts reserved (1) — 944 — 944 Acquisitions EBITDA (2) — — — 2,711 Pro forma cost savings - Reorganization (3) — — — 31 Pro forma cost savings - Acquisitions (4) — 674 — 3,330 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Impairment of intangible assets 21,570 — 21,570 — Acquisition costs (5) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expenses (6) 1,177 2,320 5,117 6,520 Stock-based compensation 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Change in fair value of warrant liabilities (7) (880 ) (4,280 ) (3,360 ) (18,115 ) Loss on debt extinguishment — — — 2,108 Subtotal before additional adjustments $ (17,657 ) $ 7,854 (10,872 ) 49,782 Less: Interest expense 5,292 3,531 17,366 14,166 Less: Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 245 (15,289 ) 125 (15,289 ) Provision for bad debt 456 475 1,761 4,798 Amortization of right-of-use assets 937 — 937 — Loss on disposal of assets 7 — 7 8 Impairment of intangible assets 21,570 — 21,570 — Lease restructuring charges 605 (255 ) 438 542 Loss on debt extinguishment — — — 2,108 Stock-based compensation, net of amounts capitalized 1,324 1,446 6,656 6,393 Amortization of debt issuance costs 341 478 1,490 1,379 Deferred income tax (benefit) provision, net (2,948 ) (1,220 ) (4,108 ) 16,459 Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liability (880 ) (6,400 ) (3,360 ) (18,115 ) Consolidated statements of cash flows (1,026 ) — (1,146 ) (16,402 ) Change in income tax receivable and payable (1,288 ) 1,600 9 (727 ) Change in accounts receivable (2,840 ) (2,994 ) 1,984 (8,369 ) Change in prepaid expenses and other current assets (704 ) (2,343 ) 416 (419 ) Change in accounts payable and accrued expenses 2,286 4,401 (3,055 ) (612 ) Change in operating lease liabilities (2,102 ) — (2,102 ) — Change in other liabilities 57 (326 ) (137 ) (956 ) Net cash (used in) provided by operating activities $ (2,424 ) $ (6,395 ) $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Numerator: Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (9,789 ) $ 222 (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (15,346 ) $ (4,145 ) $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 39,959 36,226 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan — — 27 389 Add: dilutive effects of public warrants — — — 126 Weighted average shares - diluted 39,959 36,226 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.38 ) $ (0.11 ) $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 View source version on businesswire.com: https://www.businesswire.com/news/home/20230331005282/en/ Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group Contacts Investor Relations investors@dmsgroup.com For inquiries related to media, contact marketing@dmsgroup.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
ADDING and REPLACING Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group By: Digital Media Solutions, Inc. via Business Wire March 31, 2023 at 18:00 PM EDT Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network Add after last paragraph of release: SUPPLEMENT section to include quarterly data for the Non-GAAP Financial Measures tables. The updated release reads: Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network Digital Media Solutions, Inc. (NYSE: DMS), a leading provider of technology-enabled digital performance advertising solutions connecting consumers and advertisers, today announced financial results for the fourth quarter and full year ended December 31, 2022, along with the completion of asset purchases from Customer Direct Group. DMS serves 285 scaled enterprise customers and over 7,000 SMBs across the P&C Insurance, Health Insurance, Ecommerce, Career and Education, and Consumer Finance verticals with digital performance marketing solutions. “We are proud of our results in a dynamic operating environment, exceeding guidance for full year 2022 net revenue. Our results demonstrate the strength of our agnostic solutions, which are highlighted by the diversity in our customers and the end markets we serve. We are excited to add the HomeQuote.io marketplace and ClickDealer’s international performance ad network to the DMS ecosystem,” said Joe Marinucci, CEO of DMS. “Home improvement and related home services represent an enormous addressable market opportunity for future growth. ClickDealer’s international ad network will expand our Brand Direct business globally, allowing us to serve more advertisers and consumers in key verticals and end markets. Both businesses will continue to benefit from our proprietary technology, first-party data, and expansive and agnostic media reach.” “Diversity in both our customer base and verticals we serve allows DMS to remain agile to move as markets dictate, giving us a competitive advantage. Earlier this year, we focused on strengthening our balance sheet, which provides ample flexibility to continue to invest in our strategic growth initiatives. Given the length of the current market cycle, we continue to be diligently focused on managing our operating expenses as a major financial performance lever that is fully under our control,” Rick Rodick, CFO, added. Additionally, DMS successfully raised new equity financing to strengthen the company's balance sheet. This financing includes participation by DMS co-founders along with strategic investors and will better position the company to execute on its growth initiatives in 2023 and beyond. For additional information, see the private placement of convertible preferred stock press release at https://investors.digitalmediasolutions.com. Fourth Quarter 2022 Performance: (All comparisons are relative to the fourth quarter of 2021) Net revenue of $100.8 million, down 15.3% Gross profit margin of 24.8%, a decrease of 4.9 PPTS Variable Marketing Margin of 30.6%, an increase of 0.2 PPTS Operating expenses totaled $50.1 million, a decrease of $4.7 million Net loss of $25.1 million compared to net income of $3.9 million Adjusted EBITDA of $7.1 million compared to $14.7 million EPS of $(0.38) compared to $(0.11) Ended the quarter with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Fourth Quarter 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the fourth quarter of 2021) Brand Direct Solutions generated revenue of $55.9 million, down 23.1%. Gross margin was 21.3%, down from 23.7%. Marketplace Solutions generated revenue of $50.3 million, down 14.6%. Gross margin was 22.0%, down from 28.4%. Technology Solutions generated revenue of $2.3 million, down 37.4%. Gross margin was 83.4%, up from 37.6%. Full Year 2022 Performance: (All comparisons are relative to the full year of 2021) Net revenue of $391.1 million, down 8.6% Gross profit margin of 26.4%, a decrease of 2.8 PPTS Variable Marketing Margin of 32.7%, a decrease of 2.7 PPTS Operating expenses totaled $155.8 million, a decrease of $29.3 million Net loss of $52.5 million compared to net income of $6.2 million Adjusted EBITDA of $25.7 million compared to $58.0 million EPS of $(0.84) compared to $0.06 Ended the year with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Full Year 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the full year of 2021) Brand Direct Solutions generated revenue of $204.2 million, down 19.5%. Gross margin was 21.0%, down from 23.0%. Marketplace Solutions generated revenue of $216.4 million, down 3.5%. Gross margin was 24.1%, down from 27.0%. Technology Solutions generated revenue of $9.8 million, up 1.7%. Gross margin was 85.4%, up from 63.2%. First Quarter and Second Quarter 2023 Guidance: DMS anticipates Revenue, Gross Margin, Variable Marketing Margin and Adjusted EBITDA to be in the following ranges: Our guidance for Q1 2023 reflects typical seasonality along with continued challenging market conditions in our P&C vertical. Q2 reflects the financial contribution we expect to realize from closing the Homequote.io and ClickDealer acquisition. We are not providing full year 2023 guidance at this time. First Quarter 2023: Net Revenue: $90 – $92 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $3 – $5 million Second Quarter 2023: Net Revenue: $108 – $112 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $6 – $8 million Adjusted EBITDA and Variable Marketing Margin are non-GAAP financial measures. Management believes that Adjusted EBITDA and Variable Marketing Margin provide useful information to investors and help explain and isolate the core operating performance of the business — refer to the “Non-GAAP Financial Measures” section below. For guidance purposes, the Company is not providing a quantitative reconciliation of these non-GAAP measures in reliance on the “unreasonable efforts” exception for forward-looking non-GAAP measures set forth in SEC rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated without unreasonable effort and expense. Conference Call and Webcast Information: The U.S. toll-free dial-in for the conference call is 1-844-200-6205, and the international dial-in number is 1-646-904-5544. The access code is 437128. A live webcast of the conference call will be available on the investor relations page of the company's website at https://investors.digitalmediasolutions.com. A replay will be available after the conclusion of the call on March 31, 2023, through April 7, 2023. The U.S. toll-free replay dial-in number is 1-866-813-9403, and the international replay dial-in number is 1-929-458-6194. The replay access code is 447159. Forward-Looking Statements: This press release includes “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and are made in reliance upon such acts and the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1955. DMS’s actual results may differ from its expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. These forward statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its and ClickDealer’s future performance and its ability to implement its strategy and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) DMS’s ability to attain the expected financial benefits from the ClickDealer transaction, (2) any impacts to the ClickDealer business from our acquisition thereof, (3) the COVID-19 pandemic or other public health crises; (4) management of our international expansion as a result of the ClickDealer acquisition; (5) changes in client demand for our services and our ability to adapt to such changes; (6) the entry of new competitors in the market; (7) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (8) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers, and to ensure compliance with data privacy regulations in newly entered markets; (9) the performance of DMS’s technology infrastructure; (10) the ability to protect DMS’s intellectual property rights; (11) the ability to successfully source, complete and integrate acquisitions; (12) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate material weaknesses therein, including any integration of the ClickDealer business; (13) changes in applicable laws or regulations and the ability to maintain compliance; (14) our substantial levels of indebtedness; (15) volatility in the trading price on the NYSE of our common stock and warrants; (16) fluctuations in value of our private placement warrants; and (17) other risks and uncertainties indicated from time to time in DMS’s filings with the SEC, including those under “Risk Factors” in DMS’s Annual Report on Form 10-K and its subsequent filings with the SEC. There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks. DMS cautions that the foregoing list of factors is not exclusive. DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. About DMS: Digital Media Solutions, Inc. (NYSE: DMS) is a leading provider of data-driven, technology-enabled digital performance advertising solutions connecting consumers and advertisers within the auto, home, health, and life insurance, plus a long list of top consumer verticals. The DMS first-party data asset, proprietary advertising technology, significant proprietary media distribution, and data-driven processes help digital advertising clients de-risk their advertising spend while scaling their customer bases. Learn more at https://digitalmediasolutions.com. DIGITAL MEDIA SOLUTIONS, INC. Consolidated Balance Sheets (in thousands, except per share par value) December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 48,839 $ 26,394 Accounts receivable, net of allowances of $4,656 and $4,930, respectively 48,109 51,578 Prepaid and other current assets 3,296 3,698 Income tax receivable 1,626 2,078 Total current assets 101,870 83,748 Property and equipment, net 17,702 19,168 Operating lease right-of-use assets, net 2,187 — Goodwill 77,238 76,558 Intangible assets, net 27,519 66,228 Other assets 765 889 Total assets $ 227,281 $ 246,591 Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 39,908 $ 42,073 Accrued expenses and other current liabilities 7,101 9,473 Current portion of long-term debt 2,250 2,250 Income taxes payable (340 ) 103 Tax Receivable Agreement liability 164 1,310 Operating lease liabilities - current 2,175 — Contingent consideration payable - current 1,453 7,370 Deferred acquisitions consideration payable - current — 4,785 Total current liabilities 52,711 67,364 Long-term debt 254,573 215,505 Deferred tax liabilities 1,112 4,786 Operating lease liabilities - non-current 2,232 — Private Placement Warrant liabilities 600 3,960 Contingent consideration payable - non-current — 1,069 Other non-current liabilities — 1,725 Total liabilities 311,228 294,409 Stockholders' deficit: Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at December 31, 2022 — — Class A common stock, $0.0001 par value, 500,000 shares authorized; 39,957 issued and outstanding at December 31, 2022 4 3 Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at December 31, 2022 3 3 Class C convertible common stock, $0.0001 par value, 40,000 shares authorized; none issued and outstanding at December 31, 2022 — — Additional paid-in capital (14,054 ) (25,239 ) Treasury stock, at cost, 138 and 0 shares, respectively (181 ) — Cumulative deficit (32,896 ) (944 ) Total stockholders' deficit (47,124 ) (26,177 ) Non-controlling interest (36,823 ) (21,641 ) Total stockholders' deficit (83,947 ) (47,818 ) Total liabilities and stockholders' deficit $ 227,281 $ 246,591 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Operations (in thousands, except per share data) Years Ended December 31, 2022 2021 Net revenue $ 391,148 $ 427,935 Cost of revenue (exclusive of depreciation and amortization) 287,820 303,025 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 (Loss) income from operations (42,467 ) 8,382 Interest expense 17,366 14,166 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Loss on disposal of assets 7 8 Net (loss) income before income taxes (56,605 ) 25,504 Income tax (benefit) expense (4,105 ) 19,311 Net (loss) income (52,500 ) 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc. $ (31,952 ) $ 2,202 Weighted-average shares outstanding - basic 38,252 35,249 Weighted-average shares outstanding - diluted 38,279 35,764 (Loss) earnings per share attributable to Digital Media Solutions, Inc.: Basic and diluted - per common shares $ (0.84 ) $ 0.06 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities Net (loss) income $ (52,500 ) $ 6,193 Adjustments to reconcile net income to net cash from operating activities Provision for bad debt 1,761 4,798 Depreciation and amortization 28,242 25,401 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities (315 ) 18,787 Cash flows from investing activities Additions to property and equipment (6,744 ) (9,114 ) Acquisition of businesses, net of cash acquired (2,502 ) (25,129 ) Net cash used in investing activities (9,246 ) (34,243 ) Cash flows from financing activities Proceeds from borrowings on revolving credit facilities 40,000 11,000 Proceeds from issuance of long-term debt — 220,840 Payments of long-term debt and notes payable (2,250 ) (200,977 ) Payments of borrowings on revolving credit facilities — (15,000 ) Payment of debt issuance costs — (3,565 ) Tax withholding on share based awards — (994 ) Payment of equity issuance — (493 ) Payment of early termination — (188 ) Proceeds from warrants exercised — 11 Purchase of treasury stock related to stock-based compensation (181 ) — Distributions to non-controlling interest holders (563 ) (196 ) Payment of deferred consideration payable (5,000 ) — Other — 15 Net cash provided by financing activities 32,006 10,453 Net change in cash and cash equivalents 22,445 (5,003 ) Cash and cash equivalents, beginning of period 26,394 31,397 Cash and cash equivalents, end of period $ 48,839 $ 26,394 Supplemental Disclosure of Cash Flow Information Cash Paid During the Period For Interest $ 15,574 $ 12,926 Income taxes 1,214 4,442 Non-Cash Transactions: Contingent and deferred acquisition consideration $ 3,014 $ 11,903 Stock-based compensation capitalized in property and equipment 469 447 Capital expenditures included in accounts payable 151 410 Issuance of equity for AAP and Crisp Results 10,000 35,000 Impairment of lease asset 528 — NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income % of revenue (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 24,470 26,383 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Acquisition costs 1,650 1,967 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on disposal of assets 7 8 Loss on debt extinguishment — 2,108 Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Total adjustments 180,298 145,100 Variable marketing margin $ 127,798 $ 151,293 Variable marketing margin % of revenue 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Adjustments Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of warrant liabilities (1) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Stock-based compensation expense 6,656 6,463 Restructuring costs 2,312 1,118 Acquisition costs (2) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expense (3) 5,117 6,520 Adjusted net income 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) — 31 Pro forma cost savings - Acquisitions (5) — 3,330 Acquisitions EBITDA (6) — 2,711 Accounts reserved (7) — 944 Adjusted EBITDA 25,656 57,965 Less: Capital Expenditures 6,744 9,114 Unlevered free cash flow $ 18,912 $ 48,851 Unlevered free cash flow conversion 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Years Ended December 31, 2022 2021 Unlevered free cash flow $ 18,912 $ 48,851 Capital expenditures 6,744 9,114 Adjusted EBITDA 25,656 57,965 Accounts reserved (1) — 944 Acquisitions EBITDA (2) — 2,711 Pro forma cost savings - Reorganization (3) — 31 Pro forma cost savings - Acquisitions (4) — 3,330 Adjusted net income 25,656 50,949 Impairment of intangible assets 21,570 — Acquisition costs (5) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expenses (6) 5,117 6,520 Stock-based compensation 6,656 6,463 Restructuring costs 2,312 1,118 Change in fair value of warrant liabilities (7) (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Subtotal before additional adjustments (10,872 ) 49,782 Less: Interest expense 17,366 14,166 Less: Income tax (benefit) expense (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 125 (15,289 ) Provision for bad debt 1,761 4,798 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability - Consolidated statements of cash flows (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Years Ended December 31, 2022 2021 Numerator: Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan 27 389 Add: dilutive effects of public warrants — 126 Weighted average shares - diluted 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 SUPPLEMENT NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income % of revenue (25 )% (3 )% (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 5,879 7,527 24,470 26,383 Salaries and related costs 11,261 13,586 49,872 48,014 General and administrative expenses 9,257 14,368 41,878 40,040 Acquisition costs 1,344 147 1,650 1,967 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liabilities (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on disposal of assets 7 — 7 8 Loss on debt extinguishment — — — 2,108 Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Total adjustments 55,966 40,040 180,298 145,100 Variable marketing margin $ 30,831 $ 36,117 $ 127,798 $ 151,293 Variable marketing margin % of revenue 31 % 30 % 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Adjustments Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of warrant liabilities (1) (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on debt extinguishment — — — 2,108 Stock-based compensation expense 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Acquisition costs (2) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expense (3) 1,177 2,320 5,117 6,520 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) $ — $ — — 31 Pro forma cost savings - Acquisitions (5) — 674 — 3,330 Acquisitions EBITDA (6) — — — 2,711 Accounts reserved (7) — 944 — 944 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Less: Capital Expenditures 1,497 1,239 6,744 9,114 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Unlevered free cash flow conversion 78.8 % 91.6 % 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Capital expenditures 1,497 1,239 6,744 9,114 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Accounts reserved (1) — 944 — 944 Acquisitions EBITDA (2) — — — 2,711 Pro forma cost savings - Reorganization (3) — — — 31 Pro forma cost savings - Acquisitions (4) — 674 — 3,330 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Impairment of intangible assets 21,570 — 21,570 — Acquisition costs (5) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expenses (6) 1,177 2,320 5,117 6,520 Stock-based compensation 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Change in fair value of warrant liabilities (7) (880 ) (4,280 ) (3,360 ) (18,115 ) Loss on debt extinguishment — — — 2,108 Subtotal before additional adjustments $ (17,657 ) $ 7,854 (10,872 ) 49,782 Less: Interest expense 5,292 3,531 17,366 14,166 Less: Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 245 (15,289 ) 125 (15,289 ) Provision for bad debt 456 475 1,761 4,798 Amortization of right-of-use assets 937 — 937 — Loss on disposal of assets 7 — 7 8 Impairment of intangible assets 21,570 — 21,570 — Lease restructuring charges 605 (255 ) 438 542 Loss on debt extinguishment — — — 2,108 Stock-based compensation, net of amounts capitalized 1,324 1,446 6,656 6,393 Amortization of debt issuance costs 341 478 1,490 1,379 Deferred income tax (benefit) provision, net (2,948 ) (1,220 ) (4,108 ) 16,459 Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liability (880 ) (6,400 ) (3,360 ) (18,115 ) Consolidated statements of cash flows (1,026 ) — (1,146 ) (16,402 ) Change in income tax receivable and payable (1,288 ) 1,600 9 (727 ) Change in accounts receivable (2,840 ) (2,994 ) 1,984 (8,369 ) Change in prepaid expenses and other current assets (704 ) (2,343 ) 416 (419 ) Change in accounts payable and accrued expenses 2,286 4,401 (3,055 ) (612 ) Change in operating lease liabilities (2,102 ) — (2,102 ) — Change in other liabilities 57 (326 ) (137 ) (956 ) Net cash (used in) provided by operating activities $ (2,424 ) $ (6,395 ) $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Numerator: Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (9,789 ) $ 222 (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (15,346 ) $ (4,145 ) $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 39,959 36,226 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan — — 27 389 Add: dilutive effects of public warrants — — — 126 Weighted average shares - diluted 39,959 36,226 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.38 ) $ (0.11 ) $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 View source version on businesswire.com: https://www.businesswire.com/news/home/20230331005282/en/ Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group Contacts Investor Relations investors@dmsgroup.com For inquiries related to media, contact marketing@dmsgroup.com
Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network
Add after last paragraph of release: SUPPLEMENT section to include quarterly data for the Non-GAAP Financial Measures tables. The updated release reads: Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group Fourth-quarter net revenue of $100.8 million Full year 2022 revenue of $391.1 million, exceeding guidance Fourth-quarter net loss of $25.1 million and Adjusted EBITDA of $7.1 million Full year 2022 net loss of $52.5 million and Adjusted EBITDA of $25.7 million Fourth-quarter gross margin of 24.8% and Variable Marketing Margin (VMM) of 30.6% Full year gross margin of 26.4% and VMM of 32.7% Closed previously announced acquisition of HomeQuote.io marketplace and ClickDealer international ad network Digital Media Solutions, Inc. (NYSE: DMS), a leading provider of technology-enabled digital performance advertising solutions connecting consumers and advertisers, today announced financial results for the fourth quarter and full year ended December 31, 2022, along with the completion of asset purchases from Customer Direct Group. DMS serves 285 scaled enterprise customers and over 7,000 SMBs across the P&C Insurance, Health Insurance, Ecommerce, Career and Education, and Consumer Finance verticals with digital performance marketing solutions. “We are proud of our results in a dynamic operating environment, exceeding guidance for full year 2022 net revenue. Our results demonstrate the strength of our agnostic solutions, which are highlighted by the diversity in our customers and the end markets we serve. We are excited to add the HomeQuote.io marketplace and ClickDealer’s international performance ad network to the DMS ecosystem,” said Joe Marinucci, CEO of DMS. “Home improvement and related home services represent an enormous addressable market opportunity for future growth. ClickDealer’s international ad network will expand our Brand Direct business globally, allowing us to serve more advertisers and consumers in key verticals and end markets. Both businesses will continue to benefit from our proprietary technology, first-party data, and expansive and agnostic media reach.” “Diversity in both our customer base and verticals we serve allows DMS to remain agile to move as markets dictate, giving us a competitive advantage. Earlier this year, we focused on strengthening our balance sheet, which provides ample flexibility to continue to invest in our strategic growth initiatives. Given the length of the current market cycle, we continue to be diligently focused on managing our operating expenses as a major financial performance lever that is fully under our control,” Rick Rodick, CFO, added. Additionally, DMS successfully raised new equity financing to strengthen the company's balance sheet. This financing includes participation by DMS co-founders along with strategic investors and will better position the company to execute on its growth initiatives in 2023 and beyond. For additional information, see the private placement of convertible preferred stock press release at https://investors.digitalmediasolutions.com. Fourth Quarter 2022 Performance: (All comparisons are relative to the fourth quarter of 2021) Net revenue of $100.8 million, down 15.3% Gross profit margin of 24.8%, a decrease of 4.9 PPTS Variable Marketing Margin of 30.6%, an increase of 0.2 PPTS Operating expenses totaled $50.1 million, a decrease of $4.7 million Net loss of $25.1 million compared to net income of $3.9 million Adjusted EBITDA of $7.1 million compared to $14.7 million EPS of $(0.38) compared to $(0.11) Ended the quarter with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Fourth Quarter 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the fourth quarter of 2021) Brand Direct Solutions generated revenue of $55.9 million, down 23.1%. Gross margin was 21.3%, down from 23.7%. Marketplace Solutions generated revenue of $50.3 million, down 14.6%. Gross margin was 22.0%, down from 28.4%. Technology Solutions generated revenue of $2.3 million, down 37.4%. Gross margin was 83.4%, up from 37.6%. Full Year 2022 Performance: (All comparisons are relative to the full year of 2021) Net revenue of $391.1 million, down 8.6% Gross profit margin of 26.4%, a decrease of 2.8 PPTS Variable Marketing Margin of 32.7%, a decrease of 2.7 PPTS Operating expenses totaled $155.8 million, a decrease of $29.3 million Net loss of $52.5 million compared to net income of $6.2 million Adjusted EBITDA of $25.7 million compared to $58.0 million EPS of $(0.84) compared to $0.06 Ended the year with $48.8 million in cash and cash equivalents, and total debt of $256.8 million Full Year 2022 Segment Performance (including intra-company revenue): (All comparisons are relative to the full year of 2021) Brand Direct Solutions generated revenue of $204.2 million, down 19.5%. Gross margin was 21.0%, down from 23.0%. Marketplace Solutions generated revenue of $216.4 million, down 3.5%. Gross margin was 24.1%, down from 27.0%. Technology Solutions generated revenue of $9.8 million, up 1.7%. Gross margin was 85.4%, up from 63.2%. First Quarter and Second Quarter 2023 Guidance: DMS anticipates Revenue, Gross Margin, Variable Marketing Margin and Adjusted EBITDA to be in the following ranges: Our guidance for Q1 2023 reflects typical seasonality along with continued challenging market conditions in our P&C vertical. Q2 reflects the financial contribution we expect to realize from closing the Homequote.io and ClickDealer acquisition. We are not providing full year 2023 guidance at this time. First Quarter 2023: Net Revenue: $90 – $92 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $3 – $5 million Second Quarter 2023: Net Revenue: $108 – $112 million Gross Margin: 24% – 26% Variable Marketing Margin: 30% – 35% Adjusted EBITDA: $6 – $8 million Adjusted EBITDA and Variable Marketing Margin are non-GAAP financial measures. Management believes that Adjusted EBITDA and Variable Marketing Margin provide useful information to investors and help explain and isolate the core operating performance of the business — refer to the “Non-GAAP Financial Measures” section below. For guidance purposes, the Company is not providing a quantitative reconciliation of these non-GAAP measures in reliance on the “unreasonable efforts” exception for forward-looking non-GAAP measures set forth in SEC rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated without unreasonable effort and expense. Conference Call and Webcast Information: The U.S. toll-free dial-in for the conference call is 1-844-200-6205, and the international dial-in number is 1-646-904-5544. The access code is 437128. A live webcast of the conference call will be available on the investor relations page of the company's website at https://investors.digitalmediasolutions.com. A replay will be available after the conclusion of the call on March 31, 2023, through April 7, 2023. The U.S. toll-free replay dial-in number is 1-866-813-9403, and the international replay dial-in number is 1-929-458-6194. The replay access code is 447159. Forward-Looking Statements: This press release includes “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and are made in reliance upon such acts and the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1955. DMS’s actual results may differ from its expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. These forward statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its and ClickDealer’s future performance and its ability to implement its strategy and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) DMS’s ability to attain the expected financial benefits from the ClickDealer transaction, (2) any impacts to the ClickDealer business from our acquisition thereof, (3) the COVID-19 pandemic or other public health crises; (4) management of our international expansion as a result of the ClickDealer acquisition; (5) changes in client demand for our services and our ability to adapt to such changes; (6) the entry of new competitors in the market; (7) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (8) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers, and to ensure compliance with data privacy regulations in newly entered markets; (9) the performance of DMS’s technology infrastructure; (10) the ability to protect DMS’s intellectual property rights; (11) the ability to successfully source, complete and integrate acquisitions; (12) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate material weaknesses therein, including any integration of the ClickDealer business; (13) changes in applicable laws or regulations and the ability to maintain compliance; (14) our substantial levels of indebtedness; (15) volatility in the trading price on the NYSE of our common stock and warrants; (16) fluctuations in value of our private placement warrants; and (17) other risks and uncertainties indicated from time to time in DMS’s filings with the SEC, including those under “Risk Factors” in DMS’s Annual Report on Form 10-K and its subsequent filings with the SEC. There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks. DMS cautions that the foregoing list of factors is not exclusive. DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. About DMS: Digital Media Solutions, Inc. (NYSE: DMS) is a leading provider of data-driven, technology-enabled digital performance advertising solutions connecting consumers and advertisers within the auto, home, health, and life insurance, plus a long list of top consumer verticals. The DMS first-party data asset, proprietary advertising technology, significant proprietary media distribution, and data-driven processes help digital advertising clients de-risk their advertising spend while scaling their customer bases. Learn more at https://digitalmediasolutions.com. DIGITAL MEDIA SOLUTIONS, INC. Consolidated Balance Sheets (in thousands, except per share par value) December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 48,839 $ 26,394 Accounts receivable, net of allowances of $4,656 and $4,930, respectively 48,109 51,578 Prepaid and other current assets 3,296 3,698 Income tax receivable 1,626 2,078 Total current assets 101,870 83,748 Property and equipment, net 17,702 19,168 Operating lease right-of-use assets, net 2,187 — Goodwill 77,238 76,558 Intangible assets, net 27,519 66,228 Other assets 765 889 Total assets $ 227,281 $ 246,591 Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 39,908 $ 42,073 Accrued expenses and other current liabilities 7,101 9,473 Current portion of long-term debt 2,250 2,250 Income taxes payable (340 ) 103 Tax Receivable Agreement liability 164 1,310 Operating lease liabilities - current 2,175 — Contingent consideration payable - current 1,453 7,370 Deferred acquisitions consideration payable - current — 4,785 Total current liabilities 52,711 67,364 Long-term debt 254,573 215,505 Deferred tax liabilities 1,112 4,786 Operating lease liabilities - non-current 2,232 — Private Placement Warrant liabilities 600 3,960 Contingent consideration payable - non-current — 1,069 Other non-current liabilities — 1,725 Total liabilities 311,228 294,409 Stockholders' deficit: Preferred stock, $0.0001 par value, 100,000 shares authorized; none issued and outstanding at December 31, 2022 — — Class A common stock, $0.0001 par value, 500,000 shares authorized; 39,957 issued and outstanding at December 31, 2022 4 3 Class B convertible common stock, $0.0001 par value, 60,000 shares authorized; 25,699 issued and outstanding at December 31, 2022 3 3 Class C convertible common stock, $0.0001 par value, 40,000 shares authorized; none issued and outstanding at December 31, 2022 — — Additional paid-in capital (14,054 ) (25,239 ) Treasury stock, at cost, 138 and 0 shares, respectively (181 ) — Cumulative deficit (32,896 ) (944 ) Total stockholders' deficit (47,124 ) (26,177 ) Non-controlling interest (36,823 ) (21,641 ) Total stockholders' deficit (83,947 ) (47,818 ) Total liabilities and stockholders' deficit $ 227,281 $ 246,591 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Operations (in thousands, except per share data) Years Ended December 31, 2022 2021 Net revenue $ 391,148 $ 427,935 Cost of revenue (exclusive of depreciation and amortization) 287,820 303,025 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 (Loss) income from operations (42,467 ) 8,382 Interest expense 17,366 14,166 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Loss on disposal of assets 7 8 Net (loss) income before income taxes (56,605 ) 25,504 Income tax (benefit) expense (4,105 ) 19,311 Net (loss) income (52,500 ) 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc. $ (31,952 ) $ 2,202 Weighted-average shares outstanding - basic 38,252 35,249 Weighted-average shares outstanding - diluted 38,279 35,764 (Loss) earnings per share attributable to Digital Media Solutions, Inc.: Basic and diluted - per common shares $ (0.84 ) $ 0.06 DIGITAL MEDIA SOLUTIONS, INC. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities Net (loss) income $ (52,500 ) $ 6,193 Adjustments to reconcile net income to net cash from operating activities Provision for bad debt 1,761 4,798 Depreciation and amortization 28,242 25,401 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities (315 ) 18,787 Cash flows from investing activities Additions to property and equipment (6,744 ) (9,114 ) Acquisition of businesses, net of cash acquired (2,502 ) (25,129 ) Net cash used in investing activities (9,246 ) (34,243 ) Cash flows from financing activities Proceeds from borrowings on revolving credit facilities 40,000 11,000 Proceeds from issuance of long-term debt — 220,840 Payments of long-term debt and notes payable (2,250 ) (200,977 ) Payments of borrowings on revolving credit facilities — (15,000 ) Payment of debt issuance costs — (3,565 ) Tax withholding on share based awards — (994 ) Payment of equity issuance — (493 ) Payment of early termination — (188 ) Proceeds from warrants exercised — 11 Purchase of treasury stock related to stock-based compensation (181 ) — Distributions to non-controlling interest holders (563 ) (196 ) Payment of deferred consideration payable (5,000 ) — Other — 15 Net cash provided by financing activities 32,006 10,453 Net change in cash and cash equivalents 22,445 (5,003 ) Cash and cash equivalents, beginning of period 26,394 31,397 Cash and cash equivalents, end of period $ 48,839 $ 26,394 Supplemental Disclosure of Cash Flow Information Cash Paid During the Period For Interest $ 15,574 $ 12,926 Income taxes 1,214 4,442 Non-Cash Transactions: Contingent and deferred acquisition consideration $ 3,014 $ 11,903 Stock-based compensation capitalized in property and equipment 469 447 Capital expenditures included in accounts payable 151 410 Issuance of equity for AAP and Crisp Results 10,000 35,000 Impairment of lease asset 528 — NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income % of revenue (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 24,470 26,383 Salaries and related costs 49,872 48,014 General and administrative expenses 41,878 40,040 Acquisition costs 1,650 1,967 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liabilities (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on disposal of assets 7 8 Loss on debt extinguishment — 2,108 Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Total adjustments 180,298 145,100 Variable marketing margin $ 127,798 $ 151,293 Variable marketing margin % of revenue 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Years Ended December 31, 2022 2021 Net (loss) income $ (52,500 ) $ 6,193 Adjustments Interest expense 17,366 14,166 Income tax (benefit) expense (4,105 ) 19,311 Depreciation and amortization 28,242 25,401 Impairment of intangible assets 21,570 — Change in fair value of warrant liabilities (1) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 125 (15,289 ) Loss on debt extinguishment — 2,108 Stock-based compensation expense 6,656 6,463 Restructuring costs 2,312 1,118 Acquisition costs (2) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expense (3) 5,117 6,520 Adjusted net income 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) — 31 Pro forma cost savings - Acquisitions (5) — 3,330 Acquisitions EBITDA (6) — 2,711 Accounts reserved (7) — 944 Adjusted EBITDA 25,656 57,965 Less: Capital Expenditures 6,744 9,114 Unlevered free cash flow $ 18,912 $ 48,851 Unlevered free cash flow conversion 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Years Ended December 31, 2022 2021 Unlevered free cash flow $ 18,912 $ 48,851 Capital expenditures 6,744 9,114 Adjusted EBITDA 25,656 57,965 Accounts reserved (1) — 944 Acquisitions EBITDA (2) — 2,711 Pro forma cost savings - Reorganization (3) — 31 Pro forma cost savings - Acquisitions (4) — 3,330 Adjusted net income 25,656 50,949 Impairment of intangible assets 21,570 — Acquisition costs (5) 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Other expenses (6) 5,117 6,520 Stock-based compensation 6,656 6,463 Restructuring costs 2,312 1,118 Change in fair value of warrant liabilities (7) (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Subtotal before additional adjustments (10,872 ) 49,782 Less: Interest expense 17,366 14,166 Less: Income tax (benefit) expense (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 125 (15,289 ) Provision for bad debt 1,761 4,798 Amortization of right-of-use assets 937 — Loss on disposal of assets 7 8 Impairment of intangible assets 21,570 — Lease restructuring charges — 542 Loss on debt extinguishment — 2,108 Stock-based compensation, net of amounts capitalized 6,656 6,393 Amortization of debt issuance costs 1,490 1,379 Deferred income tax (benefit) provision, net (4,108 ) 16,459 Change in fair value of contingent consideration 2,583 1,106 Change in fair value of warrant liability (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability - Consolidated statements of cash flows (1,146 ) (16,402 ) Change in income tax receivable and payable 9 (727 ) Change in accounts receivable 1,984 (8,369 ) Change in prepaid expenses and other current assets 416 (419 ) Change in accounts payable and accrued expenses (2,617 ) (612 ) Change in operating lease liabilities (2,102 ) — Change in other liabilities (137 ) (956 ) Net cash (used in) provided by operating activities $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Years Ended December 31, 2022 2021 Numerator: Net (loss) income $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan 27 389 Add: dilutive effects of public warrants — 126 Weighted average shares - diluted 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 SUPPLEMENT NON-GAAP FINANCIAL MEASURES In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Variable Marketing Margin, Adjusted EBITDA, Unlevered Free Cash Flow, Adjusted Net Income and Adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below. As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement. Variable Marketing Margin Variable Marketing Margin is a measure of the efficiency of the Company’s revenue generation efforts, measuring revenue after subtracting the variable marketing and direct media costs that are directly associated with revenue generation. Variable Marketing Margin and Variable Marketing Margin % of revenue are key reporting metrics by which the Company measures the efficacy of its marketing and media acquisition efforts. Variable Marketing Margin is defined as revenue less variable marketing expense. Variable marketing expense is defined as the expense attributable to variable costs paid for direct marketing and media acquisition costs, and includes only the portion of cost of revenue attributable to costs paid for this direct marketing activity and advertising acquired for resale to the Company’s customers, and excludes overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and to our customers’ websites, and these variable advertising costs are included in cost of revenue on the company's consolidated statements of operations. Below is a reconciliation of net loss to Variable Marketing Margin and net loss % of revenue to Variable Marketing Margin % of revenue. The following table provides a reconciliation of Variable Marketing Margin to net loss, the most directly comparable GAAP measure (in thousands, except percentages): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income % of revenue (25 )% (3 )% (13 )% 1 % Adjustments to reconcile to variable marketing margin: Cost of revenue adjustment (1) 5,879 7,527 24,470 26,383 Salaries and related costs 11,261 13,586 49,872 48,014 General and administrative expenses 9,257 14,368 41,878 40,040 Acquisition costs 1,344 147 1,650 1,967 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liabilities (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on disposal of assets 7 — 7 8 Loss on debt extinguishment — — — 2,108 Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Total adjustments 55,966 40,040 180,298 145,100 Variable marketing margin $ 30,831 $ 36,117 $ 127,798 $ 151,293 Variable marketing margin % of revenue 31 % 30 % 33 % 35 % ______________ (1) Represents amounts reported as cost of revenue that are not direct media costs associated with lead sales, which were added back for the purpose of the Variable Marketing Margin (“VMM”). Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b)income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense. In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized. Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods. Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA. The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Adjustments Interest expense 5,292 3,531 17,366 14,166 Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Depreciation and amortization 6,866 5,751 28,242 25,401 Impairment of intangible assets 21,570 — 21,570 — Change in fair value of warrant liabilities (1) (880 ) (4,280 ) (3,360 ) (18,115 ) Change in Tax Receivable Agreement liability 245 (15,289 ) 125 (15,289 ) Loss on debt extinguishment — — — 2,108 Stock-based compensation expense 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Acquisition costs (2) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expense (3) 1,177 2,320 5,117 6,520 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Additional adjustments Pro forma cost savings - Reorganization (4) $ — $ — — 31 Pro forma cost savings - Acquisitions (5) — 674 — 3,330 Acquisitions EBITDA (6) — — — 2,711 Accounts reserved (7) — 944 — 944 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Less: Capital Expenditures 1,497 1,239 6,744 9,114 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Unlevered free cash flow conversion 78.8 % 91.6 % 73.7 % 84.3 % ______________ (1) Mark-to-market warrant liability adjustments. (2) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (3) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (4) Costs savings as a result of the Company reorganization initiated in Q2 2020. (5) Cost synergies expected as a result of the full integration of the acquisitions. (6) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (7) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time. A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Unlevered free cash flow $ 5,578 $ 13,452 $ 18,912 $ 48,851 Capital expenditures 1,497 1,239 6,744 9,114 Adjusted EBITDA $ 7,075 $ 14,691 25,656 57,965 Accounts reserved (1) — 944 — 944 Acquisitions EBITDA (2) — — — 2,711 Pro forma cost savings - Reorganization (3) — — — 31 Pro forma cost savings - Acquisitions (4) — 674 — 3,330 Adjusted net income $ 7,075 $ 13,073 25,656 50,949 Impairment of intangible assets 21,570 — 21,570 — Acquisition costs (5) 1,344 147 1,650 1,967 Change in fair value of contingent consideration liabilities 51 3,631 2,583 1,106 Other expenses (6) 1,177 2,320 5,117 6,520 Stock-based compensation 1,324 2,417 6,656 6,463 Restructuring costs 146 984 2,312 1,118 Change in fair value of warrant liabilities (7) (880 ) (4,280 ) (3,360 ) (18,115 ) Loss on debt extinguishment — — — 2,108 Subtotal before additional adjustments $ (17,657 ) $ 7,854 (10,872 ) 49,782 Less: Interest expense 5,292 3,531 17,366 14,166 Less: Income tax (benefit) expense (4,925 ) 17,784 (4,105 ) 19,311 Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations 245 (15,289 ) 125 (15,289 ) Provision for bad debt 456 475 1,761 4,798 Amortization of right-of-use assets 937 — 937 — Loss on disposal of assets 7 — 7 8 Impairment of intangible assets 21,570 — 21,570 — Lease restructuring charges 605 (255 ) 438 542 Loss on debt extinguishment — — — 2,108 Stock-based compensation, net of amounts capitalized 1,324 1,446 6,656 6,393 Amortization of debt issuance costs 341 478 1,490 1,379 Deferred income tax (benefit) provision, net (2,948 ) (1,220 ) (4,108 ) 16,459 Change in fair value of contingent consideration 50 (3,085 ) 2,583 1,106 Change in fair value of warrant liability (880 ) (6,400 ) (3,360 ) (18,115 ) Consolidated statements of cash flows (1,026 ) — (1,146 ) (16,402 ) Change in income tax receivable and payable (1,288 ) 1,600 9 (727 ) Change in accounts receivable (2,840 ) (2,994 ) 1,984 (8,369 ) Change in prepaid expenses and other current assets (704 ) (2,343 ) 416 (419 ) Change in accounts payable and accrued expenses 2,286 4,401 (3,055 ) (612 ) Change in operating lease liabilities (2,102 ) — (2,102 ) — Change in other liabilities 57 (326 ) (137 ) (956 ) Net cash (used in) provided by operating activities $ (2,424 ) $ (6,395 ) $ (315 ) $ 18,787 ______________ (1) For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time. (2) Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021. (3) Costs savings as a result of the Company reorganization initiated in Q2 2020. (4) Cost synergies expected as a result of the full integration of the acquisitions. (5) Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses. (6) Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs. (7) Mark-to-market warrant liability adjustments. Adjusted Net Income and Adjusted EPS We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis. The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data): Three Months Ended December 31, Years Ended December 31, 2022 2021 2022 2021 Numerator: Net (loss) income $ (25,135 ) $ (3,923 ) $ (52,500 ) $ 6,193 Net (loss) income attributable to non-controlling interest (9,789 ) $ 222 (20,548 ) 3,991 Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (15,346 ) $ (4,145 ) $ (31,952 ) $ 2,202 Denominator: Weighted average shares - basic 39,959 36,226 38,252 35,249 Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan — — 27 389 Add: dilutive effects of public warrants — — — 126 Weighted average shares - diluted 39,959 36,226 38,279 35,764 Net (loss) earnings per common share: Basic and diluted $ (0.38 ) $ (0.11 ) $ (0.84 ) $ 0.06 Years Ended December 31, 2022 2021 Numerator: Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted $ (31,952 ) $ 2,202 Add adjustments: Change in fair value of warrant liabilities (3,360 ) (18,115 ) Loss on debt extinguishment — 2,108 Acquisition costs 1,650 1,967 Change in fair value of contingent consideration liabilities 2,583 1,106 Restructuring costs 2,312 1,118 Business combination expenses — 3,330 Stock-based compensation expense 6,656 6,463 Accounts reserved — 944 9,841 (1,079 ) Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted (22,111 ) 1,123 Denominator: Weighted-average shares outstanding - basic and diluted 38,252 35,249 Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock 24,510 25,853 62,762 61,102 Adjusted EPS - basic and diluted $ (0.35 ) $ 0.02 View source version on businesswire.com: https://www.businesswire.com/news/home/20230331005282/en/
Digital Media Solutions, Inc. Announces Q4 And Full Year 2022 Financial Results And The Completion Of Asset Purchases From Customer Direct Group
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