DIGITAL MEDIA SOLUTIONS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
OVERVIEW
The following Management's Discussion and Analysis ("MD&A") is intended to
assist in an understanding of our financial condition and results of operations.
This MD&A is provided as a supplement to, should be read in conjunction with,
and is qualified in its entirety by reference to, our Consolidated Financial
Statements (Unaudited) and accompanying Notes appearing elsewhere in this
Quarterly Report (the "Notes"). In addition, reference should be made to our
Audited Consolidated Financial Statements and accompanying Notes to Consolidated
Financial Statements and Item 7: "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our 2021 Form 10-K.
Except for the historical information contained herein, the discussions in this
MD&A contain forward-looking statements that involve risks and uncertainties.
Our future results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below in this MD&A under "Forward-Looking Statements and
Factors that May Affect Future Results".
On August 16, 2021 , we announced our decision to evaluate potential strategic
alternatives to maximize shareholder value. We intend to evaluate a full range
of strategic, operational and financial alternatives. We have retained Goldman
Sachs & Co LLC and Canaccord Genuity as our financial advisors to assist with
the strategic review process. There can be no assurance that the strategic
review process will result in any strategic alternative, or any assurance as to
its outcome or timing.
Recent Business Acquisitions
Our acquisitions in the past few years have enabled us to expand our reach into
high quality proprietary targeted media solutions in a wide range of industries
and include the following.
On May 10, 2022 , the Company acquired Traverse Data, Inc. ("Traverse"). Traverse
is a marketing and advertising technology company. The Company paid cash
consideration of $2.5 million upon closing of the transaction. The transaction
also includes up to $0.5 million in contingent consideration, subject to the
achievement of certain milestones, which can be paid in cash.
————————————————– ——————————
Table of Contents
RESULTS OF OPERATIONS
The following table presents our consolidated results of operations as a
percentage of net revenue:
Three Months Ended June
30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue by type:
Customer acquisition 95.4 % 96.3 % 95.9 % 95.6 %
Managed services 3.4 % 2.9 % 3.1 % 3.7 %
Software services 1.2 % 0.8 % 1.0 % 0.7 %
Total net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Revenue by segment:
Brand Direct 49.1 % 57.0 % 52.9 % 57.5 %
Marketplace 59.3 % 55.0 % 56.4 % 53.0 %
Technology Solutions 2.8 % 1.8 % 2.4 % 1.9 %
Intercompany eliminations (11.2) % (13.8) % (11.7) % (12.4) %
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 74.3 % 67.9 % 72.7 % 69.6 %
Gross profit 25.7 % 32.1 % 27.3 % 30.4 %
Salaries and related costs 14.5 % 11.1 % 13.5 % 10.9 %
General and administrative 13.6 % 10.0 % 11.8 % 8.7 %
Depreciation and amortization 7.9 % 6.7 % 7.1 % 6.2 %
Acquisition costs 0.3 % 0.4 % 0.1 % 1.0 %
Change in fair value of contingent
consideration (0.1) % - % 1.3 % - %
(Loss) income from operations (10.5) % 3.9 % (6.5) % 3.6 %
Interest expense 4.2 % 3.4 % 3.7 % 3.4 %
Change in fair value of warrant liabilities (1.8) % (7.4) % (1.7) % (3.7) %
Loss on debt extinguishment - % 2.0 % - % 1.0 %
Net (loss) income before income taxes (12.9) % 5.9 % (8.5) % 2.9 %
Income tax expense - % 1.0 % 0.2 % 0.6 %
Net (loss) income (12.9) % 4.9 % (8.7) % 2.3 %
Net (loss) income attributable to
non-controlling interest (5.4) % 2.3 % (3.6) % 1.2 %
Net (loss) income attributable to Digital
Media Solutions, Inc. (7.5) % 2.6 % (5.1) % 1.2 %
————————————————– ——————————
Table of Contents
Results of operations for the three and six months ended
The following table presents the consolidated results of operations for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Net revenue $ 91,197 $ 105,079 $ (13,882) (13) % $ 200,307 $ 201,882 $ (1,575) (1) %
Cost of revenue 67,784 71,359 (3,575) (5) % 145,624 140,541 5,083 4 %
Salaries and related costs 13,237 11,708 1,529 13 % 26,945 21,977 4,968 23 %
General and administrative 12,444 10,552 1,892 18 % 23,544 17,514 6,030 34 %
Depreciation and amortization 7,173 7,044 129 2 % 14,233 12,463 1,770 14 %
Acquisition costs 279 466 (187) (40) % 292 1,960 (1,668) (85) %
Change in fair value of contingent
consideration (55) - (55) (100) % 2,536 - 2,536 100 %
(Loss) income from operations $ (9,665) 3,950 $ (13,615) (345) % $ (12,867) 7,427 $ (20,294) (273) %
Interest expense 3,817 3,622 195 5 % 7,502 6,879 623 9 %
Change in fair value of warrant
liabilities (1,640) (7,750) 6,110 (79) % (3,480) (7,435) 3,955 (53) %
Loss on debt extinguishment - 2,108 (2,108) (100) % - 2,108 (2,108) (100) %
Net (loss) income before income
taxes $ (11,842) $ 5,970 $ (17,812) (298) % $ (16,889) $ 5,875 $ (22,764) (388) %
Income tax expense 45 1,031 (986) (96) % 355 1,148 (793) (69) %
Net (loss) income $ (11,887) $ 4,939 $ (16,826) (341) % $ (17,244) $ 4,727 $ (21,971) (465) %
Net (loss) income attributable to
non-controlling interest (4,905) 2,411 (7,316) (303) % (7,121) 2,373 (9,494) (400) %
Net (loss) income attributable to
Digital Media Solutions, Inc. $ (6,982) $ 2,528 $ (9,510) (376) % $ (10,123) $ 2,354 $ (12,477) (530) %
Net revenue. Our business generates revenue primarily through the delivery of a
variety of performance-based marketing services, including customer acquisition,
managed services and software services.
The following table shows revenue by type for each segment and changes from the prior period:
————————————————– ——————————
Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Brand Direct
Customer acquisition $ 43,124 $ 57,955 $ (14,831) (26) % $ 102,743 $ 111,009 $ (8,266) (7) %
Managed services 1,665 1,921 (256) (13) % 3,274 5,046 (1,772) (35) %
Total Brand Direct $ 44,789 $ 59,876 $ (15,087) (25) % $ 106,017 $ 116,055 $ (10,038) (9) %
Marketplace
Customer acquisition $ 54,092 $ 57,763 $ (3,671) (6) % $ 112,898 $ 107,022 $ 5,876 6 %
Total Marketplace $ 54,092 $ 57,763 $ (3,671) (6) % $ 112,898 $ 107,022 $ 5,876 6 %
Technology Solutions
Managed services 1,403 1,109 294 27 % 2,913 2,325 588 25 %
Software services 1,145 807 338 42 % 1,971 1,607 364 23 %
Total technology solutions
632 33 %$ 4,884 $ 3,932 $ 952 24 % Corporate and Other Customer acquisition$ (10,232) $ (14,476) $ 4,244 (29) %$ (23,492) $ (25,127) $ 1,635 (7) % Total Corporate and Other$ (10,232) $ (14,476) $ 4,244 (29) %$ (23,492) $ (25,127) $ 1,635 (7) % Total Customer acquisition$ 86,984 $ 101,242 $ (14,258) (14) %$ 192,149 $ 192,904 $ (755) - % Total Managed services 3,068 3,030 38 1 % 6,187 7,371 (1,184) (16) %Total Software services 1,145 807 338 42 % 1,971 1,607 364 23 % Total Net revenue$ 91,197 $ 105,079 $ (13,882) (13) %$ 200,307 $ 201,882 $ (1,575) (1) % Customer Acquisition Revenue. Customer acquisition contracts deliver potential consumers or leads (i.e. number of clicks, emails, calls and applications) to the customer in real-time based on predefined qualifying characteristics specified by our customer. Our Brand Direct segment experienced a decrease in Customer acquisition revenue of$14.8 million or 26% and$8.3 million or 7% during the three and six months endedJune 30, 2022 , respectively. Customer acquisition revenue for Marketplace decreased by$3.7 million or 6% and increased by$5.9 million or 5.5% for the three and six months endedJune 30, 2022 , respectively. The changes in both the Brand Direct and Marketplace segments were primarily due to macro challenges within the insurance industry which continue to apply downward pressure on cost per click (CPC) and cost per lead (CPL) pricing. In addition we've observed an adjustment in the health insurance model shifting non-enrollment ad spend which impacted our Q2 performance. Managed Services Revenue. Managed services contracts provide continuous service of managing the customer's media spend for the purpose of generating leads through a third-party supplier of leads, as requested by our customer. Managed services revenue experienced a slight increase of$0.0 million or 1% and a decrease of$1.2 million or 16%during the three and six months endedJune 30, 2022 . The changes were primarily driven by decreased media activity in Q1 resulting in lower agency fees. Software Services Revenue. Software services contracts provide the customer with continuous, daily access to the Company's proprietary software. Software services revenue is considered insignificant during the three and six months endedJune 30, 2022 . Cost of revenue and gross profit. Cost of revenue primarily includes media and other related costs, such as the cost to acquire user traffic through the purchase of impressions, clicks or actions from publishers or third-party intermediaries, including advertising exchanges, and technology costs that enable media acquisition. These media costs are used primarily to drive user traffic to the Company's and our customers' media properties. Cost of revenue also includes indirect costs such as data verification, hosting and fulfillment costs.
The following table shows the gross margin percentage (gross margin as a percentage of total revenue) by segment and the variations compared to the previous period:
————————————————– ——————————
Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 PPTS Change 2022 2021 PPTS Change
Brand Direct 19.3 % 26.0 % (6.7) 20.2 % 24.9 % (4.7)
Marketplace 23.3 % 28.9 % (5.6) 25.7 % 27.4 % (1.7)
Technology Solutions 83.7 % 76.1 % 7.6 86.0 % 77.8 % 8.2
Total gross profit percentage 25.7 % 32.1 % (6.4) 27.3 % 30.4 % (3.1)
Gross profit for Brand Direct decreased for the three and six months ended June
30, 2022 , primarily driven by inflationary uncertainty within the auto industry
leading to compressed pricing and decreased acquisition spending, timing of
optimized media rebalancing, and monetization challenges within the DMS
ecosystem.
Gross profit for Marketplace decreased for the three and six months ended June
30, 2022 , primarily driven by macro industry headwinds applying downward pricing
pressure impacting revenue performance within our Insurance business as well as
the shift in ad spend from non enrollment periods from some of our health
insurance partners. The ad spend shift particularly affected the profitability
of the Crisp business model due to the more stable nature of call center
operations.
Gross profit for Technology Solutions increased for the three and six months
ended June 30, 2022 , driven by the optimization of media purchasing activity
which lead to larger budgets and resulted in increased fees in addition the
Traverse acquisition which carries a higher margin profile.
Total gross profit decreased for the three and six months ended June 30, 2022 ,
primarily due to the unexpected impact of inflationary pressures within the
insurance industry which led to a decline in click pricing and shifts in health
insurance budgets culminating in monetization contraction within the DMS
ecosystem.
Salaries and related costs. Total compensation includes salaries, commissions,
bonuses, payroll taxes and retirement benefits.
Salaries and related costs increased by $1.5 million or 13.1% and $5.0 million
or 22.6% for the three and six months ended June 30, 2022 , respectively, which
were primarily driven by an increase in stock-based compensation and headcount
as a result of required expansion of our workforce to support the Company, as
well as the addition of FTEs from the Crisp Results and DMS Voice licensing.
General and administrative. General and administrative consist of expenses
incurred in our normal course of business relating to office supplies, computer
and technology, rent and utilities, insurance, legal and professional fees,
state and local taxes and licenses, penalties and settlements and bad debt
expense, as well as sales and marketing expenses relating to advertising and
promotion. We also include other expenses such as investment banking expenses,
fundraising costs and costs related to the advancement of our corporate social
responsibility program.
General and administrative expenses increased
Depreciation and amortization. Property, plant and equipment include computers and office equipment, furniture and fixtures, leasehold improvements and the costs of internally developed software. Intangible assets subject to amortization include technology, customer relationships, brand and non-competition agreements.
Depreciation and amortization increased
Acquisition costs. Acquisition-related costs are not considered part of acquisition consideration and are expensed as incurred. This includes acquisition incentive compensation and other transaction-related costs.
Acquisition costs decreased by$0.2 million or 40.1% and$1.7 million or 85.1% during the three and six months endedJune 30, 2022 , respectively. The decreases were primarily due to higher prior year acquisition costs related to AAP acquisitions when compared to the current year's acquisition costs related to Traverse (see Note 6. Acquisitions).
————————————————– ——————————
Table of Contents Interest expense. Interest expense for three and six months endedJune 30, 2022 was related primarily to our debt, which carries a variable interest rate based on multiple options at either LIBOR plus 5% or an alternate base rate, plus an agreed upon margin withTruist Bank , the Company's financial institution sinceMay 25, 2021 (see Note 5. Debt). Interest expense increased by$0.2 million or 5.4% and$0.6 million or 9.1%, during the three and six months endedJune 30, 2022 , respectively. The increases for the three and six months endedJune 30, 2022 , were primarily due to approximately 1.5% increase in our LIBOR rate as a result of current financial markets. Income tax expense. The Company recorded income tax expense of$0.0 million and$0.4 million for the three and six months endedJune 30, 2022 , respectively. The blended effective tax rate for the three and six months endedJune 30, 2022 was 0.4% and 2%, respectively, which varies from our statutoryU.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest and impact of the valuation allowance on DMS, Inc.
NON-GAAP FINANCIAL MEASURES
In addition to providing financial measurements based on accounting principles generally accepted inthe United States of America ("GAAP"), this Quarterly Report includes additional financial measures that are not prepared in accordance with GAAP ("non-GAAP"), including 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. Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion We use the non-GAAP measures of Adjusted EBITDA and Unlevered Free Cash Flow to assess operating performance. Management believes that these measures provide useful information to investors regarding DMS's operating performance and its capacity to incur and service debt and fund capital expenditures. DMS believes that these measures are used by many investors, analysts and rating agencies as a measure of performance. By reporting these measures, DMS provides a basis for comparison of our business operations between current, past and future periods by excluding items that DMS does not believe are indicative of our core operating performance. Financial measures that are non-GAAP should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, DMS relies primarily on its GAAP results and uses Adjusted EBITDA and Unlevered Free Cash Flow only as a supplement. Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b) income tax expense, (c) depreciation and amortization, (d) change in fair value of warrant liabilities, (e) debt extinguishment, (f) stock-based compensation, (g) change in tax receivable agreement liability, (h) restructuring costs, (i) acquisition costs, and (j) 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.
Unleveraged free cash flow is defined as Adjusted EBITDA less capital expenditures, and unleveraged free cash flow conversion is defined as unleveraged free cash flow divided by adjusted EBITDA.
————————————————– ——————————
Table of Contents
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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net (loss) income $ (11,887) $ 4,939 $ (17,244) $ 4,727
Adjustments
Interest expense 3,817 3,622 7,502 6,879
Income tax expense 45 1,031 355 1,148
Depreciation and amortization 7,173 7,044 14,233 12,463
Change in fair value of warrant liabilities
(1) (1,640) (7,750) (3,480) (7,435)
Loss on debt extinguishment - 2,108 - 2,108
Stock-based compensation expense 2,066 1,273 3,908 2,530
Restructuring costs 1,784 432 2,178 81
Acquisition costs (2) 224 466 2,828 1,960
Other expense (3) 1,441 1,756 3,234 3,242
Adjusted net income $ 3,023 $ 14,921 $ 13,514 $ 27,703
Additional adjustments
Pro forma cost savings - Reorganization (4) $ - $ - $ - $ 31
Pro forma cost savings - Acquisitions (5) - 1,030 - 1,800
Acquisitions EBITDA (6) - - - 2,711
Adjusted EBITDA $ 3,023 $ 15,951 $ 13,514 $ 32,245
Less: Capital Expenditures 1,580 1,821 3,197 4,212
Unlevered free cash flow $ 1,443 $ 14,130 $ 10,317 $ 28,033
Unlevered free cash flow conversion 47.7 % 88.6 % 76.3 % 86.9 %
______________
(1) Adjustments to warrant liability at market value.
(2) The balance includes transaction costs related to the business combination, acquisition inducement payments, contingent consideration accretion, earn-out payments and pre-acquisition expenses.
(3) The balance includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives and costs related to private mandate transactions.
(4)Cost savings resulting from the reorganization of the company initiated in the second quarter of 2020.
(5) Expected cost synergies due to the full integration of acquisitions.
(6) Pre-acquisition adjusted EBITDA results from the acquisitions of AAP and Crisp Results during the three and six months ended
————————————————– ——————————
Table of Contents
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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Unlevered free cash flow $ 1,443 $ 14,130 $ 10,317 $ 28,033
Capital expenditures 1,580 1,821 3,197 4,212
Adjusted EBITDA $ 3,023 $ 15,951 $ 13,514 $ 32,245
Acquisitions EBITDA (1) - - - 2,711
Pro forma cost savings - Reorganization (2) - - - 31
Pro forma cost savings - Acquisitions (3) - 1,030 - 1,800
Adjusted net income $ 3,023 $ 14,921 $ 13,514 $ 27,703
Acquisition costs (4) 224 466 2,828 1,960
Other expenses (5) 1,441 1,756 3,234 3,242
Stock-based compensation 2,066 1,273 3,908 2,530
Restructuring costs 1,784 432 2,178 81
Change in fair value of warrant liabilities (1,640) (7,750) (3,480) (7,435)
(6)
Loss on debt extinguishment - 2,108 - 2,108
Subtotal before additional adjustments
Less: Interest expense
3,817 3,622 7,502 6,879 Less: Income tax expense 45 1,031 355 1,148 Provision for bad debt 1,339 909 1,339 909 Lease restructuring charges 2 174 2 174 Loss on debt extinguishment - 2,108 - 2,108 Stock-based compensation, net of amounts 3,908 2,530 3,908 2,530
In capital letters
Amortization of debt issuance costs 938 528 938 528 Deferred income tax provision, net (785) 364 (785) 364 Change in fair value of contingent 2,536 560 2,536 560
consideration
Change in fair value of warrant liability (3,480) (7,435) (3,480) (7,435) Change in income tax receivable and payable 631 (2,328) 631 (2,328) Change in accounts receivable 4,026 (4,330) 4,026 (4,330) Change in prepaid expenses and other current 2,585 222 2,585 222
assets
Change in accounts payable and accrued (1,275) (6,768) (1,275) (6,768)
expenses
Change in other liabilities 27 (190) 27 (190)
Net cash flow generated by operating activities
______________
(1) Adjusted EBITDA results before acquisition of AAP and Crisp results, and acquisitions during the three and six months ended
(2) Cost savings resulting from the reorganization of the company initiated in the second quarter of 2020.
(3) Expected cost synergies due to the full integration of acquisitions.
(4) The balance includes transaction costs related to the business combination, acquisition inducement payments, contingent consideration accretion, earn-out payments and pre-acquisition expenses.
(5) The balance includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives and costs related to private mandate transactions.
(6) Adjustments to warrant liability at market value.
Adjusted net profit and adjusted EPS
We use non-GAAP measures of Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information about period-to-period performance as assessed by
————————————————– ——————————
Table of Contents 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 toDigital 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 byDigital Media Solutions, Inc. of all units ofDigital Media Solutions Holdings, LLC ("DMSH LLC ") (other than units held by subsidiaries ofDigital Media Solutions, Inc. ) for newly-issued shares of Class A Common Stock ofDigital 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 byDigital Media Solutions, Inc. of all outstandingDMSH LLC units (other than units held by subsidiaries ofDigital 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator: Net (loss) income$ (11,887) $ 4,939 $ (17,244) $ 4,727 Net (loss) income attributable to non-controlling interest (4,905)$ 2,411 (7,121) 2,373 Net (loss) income attributable to Digital Media Solutions, Inc. - basic$ (6,982) $
2,528
Add: Income effects of Class B convertible common stock$ (4,903) $ -$ (7,116) $ - Less: dilutive effect of change in fair value of warrant liabilities attributable to Digital Media Solutions, Inc. - - - 4,321 Net (loss) income attributable to Digital Media Solutions, Inc. - diluted$ (11,885) $
2,528
Denominator:
Weighted average shares - basic 39,553 35,377$ 37,969 $ 34,315 Add: dilutive effects of Class B convertible common stock 25,699
–
Add: dilutive effects of employee equity awards - 628 - - Add: dilutive effects of private placement warrants - - - 10 Add: dilutive effects of deferred consideration - 517 - - Weighted average shares - diluted 65,252 36,522 63,682 34,325
Net earnings (loss) per common share:
Basic$ (0.18) $ 0.07 $ (0.27) $ 0.07 Diluted$ (0.18) $ 0.07 $ (0.27) $ (0.06)
————————————————– ——————————
Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Numerator:
Net (loss) income attributable to Digital Media
Solutions, Inc. - basic $ (6,982) $ 2,528 $ (10,123) $ 2,354
Net (loss) income attributable to Digital Media
Solutions, Inc. - diluted $ (11,885) $ 2,528 $ (17,239) $ (1,967)
Add adjustments:
Change in fair value of warrant liabilities $ (1,640) $ (7,750) $ (3,480) $ (7,435)
Loss on debt extinguishment - 2,108 - 2,108
Acquisition and related costs 224 466 2,828 1,960
Restructuring costs 1,784 432 2,178 81
Business combination expenses - 1,030 - 1,800
Stock-based compensation expense 2,066 1,273 3,908 2,530
$ 2,434 $ (2,441) $ 5,434 $ 1,044
Net income tax expense based on conversion of
units - (76) - 902
Adjusted net income (loss) attributable to
Digital Media Solutions, Inc. - basic $ (4,548) $ 11 $ (4,689) $ 4,300
Adjusted net income (loss) attributable to
Digital Media Solutions, Inc. - diluted $ (9,451) $
163
Denominator:
Weighted-average shares outstanding - basic 39,553 35,377 37,969 34,315 Weighted-average LLC Units ofDMSH, LLC that are convertible into Class A common stock 25,728 36,522 25,699 34,325 65,281 71,899 63,668 68,640 Adjusted EPS - basic $ (0.07) $ -$ (0.07) $ 0.06 Adjusted EPS - diluted $ (0.14) $
–
CASH AND CAPITAL RESOURCES
The following table summarizes certain key measures of our liquidity and capital
resources (in thousands):
June 30, December 31,
2022 2021 $ Change % Change
Cash $ 26,370 $ 26,394 $ (24) - %
Availability under revolving credit facility $ 50,000 $ 50,000 $ - - %
Total Debt $ 217,339 $ 217,755 $ (416) - %
Our capital sources are focused on investments in our technology solutions,
corporate infrastructure and strategic acquisitions to further expand into new
business sectors and/or expand sales in existing sectors. We generate sufficient
cash flows for working capital and expect to do so for the foreseeable future.
Our principal sources of liquidity on a short-term basis are cash and cash
equivalents, and cash flows provided by operations. Our primary use of cash is
compensation to our employees and payments for general operating expenses and
interest expense.
Borrowings under the Revolving Facility bear interest, at our option, at either
(i) adjusted LIBOR plus 4.25% or (ii) a base rate (which is equal to the highest
of (a) the administrative agent's prime rate, (b) the federal funds rate, as in
effect from time to time, plus 0.50%, (c) one-month LIBOR plus 1.00%, and (d)
1.75% (the "Base Rate")), plus 3.25%. The Term Loan bears interest at our
option, at either (i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus
4.00%. Under the Revolving Facility, DMS LLC pays a 0.50% per annum commitment
fee in arrears on the undrawn portion of the revolving commitments. For the
————————————————– ——————————
Table of Contents
three and six months completed
The Term Loan, which was issued at an original issue discount of 1.80% or$4.2 million , is subject to payment of 1.0% of the original aggregate principal amount per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and the revolving credit commitments under the Revolving Facility will terminate, onMay 25, 2026 , when any outstanding balances will become due. Cash flows from operating activities Net cash provided by operating activities was$7.4 million for the six months endedJune 30, 2022 as compared to$3.5 million provided by operating activities in the six months endedJune 30, 2021 . The increase is primarily attributable to an increase in accounts receivable collections, and a slight decrease in accounts payable and current accrued expenses due to timing of vendor payments. Cash flows from investing activities Net cash used in investing activities for the six months endedJune 30, 2022 decreased by$23.3 million or 80% to$5.8 million from$29.0 million for the six months endedJune 30, 2021 , primarily due to the timing of the acquisition of AAP and Crisp Results made during the first half of 2021. Cash flows from financing activities Net cash (used in) provided by financing activities for the six months endedJune 30, 2022 was$(1.7) million , reflecting an increase of$14.6 million or 113%, as compared to$12.9 million for the six months endedJune 30, 2021 . This increase was due to higher required repayments of borrowings of long-term debt and notes payable in the prior year under the Monroe Credit Facility and Insurance Premium Financial Service arrangements.
For the six months ended
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. In addition, we do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to Section 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K for more information about our critical accounting policies and other significant accounting policies.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 1. Activity, Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements (unaudited), included in Section 1: Financial Statements of this Quarterly Report, for a more detailed discussion of recent accounting pronouncements and related impacts on our consolidated financial statements.
© Edgar Online, source
Comments are closed.