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.


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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  %


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Results of operations for the three and six months ended June 30, 2022 and 2021

The following table presents the consolidated results of operations for the three and six months ended June 30, 2022 and 2021 and changes compared to the previous period (in thousands):

                                                                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:

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                                                          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 $2,548 $1,916 $

    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
ended June 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 ended June 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 ended June 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
ended June 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:

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                                                  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 $1.9 million i.e. 17.9% and
$6.0 million or 34.4% for the quarters and half-years closed June 30, 2022, respectively. The increases were primarily due to acquisition-related spending in several categories, including software, technology and professional expenses, as well as an overall increase in insurance and compliance costs.

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 $0.1 million i.e. 1.8% and
$1.8 million i.e. 14.2%, during the quarters and six-month periods ended June 30, 2022respectively, primarily driven by fixed assets acquired with Crisp Results and AAP, as well as continued investment in internally developed software, which went live in 2021.

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 ended June 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).



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Interest expense. Interest expense for three and six months ended June 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 with Truist Bank, the Company's financial institution since
May 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 ended June 30, 2022, respectively. The increases
for the three and six months ended June 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 ended June 30, 2022, respectively. The
blended effective tax rate for the three and six months ended June 30, 2022 was
0.4% and 2%, respectively, which varies from our statutory U.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 in the 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.

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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 June 30, 2021.

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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 ($852) $16,636 $4,846 $25,217
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 $5,738 ($1,673) $7,441 $3,534



______________

(1) Adjusted EBITDA results before acquisition of AAP and Crisp results, and acquisitions during the three and six months ended June 30, 2021.

(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

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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 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 ($10,123) $2,354

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 ($17,239) $(1,967)

Denominator:

 Weighted average shares - basic                       39,553            35,377          $       37,969          $ 34,315
Add: dilutive effects of Class B convertible
common stock                                           25,699               

$25,713 $-

 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)







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                                                     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 $(11,805) $(1,825)

Denominator:

Weighted-average shares outstanding - basic               39,553            35,377                  37,969            34,315
Weighted-average LLC Units of DMSH, 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)         $ 

$(0.19) $(0.03)

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


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three and six months completed June 30, 2022, the effective interest rate was 6.29%. Since May 25, 2021 our interest rate is based on LIBOR plus 5%.

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, on May 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
ended June 30, 2022 as compared to $3.5 million provided by operating activities
in the six months ended June 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 ended June 30, 2022
decreased by $23.3 million or 80% to $5.8 million from $29.0 million for the six
months ended June 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 ended
June 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 ended June 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 June 30, 2022our unleveraged free cash flow conversion rate decreased by (11)% due to lower business performance.

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.

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