Q3 2020 Digital Media Solutions Inc Earnings Call
Welcome to the digital media solutions third quarter 2020 earnings conference call at.
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I'd now like to hand, the conference over to your Speaker today Mr. Edward Parker head of Investor Relations. Thank you. Please go ahead.
Thank you for joining us to discuss Dms its financial results for the third quarter 2020 with me on the call are drummer Nichey co founder and CEO and Randy Qubec CFO.
By now everyone should have access to our earnings announcement, the south and May also be found on our Investor Relations website.
Before we begin I would like to call your attention to our safe Harbor provision for forward looking statements our financial results press release.
The safe Harbor provision identifies risk factors that may cause actual results to differ materially from the caulkins for forward looking statements for.
For more detailed description of the risk factors that may affect our results included disclosure about the effects of the credit virus outbreak. Please refer to our financial results press release.
That's you see filings, including the registration statement filed on form S. One in August.
Also during this call management commentary will include non-GAAP financial measures reconciliations between GAAP and non-GAAP financial measures for the quarter results can be found in the tables of our financial results press release, which have been posted to our Investor Relations website at investors thought digital media solutions Dot com.
See additional financial and other information to be discussed on this call can also be found on our Investor Relations website now I'd like to turn the call over to Joe.
Thank you Edward and good afternoon, and thanks to everyone for joining us today on our second earnings call as a publicly traded company.
We are happy to report another quarter of strong growth as we execute on our proven strategy of providing digital performance advertising solutions that connect digital advertising clients with their prospective customers.
During Q3, we saw significant expansion you know insurance vertical and we reached a meaningful volume milestones as we grew both our client base and the revenue from existing clients.
We're coming out ahead.
Because our digital performance advertising solutions effectively de risked AD spend while helping our advertiser clients connect with more consumers to expand the number of customers to whom they deliver products and services. We are anticipating over index growth in Q4 as the digital advertising transformation.
Intersects with an anticipated record setting a weepy and holiday season.
Execution continues to be strong delivering robust sequential growth with particular strength in auto insurance health insurance, including Medicare and private insurance and E commerce with the pandemic proving to be an accelerator for our business.
With that said current a virus continues to be a health challenge for the United States and our thoughts continue to be with everyone who has been impacted.
Turning back to our results as we near the end of 2020, we're seeing many encouraging trends.
Leading consumer shopping for products online, which is hasten the ongoing shift from offline to online advertising continued and growing strength in many of our core verticals and the resumption and acceleration of AD budgets that were delayed and deferred earlier in the year as a result of cobot Nike.
We experienced strong results as we close Q3 in September and have continued to see additional linear expansion in October and into November and are expecting a very strong finish to the year I'll expand on this in a moment.
Clearly excited about Dms is strong position to serve a large and growing digital advertising market with U.S. digital AD spend expected to reach 130 billion in 2020.
By leveraging our proprietary advertising technology and first party data assets, we help our advertiser clients efficiently deployed AD dollars that resulted in EPS interacting and engaging with new customers.
Let me begin with some third quarter highlights.
In the face of unprecedented volatility and uncertainty we're pleased with our execution in the quarter as our business benefited from sustained secular demand from digital performance advertising solutions.
Our Q3 adjusted revenue finished at 85 million representing growth of 11% quarter over quarter, and 43% year over year spin.
Specifically, we've seen outpaced growth within the insurance segment of our business again will touch on this a bit more later in the call. Our adjusted EBITDA for Q3 totaled 14 million representing growth of 8% quarter over quarter and an adjusted EBITDA margin of approximately 16.5%.
Randy Qubec, our CFO will provide more detail on Q3 2020 financial results in a moment.
Now I will drill down a bit more into our third quarter results.
As I mentioned, we are pleased with our strong sequential growth.
Against the backdrop of an accelerating shift from offline to online advertising marketers are increasingly demanding partners that can prove clear ROI on ad spend.
'cause Dms works on a pay for performance model, our digital performance advertising solutions provide a transparent ROI measurement and predictive capabilities for our advertiser clients.
As a result, there's clear attribution with regard to media dollars spent on consumer engagement and customers acquired and we continue to see these trends play out in our favor.
More success advertiser clients have with the Dms solution the more AD budget, they shift could be a master scale their campaigns.
In fact, our top 20 advertiser clients scaled their AD spend by 4% quarter over quarter, and our top 10 insurance advertiser clients increased their spending with US 8% from Q2 Q3.
Additionally, many of our verticals such as insurance.
Financial services health care and automotive are still in the early stages of a transition away from advertising on traditional media channels like TV to advertising on digital media channels that we utilized.
To better illustrate this point the auto insurance industry is projected to invest 72% of its advertising budget in digital by 2024.
For example, during Q3, we saw continued strong momentum in our auto insurance vertical using.
Using numbers to quantify this momentum.
On our quotes of marketplace, we saw quote request volume scale, 52.3% from Q2 Q3 2020.
This increase in quote requests resulted in quotes are related revenue climbed by 88.3% during the same period.
During Q3, we surpassed a meaningful milestone for the number of consumer insurance quote request provided by ZIP quote our insurance agent platform as of July 6 million consumers have been connected with auto insurance carriers through said quote.
Our insurance vertical exists across both brand directly marketplace solutions.
As previously mentioned, our with regard to our marketplace insurance business for our brand direct solutions business, serving the auto insurance market increased by 40% in Q3 $3.9 million increase over Q2 with major insurers, who leveraged our digital media.
Platform engaging more consumers across a wide range of digital channels at scale to increase their quote requests.
Shifting away from auto insurance, our business also serves the life insurance health insurance and Medicare categories and for the last few categories. We've made necessary investments in Q3, which set us up for the ATP and Oh ERP period happening this quarter more to come on that later.
Her across.
Across our entire business, we signed on 33, new advertising clients in Q3, including two fortune 100 insurance providers and other leading brands across insurance and services E Commerce consumer finance education nonprofit and other verticals.
While we experienced revenue growth during Q3 as a result of this new business, we anticipate that much of the benefit of those new advertiser clients will be recognized in Q4 and beyond.
In addition to being in the midst of their transition to digital advertising. These verticals I just mentioned are highly competitive verticals because of their significant ad spend.
As we continue to expand our wallet share in these areas, we sometimes must do so at lower margins for a period of time. This is the result of expanding existing distribution channels like search social display native while at the same time, adding new media channels like connected TV maybe.
Going into Q4, the smarter Cas acquisition has been integrated and harmonize into the broader Dms ecosystem and one of our new E. Commerce Advertiser clients is a global platform for custom tech accessories, delivering high quality products to millions of consumers around the world.
Their latest collection is benefiting from alignment with the recent I phone 12 watch on behalf of this advertiser client we are leveraging digital performance advertising to promote their iPhone 12, I phone 12, many I phone 12 pro I phone 12 pro Macs accessories for which.
Sales for currently an escalated levels. In addition, this E. Commerce brand has recently launched mobile phone accessories made from packaged within recycled materials and they also have a new anti microbial phone case product line.
We expect demand for the mobile handset accessories, including the iPhone 12.
Throughout the holiday season.
The Dms Advertiser client roster also includes many well known and trusted nonprofit organizations work with BMS to recruit sustain donors sustained owners are donors, who make recurring monthly donations like subscriptions.
Compared to 2019, we've added four new nonprofit advertiser clients and we have grown sustained owner volume by more than 60% over 2019.
For our core nonprofit advertiser clients. This.
This sustained owner growth is very important this year as the pandemic has forced nonprofits to suspend their face to face canvassing and other in person fund raising efforts as a result, many nonprofit organizations have shifted large portions of their donor recruitment budgets to digital performance advertising.
Which delivers results while de risking media spend.
Previously in this call I mentioned the positive impact digital advertising has experienced as a result of COVID-19.
During the early days of the pandemic, we saw major brands pulling and deferring AD budgets, while prioritizing resources for work from home transition stock.
Starting in late April and through the summer Corona virus has been an accelerator for digital ad spending.
Advertisers within our core verticals are now spending more to leverage our audience reach and achieve significant impression volume across digital media channels, including social search display and made it to target connect with and convert high intent consumers.
Colby has hasten the adoption of online shopping across all generations and we believe this is a trend that will continue for the long term.
People prioritizing online shopping for all products and services, even wants life returns to normal post cobot environment.
As a result of consumer shopping more online and advertisers continuing to transition their advertising spend to digital channels, we've experienced linear month over month revenue growth since the end of Q2.
We've expected and planned for advertisers to defer a significant amount of AD spend to the second half of 2020 and this has come true as advertisers continue to increase digital AD spending to achieve their 2020 business schools.
Already we are seeing early signs of a super seasonality bump that will lead to Q4 over indexing in comparison to prior years.
As a result, we believe that our full year revenue will be weighted more towards the fourth quarter and we previously expected we.
We expect an approximate 50% increase in Q4 2020 versus the prior year.
As we look ahead to Q4 I want to spend a minute digging into the dynamics that underpin our confidence in what we believe will be a very strong end to our fiscal year.
The fourth quarter is our seasonally strongest quarter of the year as Medicare annual open enrollment and the broader open enrollment our bolthouse in Q4.
Plus holiday related ecommerce spending drives a significant quarter over quarter increase in demand for digital performance advertising.
First with regards to the holidays, it's an understatement to say that 2020 is not a typical year.
As a result of the pandemic, we expect the surge across the ecommerce landscape throughout the summer to continue driving a record holiday spending season.
Well in store retail overall is expected to be soft this year ecommerce holiday sales are projected to be up 35.8% or 50 billion to 190.47 billion. According to E marketer data.
Holiday season E. Commerce has been steadily rising in the past decade. This years projected holiday season increase is more than double last year's growth.
Second we are expecting momentum in our insurance vertical to continue with rapid growth in the fourth quarter, specifically, we expect a significant growth in Medicare advantage plans and the corresponding decrease in premiums will drive more online applications as consumers look to price shop for the right coverage.
And due to Corona virus concerns only 9% of Medicare recipients said they plan to meet with a broker in person this year, which means the digital AD spend against online Medicare advantage enrollment is expected to be up substantially.
Shopping online for health insurance during open enrollment has also been predicted to be high this year, which is the result of more health plan choices in 2020 compared to prior years, plus anticipated modest cost increases and the increased desire of consumers to shop online.
We have prepared for a record setting a p. and o. EPA season internally by leveraging our brand direct and marketplace solutions.
To provide some context to these health insurance drivers.
As of September Thirtyth, we had matched 1 million consumers with health insurance providers that meet their specific needs.
And we are seeing data, which supports our expected 165% growth in revenue in ATP and Oh ERP in 2020 versus the $3.9 million in revenue in 2019 across both our marketplace in brand direct solutions further.
Furthermore, we've had a strong start to the current quarter. As we are seeing continued acceleration led by super seasonal AD spend and brand direct and marketplace solutions in access of our initial forecast, we particularly you expect to see over indexing inside of the insurance and E commerce categories.
As a result, we believe we are in a good position to deliver strong results in Q4 EPS.
Extended digital advertising transformation intersects with Kobin, driven online shopping growth during the open enrollment and holiday shopping seasons plus.
Plus we believe the current environment is adding pressure for advertisers to spend their dollars as effectively as possible and even the largest brands have shown a need to quickly pivot to optimize advertising spend in performance to match audience mindsets and preferences only.
Only digital performance advertising offers this type of agility and ROI transparency.
I'd now like to take a quick moment to present, a new scorecard concept, we're preparing to launch for Q4 as.
As previously mentioned through our sequential and long term growth performance, we continue to scale the breath of our consumer engagement as we connect our advertiser clients with consumers across the country.
Our reach was approximately 70% of the U.S. adult population in Q3 across this audience. Our campaigns tallied approximately 10 engagements per consumer gathering more than 6 billion data points.
Expansive reach and frequency puts us in a unique position to measure the efficacy of digital advertising spend.
With the amount of time American spend online and.
Especially on social media continuing to grow.
Consumers are increasingly researching products and services shopping and spending online advertisers are following the consumers hastening the transition of their advertising spend to digital channels to connect with consumers where they are.
The M.S. digital performance advertising solutions provide linear ROI calculations.
But not all digital advertising allows for the same transparency.
Leveraging our sophisticated proprietary advertising technology, beginning with our Q4 earnings report, we plan to share our new benchmarks, what we would call the Dms consumer engagement score where C. S.
The Dms consumer engagement score will precisely define and demonstrate our total engagement by solution in vertical.
The CES will also report on the directly correlated efficacy and ROI of engagements in the form of numerical capesize.
Our objective with the Dms consumer engagement scores twofold.
First we plan to Quantifiably demonstrates the increasing scale of our digital performance advertising solutions, the acceleration of our consumer reach and the ROI impact of our solutions and second.
Due to our expansive reach and scale of our business.
We believe the Dms consumer engagement score will serve as a benchmark for the digital advertising industry, providing metrics related to conversion rates and ROI.
In summary, I'm proud of the results, we posted during Q3, including record quarterly revenue and meaningfully scaled insurance growth. We're excited about the breadth of opportunities that are large and growing addressable market strong competitive position diverse client base and robust.
We have differentiated services and solutions provide us for what we anticipate to be over index growth in Q4.
We look forward to continuing to drive long term shareholder value with that.
Let me turn it over to Randy Qubec.
Good afternoon, everyone. We hope that you are all keeping safe and healthy.
I'll start by providing a brief overview of our business model and then I'll go through our third quarter results before moving onto our guidance for fiscal 2020.
CMS as a global solution provider, providing top down Omnichannel digital performance advertising solutions.
Our business generates revenue primarily through the delivery of a variety of performance based digital advertising services, which include our brand direct and more complete solutions as well as our other solutions, which encompass our SaaS technology.
We primarily provide services on a principle basis with the result that we recognize revenue on a gross basis for those services.
With regard to certain contracts associated with one of our prior acquisitions. However, due to technical accounting practices, we are deemed to be acting on an agency basis.
A small portion of our revenue is recognized on a net basis. However, we view our business Holistically and build our guidance based on performance without regard to accounting treatment of individual contracts.
Well over time, we expect to transition most of these contracts to a principle basis.
We have introduced adjusted revenue as a non-GAAP measure to be able to compare our actual performance against our forecast.
This measure treats all EHR contracts on a consistent basis.
Note that adjusting for the treatment of these contracts has no effect on gross profit.
EBITDA net income or earnings per share.
Adjusting for these contracts adjusted revenue for Q3 is $85.1 million up sequentially by $8.4 million or 11%.
$59.4 million or 43% from Q3 prior year.
On a year to date basis, adjusted revenues are 236.5 million, an increase of 58 million or 33% year over year.
On a reported basis for the third quarter.
Revenue was $82.8 million, an increase of 10.2% from Q2, 2020, and approximately 44% over the same quarter last year on a year to date basis reported revenues of $230.8 million increased 58 million or 33% year over year.
The sequential increase in our revenue was primarily due to growth within the insurance vertical and growth in consumer brands across both the marketplace in brand direct solution segments. In addition to the Q3 2020 slaughter Ks acquisition.
This is best highlighted by the continued growth in the top 10 insurance customers up $2 million or 8% sequentially from Q2.
As Joe mentioned, we were pleased with our execution given the challenging environment and we're seeing customers deploying previously deferred AD dollars at an increasing rate.
Breaking down our revenue by segment.
Fredrik performance solution revenue in the quarter was $49.2 million up 9% sequentially and 11% year over year marketplace solutions revenue was 39.5 billion increased 12% from Q2 due to the growth in insurance sector revenues.
Marketplace solutions increased 154% year over year propelled by growth in insurance market.
Other solutions revenue of 2.9 million is up 112% from Q2 and up 99% year over year.
Contributing to this growth was the Q3 acquisition.
Other solutions revenue as adjusted for the treatment of former agency contracts previously noted was $5.2 million an increase of 86%.
From prior quarter EPS adjusted.
In regards to gross margin and gross profit.
The company has experienced rapid revenue expansion and is focused on high growth highly competitive verticals with significant digital advertising spend.
As we continue to expand as such areas, we sometimes have to do so at relatively lower margins to gain market share, which lowered segment and consolidated margins.
Our margin is subject to quarterly variation, primarily due to changes in sales mix as segments of our business carry different margin profiles.
We do believe that over longer periods of time margins will remain stable and consistent with prior trends.
For the third quarter reported gross margin was 30.2% similar to Q2.
Compared to 32.1% for the same quarter a year ago.
Year to date reported gross margin was 30.5% compared to 32.4% for the prior year to date.
Breaking down GAAP reported gross margin by segment.
Q3 brand direct gross margin was 23.1% down from 24.1% in Q2, 2020 and down slightly from 24.5% to same quarter last year.
The margin was influenced by substantial diversification in our distribution channel as we continue to scale growth.
Q3, more complete solutions gross margin was 30% in line sequentially and down from 39.7% in the year ago period.
The second was heavily weighted by a rapid expansion to the insurance market, which carries gross margins approximately 30%.
It is important to note in the prior year the segment reflected the net revenue accounts noted previously at 100% margin.
Current quarter reflects the 2020 in Q3 smarter chaos acquisition at an approximate 30% margin.
On an adjusted revenue basis other gross margins normalize for these contracts.
Was 35.4% in Q3 down from 43.1% sequentially.
And year to date gross margin was 29.8% versus 31.4% for the same period in 2019.
We are focused on driving efficiency and expect to continue to see cost benefits as we scale our business as such we believe that over time, we are targeting.
Maintain a gross margin of 30% or higher.
Turning to operating expenses.
We remain focused on improving the leverage in our business, while balancing our investments for growth.
Our total operating expenses were 22.2 million in the third quarter EPS.
Increase of $5.2 billion or 30.8% from Q2, 2020 and down 11.3% year over year.
The increase from the prior quarters, largely attributable to a $3.2 million of business combination expenses and acquisition related costs.
And 1 million can facilities contract termination reserves.
Exclusive of these nonrecurring acquisition expenses, the net increase in operating expenses from prior quarter was approximately 900000.
Triple to increased insurance professional fees and other public company regulatory expenses.
As a percent of revenue total opex was 26.8% in the third quarter up from 22.5% in Q2 2020.
Exclusive of the above mentioned restructuring and business expenses.
Operating expenses are 22.1% down slightly from 22.5% from prior quarter illustrating continued operating leverage initiatives.
Salaries and related costs in the third quarter were 7.9.
An increase of 19.4% year over year, and essentially flat from Q2 2020.
The year over year increase was due to workforce expansion in our marketplace segment, an increase in commissions due to our revenue increases.
And the Q3 2020 acquisition.
Of smart yes.
Additionally, salaries were down as a percent of revenue representing 9.5% of total revenue down from 11.5% of total revenue for the same period in the prior year.
The sequential decline in salaries and related costs as a percent of revenue reflecting efficiency gains in our platform.
SGT expense was $6.4 million for the quarter, representing 7.7% of total revenue and in line with previous year.
We ended the quarter with a total headcount of approximately 380 full time employees and.
In terms of profitability.
Adjusted EBITDA in the third quarter was 14 million on an adjusted EBITDA margin of approximately 17%. This.
This represents growth of 8% from Q2, and 4% increase in Q3 2019.
The sequential improvement is attributable to a 10% increase in reported revenues quarter over quarter.
Net loss for the third quarter was 2.2 million% to 202% from Q2 due to the business combination plus acquisition related and restructuring expenses of 4.2 mentioned previously.
Q3 earnings per share of four cents of class a common stock is based on 32.3 million shares outstanding.
Shares of the company's class B common stock totaling 25.9 million shares the non controlling interest in Dave I think do not participate in the earnings or losses of the company.
Therefore, not participating securities for earnings per share purposes.
Only earnings from 715 to date of recapitalization through 930 are used to determine EPS.
Prior to the business combination that closed on 715 2020.
And resulted in Dms, becoming a public company.
The equity structure of Dms holdings included multiple classes of units with different economic interest that do not correspond into the current equity structure.
Calculations of earnings per unit.
For periods prior to the business combination therefore would not provide meaningful comparison to earnings per share for periods. After the business combination.
For this reason earnings per share information has not been presented for periods prior to the business combination.
We have an effective tax rate of 74.2% in the quarter, which varies greatly from the statutory tax rate of 21% due to a significant portion of our operations and digital media solutions holding a partnership for federal and state income tax purposes, which is not eligible to Dms inc. and therefore.
Not subject to the statutory tax rate of 21%.
Cash flow from operations was $3.7 million or 4.4% of net revenue.
This has improved by 1 million sequentially.
Unlevered free cash flow was 11.6 million in Q3 sequentially from 11 million in the second quarter of 2020 and in line with $11.8 million last year.
Lastly, turning to the balance sheet and liquidity.
We ended the quarter with 24.5 million cash cash equivalents and marketable securities and our total debt net of issuance costs was $197.1 million.
At September Thirtyth 2020, our total net leverage ratio is 3.8 sevenx.
Additionally, we have an available balance on our revolving credit facility of 11 million and six and a half million dollars available and delayed the term loan draw for future acquisitions.
Looking forward, we expect continued positive cash flow generation was similar high.
Unlevered free cash flow conversion rates in line with historical performance of 80% to 90% of adjusted EBITDA.
To note most of our adjusted EBITDA dropped to normalized free cash flow due to the relatively low capital requirements of our business model.
We are comfortable that these factors will provide sufficient cash generation and liquidity and we do not anticipate any additional financing with the exception for potential acquisition activity.
Turning to our outlook for fiscal 2020.
We continue to be excited about the momentum we're seeing for our digital advertising solutions, especially in the insurance vertical demonstrated by record quarterly revenue in Q3.
We believe we are in a good position to deliver strong results for Q4 as the digital advertising transformation intersects with Colby driven online shopping growth during the open enrollment and holiday seasons.
As Joe noted the resumption of AD budgets that were delayed and deferred earlier in the year as a result of COVID-19 has accelerated but theres still uncertainty around the total spend we will see heading into a unique holiday season, as we approach year end.
With this in mind, we currently expect 2020, adjusted revenues of $335 million to $340 million, including adjusted revenues noted previously amounting to approximately $7 million.
And adjusted EBITDA of $54 million to $57 million.
This guidance contemplates an ongoing strong secular backdrop for ecommerce and digital performance advertising.
Typical seasonal strength for digital AD spending during the holidays, the aforementioned catch up spending of deferred budgets.
And the continuation of our strategy for organic growth discussed earlier by Joe.
In summary, we are pleased with our financial performance and remain optimistic about the underlying strength of our business over the long term.
CMS is a highly resilient business model and we've proven our ability to perform well.
With that Joe and I are happy to take questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
And your first question comes from the line of Nick Jones from Citigroup. Your line is open.
Great. Thanks for taking the questions a couple if I can I guess first.
Can you talk about some of the other channels.
It's clear that insurance has been pretty strong but maybe.
Autos outside of auto insurance and retail.
You know what trends are you seeing there auto is plagued with kind of supply constrained how is that kind of impacting I guess, you all segment and auto insurance in terms of being able to convert people into auto insurers and then anything you're seeing.
Across across the retail channel.
Maybe traction on Dms exchange, we've heard favorable rates.
In terms of customer acquisition within the retail channel from larger ecommerce players I guess any color there and then a follow up thanks.
Hey, Nick Good evening. This is Jim aren't actually speaking good good good to be on a few again so.
So with regards to I guess I'll take the auto insurance question first.
I think the question was specifically what are we seeing there what trends are we noticed seeing.
I think specifically, you're you're noting that it is a competitive marketplace. So you know we.
We will get quote volume as a key performance indicator there and we saw quote request volume scale from Q2 to Q3 as noted.
By over 50% exactly 52.3%.
And that translated into a revenue increase for us on the marketplace side, specifically inside our marketplace by almost 90% specifically, 88.3%. So we look at that from two perspectives getting impression share and then gaining wallet share both being true here.
We've continued to gain impression share, which is what's driving the increase in quote request volume.
And we continue to gain wallet share with existing customers. As noted Weve also picked up a couple of new customers in the insurance vertical this year outside of that as noted on the call. We do quite a bit of work in other lines of insurance, we noted Medicare and short term health as well as like.
All of those categories are growing for the same reasons that automotive insurance is growing so maybe I'll pause there because it seemed like we had a three part question I want to make sure I hit every torque equally.
Yeah, Yeah I.
I think that's that's helpful. On autos I think that the next is really just around what you're what you're seeing or hearing from clients on the retail side and then I guess comment any commentary on Dms exchange, which you guys announced back in October.
Right. So I'll take on the on the ecommerce side.
So we have a lot of consumer brands that we work with we had a mini case study in there.
In terms of.
The study itself and then they are clearly an accessory provider to the mobile handset.
Marketplace, one of those accessories being cases themselves and.
Generally we're seeing as expected and has been publicized very strong demand on the ecommerce side and.
For us, it's really a matter of just matching up with the specific advertiser clients CPI is in terms of what their allowable spend versus lifetime value of the customer as against customer acquisition cost. So.
With retail falling off pretty precipitous precipitously as a result of the pandemic in a variety of other factors, which are very unfortunate.
E Commerce trends continue to be strong.
We continue to be able to gain impression share to serve those markets much like I mentioned.
In the insurance segment, and we're seeing very encouraging results. There as a result of just current trends secular backdrop and then the holiday season.
Rapidly approaching so very consistent across all the different verticals, especially in consumer brands and there is a lot of diversity inside of consumer brands for us.
Your next question.
Okay, and then I guess just quickly on the Dms exchange, it's really a self service way to connect supply and demand across all verticals in the markets that we participate in.
And the focus now is on the open enrollment periods, both HP and O. EAP.
That are open right now during this Q4, so we're seeing very encouraging trends as well with Dms exchange, although as you mentioned that is relatively new.
But again it is a self service way to help connect supply and demand across all the verticals that we participate in.
Great Thanks, and just.
One last question I wanted to sneak in if I could just kind of.
Capital allocation you know do you have.
That's been pretty aggressive in acquiring.
Previous years, how should we be thinking about the you know your appetite for acquisition and what the funnel looks like from here are multiples too high.
Any color there would be great. Thanks.
Sure.
So we've made the one acquisition this year, which we commented on during the call, which is smarter Cas acquisition from the beginning of.
Q3, and that's gone well, it's been harmonizing integrated into the larger ecosystem, we continue to be very active and inquisitive in terms of outreach with potential M&A targets.
[music].
I wouldn't say that there is a competitive market that prohibits us from executing on future M&A, where I mean active discussions at all times, we are inquisitive the.
The fact that we've done one acquisition this year doesn't really say anything other than we thought very highly of that company and it was a good match for us and we thought it would be additive to our existing server solutions, which is why we executed on it and.
First and foremost organic growth is going to be our primary focus and we really look at M&A is an accelerator behind that and we're going to continue to opportunistically execute when we see good quality companies out there that match up with our service offerings that we know that we can occur.
Acquire integrate and harmonize inside of our ecosystem. So we think that there are a number of good quality targets out there we think that.
Pricing is in line, we feel that we have sufficient resources to go out and to continue to execute on M&A and I.
I guess, that's all I have to say there.
Great. That's helpful. Thank you.
Again, if you would like to ask a question press Star wondering your telephone.
Our next question comes from the line Maria reps from Canaccord. Your line is open.
Oh, great. Thanks for the questions.
I wanted to ask you about your consumer finance vertical.
Some of your peers recently highlighted strength in that vertical can you just maybe share with us what you've seen on your end and then I have a follow up.
Yes so.
For US consumer finance is is not as meaningful a category say as insurance.
Or home services or even the general consumer brands category, but it is still a category that we have clients that.
That we service and you.
I guess, depending on which segment of the market you service, whether it's the card segment of the market. The mortgage segment of the market or perhaps the personal lending segment of the market the trends are different.
For what we're seeing there Ria, we're just seeing general stability across the clients that we currently service. We did not have significant growth forecast for that segment of the business. The majority of our growth is coming out of insurance consumer brands in categories like home services and health and wellness.
So it is a smaller category. It has been stable in side of the business, we do expect as.
The.
I would say the economic recovery coming out of coated picks up steam that we will see growth in that category in 2021.
That's very helpful. Thank you.
And then in the past I think you highlighted a set of technology integration with clients is one of the key driver.
Drivers going forward can you just remind us what percent of your clients what portion of your spend is sort of flow into partnership with Teck integration and how far along are you in the process and are there any examples you can share with us in terms of conversion improvement about ROI for those partners that you have technology integration.
Yeah.
Right. So we're always going to have a technology integration I guess the difference would be the degree to which the depth of that technology integration is going to go with a particular client and I would say it would go from a basic technology integration to a deep technology integration and we have deep technology in agree.
Patient with Fortune 100 companies and then all of the companies that we're dealing with as I mentioned, we're going to have to have some level of technology integration with and even in the base technology integrations, you were talking about having two systems talking to each other and the primary reason for that is the establishment of feed.
Back moves so that we can effectively have our system speak to the advertising clients system. So that we can effectively measure the efficacy of the work that we're doing and help them achieve CPI said have been pre established prior to the engagement.
In insurance, you're basically talking about cost per policy written.
As being a key performance indicator there and in other verticals the CPI Sperry, but it is that technology integration that allows us to manage those relationships and to measure EPS.
You can see in the spend itself. So we're going to have those integrations with every client and regardless of whether it is a base technology integration or say a deep technology integration you know, we effectively couldn't do work without the technology integration, because we wouldn't be able to match.
Measure again, the efficacy of the work we are doing so.
I guess.
When you ask me a question about like what is the degree of result vary based on.
Those integrations.
So long as we have the technology integration, which we're always going to have and so long as we are getting the information back through those feedback loops. So that we can measure against those keep you guys were going to see a great deal of success and I think the best statistic that I can give you is client retention rates when they.
Come on the platform and we've moved through what I would call a test period, where we have effectively integrated the technology solution.
And had a let's say a 90 day period of time go by where we have been able to calibrate the systems and establish those keep you guys. Once we get through that period, our client retention rates are in excess of 90%, which the reason for that is the efficacy of the solution itself and our ability to consistently meet or exceed that.
Okay.
Great. That's very helpful. Thank you for the color.
You're welcome.
And there are no further questions, ladies and gentlemen, this conclude digital media solutions third quarter 2020 earnings conference call. Thank you for participating you may now disconnect.
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