Q4 2023 AdTheorent Holding Company Inc Earnings Call

March 12, 2024

Operator: Ladies and gentlemen, thank you for standing by, and welcome to AdTheorent's fourth quarter and full year 2023 earnings. At this time, all participants are in a listen-only mode.

Ladies and gentlemen, thank you for standing by and welcome to add Darren its fourth quarter and full year 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that this conference is being recorded.

Operator: After the speaker's presentation, there will be a question-and-answer session. Please be advised that this conference is. I would now like to turn the conference over to your first speaker, David DeStefano, Investor Relations. David, please go ahead.

I would now like to turn the conference over to your first Speaker, David You Stefano Investor Relations. David. Please go ahead.

James A. Lawson: But we are engaged and active with larger customers, and we are encouraged by what we are seeing relative to 2024 budgets and customer plans. Also, as we have discussed in the past, a major industry development. Cookie Deprecation will reinforce AdTheorent's value proposition in 2024. I'd like to update investors on recent events and how AdTheorent is positioned to benefit from these cross-currents. At the beginning of January, Google officially began eliminating cookies from the Chrome browser. As of last month, cookies are now restricted for 1% of Chrome users, and the remaining 99% will be eliminated by the end of the third quarter.

David DeStefano: Good afternoon, and welcome to AdTheorent's fourth quarter and full year 2023 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are AdTheorent's Chief Executive Officer, Jim Lawson, and Chief Financial Officer, Patrick Elliott. Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and concerns, and our actual results may differ materially.

Good afternoon, and welcome to our third and fourth quarter and full year 2023 earnings call. We will be discussing the results announced in our press release issued after the market close today.

With me today are Ed <unk>, Chief Executive Officer, Jim Wilson, and Chief Financial Officer, Patrick Elliott.

Before we begin I'd like to remind you that today's conference call will include forward looking statements based on the company's current expectations. These forward looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially for a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's.

David DeStefano: For discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and our other reports and filings with the Securities and Exchange Commission. All of today's statements are based upon information available to us today, and we assume no obligation to update any such statements except as required by law. We will also refer to both GAAP and non-GAAP financial measures during the call. You can find the reconciliation of our gap to long gap measures included in our press release posted to the investor relations section of our website at www.adtheorent.com. All of our non-revenue financial measures we discussed today are non-GAAP unless we state otherwise. With that, let me turn the call over to David. Thank you, David, and good afternoon, everyone.

Our earnings release, and our other reports and filings with the Securities and Exchange Commission.

All of today's statements are based upon information available to us today, and we assume no obligation to update any such statements except as required by law. We will also refer to both GAAP and non-GAAP financial measures during the call.

You can find the reconciliation of our GAAP to non-GAAP measures included in our press release posted to the Investor Relations section of our website at Www Dot Dot com.

James A. Lawson: This isn't new news, but the reality of cookie deprecation and other concerns around privacy are going to force advertisers to re-evaluate their approach to targeting consumers. As noted in a January Wall Street Journal article, many advertisers still aren't ready for this change, showing that industry media buying behaviors have yet to shift, despite the imminent deadline to do so. For AdTheorent, this is a huge opportunity. We have a clear view of the post-cookie future, including how our machine learning systems will leverage Google's APIs and aggregate data exchanges as part of the post-cookie privacy framework. And we've been active with our customers preparing for the opportunity. As we've discussed, AdTheorent is immune to cookie deprecation because, unlike other DSPs... We are data agnostic, and in our 12-year history, we have never relied on cookies for targeting.

All of our non revenue financial measures. We discussed today are non-GAAP, unless we state otherwise with that let me turn the call over to Jim.

Thank you David and good afternoon, everyone.

James A. Lawson: Thank you for joining our fourth quarter 2023 earnings call. During today's call, I will discuss our high-level results for the fourth quarter and the full year 2023, provide a progress update on our key areas of investment, and finish up with a discussion about our exciting product innovation plans, including how we expect AdTheorent's machine learning platform to benefit from Google's cookie deprecation and other regulatory pressures and market dynamics which disfavor ID-focused ad targets. I'm pleased to report that in the fourth quarter, we generated revenue, adjusted gross profit, and adjusted EBITDA above the high end of our outlook range. Our differentiated machine learning approach to scoring ad impressions, which delivers consistent best-in-class return on ad spend for our customers, continues to generate heightened interest and engagement, leading to greater spend on our platform. In the fourth quarter, we generated $59.7 million in revenue, a 15% year-over-year growth rate.

Thank you for joining our fourth quarter 2023 earnings call.

During today's call I will discuss our high level results for the fourth quarter and the full year 2023.

Provide a progress update on our key areas of investment.

And finish up with a discussion about our exciting product innovation plans, including how we expect add Darren machine.

Machine learning platform to benefit from Google's Cookie deprecation.

In other regulatory pressures and market dynamics, which just favor IV focused ad targeting.

I am pleased to report that in the fourth quarter, we generated revenue adjusted gross profit and adjusted EBITDA above the high end of our outlook ranges.

Our differentiated machine learning approach to scoring AD impressions.

<unk> delivers consistent best in class return on AD spend for our customers continues to generate heightened interest and engagement leading to greater spend on our platform in the fourth quarter, we generated $59 7 million in revenue.

James A. Lawson: We've always used machine learning, algorithms, and statistical models that draw inferences from patterns in data to score ad impressions. We are not in the ID targeting business. Other demand-side platforms have historically used cookie-based IDs and are now scrambling to backfill with other, even less effective and scale-challenged, alternate user IDs. As cookies are phased out over the next few quarters, AdTheorent's competitive moat and superior value proposition will naturally expand versus other solutions in the market. Before I conclude, I want to highlight a few meaningful innovations that we plan to bring to market over the next four quarters. First, as I mentioned, we are excited by the opportunity to lead digital advertisers into the post-cookie world, and our tech, product, and data science teams are hard at work configuring our machine learning systems to leverage Google APIs and aggregate data exchanges as part of the post-cookie privacy framework. Second,

115% year over year growth rate.

James A. Lawson: This accelerated growth, combined with prudent cost management, drove significant operating leverage, yielding $13.6 million of adjusted EBITDA, a 34% margin, and 35% growth year-over-year. Once again, we outperformed in our high-priority growth sectors, including self-service, AdTheorent Health, which saw revenue growth of 89% in Q4, and our predictive audience products, all of which continue to see robust customer adoption. Over the past year, we have meaningfully accelerated our growth trajectory by layering these incremental innovations on top of our highly differentiated ML-powered DSPs. As a reminder, we have been productizing and operationalizing advanced machine learning, a branch of artificial intelligence, since early 2012, now with a macro picture that appears to be in the beginning stages of stabilization, and a greater technological lead, an algorithm-based programmatic ad target. We look to the future confident in our ability to drive durable growth. I'll now discuss each of these growth pillars in more detail, first on self-service.

This accelerated growth combined with prudent cost management drove significant operating leverage yielding $13 6 million of adjusted EBITDA.

A 34% margin and 35% growth year over year.

Once again, we outperformed in our high priority growth sectors, including self service AD, Darren health, which saw revenue growth of 89% in Q4.

And our predictive audience products, all of which continue to see robust customer adoption.

Over the past year, we have meaningfully accelerated our growth trajectory by layering these incremental innovation on top of our highly differentiated ml powered DSP.

As a reminder, we have been product timing and operationalized advanced machine learning.

A branch of artificial intelligence since early 2012.

Now with the macro picture it appears to be in the beginning stages of stabilization.

And a greater technological lead and algorithm based programmatic ad targeting.

We look to the future confident in our ability to drive durable growth.

James A. Lawson: In parallel with our introduction into the market of a custom health version of our platform, we are excited to be incorporating generative AI and large language models into HABI, our health audience builder, to facilitate user health audience research and creation. Using this advanced AI functionality, non-experts can explore complex health and patient data to develop audience algorithms for ad campaigns.

I will now discuss each of these growth pillars in more detail.

First on self service.

James A. Lawson: As I've stated in prior calls, developing and scaling our self-service platform is helping AdTheorent more fully monetize the industry's most sophisticated ad decisioning engine. Momentum continued to build in Q4, with self-service revenue up 136% year-over-year, driven by record activity, impressions served, and platform spend. Overall revenue contribution remains relatively small, but our self-service delivery platform is already opening doors and attracting and retaining larger media buying customers. In particular, we are excited to note that several large media buyers adopted our self-service platform in the fourth quarter. In addition, two global holding companies completed platform evaluations and signed post-evaluation platform agreements in the first quarter, and a third Hldco evaluation is in progress.

As I stated in prior calls developing and scaling our self service platform is helping out there more fully monetize the industry's most sophisticated AD decisioning engine.

Momentum continued to build in Q4 with self service revenue up 136% year over year, driven by record activity impression served and platform spend overall revenue contribution remains relatively small, but our self service delivery platform is already opening door.

James A. Lawson: As we work to enhance our video and CTV offering, we are excited to be incorporating video transcription data into our performance modeling, extracting keywords from video creative transcripts, and introducing such additional contextual signals will make our CTV and video campaigns more data-driven. Fourth, we expect significant business upside from our enhanced UI UX rollout across our health and non-health lines of business. So our teams remain highly focused there. And finally, before turning the call over to Patrick, I'm pleased to note that we have received more industry recognition for our work elevating the state of programmatic advertising across the open Internet. Frost & Sullivan, a 63-year-old business consulting and market research firm, named AdTheorent a leader in the Frost Radar for Demand-Side Platforms. The Frost Radar evaluated the top 13 DSPs, and AdTheorent was ranked number three in innovation, trailing just two much larger competitors.

Ours in attracting and retaining larger media buying customers.

In particular, we are excited to note that several large media buyers adopted our self service platform.

In the fourth quarter. In addition to global holding companies completed platform evaluations and sign post evaluation platform agreements in the first quarter.

And a third Holdco evaluation is in progress.

James A. Lawson: Adding the self-service delivery model enables us to generate the same outstanding campaign results regardless of how customers choose to transact on the platform, keeping customers on the platform longer. As our independent agency customer base grows and their internal ad buying and campaign management capabilities evolve, we can seamlessly include self-service as a component. These customers still access our managed service and creative resources as needed, translating to higher overall spend on the AdTheorent platform. And with larger global holding companies, our self-service offering is an exciting driver of meaningful revenue growth as those customers scale their use of the platform. Second, I'd like to talk about our progress with AdTheorent Health, despite being our largest industry offering. Q4 AdTheorent health revenue grew 89% year-over-year, as a number of industry cross-currents and AdTheorent innovations accelerated demand.

Adding this self service delivery model enables us to generate the same outstanding campaign results, regardless of how customers choose to transact on the platform keeping customers on the platform longer.

As our independent agency customer base grows and their internal AD buying and campaign management capabilities evolve. We can seamlessly includes self service as a component.

These customers still access our managed service and creative resources as needed translating to higher overall spend on the AD platform.

And with larger global holding companies or.

Our self service offering is an exciting driver of meaningful revenue growth as those customers scale their use of the platform.

Second I'd like to talk about our progress with that Theyre in health.

Despite being our largest industry offering.

Q4 add Darrin health revenue grew 89% year over year as a number of industry cross currents and add Darrin innovations accelerated demand.

James A. Lawson: Nowhere is the need for a powerful and privacy-forward demand-side partner more acute than in the highly regulated health care industry. Many AdTheorent Health customers are subject to stringent privacy regulations with tight restrictions on the use of personal data, driving them towards AdTheorent over ID-dependent DSPs. Because our algorithms score and serve at impression, based on statistical insights and probability, and not individualized user data.

Nowhere is the need for a powerful and privacy forward demand side partner more acute than in a highly regulated healthcare industry.

James A. Lawson: I would like to conclude my remarks by acknowledging the AdTheorent team, whose expertise, dedication, and resilience enabled us to finish 2023 and open 2024 on a high note with great optimism for what is to come. Now, I'll turn the call over to Patrick. Thanks, Jim. Good afternoon, and thank you all for joining us today. As Jim mentioned, we are thrilled to report a robust Q4 performance, exceeding the high end of our revenue, AGP margin, and adjusted EBITDA margin. We are confident in AdTheorent's potential to sustain its growth momentum, which began in the second half of 2020. We are proud to announce record-breaking quarterly and full-year revenue. We ended the year with a very strong Q4, with revenue reaching $59.7 million, passing our guidance range of $55 million to $57 million and marking a 15.2% year-over-year.

Many add Darren health customers are subject to stringent privacy regulations with tight restrictions on the use of personal data driving them towards that Darren over I'd dependent DSP.

Our algorithms score and serve AD impressions based on statistical insights and probabilities and not individualized user data we.

James A. Lawson: We believe we represent the future of healthcare programmatic advertising. On our Q3 call, we discussed strong early demand for trials and demos using our Health Audience Builder product, or HAPI. These and subsequent demos have converted into increased demand and incremental revenue. We are confident we will continue to gain share within the large and growing healthcare advertising space, as other generalist DSPs lack our domain expertise, privacy benefits, and advanced machine learning capabilities. Moving to AdTheorent Predictive Audience

We believe we represent the future of health care programmatic advertising.

On our Q3 call we discussed strong early demand for trials and demos using our health audience builder product we're happy.

These and subsequent demos have converted into increased demand and incremental revenue.

We are confident we will continue to gain share within the large and growing healthcare advertising space as other generalist DSP lack our domain expertise privacy benefits and advanced machine learning capabilities.

Yeah.

Moving to add Darrin predictive audiences.

James A. Lawson: We are thrilled with the market validation we have witnessed since the launch of these innovative solutions in late 2022. Advertisers continue to adopt our proprietary, ID-independent methodology for audience creation, citing the superior results we deliver without the need to license expensive third-party audiences and our ability to expand their reach beyond traditional ID-based segment populations, which are the focus of other platforms. In Q4, we saw another record increase in attach rates for predictive audiences, with 85 active campaigns running AdTheorent Predictive Audience. A 29% sequential increase from the 66 active campaigns in Q3. Strong demand and customer uptake trends are driven by our ability to demonstrate repeatedly an uplift in campaign performance versus third-party audiences and our ability to perform in a transparent and privacy-conscious manner. To cite one example, in a campaign for a national wine brand, our custom predictive audiences sought to reach consumers age 21 plus with a high likelihood of visiting wine and liquor stores, as well as a high likelihood of browsing wine and cooking websites and publications.

We are thrilled with the market validation, we have witnessed since the launch of these innovative solutions in late 2022.

Advertisers continue to adopt our proprietary.

Independent methodology for audience creation.

Saving the superior results, we deliver without the need to license expenses third party audiences and our ability to expand their reach beyond traditional IV based segment populations.

Patrick Elliott: As we discussed on our previous call, we pointed to an inflection point for our business starting with record pipeline generation in Q2. It was converted to revenue growth in Q3 of the year, and the pipeline generation and revenue growth momentum we saw in Q3 accelerated. The demand across our key growth pillars contributed significantly to this achievement. Notably, our self-service platform saw a remarkable 136% revenue growth year over year, and AdTheorent Hldg, our largest vertical eye solution, experienced 89% year-over-year. In the fourth quarter, our adjusted gross profit, defined as gap, revenue, less traffic, and acquisition, was $39.9 million, representing 66.9% of revenue, above our margin guidance of at least 64% of revenue. This compares to 65.2% of revenue in the same period of the prior year. This increase in the AGP percentage was primarily driven by the increased adoption of our algorithmic predictive audience-to-lead, AdTheorent Hldg non-GAAP operating expenses, excluding stock-based compensation. Appreciation and Amortization in One-Time Items totaled $46 million, from 41.7 million last year, mainly due to increased TAC related to higher revenue.

The focus of other platforms.

In Q4, we saw another record increase in attach rates for predictive audiences with 85 active campaigns running at their predictive audiences, a 29% sequential increase from the 66 active campaigns in Q3.

Okay.

Strong demand and customer uptake trends are driven by our ability to demonstrate repeatedly and uplift and campaign performance versus third party audiences and our ability to perform in a transparent and privacy conscious manner.

To cite one example in a campaign for a national wine brand our custom predictive audience is thought to reach consumers age 21, plus with a high likelihood of visiting wine and liquor stores.

As well as the high likelihood of browsing wine and cooking websites and publications.

James A. Lawson: The campaign drove an 18% sales lift, with 49% of buyers being new to the brand or category, and a five times return on ad spend for the brand, as measured by an independent third party. AdTheore predictive audiences deliver better ROI for customers and drive greater adoption of our platform, which in turn drove greater profitability in Q4. We believe significant runway remains as we drive higher adoption across our advertiser base over time. Finally, I would like to discuss our enthusiasm around CTV and the Foundation for Growth that we have established in this important market opportunity. Our differentiated, performance-oriented CTV offering continues to resonate with advertisers, driving higher demand. As previewed with third quarter earnings, in Q4, we introduced a normalized network and channel taxonomy for targeting, reporting, and modeling. This is important because there is no standardization of CTV content data across publishers.

Campaign drove an 18% sales lift with 49% of buyers being new to the brand or category and a five times return on AD spend for the brand as measured by an independent third party.

At their predictive audiences deliver better ROI for customers and drive greater adoption of our platform, which in turn drove greater profitability in Q4.

We believe significant runway remains as we drive higher adoption across our advertiser base overtime.

Finally, I would like to discuss our enthusiasm around CTV and the foundation for growth that we've established in this important market opportunity.

Our differentiated performance oriented CTV offering.

Can you use to resonate with advertisers driving higher demand.

As previewed with third quarter earnings and.

In Q4, we introduced the normalized network and channel taxonomy for targeting reporting and modeling.

Patrick Elliott: Adjusted EBIT of the quarter was $13.6 million, up $3.5 million or 34.8% compared to Q4 2022, exceeding the high end of our outlook range of $10 million to $11.5 million. Our adjusted EBITDA margin was 34.2% for the quarter, up from 30% last year, reflecting strong cost discipline and AGP performance on a higher revenue level. The company's continued strong profitability demonstrates both our operating leverage and agility amidst an ever-changing market landscape. For the full year, we reported $170.8 million in revenue.

This is important because there is no standardization and CTV content data across publishers in other words, the data received by DSP from publishers is fragmented and messy.

James A. Lawson: In other words, the data received by DSPs from publishers is fragmented and messy. By leveraging our proprietary approach to analyzing and normalizing this content data, the vast majority of our live television impressions have a targetable and reportable network and channel. This has created a scalable solution for CTV buyers seeking a more precise way of ensuring that ads are adjacent to the desired content. Network and channel data is also leveraged in our machine learning modeling, adding valuable signals for our custom models to maximize performance.

By leveraging our proprietary approach to analyzing and normalizing this content data.

Majority of our live TV impressions have a target of one reportable network and channel.

This has created a scalable solution for CTV buyers.

A more precise way of ensuring that adds or adjacent to the desired content.

Networking channel data is also leveraged and our machine learning modeling.

Adding valuable signals for our custom models to maximize performance.

James A. Lawson: Our ability to utilize advanced machine learning and impression scoring capabilities on CTV to deliver a transparent and granular solution is industry-leading, and advertisers are leaning in. CTV momentum remains strong within self-service, with advertiser count up 87% compared to the third quarter of 2023, driving 12% sequential growth in CTV Advertising. As demand composition shifts towards self-service, however, revenue is recognized more heavily on a net basis. While this is pressuring near-term CTV revenue, which was down 12.5% year-over-year, we believe overall CTV growth will re-accelerate as we continue to enhance our CTV solution, and as advertisers continue to ramp up spend. Moving to Outlook.

Our ability to utilize advanced machine learning and impression scoring capabilities on CTV to deliver a transparent and granular solution is industry, leading and advertisers are leaning in.

CTV momentum remains strong within self service with advertiser count up 87% compared to the third quarter of 2023, driving 12% sequential growth of CTV advertisers.

Patrick Elliott: A 2.8% growth rate versus 2022, achieving our growth outlook set at the beginning of the year. Despite spin consolidation trends in the industry, our average revenue per active customer increased by $11.8 billion.

As the demand composition shifts towards self service. However revenue is recognized more heavily on a net basis. While this is pressuring near term CTV revenue, which was down 12, 5% year over year. We believe overall CTV growth will reaccelerate as we continue to.

Patrick Elliott: Indicating successful engagements with larger brands and agencies. We continue to execute on our strategic growth initiatives, to increase the value our platform delivers to our customers, and to take advantage of an expanding addressable market driven by shifts from traditional forms of advertising to programmatic advertising on the open internet and from linear to connected TV. Predictive Audience Products, and our self-service offering continue to be core drivers of the acceleration in our business. Additionally, platform spin for CTV also reached... Full year adjusted gross profit totaled $111.2 million, or 65.1% of revenue, exceeding the high end of our AGP market. As expected, our AGP margins were consistent with historical... Operating expenses, excluding stock-based compensation, depreciation, and amortization, and one-time items, increased $4.8 million, or 3.4 percent, from the previous year, primarily due to higher-tech hosting expenses and platform data. During the year, we also realized approximately $2 million in savings across G&A, primarily across professional services and insurance costs, and managed Total Compensation Expense for the entire company to be flat versus the prior year. As a result, adjusted EBITDA for the year was $22.2 million, a 19.9% margin against adjusted gross profit.

Hence, our CTV solutions and as advertisers continue to ramp up spend.

Moving to outlook.

James A. Lawson: In 2024, we plan to build on our notable progress in 2023. Despite a mixed environment and pressure on ad budgets, we returned to meaningful growth in the second half of the year. We also remained very profitable, despite high levels of investment behind initiatives that will drive growth in 2024 and beyond. The broader economy remains mixed.

In 2024, we plan to build on our notable progress in 2023 display.

Despite a mixed environment and pressure on AD budgets, we return to meaningful growth in the second half of the year. We also remained very profitable despite high levels of investment behind initiatives that will drive growth in 2024 and beyond.

The broader economy remains mixed.

James A. Lawson: But we are engaged and active with larger customers, and we are encouraged by what we are seeing relative to 2024 budgets and customer plans. Also, as we've discussed in the past, a major industry development. Cookie Deprecation will reinforce AdTheorent's value proposition in 2024. I'd like to update investors on recent events and how AdTheorent is positioned to benefit from these cross-currents. At the beginning of January, Google officially began eliminating cookies from the Chrome browser. As of last month, cookies are now restricted for 1% of Chrome users, and the remaining 99% will be eliminated by the end of the third quarter.

So we are engaged and active with larger customers and we are encouraged by what we're seeing relative to 2020 for budgets and customer planning.

Also as we have discussed in the past a.

A major industry development Cookie deprecation.

We'll reinforce adherence value proposition in 2024.

I'd like to update investors on recent events and how add Darrin is positioned to benefit from these cross currents.

Okay.

At the beginning of January Google officially began eliminating cookies from the chrome browser.

As of last month cookies are now restricted for 1% of chrome users and the remaining 99% will be eliminated by the end of the third quarter. This isn't new news, but the reality of cookie deprecation and other concerns around privacy.

James A. Lawson: This isn't new news, but the reality of cookie deprecation and other concerns around privacy are going to force advertisers to re-evaluate their approach to targeting consumers. As noted in a January Wall Street Journal article, many advertisers still aren't ready for this change, showing that industry media buying behaviors have yet to shift, despite the imminent deadline to do so. For AdTheorent, this is a huge opportunity. We have a clear view of the post-cookie future, including how our machine learning systems will leverage Google's APIs and aggregate data exchanges as part of the post-cookie privacy framework. And we've been active with our customers preparing for the opportunity. As we've discussed, AdTheorent is immune to cookie deprecation because, unlike other DSPs, we are data agnostic, and in our 12-year history, we have never relied on cookies for targeting.

Are going to force advertisers to reevaluate their approach to targeting consumers.

As noted in our January Wall Street Journal article many advertisers still arent ready for change showing that industry media buying behaviors have yet to shift despite the imminent deadline to do so.

Darrin. This is a huge opportunity we have a clear view of the post cookie future, including how our machine learning systems will leveraged google's Apis and aggregate data exchanges as part of the post cookie privacy framework.

And we've been active with our customers preparing for the opportunity.

As we've discussed at Darrin is immune to cookie deprecation, because unlike other DSP.

Patrick Elliott: exceeded expectations and 400 basis points lower than full year 2020. We were able to drive top line growth while investing in the business to better position us. Moving to our balance sheet and cash, the closeout of the year had $70.3 million in cash. Our free cash flow for the year was negative $2.5 million.

We are data agnostic and in our 12 year history, we've never relied on cookies for targeting.

James A. Lawson: We've always used machine learning, algorithms, and statistical models that draw inferences from patterns in data to score ad impressions. We are not in the ID targeting phase yet. Other demand-side platforms have historically used cookie-based IDs and are now scrambling to backfill with other, even less effective and scale-challenged, alternate user IDs. As cookies are phased out over the next few quarters, AdTheorent's competitive moat and superior value proposition will naturally expand versus other solutions in the market. Before I conclude, I want to highlight a few meaningful innovations that we plan to bring to market over the next four quarters. First, as I mentioned, we are excited by the opportunity to lead digital advertisers into the post-cookie world, and our tech, product, and data science teams are hard at work configuring our machine learning system to leverage Google APIs and aggregate data exchanges as part of the Post Cookie Privacy Framework. Second,

We've always used machine learning algorithms and statistical models, which draw inferences from patterns and data.

Score AD impressions were not in the I'd targeting business.

Other demand side platforms have historically used cookie based Ids and are now scrambling to backfill with other even less effective and scale challenged alternate user Ids.

Patrick Elliott: mainly due to the early termination of a large vendor contract we resolved in December for $6.3 million, the timing of collections on fourth quarter revenue, and the Overpayment of Cash Back. We anticipate reversing the timing of collections and cash taxes trends in the first half of 2020. We continue to have a strong capital structure with no debt and ample liquidity. Looking ahead to 2024, we expect and are already pacing towards accelerated annual growth. For the full year 2024, we expect revenue to be in the range of $188 million to $195 million, which represents 12% growth at the midpoint versus 2020. We anticipate adjusted gross profit to be between 64% and 65% of revenue, compared to 65.1% in 2023, and adjusted EBITDA margin to be between 20 and 25% of adjusted gross profit, compared to 19.9%.

Cookies are phased out over the next few quarters adherence competitive moat and superior value proposition will naturally expand versus other solutions in the market.

Before I conclude I want to highlight a few meaningful innovations that we plan to bring to market over the next four quarters.

As I mentioned.

We're excited by the opportunity to lead digital advertisers into the post Cookie World and our tech product and data science teams are hard at work configuring, our machine learning systems to leverage Google API is an aggregate data exchanges as part of the post cookie privacy framework.

Second in parallel with our introduction into market of a custom health version of our platform. We are excited to be incorporating generative AI and large language models into heavy power health audience builder.

Facilitate user health audience research and creation.

Using this advanced AI functionality non experts can explore complex health and patient data to develop audience algorithms for ad campaigns.

James A. Lawson: As we work to enhance our video and CTV offering, we are excited to be incorporating video transcription data into our performance modeling, extracting keywords from video creative transcripts, and introducing such additional contextual signals will make our CTV and video campaigns more data-driven. Fourth, we expect significant business upside from our enhanced UI UX rollout across our health and non-health lines of business. So our teams remain highly focused. And finally, before turning the call over to Patrick, I'm pleased to note that we have received more industry recognition for our work enhancing the state of programmatic advertising across the open Internet. Frost & Sullivan, a 63-year-old business consulting and market research firm, named AdTheorent a leader in the Frost Radar for Demand-Side Platforms. The Frost Radar evaluated the top 13 DSPs, and AdTheorent was ranked number three in innovation, trailing just two much larger competitors.

Third.

As we work to enhance our video and CTV offering.

We are excited to be incorporating video transcription data into our performance modeling extracting keywords from video creative transcripts, introducing such additional contextual signals.

We will make our CTV and video campaigns more data driven.

Fourth we expect significant business upside from our enhanced UI UX rollout across our health and non health lines of business. So our teams remain highly focused there.

Patrick Elliott: Revenue growth and margin expansion will both accelerate as we progress through the year. As we pivot through this period of re-accelerating growth in EBITDA margins, we've decided to shift toward annual guidance.

And finally before turning the call over to Patrick I am pleased to note that we received more industry recognition for our work elevating the state of programmatic advertising across the open internet.

Patrick Elliott: This will align our reporting framework with our investment strategy and allow us to make strategic investments without the constraints of quarterly timelines. Our investments are clearly working, and this shift will help ensure we're always placing our resources where they'll generate the most value for our state. In summary, we are pleased with our financial performance since 2023 and the growth momentum we are already driving. We're excited about the opportunities ahead in 2024 and beyond. At this time, we would like to transition to the Q&A session moderated by the office. Thank you. At this time, I would like to remind everyone that in order to ask a question, press star, then number one on your telephone keypad.

Frost <unk> Sullivan, a 63 year old business consulting and market research firm named add Darren a leader in the Frost radar for demand side platforms. The <unk> radar evaluated the top 13 DSP and.

<unk> was ranked number three in innovation trailing just too much larger competitors.

I would like to conclude my remarks by acknowledging the AD guarantee.

Whose expertise dedication and resilience enabled us to finish 2023.

And opened 2024 on a high note with great optimism for what is to come.

Now I'll turn the call over to Patrick.

Thanks, Jim Good afternoon, and thank you all for joining US today as Jim mentioned, we're thrilled to report a robust Q4 performance exceeding the high end of our revenue AGP margin and adjusted EBITDA margin outlook.

We are confident in <unk> potential to sustain its growth momentum, which began in the second half of 2023.

James A. Lawson: We'll take our first question from Maria Ripps at Canaccord. Great, thanks so much for taking my questions and congratulations on the strong result. So you talked about expanding partnerships with two global holding companies, with another one in progress. Can you just talk about how meaningful this could be for your platform going forward and whether you see sort of a tendency among these holding companies to increase their reach with their advertising partners over time? Maria, thank you for the question.

We are proud to announce record breaking quarterly and full year revenue. We ended the year with a very strong Q4 with revenue, reaching $59 7 million.

<unk>, our guidance range of 55 million to $57 million and marking a 15, 2% year over year growth.

As we discussed on our previous call, we pointed to an inflection point for our business starting with record pipeline generation in Q2, which converted to revenue growth in Q3 of this year and the pipeline generation and revenue growth momentum we saw in Q3 accelerated into Q4.

James A. Lawson: The demand across our key growth pillars contributed significantly to this. Notably, our self-service platform saw a remarkable 136% revenue growth year-over-year, and AdTheorent Health, our largest vertical eye solution, experienced 89% year-over-year. In the fourth quarter, our adjusted gross profit, defined as gap, revenue, less traffic, and acquisition, was $39.9 million, representing 66.9% of revenue, above our margin guidance of at least 64% of revenue. This compares to 65.2% of revenue in the same period of the prior year. This increase in the AGP percentage was primarily driven by the increased adoption of our algorithmic predictive audience solution. AdTheorent Hldg, non-GAAP operating expenses, excluding stock-based compensation.

The demand across our key growth pillars contributed significantly to this achievement.

Notably our self service platform, a remarkable 136% revenue growth year over year and at their health, our largest vertical EIS solution experienced an 89% year over year increase in.

James A. Lawson: Yeah, we have, as communicated in prior calls, really been focusing on trying to generate business deals with large media buyers where we can have sustained revenue growth over a long period of time. We're quite excited to be at the table and signing not only evaluation agreements but post-evaluation advertising service agreements with some of the largest media buyers in the world. So, we're very excited to be there.

In the fourth quarter, our adjusted gross profit defined as GAAP revenue less traffic acquisition costs was $39 $9 million.

Representing 66, 9% of revenue above our margin guidance of at least 64% of revenue.

This compares to 65, 2% of revenue in the same period of the prior year.

This increase in ADP percentage was primarily driven by the increased adoption of our algorithmic predictive audience solutions, particularly within out there in health.

non-GAAP operating expenses, excluding stock based compensation, depreciation and amortization and onetime items totaled $46 million.

James A. Lawson: It's been a long process building our platform and getting it to the point where we are able to deliver these types of contracts. So, we're really excited to scale those opportunities post-contract because, yes, we believe huge opportunities exist in these customers. Great, thank you.

Patrick Elliott: Appreciation and Amortization in One-Time Items totaled $46 million, from 41.7 million last year, mainly due to increased TAC related to higher revenue. Adjusted EBIT for the quarter was $13.6 million, up $3.5 million or 34.8% compared to Q4 2022, exceeding the high end of our outlook range of $10 million to $11.5 million. Our adjusted EBITDA margin was 34.2% for the quarter, up from 30% last year, reflecting strong cost discipline and AGP performance at a higher level. The company's continued strong profitability demonstrates both our operating leverage and agility amidst an ever-changing market. For the full year, we reported $170.8 million in revenue, a 2.8% growth rate versus 2022, achieving our growth outlook set at the beginning of the year, despite spin consolidation trends in the industry. Our average revenue for active customers increased by $11.8 billion.

From $41 $7 million last year, mainly due to increased Tac related to higher revenue.

Adjusted EBITDA for the quarter was $13 $6 million.

Up $3 5 million or 34, 8% compared to Q4 2022 exceeding the high end of our outlook range.

James A. Lawson: And then secondly, I think last quarter you talked about several CTV partnerships that have expanded your AVAR inventory on the platform. Can you maybe talk about whether that's driving incremental advertising demand? And then maybe more broadly, how do you see sort of CTV spend growing on the platform, sort of adjusting for this makeshift that you're going through relative to the broader industry? Thank you, Maria.

10 million to $11 5 million.

Our adjusted EBITDA margin was 34, 2% for the quarter.

Up from 30% last year, reflecting strong cost discipline and AGP performance on higher revenue.

The company's continued strong profitability demonstrates both our operating leverage and agility and mist and ever changing market landscape.

For the full year, we reported $178 million in revenue.

A two 8% growth rate versus 2020 to achieving our growth outlook set at the beginning of the year.

Despite spend consolidation trends in the industry.

James A. Lawson: We have been very focused on making sure that our CTV offering is differentiated and best-in-class. We're in the early innings in the scaling of our CTV offering relative to the opportunity. What we've seen is that in the early years of AdTheorent, we were mostly a managed services platform. As we bring more customers into the self-service business, we find that many of them are CTV heavy. CTV is a more expensive medium, and you see more self-service executions across CTV.

Our average revenue per active customer increased by 11, 8%.

Patrick Elliott: Indicating successful engagements with larger brands and agencies. We continue to execute on our strategic growth initiative, to increase the value our platform delivers to our customers, and to take advantage of an expanding addressable market driven by shifts from traditional forms of advertising to programmatic advertising on the open internet and from linear to connected TV. Our ID-independent AdTheorent Health and Predictive Audience products and our self-service offering continue to be core drivers of the acceleration in our Recording Record Additionally, Platform Spin for CTV also reached all, Full year adjusted gross profit totaled $111.2 million, or 65.1% of revenue, exceeding the high end of our AGP margin. As expected, our AGP margins were consistent with historical... Operating expenses, excluding stock-based compensation, During the year, we also realized approximately $2 million in savings across GNA, primarily across professional services and insurance, and managed Total Compensation Expense for the entire company to be flat versus the prior year. As a result, adjusted EBITDA for the year was $22.2 million, a 19.9% margin against adjusted gross profit.

Indicating successful engagements with larger brand and agency customers.

We continue to execute on our strategic growth initiatives.

To increase the value our platform delivers to our customers and to take advantage of an expanding addressable market driven by shifts from traditional forms of advertising to programmatic advertising on the open internet and from linear to connected TV.

Alrighty independent at their health and predictive audience products and our self service offerings continue to be core drivers of the acceleration in our business recording record highs.

James A. Lawson: So we see more net revenue recognition for our CTV customers. But at the end of the day, we believe that we are so early in this opportunity that we don't really care about that. At the end of the day, our objective is to get media flowing through the platform. Our focus primarily to date has been on the product, making sure we have the best publisher integration, the best data-driven methods of targeting, and the best reporting capabilities and products. We're at that point now where we think a go-to-market, re-energizing our go-to-market, making a number of investments in that area, making some strategic partnerships in that area, could be quite valuable in getting our scale back to CTV. We didn't grow our CTV revenue in 2023, but we grew our advertisers by 30 percent, and we believe that the growth in revenue will follow. Thank you so much for the call.

Additionally platform spend for CTV also reached all time highs.

Full year adjusted gross profit totaled $111 2 million.

Or 65, 1% of revenue.

Exceeding the high end of our AGP margin outlook.

As expected our ADP margins were consistent with historical results.

Operating expenses, excluding stock based compensation, depreciation and amortization and onetime items increased $4 8 million or three 4% from the previous year, primarily due to higher Tac hosting expenses and platform data costs.

During the year, we also realized approximately $2 million in savings across G&A, primarily across professional services and insurance costs and manage total compensation expense for the entire company to be flat versus the prior year.

As a result, adjusted EBITDA for the year was $22 2 million a.

A 19, 9% margin against adjusted gross profit.

Exceeding expectations, and 400 basis points lower than full year 2022.

We were able to drive topline growth, while investing in the business to better position us for growth.

Patrick Elliott: exceeded expectations and 400 basis points lower than full year 2021. We were able to drive top-line growth while investing in the business to better position it. Moving to our balance sheet and cash. We closed out the year with $70.3 million in cash. Our free cash flow for the year was negative $2.5 million, mainly due to the early termination of a large vendor contract we resolved in December for $6.3 million.

James A. Lawson: Thank you, Maria. We'll move next to Laura Martin at Needle. Hi, I have three.

Moving to our balance sheet and cash flow.

We closed out the year was $70 $3 million in cash and cash equivalents.

James A. Lawson: So also, let's do self service first. What I'm interested in is your self service was up 136%. But it's still a small percent of total revenue. My question is, what do the self-service customers require on the cost side from you guys to service them compared to when you were doing managed service? Thank you, Laura. I appreciate the question. I think at the end of the day, the self-service customer is looking for a platform that gives them access to the best-in-class inventory and an ability to efficiently drive the best results that they can get, more media working for their investment, and a better return on ad spend. Our platform has been designed to be an extremely efficient platform. We filter out a lot of noise. We filter out a lot of inventory that is not value-added to the customer.

Our free cash flow for the year was negative $2 5 million.

Mainly due to the early termination of a large vendor contract we resolved in December for $6 $3 million, the timing of collections on fourth quarter revenue and.

An overpayment of cash taxes.

We anticipate reversing the timing of collections and cash taxes trends in the first half of 2024.

We continue to have a strong capital structure with no debt and ample liquidity.

Patrick Elliott: The timing of collections on fourth-quarter revenue and Overpayment of Cash Back. We anticipate reversing the timing of collections and cash taxes trends in the first half of 2020. We continue to have a strong capital structure with no debt and ample liquidity. Looking ahead to 2024, we expect and are already pacing towards accelerated annual growth. In the full year 2024, we expect revenue to be in the range of $188 million to $195 million, which represents 12% growth at the midpoint versus 2020. We anticipate adjusted gross profit to be between 64% and 65% of revenue, compared to 65.1% in 2023, and adjusted EBITDA margin to be between 20 and 25% of adjusted gross profit, compared to 19.9%.

Looking ahead to 2024, we expect and are already pacing towards accelerated annual growth for the full year 2024, we expect revenue to be in the range of $188 million to $195 million, which represents 12% growth at the midpoint versus 2023.

We anticipate adjusted gross profit to be between 64%, 65% of revenue compared to 65, 1% in 2023 and.

The EBITDA margin to be between 20, and 25% of adjusted gross profit compared to 19, 9% in 2023.

James A. Lawson: We put more media to work than other DSPs, and I think that, at the end of the day, that is what most self-service customers are looking for. They're looking for a platform or engine that allows them to execute media campaigns that deliver results. And I think our algorithmic approach to both KPI performance, where we can generate outstanding KPI results when we go head-to-head with other customers, sorry, other DSPs, and frankly, that's the number one way we win business, is going head-to-head with other DSPs and outperforming. So I think performance is key. As far as cost is concerned, we have the best price optimizer out of any DSP, in our view, where we can find high-value impressions and, therefore, drive conversions at a cost lower than other DSPs. Okay, cool.

Revenue growth and margin expansion will both accelerate as we progress through the year.

As we pivot through this period of re accelerating growth and EBITDA margin expansion, we have decided to shift toward an annual guidance model. This.

This will align our reporting framework with our investment strategy and allow us to make strategic investments without the constraints of quarterly timelines are.

Our investments are clearly working and this shift will help ensure we're always placing our resources, where they will generate the most value for our stakeholders.

In summary, we are pleased with our financial performance in 2023, and the growth momentum we are already driving in 2024 <unk>.

Patrick Elliott: Revenue growth and margin expansion will both accelerate as we progress through the year. As we pivot through this period of reaccelerating growth and even on margins, we have decided to shift toward annual guidance.

We're excited about the opportunities ahead in 2024 and beyond thank you.

At this time, we would like to transition to the Q&A session moderated by the operator.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Operator: This will align our reporting framework with our investment strategy and allow us to make strategic investments without the constraints of quarterly time. Our investments are clearly working, and this shift will help ensure we're always placing our resources where they'll generate the most value for our state. In summary, we are pleased with our financial performance since 2023 and the growth momentum we are already driving. We're excited about the opportunities ahead in 2024 and beyond. At this time, we would like to transition to a Q&A session moderated by the office. Thank you. At this time, I would like to remind everyone that in order to ask a question, press star, then number one on your telephone keypad.

We'll take our first question from Maria reps at Canaccord Genuity.

Great. Thanks, so much for taking my questions and congrats on the strong results.

So you talked about expanding partnerships with two global holding companies with another one in progress can you just talk about how meaningful this could be for your platform going forward and whether you see sort of a tendency among this holding companies to increase their spend with advertising partners over time.

James A. Lawson: And then I was, a second question for you, Jim, is about roadmaps. So about a year ago, you were going to spot health, and it has really done exactly what you projected on the timeframe. You projected a year ago that you were going to go next to financial services and insurance, where again, there are very strict privacy rules, and that sort of made sense to investors. But then last quarter, you were talking about travel. So can you give us an update this quarter on where you go next after health care? What's on the road?

Maria Thank you for the question.

Yes.

As communicated in prior calls really been focusing on trying to generate business deals with large media buyers, where we can have sustained revenue growth over a long period of time, where.

We're quite excited to be at the table and signing not only evaluation agreements, but post evaluation agreement advertising service agreements with some of the largest media buyers in the world. So we're very excited to beat to be there. It's been a long process and building our platform and getting it to the point, where we are able to.

James A. Lawson: Thank you, Laura. A great question. We continue to believe that the financial services vertical, banking, financial services, and insurance, is a big opportunity for our business. In the market environment that we have been in over the last couple of years with interest rates, one of our larger clients was engaged in auto finance, and there were challenges in the automotive vertical. There were a number of headwinds facing the customer base that we had in the financial services vertical, but we remain optimistic about that vertical because of our ability to drive the campaigns in a privacy-forward manner, for example, in compliance with the Equal Credit Opportunity Act and the Fair Housing Act. We don't use prohibited basis variables in our models.

Deliver these types of contracts. So we're really excited to scale those opportunities post contract because yes, we believe huge opportunities exist in these in these in these customers.

Great Great. Thank you and then secondly, I think last quarter, you talked about several strategic partnerships that have extended expanded your eight Avon inventory on the platform can you maybe talk about whether that's driving incremental advertising demand and then maybe more broadly how do you see sort of CTV.

Been growing on the platform sort of adjusting for this mix shift that you would go into relative to the broader industry industry trends.

Thank you Maria we have been very focused on making sure that our CTV offering is differentiated and best in class.

James A. Lawson: A number of other really important and valuable things for financial services marketers, especially in the area of credit extension products. We are very, very bullish about financial services, but you also have to be mindful of the macro and the industry and the conditions that you're in. Travel is exciting for us.

We're early innings in the scaling of our CTV relative to the opportunity what we've seen is.

In the early years of add Darren we were mostly a managed services platform.

We deliver more customers.

Into the self service business, we find that many of them are CTV heavy <unk>.

James A. Lawson: We have a strong start to the year in travel. We have our predictive audiences, our CTV, our creative services that we offer, and a number of the studies and measurement programs that we offer customers, such as destination sales lift. A number of the new data investments and partnerships that we've made give us a very customized travel vertical. It's not just the product; it's also the go-to-market.

CTV is a more expensive medium and youll.

Do you see more self service executions across CTV. So we see more net revenue recognition for our CTV customers.

At the end of the day, we believe that we are so early in this opportunity that we don't really care about that at the end of the day, our objective is to get media.

Through the platform our focus primarily to date has been on the product, making sure we have the the best publisher integration.

Data driven methods of targeting and the best reporting capabilities and products were at that point now, where we think our go to market.

James A. Lawson: We have a leader in our organization who's driving great results across travel. And we're bringing in a number of new members to our travel team. We're making a number of incentive changes and a number of go-to-market enhancements to our travel vertical. We feel very optimistic that in 2024, travel will be one of the success stories that we'll talk about in the year wrap-up call. Super helpful. Okay, Patrick, one for you.

Re energizing our go to market, making a number of investments in that area.

Some strategic partnerships in that area could be quite valuable and getting our scale back the CTD, we didn't grow our CTV revenue in 2023.

James A. Lawson: So we see more net revenue recognition for our CTV customers. But at the end of the day, we believe that we are so early in this opportunity that we don't really care about that. At the end of the day, our objective is to get media flowing through the platform. Our focus primarily to date has been on the product, making sure we have the best publisher integration, the best data-driven methods of targeting, and the best reporting capabilities and product. We're at that point now where we think re-energizing our go-to-market, making a number of investments in that area, making some strategic partnerships in that area, could be quite valuable in getting our scale back to CTV. We didn't grow our CTV revenue in 2023, but we grew our advertisers by 30 percent, and we believe that growth and revenue will follow. Thank you so much for the call.

We grew our advertisers by 30% and we believe that the growth in revenue will follow.

Great. Thank you so much for the color Jim.

Thank you Maria.

We'll move next to Laura Martin Needham.

Hi, I have.

Patrick Elliott: What the heck is going on with accounts receivable? So I have free cash flow, meaning cash from operations down $13 million and accounts receivable up $15 million. Is it just this pivot to large clients, they're slow payers because this is a lot of sort of tax on AdTheorent to add $15 million year-over-year in accounts receivable. What's going on there?

Also so let's do self service versus what I'm interested in your self service was up 136%.

Small percent total revenue my question is what do the self service customers require on the cost side from you guys to service them compared to when you were doing managed services.

Thank you Laura.

Appreciate the question I think at the end of the day. The self service customer is looking for a platform that gives them access to the best in class inventory and an ability to efficiently drive the best results that they can get more media working.

Patrick Elliott: Yeah, thanks. Thanks, Laura. Yeah, you're, uh, part of your, your answer, I guess, is already true. We are pivoting to larger customers, and that is part of the dynamic here. Another part of the dynamic though is that in Q4 a lot of the revenue did come in and get billed in December, and so the timing of such AR balances just works so they're not collected before the end of the year. So that is really driving the two things driving that increase. And that was different than last year somehow, so we didn't see that seasonality in the last year's fourth quarter. The dynamic of in 2022, we had less fourth quarter incrementals come in, whereas in 23, that really did help drive our Q4 performance. And also, due to the timing, and like I said, in December, it just drove that dynamic for increased RA at the end of the year.

For their investment and better return on Ad spend.

James A. Lawson: Thank you, Maria. We'll move next to Laura Martin at Needle. Hi, I have three.

Our platform has been designed to be an extremely efficient platform, we filter out a lot of noise, we filter out a lot of.

Inventory that is not value added to the customer we put more media to work than other DSP.

And I think that at the end of the day that is what most.

Self service customers are looking for they're looking for a a platform or engine that allows down to execute media campaigns that deliver results and I think our algorithmic approach to both TPI performance, where we can generate outstanding <unk> results. When we go head to head with other customers.

I am sorry, other DSP and frankly thats the number one way we win business is going to head to head with other DSP.

James A. Lawson: We put more media to work than other DSPs. And I think that at the end of the day, that is what most self-service customers are looking for. They're looking for a platform or engine that allows them to execute media campaigns that deliver results.

<unk> outperforming so I think performance is key as far as cost we have the best price optimizer is out of any DSP and arm in our view, where we can find high value.

Patrick Elliott: Okay, cool. But do you think this is structural because as we move towards bigger clients, they pay slower? So this is going to be a good growth of your revenue line; you believe it will be a higher tax rate in 24 to your working capital line through the accounts receivable. This is a structural trend. Yeah, I mean, I think that, (inaudible) Truth to that, I point out that our working capital did improve by $7 million year over year at the end of the year. And so, you know, that will translate into cash flow and improved cash flow in 2024. It just happened to be the timing of such things at the end of the year.

Impressions, and therefore drive conversions at a cost lower than other DSP.

Okay Cool and then I was a second question for your account.

Roadmap, so about a year ago Yoga health is really done exactly what you projected on the timeframe you projected.

We'll go next to financial services and insurance, where again are very good.

Correct privacy rule and that sort of makes sense to investors, but then last quarter you were talking about travel. So can you give us an update this quarter of where you go next Doctor health care, what's on the road map.

Thank you Laura Great question.

We can we continue to believe that the financial services vertical banking financial services and insurance.

Is a is a big opportunity for our business in the market environment that we have been in over the last couple of years with interest rates.

One of our larger clients was engaged in auto finance and there were there were challenges in the automotive vertical there were a number of headwinds facing the customer base that we had in the financial services vertical we remain optimistic about that vertical because of our ability to drive.

Patrick Elliott: And we'll we'll we'll manage our way through that. And and, you know, get the working capital converted into cash this year. Okay, thanks very much.

James A. Lawson: Thanks, guys. Great numbers. Congratulations.

Campaigns in a privacy board manner for example in compliance with equal credit opportunity at Fair Housing Act, we don't use prohibited basis variables in our models a number of other really important and valuable things for <unk>.

James A. Lawson: Yep. Thank you, Laura. We'll move next to Matt Condon at Citizens JMP.

James A. Lawson: Great, thank you for taking my question. Maybe just on cookie deprecation: can you just talk about whether there has been a change in the conversations that you are having with advertisers as they gear up for the deprecation of cookies in the back half of the year? Yeah, thank you for the question. One of our favorite topics. Absolutely, 100%. This is a topic on everybody's mind. We highlighted in our prepared remarks that despite the fact that the deprecation of cookies is here, a number of advertisers are behind in their planning. We've done our own research, and we've talked to advertisers in the market about their interest and their preparations for the post-cookie world, and the types of ML solutions, impression scoring, using statistics, and not an ID-focused approach is actually the number one response we get when we talk to customers about what the post-cookie world looks like.

Financial services, marketers and especially in the area of credit extension products. So we are very very bullish about financial services, but you also have to be mindful of the macro and the industry and the conditions that you're in so travel is exciting for us that we actually had.

A very strong we have a strong start to the year in travel we have our predictive audiences.

CTV, our creative art.

Created services that we offer in a number of the studies and measurement programs that we offer customers such as destination sales lift number of the new data investments and partnerships that we've made gave us a very customized travel vertical.

Not just the product. It's also the go to market, we have all year in our organization, who is driving great results across travel we're bringing in.

Another.

<unk> of new members to our travel team were making a number of incentive changes in a number of.

The go to market enhancements to our travel vertical so we feel very optimistic that in 2023 Im sorry, 2020 for travel will be one of the success stories that we'll talk about in <unk>.

James A. Lawson: We couldn't be more excited about that opportunity. We have been doing this since 2012. This is not a new reaction, pivot, or backfill endeavor for AdTheorent. This is AdTheorent.

In the year wrap up call.

Super helpful. Okay.

Why don't forget what performed well.

Going on with accounts receivable, so I have free cash flow and cash from ops down 13, nine accounts receivable up 15 million is it just the pivot the large.

Clients Theyre slow powers because this is a lot.

Tax on out there to add $15 million year over year and accounts receivable, what's going on there.

Yeah. Thanks, Thanks, Laura.

Part of your.

Youre your answer I guess is already true we are pivoting to larger customers.

James A. Lawson: We have been working on impression scoring and believe that it's preferable to user profiling and ID retargeting. And we're super excited to be able to engage with customers who maybe have a greater sense of urgency around this topic than they have in prior months and quarters. So, yeah, we're quite excited about it. These conversations will continue, and we believe that in 2024, that enthusiasm will show up in the results. That's great

And that is part of the dynamic here another part of the dynamic though is in Q4.

A lot of the revenue did.

Come in and get build in December and so the timing of such a.

Our balances just work so we're not collected before the end of the year. So that is really driving the two things driving that increase.

And that was different than last year somehow so we didn't see that seasonality in the last year fourth quarter.

The dynamic of.

In 2022, we had less.

Fourth quarter Incrementals come in.

Whereas in 2003 that really did help drive our Q4 performance and also due to the timing and like I said in December.

James A. Lawson: And then, Jim, you also mentioned just the early stages of just the stabilization of the macro. Can you maybe just talk about just the linearity of demand throughout the quarter and maybe what you're seeing so far in 1Q that's giving you that confidence? Thank you.

It drove that dynamic for increased AR at the end of the year.

Yes.

Okay cool, but you think this is structural because as we move towards bigger clients. They pay slower. So this is kind of below the growth of your revenue line you believe will be a higher tax in 2014, our working capital line through the accounts receivable. This is a structural trend.

Yes, I mean I think that.

James A. Lawson: We feel good. We feel like the macro has stabilized to a large degree. At the beginning of the year, a number of our larger customers got off to a slower start in terms of budget completion and finalization, and communication of campaign starts.

There is truth.

Truth to that I mean, I would point out that our working capital did improve $7 million year over year.

At the end of the year.

And so that will translate into cash.

Cash flow and improved cash flow in 2024.

Just happened to be the timing of such at the end of the year and we'll we'll manage our way through that and.

James A. Lawson: So we had a little bit of a slow start in January from some of our accounts, but as the quarter has progressed, the momentum has increased, so we feel good about where we're headed. But I would say that at the beginning of the year, I think there was a little bit of a delay in budgeting and finalizing budgets from a number of customers. I don't think that was unique to AdTheorent.

Get get this working capital to.

Converted into cash this year.

Okay, that's fair.

Thanks, guys great numbers congratulations.

Thank you Laura.

We'll move next to Matt Koranda condos at citizens JMP.

Yeah.

Great. Thank you for taking my question, maybe just on Cookie Deprecation can you just talk about has there been any change in your conversations that youre, having with advertisers as they gear up for the deprecation of cookies in the back half of the year.

Yes. Thank you for the question one of our favorite topics.

James A. Lawson: From our understanding, that was consistent with a number of companies in our business or industry, rather. I could just add to that that you asked about our linearity. I think our booked revenue and our pipeline levels are both higher at this point in the year than they were last year at this time, which supports our fiscal year guidance range that we've provided to the market. That's very helpful. Thank you. We'll take our next question from Dan Kurnos on the bench. Great, thanks. Good afternoon.

Absolutely, 100%. This is the topic on everybody's mind.

Highlighted in our prepared remarks that.

Despite the fact that the deprecation of cookies adhere.

A number of advertisers are behind in their planning we've done our own research and we talk to advertisers in the market about their interest in their preparations for the post cookie world.

It takes a ml solutions.

Impression, scoring using statistics and I'd.

James A. Lawson: That is a very solid way to end the year, guys. Jim, maybe just talk about the timing of the UIUX rollout. I know it was just one of the initiatives that you mentioned, but I will tell you that we've been seeing, let's call it simplification so as not to insult the agencies, some of these platforms and interfaces. And I'm just kind of curious.

Focused approach.

Is actually.

The number one <unk>.

Bonds, we get when we talk to customers about what the post cookie world looks like we couldnt be more excited about that opportunity. We have been doing this since 2012. This is not a new reaction or pivot or backfill endeavor for add Darrin. This is add darrin, we have been working on impression scoring.

And believe that it is preferable to user profiling and re targeting and we're super excited to be able to engage with customers, who maybe have a greater sense of urgency around this topic than they have in prior.

James A. Lawson: If you're doing any integration work on the back end or if there's anything else that's kind of driving your optimism around that, adding to growth, as we've heard from others doing similar processes this year. Thank you, Dan. That's an outstanding question, and it very much lines up with our focus on making our platform easier from the perspective of a non-expert user. There are a lot of experts out there in the industry, but there's also a number of media buying users that would benefit from a more streamlined interface that makes more decisions for the user. That's not to say we're dumbing down our platform or removing functionality. That's not what we're doing, but we are making some decisions, default decisions, and more streamlined decisioning and some more just conformity, if you will, to an industry standard that's evolved among DSPs for a number of things within the platform.

Months and quarters. So yes, we're quite excited about it. These conversations continue and we believe that in 2024 that enthusiasm will show up in the results.

Yeah.

That's great and then Jim you also mentioned just the early stages of just the stabilization in the macro can you maybe just talk about just the linearity of demand during the quarter and maybe what youre seeing so far in <unk>, that's giving you that confidence. Thank you.

Sure.

We feel good we feel like the macro has stabilized to a large degree and.

Beginning of the year.

A number of our larger customers got off to a slower start in terms of budget completion, and Finalization and communication of campaign starts. So we had a little bit of a slow start in January from some of our from some of our accounts but.

As the quarter has progressed.

The momentum has increased so we feel good about where we're headed.

But I would say that at the beginning of the year I think there was a little bit of a budget.

<unk> budgeting and finalizing our budgets from from a number of customers I don't think that was unique to <unk>.

James A. Lawson: I think the collective result there will be easier adoption, shorter training times, and a shorter period between contract execution and first campaign launch. That's something that we focus on a lot, and we feel like a number of the changes that we're making are going to help in that regard. We're also quite excited, as I mentioned in our prepared remarks, about some of the generative AI advancements and contributions that we're making to a number of features of our platform, such as the health audience builder, where you don't need to be, for example, an expert in all the different specific health diagnoses or treatment names. By their exact names, you can speak in a more plain English manner.

From our understanding.

That was consistent with a number of a number of companies in our business or an industry rather.

I could just add to that.

I asked about our linearity I think our booked revenue and our pipeline levels are are both higher at this point of the year than they were last year at this time, which support our fiscal year guidance range that we provided.

<unk> remarks.

That's very helpful. Thank you.

We will take our next question from Dan <unk> at the benchmark company.

Great. Thanks, good afternoon.

That is a very solid way to end the year guys.

Jim maybe just talk about the.

The timing of the UI UX rollout I know it was just one of the initiatives that you mentioned, but I will tell you that we've been seeing.

Let's call it simplification for not to insult the agencies of some of these.

James A. Lawson: And our large language models and generative AI that we're incorporating into HABI will assist users in creating the audiences. Again, these are algorithmic audiences. These are not ID-based audiences. They are not look-alike audiences.

Platforms and interfaces and I'm just kind of curious.

If youre doing any integration work on the backend or if there anything if there's anything else that's kind of driving your optimism around that adding to growth as we've heard from others doing similar processes. This year.

Thank you Dan that's an outstanding question and it very much lines up with our our focus on making our platform easier.

James A. Lawson: These are algorithmic audiences based on statistics from aggregated data. So we think that that makes algorithmic targeting and algorithmic audience creation more attainable and usable for non-expert traders. Got it. That's really helpful, Jim. Thanks for that color.

From the perspective of a non expert user.

There are a lot of experts out there in the industry, but theres also a number of media buying users that.

That that would benefit from a more streamlined.

Interface that makes more decisions for the user that's not to say, we are dumbing down our platform of removing functionality.

James A. Lawson: And then, just from a bigger picture perspective, obviously, you guys have top-line momentum. I guess, Jim, as a follow-on to what I just asked, like what's your willingness to reinvest this year, not just in improving the platform, but whether it's initiatives like new product builds or, and we haven't talked about going after international, which sounds like it's recovering, just what's your willingness to reinvest in the platform this year? And do you have any kind of medium to longer term sustainable growth targets in mind at this point? Yeah, thank you, Dan. We've been in a constant state of investment on this platform for years. I mean, we could invest a lot more. We think that our product and tech roadmap is five years long right now.

It's not what we're doing but we are making some decisions.

Default decisions and more streamlined decisioning.

And some more.

Just.

Conformity, if you will to an industry standard that's evolved among DSP for a number of things within the platform I think the collective result.

There will be.

Easier adoption shorter training times.

Lower.

Period between contract execution and first campaign launch that's something that we focus on.

A lot and we feel like a number of the changes that we're making are going to help in that regard. We're also quite excited as I mentioned in our prepared remarks about some of the.

Generative AI.

Advancements and contributions that we would be that we're making to our number of features of our platform such as the health audience builder, where you don't need to be for example, an expert in all of the different specific health diagnoses or.

Treatment names by the exact names you can speak in a more plain English plain English manner, and our large language models and generative AI that we're incorporating into happy will assist users in and creating the audiences and again. These are algorithmic audiences theaters these or not.

James A. Lawson: We could accelerate many things. Obviously, we're trying to balance short-term and near-term performance with long-term differentiation and superiority in our marketplace, and we want to make sure that we can extend our advantage on machine learning based impression scoring and not forfeit any of that advantage and lead that we have, but you're hitting on the challenge as a small public company that, you know, we would love to make investments today for a number of initiatives, so we have to make choices Yeah, Dan. This is Patrick.

I'd based audiences theyre not look alike audiences. These are algorithmic audiences based on statistics from aggregated data.

So we think that that.

<unk> algorithmic targeting and algorithmic audience creation, more attainable and usable for non expert traders.

Got it that's really helpful. Jim Thanks for that color and then just on them.

Bigger picture perspective, obviously, you guys have topline momentum I guess Jim.

A follow on to what I just ask what's your willingness to reinvest this year not just in improving the platform, but whether it's the initiatives like new product builds or and then we haven't talked about going after international it sounds like it's recovering just what's kind of your willingness to reinvest in the platform. This year and do you have like kind of.

James A. Lawson: I'll just add that, from an investment perspective, we don't see our CapEx or capitalized software expenditures increasing materially from 2023. We expect that to be relatively consistent, but it will depend on top-end performance and how much further momentum we're seeing and how that will enable us to invest more. So what I'm saying is that our investment decisions are in light of our performance, and we will monitor that as we go through the year. I got it.

Medium to longer term sustainable growth targets in mind at this point.

Yes, Thank you Dan.

We've been in a constant state of investment on this platform.

For years, I mean, we could invest frankly, a lot more we think that our product.

And tech roadmap.

It can be it's five years long right now we could we could accelerate many things.

Obviously, we're trying to balance short term and near term performance with long term.

Yes.

Differentiation and superiority in our marketplace and we wanted to make sure that we can extend our advantage on machine learning based impression, scoring and not and not forfeit any of that advantage and lead that we have.

Patrick Elliott: If I could sneak a real quick third one in, just TAC was really efficient in Q4, and you guys have guided it to, let's call it AGP, I guess, around 64.5%, which would be a step up from the Q4 level. I know there's a mix, but if you could give us any kind of incremental granularity around why Q4 AGP was so strong and just why some of those benefits aren't necessarily flowing through to the year, that would be helpful. Yeah Dan.

But youre hitting on kind of the challenge as a small public company that we would love to make investments today for a number of initiatives. So we have to make choices and.

We've made a number of choices to be focused while at the same time delivering.

Fantastic outcomes and financial results for our for our for our shareholders.

Yes, Dan this is patrik I'll just add that.

From a from a investment.

<unk>, we don't see our capex.

Our capitalized software.

Expenditures increasing materially from 2023, we expect that to be relatively consistent but it will depend on top line performance and how and how much.

Our momentum further momentum, we're seeing and how that will enable us to invest more so what I'm, saying is that our investment decisions are in light of our performance and we will monitor that as we go through the year.

Patrick Elliott: In Q4, our good AGP margin performance was driven by the adoption of our AdTheorent Predictive Audiences solution, which replaced third-party costs with an internal solution which increases the amount of margin dollars flowing through. Sometimes that's harder for us to predict in real time. And so, you know, we saw a fair amount of that coming through in Q4, which was upside to our guidance. But we do think that a 64-65 percent level, which is kind of historically consistent with the last two years of what we realize is prudent to budget for as we think through the future. Got it. All right. Super helpful.

Got it can I, if I could sneak a real quick third one in just tack with really efficient in Q4, and you guys have guided to let's call. It a GP I guess of sort of 64, 5%, which would be <unk>.

Up from the Q4 level I know theres mix, but if you could give us any kind of incremental granularity around why Q4 AGP was so strong.

And just why some of those benefits arent necessarily flowing through to the year that would be helpful.

Yes.

In Q4, we are good.

Margin performance was driven by the adoption of our.

At their <unk> predictive audiences solution, which replace third party costs with an internal solution, which increases.

The amount of margin dollars flowing through.

James A. Lawson: Thanks, guys. I appreciate it. Thank you, Dan. We'll go next to Michael Kupinski at Noble Capitol Barn.

Sometimes that that's harder for us to to predict in real time.

And so we saw a fair amount of that coming through in Q4, which was which was upside to our guidance.

But we do think that.

James A. Lawson: Thank you. Thanks for taking the questions. Good afternoon and congratulations. Um, I was wondering if you could give us an update on the strategic partnership you have with Hero Media? If you could just kind of give us an update on how Hero1 is performing against your expectations. Thank you for the question, Michael. We love our partnership with HERO. We view this as a horizontal opportunity to provide unique capabilities to our customers who are seeking to reach multicultural audiences across the spectrum. We think that our AdTheorent predictive audience products enable a lot of customization in that area.

Ah 64, 65% level, which is kind of historically consistent with.

The last two years of our of what we realized is prudent.

Two.

Yes.

To budget for.

I think through the future.

Got it alright Super helpful. Thanks, guys I appreciate it.

Thank you Dan.

We will go next to Michael Smith, excuse me Kopinski at noble capital markets.

Thank you thanks for taking the questions good afternoon and congratulations.

I was wondering can you give us an update on the strategic partnership you have with hero media. If you could just kind of give us an update on how <unk> is performing against your expectations.

Thank you for the question Michael.

We love our partnership with hero.

We view this as a horizontal opportunity too.

Provide.

Unique capabilities too.

To our customers who are seeking to reach multicultural audiences.

Across the spectrum.

We think that our AD there are predictive audience product.

Enable a lot of customization.

James A. Lawson: Hero has been fantastic in the market, getting us opportunities with some very exciting brands and agencies. So that is progressing along quite nicely. And we will provide, you know, we expect a Hero multicultural horizontal, again, not a vertical, but a horizontal.

That area hero has been fantastic in market getting us opportunities with some very.

Exciting brands and agencies, so that that is progressing along quite nicely.

And we will provide we expect a hero multi.

Multicultural horizontal again, not a vertical but a horizontal we expect that to tap into budgets intended for multicultural budgets within a number of different verticals across our business and we think that that's going to drive.

James A. Lawson: We expect that to tap into budgets intended for multicultural budgets within a number of different verticals across our business. And we think that that's going to drive a portion of our growth in 2024. So we're excited to see that show up in the results. But it's early.

Portion of our growth in 2024, so we're excited to see that.

Show up in the in the results, but it's early.

James A. Lawson: So they actually drove a number of exciting deals in the fourth quarter, which we're excited about. They contributed to that positive end to the year. And I'm very confident that as the year progresses, the Hero partnership is going to be a big part of our success. Gotcha. And then I'm always looking for what could go wrong.

They actually drove a number of exciting deals in the fourth quarter, which we're excited about they contributed to that positive end to the year.

And I'm very confident that as the year progresses. The hero partnership is going to be a big part of our success.

Got you and then I'm always looking for what could go wrong. So I know that you've been configuring your systems for the post cookie world, but is there a chance that Google implement some technology that render some of that work problematic for you may be prudent for you to use with their systems are those of aggregate data exchanges.

James A. Lawson: So I know that you've been configuring your systems for the post-cookie world, but is there a chance that Google implements some technology that renders some of that work problematic for you, maybe for them, you know, for you to use with their systems or those of aggregate data exchanges? Yeah, well, I mean, we've, you know, we've acted. We've been actively working with Google and with the Google Privacy Sandbox and the proposed cookie framework. We're in the weeds out there. Our tech teams are doing testing with the APIs. We are iterating with Google, and we have a clear line of sight into what that's going to look like. And from where we sit, it's a positive story. It's a story of replacing a cookie, which is an inherently individualized piece of information, with more aggregated data that, again, is more important for us anyway. So when we optimize buying media, when we optimize buying media impressions, what we do is we look for high-indexing attributes that are present. And when those high-indexing attributes are present that are driving conversions, we try to find other impressions that look like that. So we're not looking for IDs.

Yes.

We've actually we've been actively working.

With Google and with the Google privacy sandbox in the post Cookie framework.

In the weeds. There are tech teams are are doing testing with the API as we are.

Iterating with Google and and we have clear line of sight into what that's going to look like in and from where we said.

It's a positive story, it's a story of replacing.

Our cookie, which has an inherently lee individualized.

Piece of information.

It more aggregated data.

Again, that's more important for us anyway, so when we optimize.

Buying media when we optimize buying media impressions, what we do is we look for high indexing attributes that our president and when those high indexing attributes are present that are driving conversions. We tried to find other impression that look like that so we're not looking for Ids. So the deprecation of the cookie.

James A. Lawson: So the deprecation of the cookie doesn't impact our modeling. Our ability to get information back from Google so that we know when we drive a conversion that we can have aggregated data about all the conversions we're driving, that's what we need. And we're pleased to see that that's what we're getting from that post-cookie framework. So, no, I mean, it's early. It's still early.

He doesn't impact our modeling our ability to get information back from Google. So that we know when we drive the conversion that we can have aggregated data about all the conversions, we're driving that's what we need and we're pleased to see that that's what we're getting.

From that post Cookie framework, so no I mean.

It's early it's still early.

Only 1% of chrome.

James A. Lawson: There's a lot of work to be done, but I think we have the right team to do that work, and I think we have an advantage in a head start, frankly. Yeah, thanks for the color there.

These have been deprecated theres a lot of work to be done, but I think we have the right team to do that work and I think we have an advantage and a head start frankly.

Yes, thanks for the color there.

James A. Lawson: Last question, given your healthy balance sheet, any M&A that you might be looking for to enhance your growth, can you just give us your thoughts there? We're always looking for great opportunities. We've been heads down on, we've never acquired technology. We've never acquired anything.

The last question given your healthy balance sheet any M&A that you might be looking for.

To enhance your growth can you just give us your thoughts there.

We're always looking for great opportunities, we've been heads down on on we've never acquired technology. We've never acquired anything I mean, we've built everything homegrown were relatively small business 300 300 employees.

James A. Lawson: I mean, we've built everything homegrown. We're a relatively small business, with 300 employees. We definitely can see a role for targeted M&A and other strategic type combinations as being a part of our future. There are a lot of good arguments for that.

We definitely can see a role for targeted M&A and other strategic type.

Combination as being a part of our future there are a lot of good arguments for that.

James A. Lawson: On a day-to-day basis, we're focusing on executing against our product and tech roadmap and driving our financial outcomes that position our company for strength and give us opportunities. But absolutely, I think the types of opportunities you're mentioning are exciting and something we're definitely looking at closely. Great. Thank you. That's all I have.

On a day to day basis, we're focusing on executing against our product and tech roadmap and driving our our financial outcomes that position our company for strength and give us opportunities, but absolutely I think the <unk>.

Types of opportunities you are mentioning are are are exciting and something we are definitely looking at closely.

Great. Thank you that's all I have congratulations again.

James A. Lawson: Congratulations again. Thank you, Michael. We appreciate it. And there are no further questions at this time. I would like to turn the conference over to Jim Lawson for closing. Thank you, everybody, for being here today.

Thank you Michael we appreciate it.

And there are no further questions at this time I would like to turn the conference over to Jim Watson for closing remarks.

Thank you everybody for being here today.

James A. Lawson: We had a great finish to 2023. We've reached an inflection point in our business. In fiscal year 2019, growth accelerated, going from 9% in the third quarter to 15% in the fourth quarter.

We had a great finish to 2023, we've reached an inflection point in our business and 23 growth accelerated going from 9% in the third quarter to 15% in the fourth quarter.

James A. Lawson: We hit our targets that we set at the beginning of the year. Growth came from our strategic investments, which are paying off self-service, predictive audience solutions, and health. Our customers are spending more on average by 12% in 2023. This growth is translating into great profit with 34% EBITDA margins in Q4. In closing... I would be remiss to not thank the AdTheorent team for continuing to execute at such a high level.

We hit our targets that we set at the beginning of the year growth came from our strategic investments, which are paying off self service predictive audience solutions health.

Our customers are spending more on average up 12% in 2023.

This growth is translating into great profit with 34% EBITDA margins in Q4.

In closing I.

I would be remiss to not think that guarantee.

We're continuing to execute at such a high level. Our momentum is continuing into 2024, and we look forward to speaking with investors again very soon.

Operator: Our momentum is continuing into 2024, and we look forward to speaking with investors again very soon. And this concludes today's conference call. Thank you for your participation. You may now disconnect.

And this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

[music].

Yes.

Yeah.

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