Q2 2021 DoubleVerify Holdings Inc Earnings Call
Yes.
Greetings and welcome to the double verify second quarter 2021 financial results Conference call.
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A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Haynesville Amen.
The floor is yours.
Good afternoon, and thank you for joining us.
W. Baird My second.
Quarter 2021 financial results with me today is Mark Zagorski CEO and Nicola.
See you soon.
Before we begin I'd like to remind everyone that statements made on this call will contain forward looking statements. These statements are subject to inherent risks uncertainties and changes on a effective coverage expectations on information currently.
E Mail, a book to us and our actual results could differ materially from more information. Please refer to the risk factors in our recent SEC filings, including our S..1 registration statements. In addition, I'll discuss each day will include references to certain supplemental non-GAAP financial measures and should be considered in addition to not as a substitute or.
On a GAAP results reconciliation Smiths comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website IR day couple of burn on dot com, but that alternative to knock.
Thank you Tasha and thanks, everyone for joining us this evening.
We're excited to have delivered another quarter of strong top and bottom line growth with second quarter revenue growing 44% year over year exceeding our prior guidance on adjusted EBITDA growth coming in at a solid 35 per cent year over year.
The double thereby story continues to be 1 of strong revenue growth and profitability driven.
Successful product innovation and clear market leadership in a rapidly evolving digital advertising ecosystem.
Our accelerated revenue growth is driven by our product success in fast growing sectors, such as programmatic, social and CTV and our global expansion strategy, that's winning large enterprise class.
But it's in a growing number of international markets.
Our innovative industry, leading software platform continues to scale rapidly across the global digital advertising ecosystem, driving more data better analytics and deeper insights, which combined to yield better results for our advertisers and our growing roster.
Roster of accreditations and privacy certifications continued to distinguish us in the marketplace.
We have raised our full year revenue guidance and are excited about dd's long term growth trajectory as our platform expands from verifying the quality of media impressions to helping drive AD performance with the objective of.
Maximizing return on AD spend for our clients.
Working to drive performance outcomes create stickier relationships with advertiser partners and greater opportunities to generate revenue.
Let's take a few minutes to dig into our key revenue growth drivers.
Starting with programmatic revenue from authentic.
Brand safety or a b S. Our market, leading pre bid solution grew 112% year over year, driven by Widescale adoption on Google's D. D 360 platform. When it was launched in the fourth quarter of 2020.
<unk> continues to rollout on additional programmatic buying platforms around the globe, creating.
Peter opportunities for advertisers to upgrade to the premium solution.
In the second quarter, we successfully launched ABS on AD form, which is Europe's largest independent programmatic buying platform as well as on Comcast and pulse point with rollout expected on tremor international in the third quarter.
As ABS as a premium price alternative to our basic programmatic brand safety offering.
A portion of the increase in overall programmatic revenue stems from clients upgrading from standard brand safety to ABS as we successfully upsell this unique solution.
We believe the success of ABS is a great example.
<unk> growth, how our platform and its integrations across the ecosystem or a flywheel for growth.
Our software platform Leverages established technical integrations across the digital advertising ecosystem to capture and process data at scale, allowing us to successfully build and launch new products.
Once these products are built.
Ample of our in place ecosystem relationships enable seamless upsell and distribution with compounding revenue streams.
This virtuous data innovation distribution cycle helps build scale and intelligence that deliver better results and attract new clients spinning the flywheel even faster.
Moving to social our clear leadership position in this sector helped grow double, thereby social volume by 100% year over year, making up approximately 35% of our direct revenue in the second quarter.
Double thereby delivers a wide set of MRC accredited solutions available on the largest social network Facebook and.
Our key to expand and deepen social platform integrations with a growing roster of partners.
We recently launched our Tictoc view ability and fraud solutions and open beta in 14 markets and are excited about the expansion of this relationship and its potential for future growth.
Turning to see T V.
Our products continue to gain traction and 1 of the fastest growing segments of the advertising market.
E marketer now forecast 2021, CTV AD spend to grow by almost 50% year over year.
Verify grew second quarter CTD volumes by 89% year over year driven by.
By D V video complete which is currently the only solution that allows brands to effectively block brand suitability and frog violations on C. G D through video filtering.
Advertisers using D D video filtering side, 49% lower brand suitability violation rate than those.
<unk> not yet adopted the tool.
D V video filtering for CTV recently received MRC accreditation.
We also added fully on screen, which is our measure of CTV usability.
To our list of CTV metrics to receive the MRC stamp of approval.
Right.
Coupled with our <unk>.
Those who have fraud and invalid traffic accreditation firmly puts us in a leadership position for quality CTD metrics.
Additionally, we've recently launched the industry's only app level see TV brand suitability solution, which offers advertisers wide brand suitability.
Coverage across all CTV platforms apps and devices. We are the first verification provider to rollout turnkey brand safety tears and floor controls and alignment with standards advanced by the forays advertising Protection Bureau, and World Federation of advertisers Global Alliance for responsible media.
And we have recently rolled out these controls on Youtube as well.
Shifting to international growth, we now generate revenue in 94 countries. We grew second quarter APAC revenues by 73% year over year, and EMEA revenues by 62% year over year as we continued to execute our global expansion strategy.
Yeah.
We see both extensive white space and competitive opportunities and global regions outside the Americas.
We recently won the global business of new enterprise clients, including Piaggio BMW, Philip Morris International Grupo Bimbo and Bumble.
International clients.
Since switched to <unk> based on 3 key Differentiators.
The first is the strength of our software platform and its unique ability to seamlessly connect measurement to targeting with our pre and postpaid capabilities, while surfacing insights through a consolidated user interface.
Second is the depth and granularity of our product integrations across media buying platforms and third is the scale at which we measure and analyze transaction data.
Combined these factors produced better analytics, which maximize ROI for clients and help us win in head to head comparisons with other platforms.
<unk> is 186% of new or expansion business opportunities over the past 5 quarters.
Direct revenue outside of the Americas grew nearly 66% year over year in the second quarter, representing approximately 24% of direct revenue and exemplifying the expanding.
The opportunity for the application of our software in markets around the globe.
On top of our global direct and programmatic growth, we continue to renew and expand revenue generating partnerships with key supply side platforms, and publishers, including MAU pub, a market, leading mobile sell side platform and Yahoo.
Japan, 1 of the largest digital publishers in the APAC region.
Building off our successful acquisition of AD gesture in 2019 double thereby is now integrated with 85 of the world's largest publishers, enabling us to leverage our dataset into accretive solutions across both the buy and sell sides.
<unk> of the digital advertising ecosystem.
Let me conclude with an update on our performance solutions and investment in privacy leadership.
Our recently launched privacy friendly performance solutions continue to gain traction taking advantage of the growing vacuum created by the ongoing deprecation.
Of third party cookies.
Google's announcement to delay cookie deprecation on chrome gave the industry a brief breather. However, the momentum shifting digital targeting away from Cookie based identifiers is unstoppable as cookie less venues such as iOS devices and CTV gain increasing.
Advertiser attention.
D V custom contextual is a cookie free and privacy safe programmatic performance solution that Leverages. The same best in class ontology, and semantic science that powers authentic brand safety to maximize the relevance between ads and content.
Recently, Vodafone UK partner with us to test television custom contextual and the results were exceptional.
We delivered over twice as many acquisitions per dollar than Vodafone UK as benchmark over 3 times as many as our competitors contextual strategy that was running in parallel.
Custom contextual has recently made.
Available on leading DSP, including the trade desk medium App AD form Amazon Verizon media Zander.
Advertisers regularly using our solution to have more than doubled in the second quarter compared to the first quarter of this year.
As global market leaders in a rapidly evolving digital.
It'll add ecosystem privacy is at the core of our business.
Dd's measurement solutions, our cookie free and we're proud to announce that we are the first in the industry to be awarded privacy certification sales from trust dark demonstrating that DVS data protection mechanisms are aligned with core international.
<unk> data protection principles and standards.
In summary, Q2 was another strong quarter for DB.
We continued to deliver robust growth based on our channel strength and programmatic social and CTV as well as our successes on the global new business development from.
National we are winning share and filling in white space around the world on.
Our market, leading partnerships and platform innovation.
Positioned to take advantage of industry tailwind.
We've made tremendous progress to date and we see a strong long term growth trajectory ahead.
With that let me turn the call over to Nicola.
Thank you Mark we're pleased to have delivered $76.5 million of revenue in the second quarter of 2021 as compared to $53 million in the second quarter of 2020.
Our 44% year over year growth rate in this quarter is even more impressive considering that despite the <unk>.
We grew by a robust 22% in the second quarter of 2020.
Overall revenue growth was driven by growth in the volume of immediate transactions measured growth.
Gross revenue retention remaining above 95% per the quarter, while our new enterprise client wins continuing to increase.
Our market share.
Second quarter 2021 on adjusted EBITDA was $21.2 million, representing a 28% EBITDA margin as compared to $15.6 million or 30% margin in the second quarter of 2020, as we invest in global operation, including product and engineering.
Pinned down to continue to drive long term growth.
Our net loss of $12.6 million. This quarter was entirely due to $18.9 million of 1 time IPO related transaction costs.
Cost of revenue increased by $4.6 million year over year in the second quarter, primarily due to higher costs.
<unk> revenue sharing arrangements with our programmatic partners as programmatic revenue grew as a percentage of total revenue, but also due to increased investments in cloud based hosting solutions to provide the scale and flexibility necessary to support our volume growth.
Our second quarter product development cost.
<unk> from by $4.2 million year over year, as we extended our first quarter on investments in scaling our operations globally and accelerating our product roadmap into new verticals.
We're focused on executing our long term growth strategy and to that end have ramped our investments in hiring talent with a particular.
Increase on sales engineering and product.
Sales marketing and customer support expenses increased by $6.8 million in the second quarter of 2021, as we expanded our market presence in international markets, including building, our newly formed global client and agency partnership team, which is focused.
Focused on driving growth with Dd's largest enterprise customers globally.
Yeah.
Approximately half of our new hires in the second quarter were outside of the Americas and we expect these investments to yield strong returns over the mid to long term.
In terms of balance sheet and cash.
Cash flow, we generated $23 million in cash from operating activities in the second quarter of 2021 compared to $5 million in the second quarter of 2020.
We had $330 million of cash at quarter end.
We repaid $22 million of outstanding debt in the second quarter and.
Currently have zero debt on the balance sheet.
The strength of our balance sheet provides us from an advantage when it comes to expanding our global footprint investing in our technology roadmap as well as capitalizing on strategic acquisition opportunities with the potential to further accelerate our long term growth.
Now turning to guidance, we expect third quarter revenue in the range of $81 million to $83 million, which at the midpoint implies growth of 34% year over year.
We expect third quarter adjusted EBITDA in the range of $22 million to $24 million.
Which at the midpoint implies an increase of <unk> 59.
Is that year over year, and an adjusted EBITDA margin of 28%.
Finally, we expect our third quarter weighted average diluted shares outstanding to range between 166 and 169 million shares.
For the full year 2021 guidance, we expect revenue in the range of 3.
Men per some $25 million to $330 million a year over year increase of 34% at the midpoint and higher than the prior guidance range of 322% to $326 million.
Our second half 2021 guidance reflects sequential revenue growth rates that returned to the seasonal patterns.
300 achieved in 2019.
As we continue to prioritize investing in the business to drive long term growth, we expect adjusted EBITDA in the range of $103 million to $105 million a year over year increase of 42% and an adjusted EBITDA margin of 32%.
That we have the mid points.
In summary, our strong first half 2021 results of 38% revenue growth and 30% EBITDA margins delivered against the rule of 60, and we are executing well against our full year plan.
And with that we will open the line for questions.
<unk>. Please go ahead.
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On with you.
1 moment, please where we now poll for questions.
Our first question comes from Mark Murphy with Jpmorgan. Please proceed with your question.
Yes, thank you very much and congrats on the strength of results I.
She was asking about your 2021 global insights report, which showed overall fraud is down 30%.
But it seemed to show some different activity in mobile app and connected TV.
So 2 questions on that first of all to what do you attribute that overall decline in fraud.
And second how is the nature of fraud changing in the connected TV arena.
Hey, it's great question Barak, Thanks, and thanks for reading the report.
On our analysts dig in on our research it's awesome. So we'll dig it on here is to so the first thing I want to talk about.
On the fraud side, it's an important thing to note that as we saw broad rates decrease on a significant basis overall, there's still a significant amount of fraud volume in the marketplace.
Or.
What we've seen is that there's a direct correlation between.
<unk>, what we call pre bid fraud avoidance EBIT filtering.
With posted declines in AR and fraud measurement.
What that means is as clients use and employ our pre bid filtering solutions like ABS.
We see that actually having a direct impact.
Packed on the amount of fraud that we see in postpaid measurement. So in some aspects. It shows what we're doing is working right by filtering out impressions before they even make it hum.
2 our buyers per view.
It allows us to actually drive down the overall rate.
That we see across.
Cross border.
On the.
The other thing to think about it so the other half of your question regarding CTV.
As we've noted in the past.
As the demand for CTV inventory continues to grow and as the the.
CPM is around that inventory accelerate theres obviously.
Huge amount of opportunity for people to.
To try to.
Perpetrating fraud in that space and that's the whole idea of <unk>.
Why do people, Rob banks, that's where the money is why is their fraud heading towards CTV, because thats, where the money is and Theres a couple of main ways that we have seen fraud.
Art to proliferate.
Right there the first is really.
Around what we call device spoofing right and this is where a mobile device or.
Another type of device desktop device actually changes.
<unk>.
Its domain name.
Changes.
Device identifier to actually look like CTV.
So that's the.
Kind of first mainland.
The second thing is we're starting to see on.
On that same vein is not just the device types spoofing, but actually a domain spoofing which is.
Someone pretending to be.
A legitimate.
Brand our application.
By coming up with a domain name that looks very similar or as a take off of that.
That legitimate device. So those are 2 kind of ways.
Third that we look at as a little bit more insidious I would think is.
Our basically fraudulent apps. These are applications that may look totally innocuous and may even have some level of legitimate content on them.
But.
In the case of CTV. These apps for example, even if you shut them off or no longer viewing them, we'll be running.
Advertising in the background.
So they never really shut off and the interesting thing about this where.
This fraud.
Approach is that we saw this earlier in mobile right. It's another derivation of what we saw on mobile devices, which.
Apps did the same thing so.
Very long answer to you.
Recently complex question, whereas in some ways.
Every new device Spurs and new type of fraud.
We do have.
<unk> investment around our fraud labs to continue to stamp these out and the good news is we.
We are seeing progress with regard.
Our pre bid filtering solutions.
Actually having impact on postpaid fraud rates.
Sure.
Excellent Mark. Thank you very much for the very clear answers than it is great to see that correlation with what you're trying to do pre bid and what's happening post bid.
Great. Thanks, Mark.
Okay.
Thank you.
Our next question comes from Arjun Bhatia with William Blair. Please proceed with your question.
Wonderful, thank you and congrats on the strong quarter.
In the prepared remarks that you established a new client and agency partnership.
Team I would just love.
To hear a little bit more about that how theyre going to be working with your largest accounts and maybe how that might change the revenue growth that's coming from your existing customers versus.
Perhaps new accounts that are coming on board.
Yes, it's.
<unk> is a great great question, thanks for picking up on that net new.
Because it is a really interesting and important.
Endeavor for us.
Just to kind of maybe give a quick background of why the team was put together.
As we have seen ongoing consolidation.
With the way that advertisers are approaching.
Verification solutions I E, they're collapsing point solutions into a single.
Platform solution and we've been the beneficiary of that because our solutions see across view ability and across brand safety and suitability and across geographic alignment and across front.
The.
Enterprises have look to consolidate that and the enterprises have look to consolidate their business globally as well.
So that meant the way we dealt with clients either on a regional basis or on a solution basis really didn't line up with where they were going and where the industry is going so we built this team to address.
Larger needs the global needs of enterprise clients, so folks like Unilever and monitor leaves on that we work with around the world as well as approaching new clients.
That are looking for a multi functional global relationship and I think that's the key is that enterprise clients.
They're looking for an enterprise partner to service their needs in any place around the world.
What that also means.
Is that when we're approaching new clients, we can do so from a position of power not only from how our solution is built but from how our teams organized.
We find more often than not.
Not we're no longer looking at on deals in 1 country to the next but we're looking at deals that encompass multiple countries that we have.
Some of our brands for example, they work with us and over 75 markets around the world. So our approach to servicing them and actually acquiring that business.
Since our would be global so thats the point behind this team is as we continue to take advantage of the consolidation that these clients are looking to do with their platform business. We have a team that aligns with those goals and when we think about that how that what that means from a revenue perspective.
Hi, good portion of our revenue growth comes in as we've talked about in the past from organic growth. So same store sales.
That can come from both the consolidation of of assets that we may not hold 100% of the business but.
But also by driving global volume and <unk>.
Spansion. So this team's role has also to do that is with current clients growth grow additional usage to upsell products.
So we certainly didn't put this team together to just maintain revenue.
The goal behind this is to continue to accelerate our revenue, it's still a new team on enabling that around.
Now for a couple of months, but we do feel that as they begin to align with our clients' goals and as we move into 2022 their ability to kind of continue to accelerate and grow revenue is going to be real.
Perfect that sounds very interesting that's very helpful.
1 more if I could.
Obviously, youre seeing strength in your business and it seems a programmatic growth has certainly exceeded expectations. This quarter can you maybe just talk about your guidance and.
How you how you were looking at the back half of the year.
Because it seems like we're keeping.
Half growth rates relatively.
For extent.
With.
With the revised full year guidance.
Yes, Jordan good.
Good question. So first of all I just wanted to spend a moment on second quarter, which was strong at 44% growth and how we got there was as you said programmatic was very strong ABS.
To drive that part of the growth, but we also.
So solid return of spend for some other customers that had paused last year during the pandemic as you know our revenue is not tied to CPM.
And so even last year in the second quarter, we grew 22% in the second quarter of 2020. This year is 44% growth in the second quarter it.
Is all that more impressive because it is just driven by volume.
For the second half.
We are still seeing on uncertain operating environment related to Covid.
So our view is to remain prudent were not hearing this from our advertisers necessarily that theyre looking to pullback, but the general environment sales.
We ought to be prudent when we look at the second half of the year and that's sort of how we put the guidance out there. It is total 34% growth rate for the year.
With margins over 30, which gives you still have rule of 60, which is what we're committed to.
Alright, Thank you very much on congrats on the quarter.
Sure.
Thanks Howard.
Thank you.
Our next question comes from Youssef Squali with Trust Securities. Please proceed with your question.
Thank you Ah congrats on a on a solid quarter second an eye on their own post IPO. So maybe the first question Tony call on just a follow.
Follow up to the prior question about guidance, so you're obviously up against some tougher comps in Q3, because the growth rate went from 22 per cent to up to 36 per cent. So I'm, sorry to 32% last year.
I was wondering just if maybe you can peel that onion, a little bit maybe speak to.
What you're baking in in terms of advertiser direct versus programmatic them further.
For the second half and then.
And on the.
On the the that tick Tock open beta that's congrats that's that's really great news, how long does the beta test.
Is the U S..1 of the 14 countries, where you are maybe Mark you can just provide some additional color and commentary there just trying to understand kind of the.
You know the timing of uptick talk potentially becoming a paying client and then how do we go about maybe getting our arms around.
Around the possibility for a contribution to revenues over time, I guess, I guess in 2022, which you're not guiding to right now, but just kind of qualitatively if you may.
Yeah, I'll take the guidance question around Q3.
So we are we anticipate we've had great success.
Last programmatic, that's really leading the charge, especially with the adoption of a b S. So what we are anticipating is that the shift towards programmatic versus direct will continue in Q3. So you should see programmatic as a percentage of revenue continued to to expand in Q3, but we're not seeing any sort of degradation on the direct side, we have from large.
Access a surprise Wednesday have come in in the first half of the year that will also contribute to the growth.
But what you've seen in the patterns in the first and second quarter, you should expect to continue in the third quarter for sure.
Okay, and then on the Chickasaw dock opportunity, where obviously vary.
We're excited about that because our advertisers are our leading into that.
We kicked off our first client Advisory Council earlier.
Earlier, this year and 1 of the main areas that they focus on is you know hey.
Love Chick talk as a potential advertising venue.
We would love to see.
You guys extend your solution set there so we could feel confident with our advertising spend.
On Tictoc is we do everywhere else. So we're excited to be part of the beta.
And right now of the 14 markets or in U S as part of that group.
And you know those are advertiser driven markets.
Tictoc driven markets.
And we look we're looking for.
Q4 implementation on it.
Be a slow roll as with all uptake.
But.
This is the great thing about that opportunity is.
It will be as robust as this.
The spend that heads into that spaces. As you know we have a model on which advertisers once they they click on that seat belt for protection. They can use us in every venue they possibly can.
As we see social has been a really strong growth area for us it grew a 100% year over year.
Here in Q2.
And there is no there.
No slowing down of social spend so we think that tictoc can be a nice addition to our roster of.
Partners that were annual net we currently work with on the social side, including Youtube, and Twitter and Facebook and snap.
And Pinterest.
And Instagram.
No.
Having them as part of that region. I think we will we will definitely have a nice impact on 2022, it's too early to say, how big that will be.
But it really is driven by advertiser interest because we are there once we're there we're there and they will they will use.
Interesting impressions that they spend on ticked up.
Just to clarify Mark do you know if any of your competitors are also.
Kind of.
Working on on similar support of the Tic Toc platform or is this are you guys are the first at least in the U S.
Yes.
US on there are other participants in the beta.
But.
Obviously on a unique position with our client base and that's the nice thing you remember about where we sit is.
Our current enterprise relationships with the largest brands mean that once we have a new venue to measure against there any dollars that they're spending there.
For the most part immediately get turned on with us.
Yeah that makes sense. Thank you both on congrats again guys.
Thanks Lisa.
Thank you.
Our next question comes from Michael Graham with Canaccord. Please proceed with your question.
Thank you.
Hey.
You mentioned in your prepared remarks.
Move from measuring quality to measuring performance and which I know you've talked about before but I wonder if you could just spend a second.
Kind of talking about 2 things 1 does that move you to a different set of competitors in the business.
Mark and then the second thing is could you just talk about what sort of scale of development. It takes to kind of moving firmly into that performance measurement area. I mean more firmly than you already are and then as a quick follow up to the guidance Nicola could you just remind us on on revenue visibility.
Is that evolving and sort.
Like are there things that could happen that could.
Surprised you to the upside I guess as we get through the rest of the year.
Okay.
I'll take the first part Nikola you jump in on the on the on the second so.
On the move from what we like to say kind of the transformation and evolution from protection to performance.
The interesting thing about that is that.
The GAAP between protection and performance is actually much more narrow than you think because.
For verification, so eliminating fraud, eliminating impressions that can't be seen eliminate impressions that aren't in the right G O R.
On our not brand safe that is the first step in performance right. So once we take.
The big meat Cleaver.
Inventory and say these things are off the table, we've already improved performance. So when we think about our evolution into the space.
It's really.
Extension of what we're currently doing.
It's an extension of moving from taking a big slice of inventory off the page now using a scalpel red and finding within what's left whats really good what will really drive the highest level of performance.
And in the best part about that so the question about what does it take.
A a.
Development perspective.
All uses the same core dataset.
That's like the magic of our business, we talk about this flywheel, which is all of the data that were capturing on context and behavior.
And on geography all of.
It gets re used into performance solutions, and whether it's contextual targeting or authentic attention on.
Or whatever is next for us new solutions, it's leveraging the same data assets and repurposing it into an entirely new per using it per tiny new applications.
What gets us so excited.
Of that about like the core flywheel here, because we get more data.
As we as we drive our verification business that verification business.
Then fuels new solutions and those new solutions allow us to reach out to even more advertisers, which give it give us more data and that spins that we'll even faster.
So when you look at development expense.
Core is already there and these are extensions of the application. So we always lean very.
Aggressively into product and engineering development, but the nice part is that is not a there is not a single.
Our loan investment.
<unk>.
All tied back to the core.
And then the final part of your question what does it do to our competitive set.
It's.
Okay.
It doesn't.
No change it or it doesn't advance it as much as it just it starts to.
Move.
Moving to circles in which there are companies that have.
Some point touched into verification as well like I said, we're all in the performance driving business.
So I think we're coming from it from a very different perspective of how some other companies have come to it and that is from a position of power around <unk>.
Data at scale.
<unk> performance based applications.
A really limited to trying to drive performance at a campaign level right. So what do I do to help this campaign on what can I do to optimize campaign.
The best way to optimize the campaign level is to have data on the globe.
<unk> level and what that means is.
We look at every interaction across transaction not just a specific campaign.
Which means the coverage that we have to optimize that performance.
<unk> is much broader than any company that came to the performance space just looking at a campaign level activation. So.
So net net.
It does add a different level of competitors to our space on <unk>.
But for the most part.
Those competitors 10 GB point solutions that are focused on campaign optimization don't have the data scale that we have and allows us to come with.
A position on power with.
To the scale and scope of the data that we used to drive performance.
And Michael on the surprises to the upside.
I would focus mainly on on Q4, I think we've been consistent with our view that we're being prudent, especially in the fourth quarter, which is generally.
Regarding this quarter on a normalized year I think the surprises would come from a complete return to a normal operating environment.
That is not necessarily entirely baked as we've always said, we're being prudent in the fourth quarter. So it would be volume would be.
<unk> transactions have driven rather than.
Then price for sure.
And it would be for existing customers, if the activity levels increase beyond where we see them at this point there are other there are.
Other potential.
Positives related to unlocking volumes with our partners on social on CTV those.
Our strong on a certain I think the biggest positive upside would be just volume on a normalized basis from our existing customers, which is something that we're being prudent about.
Okay. Thank you so much guys really appreciate it thanks Michael.
Yes.
Thank you.
Our next question comes from Matt.
Matt Hedberg with RBC capital markets. Please proceed with your question.
Hi, guys. Thanks for taking my question.
Mark.
Obviously really strong growth this year off of the Covid here are the corporate quarter last year I'm curious when you look at some of these customers that obviously faced a lot of stress last year.
<unk> have you noticed any difference in how they're leveraging your platform today, maybe then versus pre COVID-19 in other words.
Or are they are they I think leaning into digital advertising more or different just wondering because I would imagine there could be some interesting trends coming out of some of those some of those customers.
It's a really good question Matt.
I think.
The way that we would look at it is are they leaning into specific sectors more than we've seen in the past and the 2 that we always like to call out our CTV and social.
Those are both.
Advertiser base changes.
But also consumer engagement changes right. So we saw a lot of <unk>.
Different behavior emerge based on Covid things like drive time went away right.
And home time became the drive time with that also became came additional screen usage and I think.
2 there is that we've seen dollars flow into more have been CTV and social social is interesting because.
At this time last year, it was going through a pretty.
Eddie upheaval regarding allowed the social movements that were out there and concerns about dollars being put into there what that did for us.
It wasn't that advertisers didn't want to be in social they wanted to make sure that they are in social or the right way and that helped us quite a bit as seen in 100% year over year revenue growth in social.
I don't know if thats, a behavioral change from advertisers, but it was certainly something that has evolved over the last year and on the CTV front.
And that is a behavioral change that I think has.
It will never go back I mean the.
The idea of watching over the top the income.
Accretable, increasing content and even AD supported content over the top.
Is truly.
A massive shifts in the comfort.
And through which advertisers now have and buying that inventory and CTV inventory I think is.
Is considerably grown and it's grown our business and Thats why.
We've liens, so heavily into not only new solutions around CTV and extending our core.
Solutions on CTV, but ensuring that those solutions are accredited.
And ensuring that we build more confidence there. So if theres been a behavioral shift I think we see that.
These 2 sectors being the benefit at least for us and where our advertisers are spending their money.
No.
That makes a ton of Samsung just yeah. It feels like with all the structural changes that I think we're all expecting you guys to benefit from it feels like.
What you suggested should certainly pay on.
Yep.
For sure.
Thank you.
Our next.
It comes from Andrew Boone with JMP Securities. Please proceed with your question.
Hi, guys. Thanks for taking my questions.
I've got 2 please.
So the doubling of adoption of advertisers for tax flow. This quarter was impressive can you talk about how you move advertisers from kind of testing the product to being an always.
Weighs on tool and returns that Theyre seeing Additionally, can you talk about the impact of pricing that the move to performance has and how we think about that moving through the model and then I've got a call on.
Sure.
On the custom contextual.
Or you're happy with the uptake for sure.
Next quarter I think it's a it's a great again example of using our core asset to move further down the performance route and also on that at a premium rate.
So these 2 questions work really well to cash.
Together.
When we think about how we move clients into custom conjectural the.
I think part is through Pinnacle, which is our software platform.
We have a wonderful.
Yeah.
In bed solution that allows them to take the same data that they are using from measurement and.
In postpaid measurement and flow that into their contextual their customer.
Great actual targeting solutions so for US a lot of this upsell into contextual is working with our core client set.
That is already in place and literally just working with the data and the assets that they've been using to measure postpaid and through their integrations.
The DSP is on a pre bid side.
Leveraging that distribution.
And that is again the magic of our model, which is the distributions in place. The core data is there it's about moving that data into those distribution cycles via new products and custom detection is 1 of those so it's been.
It's been a great example.
We see product introductions down the road.
We think there is a lot of great core opportunity around costs and potential in that product in itself.
It is all about timing.
And with what's going on around the deprecation of cookies.
<unk>.
Other performance solutions that were based on either audience data or some level of what's now considered.
On our third party cookies all of those things are going to be challenged so in the old everything old is new again context is truly starting to become at the forefront of a lot of advertisers minds.
2 optimizing performance.
The second half of your question on pricing with performance solutions.
Again, it's a nice place to be because performance.
Theres always what do you pay for a car and what you pay for the seatbelt per car right.
<unk>.
When it come half to half and it's critically important and use it every time.
But that engine that really drives it and drives performance is what you pay a premium for it and Thats. The great thing about our performance solutions is that they are sold at a premium.
And as they continue to grow it gives us an opportunity to drive.
<unk> from our average fee structure that takes time.
Really new so we're not building that into our <unk>.
Our personal or individual forecasts over the next year or so but as they build up steam and as they become a larger portion of our overall revenue.
There is the potential for them to increase.
Kris on our overall rate.
That makes a lot of sense.
And then on CTG.
Your ability and video to altering our relatively new features I guess, just taking a step back can you talk about your position competitively and where you think DBS differentiator today.
Is this really kind of a spear on terms of of new account wins at all or how.
CTV going into your go to market and sales pitch.
Yes.
CTV continues to grow for us as a percentage of our overall video revenue I think it makes up now of over.
30% of our direct business, our direct revenue from our direct of our video business on the direct side of the company. So CBD continues to be an important factor.
From a competitive perspective.
I would.
I would challenge that.
Over that there is anyone who has a tool set on that is as robust as ours across all the different factors across brand safety across view ability across impression counting and fraud on we were first to market with CTV solutions.
We are the only ones in market now with brand suitability tiers across CTV.
The fact that so there is a significant number of advantages.
And as CTV becomes as you said the tip of the spear for a lot of advertisers I think our ability to have a solution to have the only app level brand safety that's out there currently.
Do you have the kinds of relationships, we have with folks like roku.
From an Amazon those are clear talking points and discussion points. When we go into clients because they're asking about those things right and having leadership on the accreditation side, having leadership on the functionality side on having leadership on the partnership side.
On our real Differentiators so.
I think the.
We were lucky enough or.
Prescient enough to CCTV on the horizon, a few years ago, we started down that path.
While ago and now I think we built a nice leadership position there as well.
Thank you Mark.
Sure.
Thank you.
Our next question comes from Yun Kim with loop capital markets. Please proceed with your question.
Alright, Thank you congrats on a solid quarter.
On the international growth, which again was very strong very impressive.
Seeing the same growth dynamics that youre seeing in the U S for the Internet.
Is that you then just like the U S social connected TV channels.
And also adoption of a B S.
Yeah, It's a great question thanks for it.
No.
There are definitely different dynamics outside of the U S CTV for.
Shlomo is not a factor and Thats just not immediate factor the way it is in the U S and in most global markets it's varied.
Very different but what is interesting is the.
The amount of social.
And that we see outside of the U S as social as a real driver outside the.
Example for.
For other reasons because in many markets. It's the it is not only the dominant engagement level engagement mechanism. That's 1 of the safest so, particularly if you look at.
In the APAC region region, its a mobile first market right. It's a mobile first market.
Our social and mobile go hand in hand together on.
So you see growth there being driven by social.
Much more than you may see in other parts of the world.
But overall.
Our growth outside the U S.
APAC at 73% EMEA at 62% overall over 60% of our.
The same growth rate outside of the Americas.
<unk> is represented not only in the organic growth in those markets with a considerable amount of of white space that we have to fill in there and I think that's why when we talk about our people investments for the year I think in the first half of that in Q2, 56% of.
<unk> 60 per of our people investments were outside of the U S.
And it's because not only do we see great enterprise.
With our current clients outside the U S, but there's still a lot of white space to fill in and I think that's really exciting for us and again those markets are a bit different so theyre social first markets their mobile first markets in many cases.
Like in APAC, but the nice part of where we sit is we're agnostic to that the whole driver behind our businesses verify everywhere and that means no matter what platform no matter, what the market no matter, how someone's buying or trading inventory.
Whatever type of media there on whether.
Cases, bushel or CTV.
Or.
Or just regular display ads our solutions can can meet those needs. So that's the that's the key part of being a platform right.
The idea that whatever market demand they are and how they vary from place to place.
We have a solution that could meet that and it's a great question. As you asked every market is different than the drivers in those markets different but for us having a solution that can meet any of those demands is critical and we're taking advantage of that.
Okay, Great. That's very helpful. Another question on from Nicola.
So I'm with the company.
So you guys are gaining scale customers are spending more on your platform are you beginning to see some of your larger customers looking to do maybe annual contracts, where they can commit to a certain volume upfront for a discount.
So it's a good question.
We are.
Obviously testing more volume hearing in terms of pricing that is the rather we're taking with our customers.
Our plan and you know it is our strategy is really volume based expansion to benefit from being able to verify new verticals and new geographies.
So our strategy.
<unk>, which has been successful in which our customers are liking is volume cheering above and beyond certain impression levels.
Besser other we've taken so far.
Great. Thank you so much.
Thank you.
Thank you.
Our next question comes from Justin Patterson with Keybanc. Please.
<unk>, we think that's a question.
Great. Thank you Mark could you talk about whats in and you are on with respect to getting more inventory more volume is running for social and CTV is it more of a case. The platform is shifting the grants you more access to that inventory or are there some additional investments to make there and then for.
Nicola a follow up on commentary you made around volumes. It is a very strong digital advertising year, but it's also 1 being led more by price that impression volume. How are you thinking about those dynamics into the second half since they'll likely be the case that price inflation may even get worse and.
Billable impressions remain fairly.
Please proceed thanks.
Yeah.
Really good questions Justin Thanks for those.
2.
You mentioned social in CTV and the interesting thing about those 2 venues.
Is the expansion of business there.
Our on Q opposite fronts on on.
The CTV side, we have really good on broad coverage, but I think the opportunity there is getting deeper and on rate. There is on the brand safety fronts and on the a lot of the other things that are becoming increasingly important to advertisers.
Show level or program level.
Fairly to I think is the next step for us to continue to create more transparency within CTV. So I think from a broad perspective cover a great deal of CTV answers from the partnerships that we have and we're really happy with those.
That the next step of growth there I think from a verification perspective.
Aspect of and a performance perspective is getting deeper and I think that will eventually come on.
And on the social side.
That is a great cases.
Getting broader and broader within certain channels and I think.
There was some public.
There was an article recently recently that was published.
And the advertising trades around.
Facebook and other platforms opening up to third party measurement and third party verification solutions and when that would happen and how that would happen I think I think the industry is ready for that I think we are all certainly interested in helping to drive greater transparency and help.
More confidence and more AD dollars to social introduced there, it's really about opening up more inventory there. So.
Think that is.
Very different than the CTV opportunity, where we're going on for depth, that's a little bit of breath.
I think that there are still.
Longer tail, social networks that continue to ebb and flow of their interest from an advertiser perspective.
But the the interesting real opportunity here is as more social networks start to open up more of their direct use feed or are there direct core feed opportunities to third parties I think thats where.
Where we see some real light and our advertisers would be really excited to see it as well.
Yeah, and Justin on on your question around price inflation, I mean I think.
I'll go back to first or second quarter results were 44% growth which was.
Volume driven right, we were not subject to the to the swings in CPM.
That would have driven our revenue may be higher but we have we have a very steady repeatable business model that is based on volume.
We are not we are going to we're going to remain committed to that is our strategy. At this point, which is the volume base expansion is what's going to drive our business for now.
We do continue to evaluate.
We should adjust MTF based on the quality of the type of the media.
We don't see that as a as an immediate exposure I think for the second half of the year, which was your more direct question.
The volumes are returning to a more normalized pattern.
We're being prudent but they are returning to a normalized pattern. So we don't see that as a.
Whether it's a real risk for the second half of the year have seen volumes coming down.
Perfect. Thank you.
Thank you.
Our next question goes to Raimo <unk> with Barclays. Please proceed with your question.
Hey, Thanks for squeezing me in and congrats as well.
From my side.
Question, 1 for Mark we talked a little bit about the international performance.
You had some comments on the slides.
Talk a little bit about the organizational build out there like how comfortable are you with kind of where you are the growth rates are clearly impressive but like you know obviously you are starting from a lower base.
Talk a little bit about more.
You are as an organization and then the second question is from Nicola.
Lead revenue.
Obviously on EBITDA per year more in line with <unk>.
Just kind of more reinvestment in the business can you just talk a little bit about how you kind of run that.
What kind of revenue performance versus reinvestment.
<unk> growth. Thank you.
Thanks, Raimo and nice day.
Interconnectivity between those questions.
Nicole and I will definitely tag team that on.
On the international side I think.
To be transparent and we play a little bit of catch up with regard to people investment there right.
We didn't open operations for the most part sales operations from as far as outside Americas until 2018.
So we scaled up we've been really leaning into scaling up as is.
Teams and resources over the last several quarters as I mentioned earlier, 56% of our head count growth.
Growth.
For the second quarter came outside of the Americas, because we see lots of white space and opportunity there.
Look the nice part of what we've been able to build is we leverage this tent pole model right of which.
We go in with a global or an enterprise client.
Big market, and then use that client as a as a basis for which to build the team. But then leverage resources are leveraged those same resources to go out and sell localized clients. We did this.
In Japan with Yahoo, Japan, where since then we've closed clients like Sony and Fujifilm in.
And many others we've done this.
With model is in India, where we've closed.
A large number of local clients there.
So we've got nice growth, we've got the model down we've got the muscle built now we're just fueling that muscle with additional resources. So.
We're catching up rapidly I think Greg.
On a good place right now we may have.
Yes.
We probably have.
I wouldn't say.
I think we I think at this point, we've done a good job of it.
Investing there we.
Probably will not have to lean in as hard.
Over the next few quarters as we have.
Quarter as far as percentage of its resources in those markets, because we're getting up to par there, but based on our growth and where we see.
White space I think it's been a really great investment.
As noted earlier in the Q&A.
This is not just for going out and getting clients.
This germany or getting clients in.
In Southeast Asia. It's also about supporting enterprise clients, who are increasingly looking for a single partner to support all of their business worldwide and when you look at the kind of names that we closed this quarter, so <unk> and BMW and others like that.
Those are global those are global enterprise clients and they want support around the world. So we're going to give it to them and we're in a great place to continue to do that.
And I think mark almost answered already other question, what I would say in terms of.
Reinvestment versus growth I think Q2 is a good example of that we were able to close.
Those large enterprise comms or non in the U S. We achieved a 44% revenue growth.
Rest of the world is growing 66%.
It's a good trigger for us to say, we can accelerate the investments and the overall margin still at 28%.
It's a number that we can dial up or down as Mark said, we accelerated a little bit.
In Q2, we don't have to do it on every next quarter, but the math is pretty simple, it's you've grown to 66% outside of the U S and you see an opportunity to accelerate some on the investments in those markets.
We will definitely be committed to do that.
Okay, perfect very clear congrats.
Thank you.
Thank you.
There are no further questions at this time I would like to turn the floor back over to Mark Zagorski for closing remarks.
Hey, I want to thank everyone for their questions.
In closing, we continue to deliver strong revenue growth and profitability driven by successful product innovation and fast growing sectors such as programmatic.
Social and CTV.
As well as the global expansion strategy Thats, winning large enterprise clients in a growing number of international markets. In addition, we continue to submit our leadership and our global market, that's benefiting from a secular shift to digital advertising.
We appreciate your time and attention today and look forward to updating you on success.
Next on future calls.
Ladies and gentlemen. This concludes today's webcast you may now disconnect your lines at this time thank.
Thank you for your participation and have a great day.
Goodbye.