Q2 2022 PubMatic Inc Earnings Call
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We thank you all for your attendance today and I will now turn the webinar over to Stacie Clements with the Blue shirt group Stacy. Please go ahead.
Thank you operator, and good afternoon, everyone. Thank you for joining us on telematics earnings call for the second quarter ended June 32022, joining me on the call are as you'd go L co founder and CEO , Dave Antolik CFO .
Today's prepared remarks have been recorded after which was even Steve will host live Q&A a copy of our press release can be found on our website at investors that somatic dot com before we start I would like to remind participants that during this call management will make forward looking statements, including without limitation statements regarding our future performance market opportunity.
Both strategy and financial outlook.
Forward looking statements are based on our current expectations and assumptions regarding our business the economy and other future conditions. These forward looking statements are subject to inherent risks uncertainties and changes in circumstances that are difficult to predict you can find more information about these risks uncertainties and other factors in our reports filed from time to time with the Securities and Exchange Commission.
Our most recent Form 10-K, and any subsequent filings on Form 10-Q or 8-K, we're trying to file with the Securities and Exchange Commission and are available at investors dumped nomadic dot com or.
Our actual results may differ materially from those contemplated by the forward looking statements we caution.
And you therefore against relying on any of these forward looking statements. All information discussed today is as of August eight 2022, and we do not intend and undertake no obligation.
Any forward looking statement, whether as a result of new information future developments or otherwise, except as may be required by law.
In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP net income. These non-GAAP measures are presented for supplemental informational purposes, only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is.
[noise] available in our press release.
And now I will turn the call over to Rajiv.
Thank you Stacy and welcome everyone.
Delivered another terrific quarter with revenue growth and profitability exceeding our expectations, our compelling combination of durable profitable growth. Once again demonstrates our market leadership based on our differentiated infrastructure driven approach to digital advertising.
Organic revenue grew 27% year over year, well above market growth rates.
We saw an acceleration in year over year growth as the quarter progressed with June being the strongest months of the quarter.
Our results demonstrate the number and magnitude of growth opportunities, we have incorporated into our business for Q2 key growth drivers that exceeded our expectations include broad strength in the Americas region.
Television publisher acquisition and existing publisher expansion and supply path optimization.
We also benefited from a well diversified portfolio of advertisers with over 20 verticals contributing to growth.
Our pace of growth reflects market share gains and a continued industry consolidation.
GAAP net income margin was 12% and adjusted EBITDA margin was 37%.
Our margin levels highlight the leverage in our model, which importantly allows us to invest for the future even during periods of macroeconomic uncertainty or downturn.
We believe this is a strategic advantage as we are able to invest in our platform solutions and go to market efforts in a way that others may not be able to in uncertain times.
As importantly, we generate healthy cash flows.
I'm incredibly proud of what our team has achieved in Q2. This quarter was our most challenging yet since our IPO given the number and magnitude of macro events that are buffeting, the economy, including inflation rising interest rates Warren Europe and ongoing supply chain disruptions.
Challenges required us to be nimble and agile in order to serve our customers well and grow our business in a highly efficient manner.
We rapidly developed software leveraged our full operating operational control of our infrastructure and continue to scale our go to market presence around the world.
I co founded this company under the premise that programmatic advertising has the potential to fuel the endless potential of digital content creators the new cycle of the past few months as reinforced this idea with some of the world's most premium content companies announcing plans for programmatic advertising to be a critical component of their growth strategy.
At <unk>, we built our business on the belief that all advertising will be digital and all digital advertising will be transacted programmatically and this is quickly becoming reality.
However, there are other crucial dynamics at play in our industry.
With the rapid expansion of the digital advertising ecosystem, we are seeing both accelerated innovation and increased fragmentation across the supply chain with new solutions emerging in M&A is shaking up the market.
At the same time, our industry is attracting more scrutiny for privacy and antitrust regulators around the world.
As a result, our customers are increasingly looking for independent unbiased solutions to help them navigate these changes and maximize the value of their advertising strategies.
Sapiens of the open Internet, we have developed the technology to enable our customers and us to succeed.
We are building the supply chain of the future one that is transparent efficient effective privacy compliant data rich and environmentally sustainable.
Our focus on delivering the leading technology infrastructure to power the future is resonating with both new and existing customers and is a key driver of our continued success.
This summer I spent considerable time working outside of the U S for the first time since dependent.
I visited with customers prospects and partners at Cannes Lions. The first in person global gathering of media and advertising leaders from around the world Since 2020, where there was an overwhelming interest from our existing customers to find new opportunities to grow our relationships and from prospects wanting to take advantage of our technology and infrastructure.
I also spent time in London Madrid in Milan meeting with team members and customers from across the region and.
In fact at one point I visited five countries in five days.
I met with publishers advertisers agencies, DSP and homeland retailers, a consistent theme across many of my meetings is that they are consolidating their business relationships to fewer larger platforms. They no longer want to manage hundreds of vendors and their digital advertising supply chain, but are instead focused on deepening their use of key technology partners.
To create more efficiencies within their business, while generating superior outcomes.
I came away optimistic for deeper supply path optimization partnerships with agencies and advertisers is our prior experience indicates that in times of economic stress. These entities lean into nimble technology, driven partners that can increase their efficiency help them save on operational costs and enable new revenue streams.
<unk> is a leader in this consolidation as evidenced by our rapid growth ongoing market share expansion and strong net dollar retention rate.
Our deep and longstanding customer relationships and track record of solid performance create opportunities for expanded use of our platform.
Increasing access to valuable inventory and our ability to generate high margin revenue for publishers is fueling growth.
For the trailing 12 months net dollar retention was 130%.
And that achievement among our software peers.
On the buy side of the ecosystem consolidation is manifesting itself in several of which in Q2 supply path optimization or spo represented approximately 30% of total activity on our platform up from 24% a year ago.
In addition, the efficiency of our platform and the access to inventory and audiences from top publishers is reinforcing the value of our platform to the publishers and buyers.
DSP partners are also engaging in consolidation allocating more impression capacity to the <unk> platform because of the quality of our inventory and the efficiency of our platform.
For example in Q2, a major DSP nearly doubled the impression capacity allocated to <unk> versus Q1, which allowed us to grow their spend with <unk> consider.
Importantly, this fuels our flywheel as we attract more spend from virus publishers increase of revenue from <unk>, which causes them to add more inventory formats geographies core properties to our platform, which in turn provides us with an increased ability to invest and innovate.
We view this as a significant moat that we continue to scale as we secure growing capacity share for many of the largest CSP.
With top publishers and buyers actively consolidating their spend onto plasmatic our runway for growth has never been clearer.
I remain as optimistic as ever that we will meet our long term market share goals of 20% plus.
Customers and partners value, our global Omnichannel scale as well as a robust solutions that solve for the future of audience address ability there.
They also benefit from the efficiencies gained from our owned and operated infrastructure superior ROI outcomes and our ability to invest in continued innovation on their behalf.
As macro uncertainties continue to unfold it is possible that the efficiencies gained from our platform accelerate consolidation.
By partnering with US less capital is needed for publishers are buyers to build out the addressable solutions proprietary header bidding wrappers or inventory connections.
In addition, buyers and publishers gain efficiencies from our already scaled owned and operated infrastructure.
Which would take them years to achieve on their own.
In an environment, where investment in resources carry greater discipline partnering versus building could be a strategic decision that accelerate industry consolidation onto those platforms that provide the most value.
Our omnichannel approach gives buyers flexibility as consumer trends shift. It also instills resilience as we are not dependent on a single format for channel for growth.
CTV one of the fastest growing formats has been getting a lot of attention in the market over the past couple of years and rightly so.
The rapid consumer behavior shift towards streaming is unlocked tremendous opportunity for the market and we have certainly benefited from that momentum.
In Q2, we saw an increase of over 150% year over year, and our CTV business. When we monetize inventory from 196 publishers as our pace of CTV, new publisher acquisition accelerated.
At the same time, the bigger market opportunity will remain in programmatic online video AD spend which represents 3% to four times that of CTV and OTT.
Our combined Omnichannel video, including CTV represented over 30% of revenue in Q2.
As we move towards a post cookie World third party data is increasingly becoming less sustainable and relevant instead.
Instead, the value of data is shifting to the sell side of the ecosystem, which is at the nexus of the publisher and the consumer.
We see a significant role to play as a result of being a leading technology provider to top publishers around the world.
For this reason we have been investing in industry, leading solutions in this area for over three years now.
The recently launched connect a comprehensive and fully integrated platform for media buyers to seamlessly connect with their target audiences across the open internet.
Connect combines known identity first and second party data contextual signals seller defined audiences and modeled audiences into one platform with robust reporting and transaction management capabilities.
Buyers are seeing the benefits of activating the state on the sell side closer to the consumer in terms of both scale and performance.
On screen brand Banana boat was able to achieve better campaign performance for our video AD campaign by activating low to meet Panorama through.
Through our connect platform outperforming even cookie based change.
This case study not only demonstrates the value of <unk> connect solution, but also how our technology prepares customers for the pending deprecation of the cause.
Low to me is one of multiple identity and data providers currently available to be targeted through connect.
Our ability to connect audiences and media driving further AD spend conduct consolidation on our platform and will likely be a further driver of SPF.
Itg's Maritimes and Omnicom media group's Phd media has seen significant results for their clients through connect.
Additionally, major agency holding companies such as the Vox Media group are expanding their supply path optimization partnerships with somatic to take advantage of the cookie was benefits of connect in addition to our Omnichannel scale efficiency and nimble technology development.
Okay.
As more AD dollars flow into the open internet buyers and publishers are seeking transparent and efficient advertising solutions.
Our unique approach to digital advertising provides infrastructure in which all stakeholders benefit which is all the more valuable in today's dynamic economic environment.
A further driver of our industry consolidation is the sustainable way in which we are building the digital advertising supply chain for the future.
As our customers and partners are increasingly seeking responsible technology partners.
Along with our commitment to delivering value to our customers. We remain committed to the sustainability of the environment in which we all live.
This quarter, we announced that the energy use across our data centers is now 100% renewable energy.
This is something we've been working towards for several years.
With this announcement any advertiser or agency looking to buy media in a sustainable way and there is a rapidly growing group of buyers that are can now do so on the <unk> platform.
As we look to the second half of the year, we will continue to see macro challenges Q3 is typically been the most challenging quarter to forecast. So we're being prudent in the very short term as advertisers adjust to the macro environment.
As we take a broader six months view.
Confident in our ability to operate with the same agility, we always have.
History has proved our resilience through peaks and valleys as our business is increasingly well diversified across verticals ad formats and channels.
Rover, we have a significant number of growth opportunities that we are well positioned to take advantage of it.
Despite the near term economic uncertainty, we know our usage based model drives market share gains as we consolidate the space.
With consolidation comes greater visibility diversity in the business and our widening competitive moat.
And also fuels a high degree of profitability, which allows us to focus on the long term, creating value and innovation across the digital advertising ecosystem at every step.
Before I turn it over to Steve I want to give special thanks to our team for their strong execution in a challenging environment.
Their commitment to our customers and partners is unwavering.
The digital advertising landscape continues to evolve at a rapid pace with growth to be had across formats channels geographies and new addressable markets like retail media.
I couldnt be more excited for the future and how we are positioned for continued consolidation and market leadership.
I also want to welcome Sheila Glaser, and Jacobs <unk> to our board of directors and our audit Committee.
Sheila brings decades of financial experience from her work at Intel and currently CFO of Zen desk right.
Sheila Jacob brings more than 25 years of experience building financial infrastructure and driving growth at multinational enterprises.
Jacob currently serves as CFO of <unk>.
We built for the future and continue to scale our business there additions bring deep expertise to our organization.
Let me now turn it over to our Chief Financial Officer, Steve <unk> to provide additional detail.
Thank you Rajiv and welcome everyone.
Our second quarter results exceeded our expectations and were noteworthy in light of the macro challenges across the globe.
We delivered $63 million of revenue representing year over year growth of 27%.
GAAP net income was $7 8 million or 12% margin and fully diluted EPS was <unk> 14.
Adjusted EBITDA was $23 million or 37% margin.
Our cash flow from operations was $20 5 million.
The second quarter marks our eighth straight quarter, where we grew significantly above our long term growth target of 20 plus percent.
Our 13th straight quarter of positive GAAP net income and our 25th consecutive quarter of positive adjusted EBITDA.
These results once again underscore the durable nature of our revenue and profit growth built on the multiple growth drivers embedded in our business.
They are also vividly illustrates our diversified business within the open internet.
As well as our team's ability to consistently execute our business plan, while navigating through obstacles and changing conditions.
Turning to the highlights for Q2.
We saw the importance and value of being a scaled omnichannel platform.
Overall advertiser usage increase in terms of the number of advertisers spending on our platform and average dollar spent.
Each of our top 10 AD verticals grew double digits year over year.
In aggregate AD spend for the top 10 verticals increased more than 40%.
Shopping continued to be a strong performer, while travel extended its recovery and increased by over 100%.
Food and drink and Arts and entertainment were also among the fastest growing categories.
Automotive and personal finance also included in our top 10 verticals grew at a slower pace.
In terms of the progression of AD spending through the quarter. We saw softness early in Q2 for some verticals that was more than offset by strength elsewhere.
This underscores the advantage of operating platform with diverse business activity that appeals to a broad range of brand and performance advertisers across both physical goods.
In services.
In Q2, our year over year revenue growth accelerated led by mobile and Omnichannel video, which increased 43% year over year.
This growth was on top of prior year's growth of more than 100%.
Overall mobile plus Omnichannel video represented a record high 72% of our total revenues.
The start of the quarter was Omnichannel video, which grew 58%.
Within Omnichannel video CTV revenue increased 150% year over year.
Underscoring the diverse activity on our platform. Our total display business also accelerated compared to Q1 and increased 19% year over year.
In terms of our regional growth there was some softness in EMEA and APAC, but all regions grew double digits.
Americas delivered above expectations.
Supply path optimization relationships continued to play a key role in terms of our growth and revenue stickiness.
As advertisers and agencies expanding usage of our platform.
In Q2, we signed new spo deals renewed existing agreements and expanded activity via these deals.
We plan to continue investing behind this opportunity focus on helping buyers find the right audiences and media on our platform.
The proportion of Spo activation to total AD spend increased from Q1 and represented approximately 30% of activity on our platform.
An important indicator of publisher satisfaction and usage of our platform. It's net dollar based retention.
On a trailing 12 month basis net dollar based retention was 130%.
As communicated in prior quarters. This metric has normalized now Q2 2020 results are no longer in the comparison Seth.
Our continued success and achieving high gross margins as a result of our strategy and execution.
We aim to put into service or plan to maximum capacity every calendar year by the beginning of Q4.
Once capacity is put in place it becomes a fixed cost in the near term that we then leverage over the succeeding periods.
And seasonally lower spend period, such as Q1 to Q2, our gross margins are typically lower than second half levels.
As the year progresses, the combination of ongoing infrastructure optimization.
Expansion of activity with our new and existing customers and higher seasonal AD spending resulted in significant gross margin leverage.
By owning and operating our infrastructure, we have been able to drive down our unit costs.
Over the last two years, we've reduced our cost of revenue per million impressions processed by approximately 50%.
Our experience has shown us that the return on investment for incremental capacity is high and typically pays for itself on a cash basis in months.
With this cost advantage, where we see incremental revenue opportunities, we will expand our processing capacity and further increase our competitive moat.
In Q2, we continued making investments in innovation and adding go to market team members.
These investments coupled with our focus on operational excellence have been instrumental to our strong financial results.
Operating expenses in the second quarter were $34 3 million up 30% year over year, reflecting the combination of increased head count head count for growth and stock based compensation.
Excluding stock based compensation Q2 operating expenses increased 27%.
Q2, GAAP net income was $7 8 million.
non-GAAP net income, which adjust for stock based compensation unrealized gain or loss on equity investments and related income tax effects was $13 million or 21% of revenue.
Diluted EPS was <unk> 14 cents.
And non-GAAP diluted EPS was <unk> 23.
Turning to our cash flow, we generated net cash from operating activities of $25 million in Q2.
Our free cash flow was $5 7 million.
We ended the quarter with cash cash equivalents and marketable securities of 183 million and no debt.
Now looking to the second half of the year, we have been closely monitoring recent trends.
Based on our assessment of the uncertain economic environment and factoring in both headwinds and <unk>.
We are taking a conservative approach to our guidance.
In terms of headwinds we are anticipating further softening of European consumer demand amid worsening economic conditions stemming from the uncertainty around energy supplies.
High inflation and rising interest rates.
In the APAC region as a result of periodic COVID-19 induced lockdowns that affect both the supply chain and consumer activity, we expect muted AD spending through the end of the year.
In the Americas.
We anticipate some limited softness but are assuming generally stable economic conditions for the balance of the year.
In terms of tailwind, we continued to see strong momentum with our SPL relationships continued growth of our online video and CTV businesses and incremental political AD spend that will offset some of these challenges.
We also anticipate continued benefits from <unk> diversified business within the open at Internet ecosystem.
Taking these headwinds and tailwind into consideration beginning of Q2, we proactively initiated several cost saving measures.
We re prioritizing instead of hiring for the balance of the year and move some incremental hiring into 2023.
As well as reduced portion of discretionary expenses, such as marketing and the community.
Including savings achieved in Q2, we anticipate unlocking several million dollars of savings by the end of the year relative to our original planned expenses.
We proactively took the steps because a hallmark of our long term success has been agile execution in a changing environment.
Coupled with our dual focus on revenue growth and profitability.
Which ensures we have the resources to consistently invest for future revenue opportunities.
For Q3, specifically, we expect revenue between 66 and $68 million or 15% at the midpoint for year over year growth.
Keep in mind that we're comparing against a 54% growth rate from Q3 last year.
On a two year stack basis, our guidance translates to approximately 70% growth.
We expect adjusted EBITDA between 23, and $25 million or approximately 36% margin at the midpoint.
For Q4, we are adopting a conservative outlook as well based on the challenging economic conditions cited earlier.
To be clear, we remain optimistic about growth from our spo relationships continued ramp up of our Omnichannel video business and incremental political ad spend.
Based on our revenue over achievement in Q2.
And the Derisking of our second half we are revising our full year revenue guidance to $277 million to $281 million.
<unk>, 3% growth at the midpoint.
With digital advertising is slated to grow approximately 12% in 2022, we are well positioned to continue to grow our market share.
With the operating expense savings already in process, we anticipate that total second half GAAP operating expenses will be lower than previously communicated.
We now expect full year operating expenses to increase approximately 30%.
Due to the timing of investments Q3 operating expenses will increase at a slightly faster rate year over year in Q4 expenses will increase at a slower rate.
As a result of our increasing global scale and favorable revenue mix towards high margin video formats combined with the cost optimization plans in place.
We are accretion of full year, adjusted EBITDA range to between 103 and $108 million by 38% margin at the midpoint.
As has been the case in previous challenging environments. We have successfully managed group, we will continue making targeted high ROI investments in pursuit of long term market share gains.
Our investment plans come from the conviction that we are still in the early days of our growth and we see clear benefits to consistently investing to capture these large opportunities ahead of us.
As previously shared approximately 40% of our Capex. This year is focused on driving the newest and fastest growing segments of our business, including new SDL capabilities.
<unk> expansion.
Private marketplace scaling and efficacy.
This latter category for example grew over 150% this past quarter and is becoming an increasingly important part of our business.
We.
<unk> capex between 33 and $36 million this year.
Based on timing of equipment availability and shipments the bulk of our Capex will occur this quarter and will reduce our free cash flow.
We anticipate a return to a more typical pattern of free cash flow generation in Q4.
Looking ahead as video and other high value clients become a greater share of our revenue mix and as we continue optimizing new infrastructure, we anticipate that our capex to revenue ratio will decline.
With regard to the strengthening of the U S. Dollar we anticipate the impact on our revenues to be neutral to positive because the transactions flowing through our platform are largely denominated in U S dollars.
On the expense side, we expect the U S dollar strength relative to the Indian rupee and UK British pound Sterling to have a neutral to positive impact.
In closing our second quarter results underscore the strength of our platform and our team's ability to consistently execute our business plan, while navigating through challenging conditions.
These factors give us confidence in our long term prospects.
We believe we have the right platform and the right approach to be at the forefront of our industry.
We have built a business with structural advantages emanating from our owned and operated infrastructure and offshore R&D that it enables us to expand our competitive moat and consistently invest in innovation on behalf of our publishers and buyers.
We see a long runway of growth ahead of us as our Tam continues to grow and we are well positioned with multiple growth drivers.
We are consolidating the sell side as one of the few scaled global Omnichannel platforms.
And our profitability gives us a high degree of agility and the ability to consistently invest for long term market share gains.
With that I'll turn the call over to Stacy to open it up for questions.
Thank you.
As a reminder, you can ask a question by raising your hand located on the dashboard. Okay. On your phone. Please <unk>. Our first question today comes from.
<unk> at Evercore. Please go ahead Sheila.
Okay.
Okay.
Please go ahead with your question you are you are now live.
Oh I'm, sorry can you hear me.
Danielle.
Sorry about that.
Okay. Thanks Stacy.
Okay. A couple of questions for me. Please so can you. Please talk about the macro environment that youre seeing quarter to date right now so in the third quarter.
Eh across geographies, where is the most headwind youre seeing a backward Europe b across channels and see also across verticals of which verticals or the weekend so far.
And where do you see ongoing strength. That's the first question and then the second is could you. Please quantify the FX impact on your revenue and EBITDA in terms of dollar or percentage on your growth. Thank you.
Sure I'll take that short a nice to have reconnected.
So let me start out with what are we seeing quarter to date.
First of all there's two primary trends that we currently have observed number one.
<unk>.
As I indicated in my prepared remarks, we saw some softness in a couple of verticals in Q2 and that softness has continued notably in personal finance and hobbies as an illustration. So those trends have stayed soft in.
Some cases gone a little weaker.
Second formerly fairly robust categories, such as shopping and knowledge. We have also softened a bit over the last several weeks.
Now stepping back and extrapolating from these recent data points here some of our observations.
Number one.
Advertisers will continue to spend based on the results in their own business and while some are cutting back others are certainly continue to spend and it's really a function of.
Case by case basis for advertisers.
And what we think is going on in some cases, though.
Call it a tapping on the brakes, while advertisers assess their respective opportunities and challenges.
The benefit of a company like ours is that.
We are a diversified business and we operate very relatively well in this kind of environment. So in terms of where.
Where we're seeing the geographic weakness.
We continue to see softness in our guidance assumes softness continuing in EMEA.
EMEA and APAC.
The same time, while we see some softness in the Americas currently.
We're assuming that it's going to be a very fairly stable economic environment through the balance of the year and we don't see any dramatic changes in that regard.
Now in terms of formats, we are seeing very strong results as you saw in our Q2 numbers in the video category Omnichannel video, which is the composition of online video and CTV and we do anticipate that is going to continue through the balance of the year.
And then in terms of other areas of softness that we're seeing I think it is.
Big picture, it's probably display is the non video that we're seeing some softness.
Okay. Thank you, Steve and then could you please quantify the FX impact on revenue.
Yes.
And if it that we have as a company is that the large majority of our transactions are denominated in U S. Dollars. So we are actually seeing relatively limited FX impacts.
And Thats on the revenue side and we're also seeing relative limited impacts on the expense side, because our functional currency is U S. Dollar. So overall FX is neutral to positive to <unk>.
And that was in Q2, and you expect that for the remainder of the year.
Yes, absolutely okay. Thanks, a lot Steve.
Thank you said at our next call. Our next question comes from Brent Thill with Jefferies.
Okay.
When you think about some of the areas that you showed really good strength maybe.
Maybe perhaps better than a lot of us anticipated what do you think held up what were the installations in your model in that the areas that perhaps you maybe shine through that.
Some of the fear of the digital Ad space.
Slow down why are you not may be seen at the same level as others have seen it.
Sure Hey, Brian Nice to connect with you.
So I'll sort of just why we had such a good Q2.
Comments from Rajiv and I, but I will just underscore a couple of really important points.
We saw significant growth in our Omnichannel video visits was up nearly 60% in Q2 and that was actually on top of over 100% year over year growth in the prior year for the same period.
Other aspect is that our mobile plus Omnichannel video now video business is at a record high of over 70% of revenue.
So what that.
<unk> illustrates is that we are indexed to the most favorable fastest growing formats and that's really a function of the must be in an omnichannel platform and we're able to deliver and offer to our advertisers the ability to reach the end consumer wherever they might be which happens to be in mobile.
And Omnichannel video the <unk>.
Other facet there was a notable strength in Q2 was the strength of our Americas business and that helped to offset the softness that we saw in EMEA and APAC now specifically in terms of where we're seeing strength I would say the strong performance in Q2 and anticipate continued strength as the year progresses.
In shopping.
<unk> was very strong for us Arts and entertainment food and drink.
Other areas that were a bit softer still growing double digits in Q2 was auto and personal finance and as I mentioned a moment ago.
<unk> seen some softness in personal finance, which is not surprising given a lot of the.
The challenging economic environments for folks and what Theyre reading in the newspaper etcetera. So overall, we believe that we are performing relatively better because of our diverse advertiser base and the fact that we're now me channel platform and not.
Not to mention the fact that we've been consistently investing in these growth areas and just a final point I'd make is.
When we are looking at these opportunities, we don't sort of wake up and start to invest and try to go after that this is something we've been doing for many years.
And for example through the first half of this year, we increased our engineering head count by over 30% and if we compare to our head count and engineering to the end of 'twenty, we've almost doubled that head count so by virtue of our strong profit model incremental cash flow we've been consistently.
I ask you to take advantage of these opportunities.
Okay, and I'll just add to that briefly just to emphasize the really the number of growth drivers that we've incorporated into our business plan. So I think we're well prepared for a variety of scenarios that may play out obviously, we don't know exactly which way the economic winds will blow, but given the high margin business that we built and the stickiness and depth of relationships we have built.
With publishers and buyers over many years and we feel quite good about the resilience of the business.
And oftentimes what I've seen is that the uncertainty in the economic environment can actually drive customers and prospects to look for more help from us not less.
So for instance, our CTV publisher acquisition accelerated over the course of Q2 versus Q1, and I believe the prior quarter as well and I think thats in part because some publishers are looking to us to help them weather.
Current or anticipated economic environment. Similarly buyers will benefit from increased sto as it makes them operationally more efficient not to mention more effective. So I think these are long term very positive for us and I do expect more customers and prospects to lean into working with us.
Rajiv just as a follow up on CTV.
Can you just give us you're up to state Union address on what Youre seeing from your perspective, it seems like things are going really well.
Whats kind of the next chapter for <unk>.
This segment business.
Yes, I think for US. It's just continued focus on growing the publisher base.
Increasing monetization.
We're very focused on doing that globally I think in the last two years, you've seen a lot of strength in the U S and Thats now being replicated in EMEA and APAC.
And keep in mind, we're going after.
Does.
This programmatic dollars so.
Those dollars.
They're going to be there.
When theres, a choppy economic environment.
Buyers want to make.
Quick decisions in terms of where they are turning on spending where they're not turning on spending so.
So I think that's a key part of it and then the other part to highlight is our open wrap solution. So that's the management.
The various bidders we have extended that into open rack, that's right into OTT via our open rack OTT product and so we're starting to see some nice traction in that area as well and then maybe the last thing to comment on Brent as it relates to CTV is.
Obviously, we saw the news with Netflix.
Partnering with Microsoft we have a very positive relationship with Microsoft and we look forward to the opportunity to expand our relationship with them as they work through their plans for Netflix, but I think more broadly Netflix as move into AD supported streaming will put pressure on many other content owners to embrace an AD supported model, which is something that I would.
Expect us to benefit from in fact, we're already seeing some major content owners accelerates their AD supported streaming timelines in response to what Netflix is.
Thanks, gentlemen.
Our next question comes from Matt <unk>.
Please go ahead ma'am.
Yeah. Thank you and thank you guys and congratulations on the quarter, especially in this macro environment.
If I could follow up on Brian's question on <unk> I think taking your last point, maybe a half a step further.
There is a lot of premium inventory, that's going to be heading into the market over the next year. How do you think that can maybe accelerate the move towards header bidding.
You mentioned before that is going to be a lot more services.
How are you going to want to buy direct up 20 different platforms.
It is kind of accelerating the market towards your vision.
I think he is spot on Matt So our remember our focus our vision has been really around building an efficient auction marketplace, whether its programmatic guaranteed deals private marketplace deals.
Or other types of transactions and the reason is that we firmly believe that that type of auction environment, the transparency and efficiency that it delivers is really the only way to scale.
<unk>.
Tens of billions of dollars CTV industry, that's going to have we think thousands of apps or content owners on the supply side and then tens of thousands maybe hundreds of thousands of advertisers on the demand side and so when somebody like Netflix comes in I.
I think it does a couple of things it brings more supply more inventory into the market because netflix is going to be going after I would imagine.
Linear cable TV budgets, not just digital AD budgets and so if you're a broadcaster.
That has been leaning away from screaming now your core business may be under attack. So you've got a you've got a responded and go on the offensive and then it also brings a lot more choice to the buyers. So the buyers are going to be sitting there, saying, okay I have more places than ever to buy from.
So a couple of things happened in that situation. One is they need help from technology specialists like us to bring that inventory in a market and a consistent transplant transparent fraud free way and Thats, obviously, one of the things that we specialize in and.
And so that that's key outside of let's say the top 10 or top 15 players.
And then second is the complexity of waterfalls in direct deals starts to really take its toll from an operational perspective, when you have more and more media companies more and more publishers involved and so that's again where that auction based environment.
That allows sellers to sell directly but to transact in a very efficient way, that's again, a kind of a key benefit.
So we think as I had mentioned in the prepared remarks, more and more of the industry is moving towards digital of course, but more and more is moving towards programmatic and we should be.
A major beneficiary of that.
Yes, that's true.
Helpful and then maybe flipping.
I mean looking at your guide, obviously, a lot better than most of that's expected.
I know you've kind of personally it took a lot of pride in during the beginning of the pandemic to be able to show that adjusted EBITDA profitability itself. So when we think about looking forward and kind of balancing the macro challenges cask pretty advance with the opportunity in front of you like how are you thinking about protecting margins will continue.
We were able to invest placements you need to grow yes.
Yes, let me, let Steve take that from a short term and maybe I can find it on afterwards, okay great.
Matt the way that we're thinking about it is that number one relying on the strength of our business model, which emanates from the fact that we own and operate our equipment. So we can constantly optimize but we're not dependent on others to drive down your own cost. So that's something that we've consistently done we did it again this past quarter and anticipate our ability.
We continue to do that going forward and so we have <unk>.
Robust gross margin and then in terms of thinking about the balance between investment and adjusted EBIT profit stability, we feel like we're in a good spot right now in terms of.
Knowing which of those product opportunities are clearly high ROI for us we understand the path to go from input to output and so we have been selectively making those investments I described some of those around the engineering team.
A couple of moments ago.
So you factor in strong foundational business that's diverse.
On a geo in a format basis, coupled with the strength of the model we feel very good about our continued to invest and deliver adjusted EBITDA margins in the high <unk>.
The guidance calls for midpoint of 38%.
So of course, there is always going to be a need to constantly triangulate assessed.
Going on on the macro level, but we start from a very strong position, we have a significant amount of cash.
No debt.
And a real clear path.
Two incremental revenue so that's how we're balancing out and I think.
My expectation is that I'm bullish on gross margin trends and adjusted EBIT trends.
Yeah. Thanks, Steve Yeah, that's just kind of give a little bit of a.
A broader perspective on that Matt I mean, I think you highlighted we did I think some very different things when COVID-19 first hit right, which was to use the strength of our.
Ongoing profitability and cash flow as well as our balance sheet to actually be able to invest into the opportunity.
To drive rates of growth that we're roughly <unk> the rate of the market and I think this.
Whatever economic environment, whatever word you want to use to describe it and what may be coming is not that different in the sense that.
<unk> from I think a really strong position financially.
And we are <unk>.
Focused on our long term market share objective of 20%.
2% to 4% as of the beginning of the year and so we're going to look at this environment has a further opportunity to grow that share and really.
Think about what are the right.
Priority investments that can help us make sure that we're well positioned whenever the economy returns to <unk>.
Solid growth.
Alright. Thank you for the time guys. Our next question comes from Andrew <unk> from Raymond James. Please go ahead.
Hey, guys. Thanks for taking my questions I have been bouncing around between a couple calls so apologies if anything has already been covered.
First can we talk about the cookie deprecation deadline and did that push impact conversations around identity hub or audience encore at all do you feel are lessening urgency around the cookie transition or is that really highlighting the need to prepare and second can you talk a bit more about your S. P O two points.
Relationships, obviously spo.
Trending really well in <unk>, but just those next level deals I know the group and deal kind of being the most prominent.
I guess, how those are going in general how those are are taking share and an outlook for that over the course of the next 12 to 18 months and do they present.
An increased value proposition in times of macro weakness. Thank you.
Yes, great.
Andrew So let me start with the first question on the Cookie, So obviously, Google announced that they're going to delay by roughly a year.
The <unk>.
Timeline for the deprecation of the Cookie I think anytime I hear that's something is two years out.
It means obviously there is a high degree of uncertainty right even around that timing. So we can maybe think about that as a minimum.
Expectation of timing, but would not be surprised if it was longer than that but I would say that we don't really expect that timing to affect us.
Based on our multi year investment we've made in addressable solutions in our connect offering we feel like we're in a leadership position to manage the transition.
An increasing number of customers and prospects that are adopting cookie alternatives.
But I think whats different now than maybe a year ago is that we have case studies and data that really demonstrate the efficacy of these approaches for example, the banana boat case study that we released recently.
And I think these are pretty powerful and demonstrating that there are better solutions out there and that they can scale. So theres a segment of the market now Thats basically, saying Hey, this is not about replacing the cookie kind of getting back to something that we already had but instead, it's about having a better solution that respects consumer privacy, but also continues to allow for.
Delivery of relevant ads to consumers and in some cases, where the relevancy is even higher.
And I think a key point to keep in mind here is that there will be a transition with buyers moving their activity from the buy side of the ecosystem.
Terms of data and how they apply it to the sell side of the ecosystem and we're in a strong position to capitalize on this.
Wow, maybe it would have been nicer if they kept to the original timeline, we look forward to the whole industry moving onto sustainable solutions.
Now turning to your second question around the Spo.
And in my notes here.
The kind of next level deals are taking shape.
<unk>.
The <unk>.
Common characteristic in deals where we are building on some initial SCO relationship and going deeper.
Is that there is significant.
Custom workflow or development work that goes into place.
So whether it's grew Bam or others. These are all about the buyer consolidating even further based on success that they've already seen with us.
So that means they're going to go deeper in terms of how spo drives their business and to that invariably means some level of customization of the technology or infrastructure workflow, that's underlying that relationship and so those can take time, because we've got a built out in.
And implemented and things like that but it certainly makes for a much stickier.
And I think longer term relationship and so we are very happy to and excited to have that.
And those types of spo.
Renewal or extension opportunities and Steve highlighted some of the growth in engineering in a meaningful chunk of that engineering growth is targeted towards these very deep relationships.
Great. Thank you.
Thanks, Andrew.
Our next question comes from Justin Patterson at Keybanc.
Great. Thank you very much Rajiv I was hoping you could provide an update on <unk>.
Where you are in retail media I know you've called that growth initiative on the prior call. So any updates on how that's trending would be great to hear and then Steve I. Appreciate the full year guidance in there I know you talked about a conservative outlook for Q3, when we look at just for your implications for Q4, it still implies.
A fairly healthy sequential uptick so.
Curious what youre seeing right now to give you some comfort around Q4 political in the past what's been a huge channel for you. So any more details on how you're thinking about Q4 would be appreciate it. Thank you.
Yes, let me take the first part of that on retail and Steve I'll turn it over to you suggested on retail.
It's still I would say early going for us.
And we're having a lot of conversations in market I think the the types of solutions that retailers are looking for.
A wide variety of solutions. So there are no I'll call them standard models are standard approaches.
Retail media.
A couple of patterns that may be emerging but I think it's still.
Pretty pretty early going.
And so we're in a heavy.
Kind of conversation listen bills.
Type of.
Mindset, where we're as we talked to these customers are finding that the commonality is planning the patterns looking for the things that we can build to move the needle for these retail customers and then rolling up our sleeves and doing that work. So again I would say we're still at fairly early stages and I think we'll have more to share.
And this area and in subsequent quarters.
Steve over to you sure. So just in your view.
As you rightly described we are taking a conservative.
Your point on the second half Q3 in particular, there are a couple of things that do make us.
Positive about Q4.
It really does start out with the growth drivers that we already have in place. So there's going to be some incremental activity, but we see great continued growth on a variety of fronts.
Of course.
You have the peak season, which.
We are fairly well index too in terms of the spending that occurs but overall our baseline assumption. When you think about our Q4 is that economic activity will remain relatively stable in the Americas.
And the data that we're looking at that gives us that perspective is by and large the labor market remains positive.
Consumers have resources spending inflation.
Inflation expectations down the road look to be coming down a bit.
And people are still adjusting to the post pandemic world.
Now to be clear it doesn't mean that there's going to be smooth sailing, but we believe that our business is very well equipped to sort of navigate through that volatility.
Ill reinforce a couple of the points, we have a diverse business. We have a very strong usage based models. So we are completely aligned with our publisher success and we have significant cash and debt and so we have the ability to continue to invest in to take advantage of the opportunities now in terms of that spending as you know in.
In the fourth quarter. There is several categories that really have peak spending of course, its shopping technology Arts and entertainment food and drink just to name a few.
From our perspective, we're very well indexed in terms of diverse advertiser base and Omnichannel platform that connects to all the publishers that where advertisers want to be.
We've evaluated our business from a bottoms up looking at regions I shared some of my perspective on what the regional and the <unk>.
Trends look like.
We have strong net dollar retention.
Correct that to continue.
Activity has been picking up we've had saw a nice uptick in Q2 and I expect that to continue to grow through the balance of the year.
And then of course.
The all time record in terms of the Omnichannel video plus mobile mix of our business, so where consumers are.
And if I take a look at just just aggregating that if you look back over the.
Not quite a decade, but close to a decade. There has historically been an upmarket downmarket relative to the Q3, a 25% to 30% uptick and then on top of that seasonality and the indexing that we see we do see the incremental activity related to <unk>.
CTV political AD spending and spo expansion so.
So take the sort of our guidance in the right context, it's predicated on there is continued to be stability in the Americas and all indications are that it will be.
Anything you want to average it now I think you covered it well.
Great. Thank you very much.
Our next question comes from Andrew Byrne example.
Hello, guys.
Hi, guys. Thanks for fitting me in and I'll keep it just one.
The general consensus out there is just the consumers were out more into Q. So I want to juxtapose that with just the reacceleration impression growth that we saw in the quarter can you just double click on that is that just more agency spo contracts in the past that are just maturing is there something else to highlight and just how we should think about the underlying.
Acceleration from pressure Brent thanks, so much.
So part of it clearly is us going out and very proactively adding new publishers. We commented on the expansion of our CTV publishers also just.
The activity of consumers.
Going into sort of multiple environments.
An app.
And then of course online video, which was really the star of the quarter. So the accumulative impact of sort of do you have the supply and then the demand by our spo increase.
Then underneath that as I've shared in the past we have been consistent investment in infrastructure, because we can optimize it and then get yields on that over the long run.
And again, we prove that with our reduced cost of revenue per million impressions in Q2, So think of it as <unk>.
Our.
Focus on high ROI opportunities.
Our index to the fastest growing formats, we have the wherewithal to invest and take advantage of it when we do have those opportunities and that's something that we're going to obviously be prudent and very judicious about when we look at opportunities through the balance of year, but we feel like we're in a good spot in terms of balancing off investment in infrastructure the.
<unk> that we have towards video and then of course, the fact that we are investing for.
The next leg of growth across.
Multiple areas.
Great. Thank you. Our next question comes from Jason have seen an up and comer.
Hey, I'll pick the ones that are coming on the hour Rajiv maybe you can comment your publisher client wins.
Where are they coming from or are these new publishers or the publishers, who previously only sold direct at this show off by a competitor or is it all the above.
Maybe elaborate on that a bit thanks sure, yes, I mean, it's a bit Jason of all of the above we have specific go to market efforts around the world right and all of the markets that we're operating in focused on Omnichannel publishers CTV only publishers mobile App only publishers.
And then mid market publishers as well so it's a pretty.
Significant pool that we're going after but we don't sign up anybody and everybody we have a pretty rigorous process vetting publishers before they get assigned.
To our sales force and we're betting for quality for scale. Our view on are these profitable impressions that we can bring on from that publisher.
And then we also are talking to the buy side constantly to say, okay, who who are you spending on that.
We don't have for you right now that you would like to be able to buy through US and then we go in and.
So after those publishers as well so it's a pretty pretty mature process at this point, but there is a.
As we add more and more AD formats, CTV, obviously being the latest.
But we're never I would say whenever fully penetrated even in <unk>.
Display online video or mobile App, which are formats that we've had on the platform.
For many years now so we're constantly going after these new publishers that we think will be profitable additions to us.
Thanks.
And our last question today comes from with <unk>.
Go ahead sorry.
Thank you very much Rajiv I think this one is for you instead of a big picture.
The retail media one.
So Crystal Hall.
Just to set the.
The table four way people here.
Is it correct to understand then whenever there is a good business to be had various efforts.
The reason I'm going with this is you know one of the some of the DSP is pumping.
Talking a lot about programmatic shopper marketing, which is a big opportunity about right. So can you help us understand.
Even theoretically not.
Yeah.
To play in that value chain and if so how you think about.
Positioning in that regard, yes, absolutely focused to me I think it is correct to say that anytime there's a DST there needs to be SSP functionality and that S&P functionality can take.
The rule can be done by somebody like us.
Very very rarely a publisher will build it on their own like Facebook for instance.
Or it could be a two sided company like Google, we're providing both DSP and SSP functionality, but I would say that an SSP.
That functionality is needed to bring the inventory.
To the programmatic market, meaning all of the infrastructure required.
Describe the impression.
Make it available for bidding and then run the auction and do all the transaction management that that happens after the fact and.
And that does include shopper marketing.
And so that's in part why we think they're such a great opportunity for us in retail media, because those impressions and need to go through.
And SSP.
But that FSP set of functionality.
Heavy.
Opportunity around.
Using alternative methods of identifying the user besides the cookie like logged in users of first party data and this is an area that we built out over many years of course with our connect offering now and then third is that.
Consumers are interacting.
With retailers are in the shopper media category in an omni channel basis, so meaning.
You might have a mobile app for a retailer who might be using mobile web you might be using a desktop depending on what kind of price point and consideration cycle you have and so these all play into our strength.
And then the last thing I would call out is that.
Agencies are increasingly interested in this category. So you may have seen for instance in Cannes Omnicom came out with the whole series everyday of announcements around.
Shopper.
<unk> media category until we are of course, more and more embedded with the agency MBS supply path optimization and so we are uncovering those needs in those opportunities to work with them and we think theres a lot that we can do there so 140 plus billion dollar category in.
It's still very early for us, but we think theres, a great runway of growth and opportunity there for us.
Regarding.
We are positioned relative to your competitors here.
Korea competitive because you don't hear a lot about.
Sort of.
Exclamation Unplug your jokes game.
Yeah, I think it's not let's say the traditional rest of the SSP category that we see it's more so for companies like retail for instance, right that are I think squarely focused.
On retail media, but I think we come at it from a different perspective than they do obviously they have a long history of advertiser relationships from their re targeting business.
But I think their technology stack looks quite different than ours.
And I think there'll be a lot of opportunities, where there will be more than one company could be San Jose or send somebody else that's involved in helping that publisher that retailer.
Monetize.
Thank you very much very helpful. Yes, thanks facility.
And that was our last question for this afternoon to make even when I.
Back over to you for closing remarks.
Well. Thank you everyone for joining us today, we delivered another strong quarter of revenue growth and profitability ahead of our expectations, demonstrating the number and magnitude of growth opportunities that we have incorporated into our business.
And as our results indicate our business is omnichannel and diverse which provides a level of resiliency in the face of near term macroeconomic uncertainty.
We continue to focus on the long term opportunity in front of us and I look forward to connecting with many of you at upcoming Investor conferences. Thank you all.