Q2 2022 Viant Technology Inc Earnings Call
Kelsey and I will be your operator today before I hand, the call over to the violent leadership team I'd like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded after the Speakers' remarks, there will be a question and answer session and if you plan to ask a question. Please ensure you set your zoom name to display your full name and your.
Sure.
I would like to ask a question. During this time. Please use the raise hand function located at the bottom of your screen. We thank you for your attendance today and I will now turn things over to Nicole <unk> with the Blue shirt group Nicole.
Thank you Kelsey good afternoon, and welcome to <unk> technologies second quarter 2022 financial results Conference call on the call today are Tim Banner Hook co founder and Chief Executive Officer, Christopher <unk> Co founder and Chief operating officer, and very not in the Companys Chief Financial Officer, I'd like to remind you that we will make forward looking.
On our call today that are based on assumptions and subject to future events risks and uncertainties that could cause actual results to differ materially from those projected we undertake no obligation to update these statements except as required by law.
More information about factors that may cause actual results to differ materially board looking statements our entire safe Harbor statement. Please refer to the news release issued today as well as the risks and uncertainties described in our registration statement on Form 10-K with other filings with the SEC.
During today's call. We will also present, both GAAP and non-GAAP financial measures additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures are included in the news release, we issued today and in our filings with the SEC I would now like to turn the call over to Jim benefits, Chief Executive Officer, Bryan Timm.
Thank you everyone for joining us for our second quarter earnings call. We continued to build on momentum across our business in the second quarter total spend on our platform grew 32% year over year as we continued to gain share in the growing market for programmatic advertising.
Customers are rapidly adopting our DSP software to purchase their digital advertising campaigns as it provides a complete platform of AD personalization and measurement for cookie and cookie less devices.
As we continue to execute our long term strategy of acquiring new customers and moving fixed price customers to our percentage of spend business model. This creates a near term drag on our reported GAAP revenue growth rates relative to the growth rates. We are seeing of total advertiser spend on the platform.
We have made tremendous progress executing against our strategic plan and remain very excited about the conversations we're having with customers as they consolidate more of their AD budgets in <unk> DSP.
The tailwind shifting AD dollars into programmatic channels have never been stronger and we are continuing to enhance our platform and organization for long term profitable growth.
We are very encouraged by the ongoing traction we are having with customer additions, while the average spend per active customer on our platform continues to grow.
We remain on track to achieve our long term financial targets and are well capitalized to fund our growth objectives.
Advertisers are increasingly seeking an independent omnichannel platform for digital advertising that delivers tangible return on investment without relying on cookies and device identifiers.
It's also critical in times, when budgets and spending priorities shift that advertisers have the flexibility to quickly reallocate spend to match their reach and audience goals.
For example, <unk>.
<unk> may dictate a shift away from brand campaigns across CTV and into more performance based marketing programs across desktop or mobile.
Our adult <unk> software offers advertisers the ability to do just this strategically manage omnichannel AD campaigns that can be adjusted in real time to meet budget audience and measurement goals.
The growing number of strategic conversations we are having with larger advertiser and agency customers are a testament to the value they see in the flexibility of our platform and our patented household IV technology.
Dynamics across the industry are changing everyday and Google's recent announcement on further delaying deprecation of the cookie is just another headline creating uncertainty in the market for digital advertisers.
But what isn't being discussed enough is the fact that as of this very moment three out of every four ads in the midstream don't support the outdated cookie technology our competitors use.
And this is only magnified in the future when we consider the fact that all emerging channels connected TV streaming audio.
Gaming and more are built cookie list from inception and have been scaling upwards at a very fast pace.
As we've discussed in the past <unk> DSP software enables buyers of digital advertising to personalize and measure the three out of every four ads that don't have a cookie today.
To that end, we continue to see customers investing more into our advanced measurement suite and this remains a significant revenue opportunity opportunity for us in the long term.
I wanted to take a moment and talk about a meaningful addition to our executive team.
We were excited to announce in the second quarter that we welcome Duston Kwan as our new Chief product Officer.
<unk> reports directly to me and overseas our entire product roadmap.
He joined US after eight years, leading AD products at Amazon's DSP.
Dustin has a clear and insightful vision on what a successful product roadmap looks like for Brian and we're excited to invest in our product and engineering teams around him to bring this vision to our customers.
We are incredibly grateful to have been able to attract such.
An experienced and talented product leader and Dustin.
The impact he has made in just the short few weeks of joining our team have been substantial and the combination of his vision leadership and execution, we will have an even greater impact in the years to come.
Before turning the call over to Chris I wanted to address what we are seeing across the macroeconomic environment and more importantly, what we are doing to actively manage our business through softer consumer spending and the tightening of AD budgets across the industry.
While we are pleased with the growth in advertiser spend that we saw with our platform in Q2, we did notice a deceleration of AD spend by some customers towards the back half of the quarter.
As we look ahead to the second half of the year. We are encouraged by the underlying trends we are seeing in our business kpis.
But we are also acutely aware of the macroeconomic headwinds in Q2 and are taking a more cautious approach to the end of the year.
We are adjusting our internal spending plans to be more focused and selective concentrating.
Concentrating on strategic areas that will position us well for long term growth and market share gains.
We continue to take a long term view on our opportunity and our being mindful to avoid shortsighted decisions that might impact the momentum we've gained over the last several years.
We are on track to hit our 2025 revenue and EBITDA targets and feel very confident that buying is well positioned to address the industry's biggest challenges and continue to drive growth.
I'll now turn things over to Chris to discuss some key strategic updates across our customers and technology, Chris Thanks, Tim.
Second quarter, we continued to build on our platform with new partnerships and integrations that are driving more value for our customers.
As Tim mentioned, we're also pleased to welcome them into the team and see a meaningful opportunity to further build upon our product suite under his leadership.
For the seventh consecutive quarter, we grew our active customers now totaling 336 a.
A 17% increase over the prior year period.
Marketers and their agencies continue to seek out an independent buy side platform that is fully self service has industry, leading integrations across all channels and a strong measurement offerings.
<unk> calculates return on Ad spend.
Okay.
To expand on Tim's comments on macroeconomic trends, we are seeing that AD spending from CPG and automotive continues to lag due to ongoing supply chain related issues. We also began to see AD spending soften more broadly throughout the month of June this broad slowdown was highlighted in connected TV.
AD spending as marketers pulled back their investments in brand advertising, while shifting some of that spending to performance based advertising campaign.
As a result connected TV spending grew just 2% in the quarter or 28%, including excuse me or 28%, excluding CPG and automotive.
Conversely, we saw large increases in spending across all other channels with desktop and mobile up 56%.
<unk> up 80% and digital out of home up 214%.
Although there are macroeconomic headwinds at play marketers still need to advertise to reach new consumers and engage current ones across all channels.
Now I want to highlight the value of an omnichannel DSP life clients.
As conditions and markets change marketers will react.
The key for them is to have a partner like <unk> that can allow them to shift their spending habits to adapt to the ever changing landscape.
Marketers saw the benefits of a DSP at the start of the pandemic.
Or they can pause certain spending in real time, and when they were ready to turn it back on with impressive.
Today, we are seeing that as consumer spending shifts marketers are shifting their tactics. So it's important they not only have an advanced DSP partner, but a partner with omnichannel capabilities that can easily help them navigate that shift in spending.
Over the last year customers spending through two or more channels have continued to increase and they now represent roughly 95% of total spend on our platform.
Very much in the way of diversification has proven to be a successful long term investing strategy used to manage risk.
And Omnichannel strategy is more sustainable long term and much less susceptible to the volatility of single channel companies that may only be in mobile or connected TV.
I've talked several times about the importance of continuing to build out our capabilities. While also continuing to improve the usability of our software.
One of the reasons our customers have so easily shifted their spending across channels like connected TV mobile desktop audio and digital out of home is because of the significant supply integrations, we've invested in across these channels.
We recently added Siriusxm to our audio channel joining an existing roster of Spotify Pandora NPR IRR and many others. Our depth of audio supply is a big reason why audio continues to be a fast growing channel for us.
We've also talked about our growth in digital out of home.
This is primarily due to our continued efforts in bringing on supply partners like place exchange Firefly Volta clear channel Out-front intersection and JC Decaux.
Three years ago connected TV was considered an emerging channel, but today is a mainstay in digital advertising.
Our early dedication to adopt and develop.
And develop emerging channels resulted in us becoming a leader in connected TV.
Similarly, our work in audio and digital out of home is starting to pay similar dividend.
Lastly, we are adding another new emerging channel called in game.
In game refers to PC mobile and console based games that have dynamically inserted ads within the games themselves that don't interrupt gambler.
We've added in game supply partners like <unk>, and <unk> Dot Io bid stack frame play CLO and relentless.
In game advertising is believed to be more than a $1 $5 billion market that is rapidly growing but still a drastically trails. The amount of time spent by gamers in this channel.
We believe in game advertising will become another significant channel for us in the future.
Marketers and their agencies continue to move their spending to programmatic and in the field.
And in a field with very few self service Omnichannel platforms <unk> is emerging as a go to partner.
The last trend I wanted to address is measurement.
This continues to be a popular topic with customers as only a quarter of the midstream has a commoner that identifiers that marketers have relied on for measuring the effectiveness of their advertising.
<unk> has long been a leader in helping our customers calculate their return on AD spend and the importance of our platform with strong measurement capabilities has never been more important.
As marketers continue to be challenged with policy changes and big Tech and now macroeconomic changes that are causing this shift to more performance based buying.
They need a partner that can increase the visibility and confidence of every dollar they spend.
We will continue to invest in our measurement capabilities as we believe this will continue to drive increased spending in our software.
I am pleased that the ongoing investments we have made in our platform translate to not just the new client wins, but also industry wide recognition of <unk> as a leader in the in the industry by independent software marketplaces.
Most recently, we were named a leader in demand side platforms by G III and our summer 2022 grid report.
Our recognition as a leader indicates our platform is highly rated by <unk> users and they and we have a strong market presence. We received a 95% feature rating on our targeting capabilities and 91% of users enjoying clients quality of support.
This validation from users of our platform is powerful.
Choosing high marks directly from our customers is further proof that our focus on empowering advertisers with an intuitive self service platform for Omnichannel advertising is resonating with customers and driving the increase in advertising spending on our platform.
We're very proud of what we continue to accomplish with our product and customers. Despite the challenging environment for advertising.
We are building a platform that will set us up for sustainable long term growth and ongoing market share gains.
Let me now turn things over to our CFO , Larry Baton to discuss our financials and offer more detail on some of the spending trends we are seeing.
<unk>.
Thanks, Chris and thank you everyone for joining us today.
Where I began I would like to remind everyone that we've posted a presentation to our investor Relations website, a supplemental financial information to accompany today's presentation.
As Tim mentioned, we are very pleased with the market share gains we achieved in Q2.
Advertiser spend across our platform increased 32% over the prior year period, and 15% over the prior quarter. Despite the deceleration in spend that we saw in the last month of the quarter as some of our customers adjusted their spending levels due to the challenging adverse macro of macroeconomic environment.
We continue to be pleased with increased adoption of our software as evidenced by the growth in our active customer base and average spend per active customer with both increasing year over year and quarter over quarter.
Our growth in advertiser spend has been driven by our long term strategy of new and existing customers expanding their usage of our platform through our percent of spend pricing option, which we expect to continue moving forward.
We believe that the lifetime value of a customer using our percent of spend pricing options are significantly greater than that of a fixed price customer as a percent of spend customers typically ramps ramp spend over time as they consolidate their advertising budgets on our platform.
Percent of spend customers have also have higher retention rates as compared to fixed price customers.
Two customers using our percent of spine pricing options spent on average approximately three times that of customers using our fixed price pricing option.
Increasing customer adoption of our percent of spend pricing option has always been our goal because we believe it creates a deeper relationship with our customers and provide for more consistent predictable long term value creation.
We are pleased to see this adoption occurring faster than we had expected.
As a reminder, revenue from our percent of spend pricing option is recorded after deducting traffic acquisition costs or Tac, whereas fixed price revenue is recorded before deducting tax.
Therefore, as the percent of spend pricing option continues to make up a larger part of our advertiser spend mix relative to the prior year period, we will have a corresponding drag on our revenue and contribution ex Tac growth rates.
While the impact of this mix shift has negatively impacted revenue and contribution ex Tac growth rates of 22 relative to advertiser spend growth rates. We expect this to significantly improve beginning in 2023 as such growth rates begin to converge as the impact of the mix shift becomes less significant over time.
This afternoon I will be discussing some of the highlights of our Q2 performance the key financial and operational drivers during the quarter and our current expectations for Q3.
In terms of top line metrics for the second quarter as I said advertiser spend across our platform increased 32% over the prior year period and 15% over the prior quarter.
On a year to date basis through June 30, Advertiser spend has increased 37% from the prior year period.
In the second quarter revenue was $51 2 million, an increase of 2% over the prior year period, and 20% over the prior quarter and.
And contribution ex Tac was $31 7 million a decrease of 1% over the prior year period, and an increase of 15% over the prior quarter.
Growth in advertising spend on our platform continues to outpace the overall growth of the U S. Programmatic market again, this is being driven by increased adoption and accelerating growth across our percent of spend pricing option.
From an industry vertical perspective during the quarter, we saw broad based strength across all key customer verticals outside of automotive and CPG, which continued to be negatively impacted by pandemic induced supply chain issues and other adverse macroeconomic developments.
Advertiser spend across all customer verticals, excluding automotive and CPG increased 51% in Q2 versus the prior year period.
Spend from our automotive and CPG customers, although down 13% on a year over year basis for the quarter did show some improvement during the quarter, increasing 13% from Q1 levels and 3% from Q4 of last year.
Spend across our largest customer vertical retail grew an impressive 84% in Q2 versus the prior year period.
During the quarter. We also saw solid growth in advertising spend across all key digital channels as customers are increasingly using the full omni channel capabilities of our platform.
Advertiser spend across mobile and desktop grew 56% year over year as we continue to benefit from the market disruption created by apples IV FA deletion.
Across emerging channels, such as streaming audio and digital out of home advertisers spend grew 80% and 214% respectively. During the quarter.
CTV growth slowed in part due to the difficult year over year comp, but also as a result of continued weakness across automotive and CPG <unk>.
Excluding automotive and CPG CTV spend grew 28% year over year.
Investments in our sales marketing and technology teams also continued to pay dividends during the quarter as evidenced by the significant increase in the number of active customers.
At the end of Q2, we had 336 active customers, which compares to 288 in the prior year period, representing a net increase of 48 customers over the past 12 months for an increase of 17% year over year.
Sequentially the number of active customers increased by nine compared to Q1, representing a quarter over quarter increase of 3%.
Active customers using our percent of spend pricing option increased 37% year over year and 3% quarter over quarter.
Average spend per active customer also increased 13% on a year over year basis.
Moving down the P&L non-GAAP operating expenses, which is defined as the difference between contribution ex Tac and EBITDA totaled $34 8 million in the quarter, representing a year over year increase of 46% and a quarter over quarter increase of 11%.
The year over year increase was primarily attributable attributable to the investments we have made over the past 12 to 18 months across the organization to enhance our product capabilities and expand our sales team.
And we have stated in the past we have been investing to scale the business to accelerate growth and drive market share gains.
However, as Tim discussed given macro economic conditions, we intend to slow the pace of such investment in the second half of the year, focusing investments primarily across our product and engineering teams to ensure that we continue develop delivering on our long term product vision, while maintaining profitability in the near.
Term.
Adjusted EBITDA of negative $3 1 million for the quarter was at the high end of our expectations with lower non-GAAP operating expenses offsetting lower than expected revenue and contribution ex Tac.
For the quarter, our non-GAAP net loss, which excludes stock based compensation totaled negative $5 9 million and non-GAAP loss per diluted share of class a common stock was negative <unk> <unk> for the quarter.
From a liquidity perspective, we ended the quarter with $207 2 million in cash and no debt during the quarter, we repaid $17 5 million of outstanding desk that previously drawn on our $40 million credit facility.
With that I'll now turn to guidance as I mentioned earlier, we began seeing some marketers begin reducing budgets in June and that trend is continuing into Q3, our Q3 guidance reflects slower growth in advertiser spend across the platform relative to Q2, given these headwinds.
For the third quarter of 2022, we expect year over year growth in advertiser spend of 20% to 25%. We expect revenue in the range of 47, 5% to $50 million, which represents a year over year decline of 2% to 7%, we expect our non-GAAP operating expenses to be consistent with that.
With what we saw in Q2 of 2022, and we expect adjusted EBITDA in the range of negative $1 million to $2 million.
The uncertain macroeconomic environment is currently making it difficult to predict spend levels more than a few months out as a result, we are only issuing guidance for Q3 at this time and are withdrawing our previously issued fiscal year 2022 guidance.
Closing, we remain confident in our long term targets of at least $500 million in revenue and 35% EBITDA margins by 2025, our conviction is based on how marketers and their agencies are responding to our solution.
We continue to win new customers and our existing customers continue to consolidate budgets across our platform and grow their spend.
Our total addressable market provides significant opportunity to us and we firmly believe that our solutions uniquely and effectively Matt address many of the challenges that marketers are facing across today's dynamic digital landscape.
That concludes our prepared remarks today and with that I will now turn it back over to the operator to open the lines for questions operator.
Great. Thank you so much and to our audience and once again, if you would like to ask a question. Please raise your hands at the bottom of your screen you will see the raise hand features to go ahead and raise your hand, if you'd like to ask a question and we will hear first from Lloyd Wamsley with UBS.
Alright can you guys hear me, Okay, Yeah, Hi, Lloyd Preterm alright, great. Thanks, a couple if I can first.
Yes.
US elaborate a little bit it sounds like you said, if I caught all of the disclosures right.
Auto in CTG, we're down 13%, but showed some improvement during the quarter. So I guess the most of the worst.
Impacted by the macro verticals are improving but the overall shape of the quarter sounded like it was exiting a little bit slower and thats continuing into into three Q I guess the question is it sounded like there were.
Outside of auto and CPG things were broadly pretty strong.
I guess, where are you seeing the most detail in the <unk> maybe by vertical.
You can share and satisfy.
Advertiser type brands brand, Dr or advertiser size, I guess anything you could help us with more there would be great and then and then the second one would just be.
It sounds like.
A great hire you guys had with Boston, maybe you can just talk about some of the product initiatives. You guys are most excited about that maybe.
Adding some fuel to now.
Now that he is on the platform. Thanks.
Yes.
Do you want to take the first one in terms of some of the budget cuts that we've seen again, we started starting June but we are seeing it continue.
Across a few different customer verticals in terms of dollars I would say, it's probably most pronounced across CPG and retail which are two of our largest verticals.
Mentioned the.
The improvement noted on CPG in auto in Q2 relative to Q1 in the prior year Q4 that was largely that's largely driven by the fact that the comps are getting easier. This has been an issue for several quarters.
The amounts are getting smaller so therefore, it's the growth that we saw there improve but that's partly due to relatively easier comps.
The only thing I would say as other other verticals such as travel and healthcare.
Continue to do well.
It really is a case by case advertiser it is probably a little more skewed towards certain verticals versus others.
But it's really even within something like retail you have difference.
Segments of that market some are for cutting and many others aren't so it's really a case by case, but.
But I would say CPG and retail are probably the most significant ones.
And just a little bit more color on that.
The pullback that we're seeing.
Largely been in brand based advertising, particularly we saw it in seat in CTV.
We definitely saw a little bit of a pull back there we as I noted in my remarks, we did see a reallocation of some of that money into more performance based campaigns.
That propped up desktop and mobile.
Quite a bit.
But it's largely what we're seeing in CTV is kind of in the scatter.
Market, we're where we expected to see a larger increase in spending at really most.
Most pronounced in June and we expect that to continue into Q3.
I'll take the question on Duston.
I mean, what what an incredible higher provider to be able to get a leader over it and Amazon's advertising business working on their DSP to give you. An example, you had previously worked on putting the first ads on fire TV and then building out that platform. So his ability to come in and shape, our CTV from a format perspective and a.
Channel and continue our leadership there is going to be big but the long term vision of autonomous advertising and making that a reality, where it takes less people to do this very complicated task of purchasing programmatic advertising and simplifying that process is the big goal, but I can tell you just in a short stint he has been in here the process there.
He has brought from Amazon and instituted in our product and engineering team is top notch and I think we're going to see huge productivity gains just from the process alone and then coupled with his vision on where we can take this in CTV, we think it's going to be very meaningful and impactful as he gets his sea legs will probably hold an investor day and a customer.
<unk> day further out to kind of share some of what that vision looks like.
Great. We'll look forward to that thanks, thanks, guys. Thanks for the questions Wood.
And as a reminder to the audience. Please use the raise hand function located at the bottom of your screen, indicating that you would like to ask a question well move on to Matt Condon JMP.
Hi, guys, Matt kind of the non for Andrew Boone just two for me just I appreciate the comments on the convergence between contribution ex Tac and spend but is there any more color you can give in 2023 and noticed the pace of that and then two with cookie deprecation being pushed out to 2024 can you just talk.
About how that's changing your conversation with market areas and maybe just your overall go to market strategy with OLED.
I'll, let Larry take the first one but I'll jump in on the delay of cookies getting deprecated add add anything.
The midstream today three out of four ads don't have a cookie or a device side today I think the nagging issue is that chrome has still has the kooky one of the toughest things that buying is up against is just status quo and as long as Google has that cookie some.
Some marketers get comfortable and they're going to keep with this old outdated technology for a longer time period. So for us, it's just challenging status quo, but marketers. It doesn't change. The fact that these are still going away in the future. There is just more time and so we've actually taken third party cookies and brought them back into our platform.
<unk> for use across the chrome web browser and improve the product there given that now they're going to be available until the end of 2024 as the stay to date. So today as it as it works in the Cookie less channel. We're operating on the people based data set in the cookie or trackable channel of Chrome, where you where you'd.
<unk> the third party cookie and we updated our Ww see software release earlier this year to incorporate third party cookies once again, while they exist. So we improved our product with the use of them inside of chrome and again, 40% of mobile AD impressions are on iOS devices and there are no device identifiers, there all of them.
These new channels connected TV streaming audio digital out of home that are powering our outsized growth in those channels are all using the technology that we created around the household IV and we think this is just a continual drumbeat and once that status quo finally needs to get up ended we do believe our leadership position there will repost rewards but.
I would just add to that I would just look at the customer wins that we continue.
So knockdown, we continue to outperform there we're winning more customers every day a lot of that is really because yes, we have great software or platform is incredibly easy to use we have.
Vast amount of supply integrations, however that said our differentiation lies within the fact that we have our household IV embedded in the software and it makes it easy for marketers to come in use that IV across all channels and ultimately it bears out in performance they see what their return on AD spend is across.
All of these channels you just can't do that with a cookie any longer you can certainly serve an AD in chrome and see if somebody went to the website.
And bought and bought a product, but again only in chrome. So I think the market widely recognized as the limitations.
Are there with.
With the cookie.
And we're just focused around continuing to knocked out customers and continuing to invest in our household IV technology.
Yes, Matt with respect to your first question regarding the mix shift and the impact on revenue ex Tac growth rates as we've been saying all year that was expected in 2022.
And this is what we want to happen its just happening much faster than we expected, which is having a significant impact on revenue ex Tac growth rates.
Certainly create some short term pain in terms of those growth rates, but we do believe it better position positions us long term.
We mentioned in the prepared remarks in Q2 percent of spend customer spent three <unk>, what the average fixed price customer set expense. So that's the direction, we clearly want to go.
How long that will kind of play out I think as we move and we've said this before as we move into 2023, we do expect this trend to begin to improve as the revenue ex Tac growth rates will start to converge with the spend the growth rates as the impact of this mix shift becomes less significant.
In other words, the delta between spend growth and revenue growth will narrow as a percentage of spend continues to make up a larger part but that will take some time, but that youll start seeing that in 2023, and then beyond that it will get closer and closer.
Great. Thanks, guys.
Thanks for the questions Matt.
Larry Chairman, Chris that does conclude the questions for today, so on behalf of <unk> technologies I'd like to thank you all for your participation today that does conclude today's webinar, we'll see you next quarter.