Q3 2022 AdTheorent Holding Company Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to out there its third quarter 2022 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. Please.
Please be advised that this conference is being recorded.
At this time I'd like to turn the conference call over to your first Speaker, David Stefano Investor Relations. David. Please go ahead.
Good afternoon, and welcome to out there its third quarter 2022 earnings call, we will be discussing the results announced in our press release issued after the market close today with me today are Ed <unk>, Chief Executive Officer, Jim Watson, and Chief Financial Officer, Chuck Gordon.
Before we begin I'd like to remind you that today's conference call will include forward looking statements based on the company's current expectations.
These forward looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially.
For a discussion of factors that could affect our future financial results and business. Please.
Please refer to the disclosure in today's earnings release, and our other reports and filings with the Securities and Exchange Commission.
All of today's statements are made based upon information available to us today, and we assume no obligation to update any such statements except as required by law.
We will refer to both GAAP and non-GAAP financial measures during the call.
You can find a reconciliation of our GAAP to non-GAAP measures included in our press release posted to the Investor Relations website at Www Dot.
Dot com.
All of our non revenue financial measures, we discuss today are non-GAAP unless we state otherwise.
With that let me turn the call over to Joe.
Thank you David and good afternoon, everyone.
Thank you for joining our third quarter 2022 earnings call.
During today's call I will discuss our high level results and business highlights and then turn the call over to Chuck who will provide a more detailed look at our third quarter results.
And provide guidance for the fourth quarter and full year 2022.
I am pleased we were able to generate financial results in line with our guidance and grow active customers, 11% year over year.
Despite macro driven pullbacks in ad stack.
In the third quarter, we generated $37 6 million in revenue adjusted gross profit of $24 7 million and adjusted EBITDA of $3 6 million or 14, 5% of adjusted gross profit.
Performance continues to be led by strong demand across connected television or CTV.
And the healthcare vertical in particular, we are pleased to see momentum across products and capabilities recently introduced into the market, which were the subject of investment and development in 2022.
Yeah.
As we discussed on the Q2 call the low end of our forward guidance contemplated continuing weakness in the macroeconomic environment and further pressure on AD budgets. Unfortunately, we did see this in Q3, leading to revenue results toward the lower end of our guidance range.
We are pleased to note that our performance began to wane.
Black at the end of the quarter and that we are seeing increased demand for our offerings, including record pipeline generation in September .
Despite these positive signals, we believe it is prudent to narrow our 2022 guidance towards the lower end of our prior range factoring in the macro uncertainty as well as more conservative assumptions about the holiday advertising season, and the amount of incremental or forecasted.
AD budgets that we expect to receive in Q4.
Our 2023 planning assumes no material macro rebound, but our strong balance sheet and cash flow characteristics will enable continued focused investment and position us to capture greater wallet share when AD spend normalizes.
Okay.
In prior quarters, we have highlighted investments in data technology, and new products that drive valuable differentiation versus other DSP and provide meaningful growth opportunities for our business.
During the third quarter, we saw positive customer responses to several of these strategic investments, including the mid October launch of our highly differentiated predictive audience suite of targeting products.
The first of which is a highly customized offerings for health advertisers.
Equally encouraging.
Our ongoing CTV focused product development continues to drive consistent quarter over quarter growth in pipeline generation, which we see is just the beginning.
Finally, we are successfully scaling our direct access business as we continue to develop and deploy enhanced capabilities, including robust Verticalizing ad solutions.
This self service platform revenue is net new to add Darren opens up immense opportunity and customer types.
And set the foundation for developing longer term strategic relationships with organizations controlling large and sustained media budgets.
Let me speak to each of these and the results they are driving.
First I'd like to discuss at their predictive audiences.
Their health and our continued advancements towards platform vertical as Asian.
We have previously discussed yet they're in health product initiatives and our focused efforts to build a dedicated health product and go to market infrastructure.
Heightened scrutiny around the use of personal health information.
And bind with our ability to use privacy, Florida AD targeting methods to drive healthcare advertising outcomes more efficiently and other platforms.
<unk> us to capture a sizable portion of the nearly $16 billion in annual healthcare advertising spending.
In Q3, our platform's deep health capabilities helped us win sizable deals with some of the U S and Canada's leading digital health care agencies and brands some moving their full programmatic media spend to out there.
We expect even greater momentum.
In the health care vertical going forward, given our mid October launch of Advair and health predictive audiences.
We built this product in consultation with leading health care advertisers based on their stated interests and needs and the early feedback is very encouraging.
This first of its kind product allows programmatic advertisers to target audiences.
In a more precise data driven and less opaque manner than previously possible.
<unk> health predictive audiences are fully customized based on advertiser requirements. These primary source health care data to identify using machine learning and statistics.
The most qualified audiences for targeting consideration without relying on personalized information or user Ids.
This de identified data is aggregated from hospital and healthcare provider claims.
Electronic Health records, and pharmacy, and contextual data, representing more than 300 million patients and health care professionals, which equates to more than 90% of the U S population.
This aggregated health data is mined to create statistical representation of desired target audiences for example condition suffers caregivers or prescription users.
Just on non sensitive data such as age location or gender.
Using our platform and advertiser could create a statistical representation of a target audience comprised of for example people who have been diagnosed with high cholesterol within the last 12 months who are.
But given drug and who had the prescription filled at a specific pharmacy location from there step two of the process activating these audiences as part of our customer campaign on our platform.
Focus is on executing adherence unique kpis specific impression scoring within the created audience.
We believe our launch of add Darren health predictive audiences provides a blueprint for delivering unique values through our platform across a variety of growth verticals.
As we've discussed in the past in addition to adherents core machine learning powered platform and independent impression score and capabilities.
We offer customized vertical solutions to address the needs of advertisers and specialized industries.
We continue to see the strongest growth from sectors, where we have launched these vertical specific solutions such as health.
Importantly, we're also working actively to verticalizing the platforms tools resources and workflows for self service or direct access users with health being an immediate focus.
The continued vertical <unk> of our solutions and our platform will allow us to compete against generalists dsp's with greater value added differentiation.
And we believe it will drive more rapid adoption of our platform.
And at their predictive audiences are foundational to this as our audience build their tool and the platform enables users to create custom ml powered predictive audiences, which are focused and unique to specific verticals.
Next I'd like to briefly highlight our progress with CTV.
Our commitment to innovation helped drive 36% year over year CTV revenue growth during the third quarter.
Remarkable achievement, given the meaningful compression and advertising budgets during the period.
CTD was nearly 10% of revenues during the third quarter of 2022 up from less than 3% in 2020 and nearly 7%.
In 2021.
Our use of machine learning models to drive post CTV AD exposure business outcomes for clients.
It's truly cutting edge and differentiating.
We believe we have a sustainable competitive advantage in this channel and we are already seeing a return on the 2021 and 2022 investments that we need to deliver a more performance focused CTV offering maher.
Marketers are continuing to shift significant dollars from linear to programmatic CTV.
Due to increased precision targeting and the ability to report measurable ROI.
Of which are core to add Darren CTV offering.
Feedback from the market remains enthusiastic and.
And customers are continuing to choose out there in CTV solution for five key reasons first performance, we build machine learning models for CTV campaigns using the wealth of data we have obtained.
In order to drive towards business outcomes, instead of simply delivering video views or completes one of the ways. We've achieved this by committing development and other resources to maximizing and normalizing data attributes available for programmatic CTV. We've discussed this in prior calls, but the more data or machine.
Alerting models have access to the better ROI, we are able to drive for our customers.
Second attribution.
We have built our own attribution solution that allows us to tie viewership on CTV devices to outcomes on mobile and desktop devices.
Data feeds into custom machine learning models on CTV.
It also allows us to report back valuable insights to our customers.
Third privacy.
We use data science and machine learning for AD impression analysis and targeting.
Not to build user profiles or I D focus targeting segments, relying on sensitive or individualized personal data.
Fourth omni channel activation, we can run CTV as part of an Omnichannel campaign and CTV can be used either as an upper funnel or lower funnel driver for our customers.
In our prior call, we discussed add Darren full funnel approach and how we drive greater lower funnel campaign performance for example sales by leveraging data about consumer engagement with upper funnel campaign tactics and finally creative we have a talented in house design team that allows us to deploy innovative creative executions on CTV.
For example, we have the ability to run CTV ads with QR codes, allowing consumers to interact with CTV units in a more meaningful way.
We're also able to run dynamic CTV ads that provide a more personalized experience based on a user's location time or whether signals.
Innovation will continue to drive our success in this channel and we are already seeing strong uplift from innovations deployed in the first half of 'twenty two.
In particular, we are seeing strong demand for our predictive audiences across the CTV channel.
Predictive audiences are a natural fit for CTV because customers are moving from linear to CTV for more precise targeting and our predictive audience is dry bulk traditional audience targeting benefits such as audience quality or reach validation as well as machine learning driven campaign outcomes such as online sales.
During the third quarter, we also expanded our reporting capabilities for CTV and developed custom analyses to demonstrate how CTV can empower brands to reach both known and potentially high value users.
For example.
We partnered with a luxury hotel brand and through a custom website analysis.
To find more than 160000 households associated with devices that visited a website, but did not complete a booking.
In partnership with this luxury hotel brand adherent Reengage these households, with CTV media as an upper funnel tactic building brand loyalty among our high qualified audience.
But this brand as part of a true full funnel strategy. Our campaign performance was 24% better than the cost per booking benchmark.
Our CTV offering gets better every quarter.
As we operationalize and automate new and innovative machine learning advancements and this will drive our continued success.
Looking forward with sustained investment in the channel, we expect our outsized growth in CTV to continue.
Moving to direct access.
Direct access is our margin accretive self service business offering.
As discussed previously.
<unk> invested meaningfully here and while we will not see a significant revenue benefit until 2023.
It is already attracting net new customers and we are excited to begin scaling this meaningful growth initiatives.
Third quarter progress in market was notable nine new brand or agency customers began actively setting up and working towards launch of their first campaign 21, New brand or agency customers had campaigns actively running through the platform most of them sophisticated global advertisers.
And digital AD impressions served for direct access clients rose, 72% quarter over quarter.
We are also in late stage discussions with a number of large organizations about potential 2023 engagements.
<unk>.
Direct access is complementary to our managed programmatic offering it expands our addressable market to include those brand and agency customers, who wish to transact in a self service capacity, allowing us to now transact with all advertisers regardless of size internal resources or campaign complexity.
Correct access addresses the needs of customers with media trading expertise and execution resources, whereas the managed programmatic model is well suited for customers focusing on complex kpis, who desire additional support and value added benefits, including strategy creative and campaign optimization and exit.
Houston.
We're also very pleased with the market validation, we are seeing customers appreciate our industry, leading price transparency, our platform optimizes and tools, which drive performance and efficiency.
And the Intuitiveness of our enhanced workflows, and UI, which operationalized complex ml capabilities.
We are having business development discussions with bigger players and we have a value adding case for inclusion in their programmatic tech stacks.
We're encouraged that sophisticated agencies and brands are telling us that our platform and capabilities fill needed gaps and provide incremental value as compared to DSP and other solutions. They are using now.
We are making progress proving our value explicitly through platform evaluations and we are highly confident that customers can leverage our platform to meaningfully improve return on ad spend.
I also want to talk briefly about one new capability introduced during the third quarter and provide a quick update on another first we introduced search and social capabilities expanding into Youtube, Google search and meta platforms to accommodate our customers' desire to activate without there and across the entire digital ecosystem.
Adherence data driven approach to advertising is well suited for this expansion because.
Because we are able to leverage our data and machine learning to connect the dots between search and social investments and programmatic media.
Inform our programmatic media buying but search and social data and capture a larger percentage of customers media budgets.
Also I'd like to give a quick update on our previously discussed work to leverage natural language processing and keyword analysis, that's part of our impression scoring system.
During the third quarter, we scaled our L. P framework to scrape and extract keyword attributes from 500000 sites daily. Additionally, these contextual signals, which are not dependent on user Ids.
Had been incorporated into all of our CPA predictive models.
Since introducing these attributes 92% of.
Of our CPA models as part of the automated feature selection processes have adopted keyword signals as a model feature impacting model performance.
And in a b testing, we've seen significant increases in K P. I performance by models leveraging keyword attributes.
Our industry, leading campaign Kpis performance does not happen by accident.
It is the result of hard work and the expertise of our team in building and using technology to drive positive outcomes.
And our next phase of this work, we will incorporate sentiment analysis into our MLP framework.
Switching to the macro backdrop and looking ahead.
Many of the dynamics, we discussed last quarter remain unchanged, including reduced AD budgets campaign, deferments and diminished visibility.
But as I noted at the outset of the call. Although we are closing out 2022 in a challenging spending environment.
We approached the end of the year with optimism and high confidence that we will perform very well in categories that we can control.
Advertisers sentiment appeared to bottom out in late August and improved incrementally throughout the balance of the quarter September .
September showed the strongest demand in the quarter and these slightly more robust trends have continued in the fourth quarter to date.
In light of the ongoing uncertainty in economic Crosswinds impacting our industry and business. We took measures to further reduce operating expenses during the quarter. These.
These actions will save us over $3 million annually, starting in the fourth quarter.
As the macro had headwinds subside the steps we are taking both in terms of investments in innovation and operating with a leaner cost structure will enable us to fulfill our commitment to generating strong topline growth and returning to historical levels of profitability.
Yeah.
We remain convinced that especially in periods of economic volatility the ability to drive industry leading performance.
And deliver best in class return on AD spend.
All using idea agnostic privacy forward methods that customers crave will ultimately prove the value of that <unk> unique product portfolio.
We have no debt we operate profitably.
We have a high performing platform and we are bringing to market platform capabilities that customers want and need today.
Today I'll discuss a few of the advantages we bring to market, which we believe will fuel adoption and growth.
Our platform is our product and there are now many new ways for customers to receive the value we deliver.
Timing is everything we used Q3 to complete and deploy critical enhancements to our direct access line of business.
Expand and refine our vertical offerings.
Including launching adherent health predictive audiences and establishing a foundation to deliver predictive audiences across a range of growth verticals. We are confident that these focus areas will be a big part of our success in 2023.
And our excellent team is locked in on getting that done.
With that I'll turn it over to Chuck.
Thank you Jim Thanks, again to everyone for joining us today.
We're discussing detailed financial results.
To point out that in addition to our GAAP results I'll be discussing certain non-GAAP results, our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release that is posted on our website.
W. W Dot adherent dot com.
As Jim covered in his remarks, the impact of softening macroeconomic conditions and the deteriorating visibility and advertising budgets that arose in the second quarter persisted in Q3, while these headwinds did influence buying decisions and weighed on our third quarter performance, we were able to deliver.
<unk> in line with previously established guidance ranges.
Now I'll walk you through our third quarter financial performance and then discuss our guidance for the full year of 2022.
Total revenue in the third quarter was $37 6 million, a decrease of $2 million or four 9% as compared to the third quarter of 2021.
We experienced some softening in demand across our BFS side.
Education and nonprofit.
Super packaged goods and industry and the agricultural vertical.
These verticals were down collectively 6 million or 31%.
Partially offsetting these decreases was continued strength in that there and help in the real estate and services verticals, which were in the aggregate of $3 5 million or nearly 40%.
We remain pleased with the momentum in our CTV offering.
The revenue grew 36% during the quarter to $3 6 million as compared to $2 7 million in the third quarter of 2021 fueled by new customer growth.
In discussing the remainder of the income statement, we make references to certain non-GAAP measures.
You can find information on the most directly comparable GAAP metrics in our third quarter earnings press release.
Our overall campaign profitability remained strong adjusted gross profit, which is a non-GAAP metric that removes traffic acquisition related platform operations costs was $24 7 million in the third quarter were 65, 8% of revenue.
64, 6% in the third quarter of 2021.
Moving down the income statement to operating expenses third quarter operating expenses were $39 4 million increase of $5 million or 14, 5% versus the third quarter of 2021.
Stock compensation head count costs, and insurance were up year over year.
Partially offsetting these year over year increases or decreases in tax and legal and professional costs.
Platform operation expenses for Q3 were up one 9% and keep the hiring driven increases.
Our media operations data science, and analytics and technology teams and increase in equity based compensation and continued investment in our data infrastructure to support our predictive audience initiatives.
The decrease in revenue driven traffic acquisition costs offset these increases.
Sales and marketing expenses for Q3 were up approximately $1 9 million or 28% largely driven by $1 million increase in employee expenses related to sales and customer support and hiring and.
And increases in equity based compensation and travel related expenses.
As our customer facing teams resume more traditional business travel routines.
Technology and development expenses for Q3 were up approximately $1 million or 35, 8%, primarily due to incremental software expense and employee related cost increases as we continue to invest in our technology and product development capabilities.
General and administrative expenses for Q3 were up approximately $1 7 million or 53, 9%, primarily due to an increase in equity based compensation increase in insurance expense driven by public company directors and officers insurance premiums and employee expenses related to hiring for the general and administrative teams.
Yes.
Professional services expenses were down year over year.
They are included costs related to public company readiness, including all these legal and consulting costs.
Moving to earnings we exceeded the midpoint of our Q3 guidance range third quarter adjusted EBITDA coming in at $3 6 million versus $8 9 million for Q3 and 2021.
Adjusted EBITDA margin for the quarter was 14, 5% versus 35% for Q3 of 2021.
Now, let's turn to our outlook for the full year 2022.
For the full year and consistent with previously provided guidance, we expect revenue to be between $160 million and $165 million was the range representing a decrease of three 2% essentially flat.
Compared to 2021.
For the full year and consistent with previous guidance, we expect adjusted gross profit to be between $105 9 million and $109 1 million, representing a decrease ranging from two 2% to nearly flat compared to 2021.
We expect full year 2022, adjusted EBITDA to be between $17 $5 million $20 million or approximately 16, 5%.
Two 3% of adjusted gross profit.
As Jim mentioned, we are seeing more optimistic trends and the demand for our offerings.
Continue to invest in our high performing platform, we're excited about the market reception to our new products.
Operationally, we are debt free and we have taken measures to ensure we are properly positioned to the current economic environment, while continuing to invest in our market opportunity.
We're taking a cautious view of 2023 as we work through our 2023 planning process, but we believe we are well positioned to gain market share and grow EBITDA.
Especially once AD spend returns to historical levels.
Like to turn it over to the operator to moderate our Q&A session.
Ladies and gentlemen at this time, we'll begin the question and answer session.
To ask a question you May press Star and then one.
Withdraw your questions you May press star two.
We're using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the numbers to ensure the best sound quality.
Once again in order to join the question queue that is star and then one.
We will pause momentarily to assemble the roster.
And our first question today comes from Maria <unk> from Canaccord. Please go ahead with your question.
Great. Thanks for taking my questions and I appreciate all the color on the quarter. So.
So first with revenue trends to mineral instead of decelerating into Q4 can you maybe just talk about how Q3 progressed you mentioned things may have improved by the end of the quarter and that sort of continued into Q4, I guess, how did October performer relative to Q3, and maybe talk about this trend sort of in the context of expected larger year over year decline.
And here in Q4.
Thank you Maria Q3 was not where we wanted it to be a revenue was at the low end of our range.
That was for a couple of reasons.
We were impacted certainly by the macro and temporary pulled.
Pullback from brands on an AD spending.
Delays with new platform integration.
Inflation or poor financial results.
Large holding company growth in the third quarter was about zero to 1%, which shows a bit of a slowdown in the pattern.
As Ben and we're a relatively small organization and a.
A handful of pauses or pushback in our world.
We're a much more visible in our short term results I also think that the.
The current environment tends to favor the status quo Tech stack.
It takes a bit longer.
Get breakthrough to the bigger flagship accounts.
Some pilots in strategic deals take a little bit longer to win so I think there's we saw a bit of that but at the end of the day. That's fine I mean this was a.
This was a quarter, where we made a ton of progress I think be the macro conditions in some of the factors that were.
Headwinds for us this quarter.
We believe our short term, we think that in September .
We witnessed some of the most robust and strong demand for our offerings that we've that we've seen as an organization in large part fueled by some of our recent deployments one of them being out there and predictive audiences is physically out there and help predictive audiences.
A number of the.
The growth in pipeline is attributable to those recent deployments that were very often work that we're putting in the investments that we're making are going to impact the numbers.
Obviously, not the quarter. We wanted this time around we signaled that it was going to be.
A range that was going to be.
Less clear than we've seen in the past, there's a lot of uncertainty, but at the end of the day I think we feel very good heading into the fourth quarter.
Still don't have full transparency into holiday spending I don't think anyone does.
And some of the some of the future macro conditions still remain a little bit uncertain.
But we are seeing more positive signals real good about where we're going but again, we want to be fully transparent about the challenges that we're seeing in the end that we have seen.
Got it that's very helpful. And then secondly, how does an advertiser planning cycle look it looks like now and anything you can share with us around visibility into next year's budgets at this point and I know you're not guiding to next year, but how are you thinking about your ability to outperform the buda.
It'll add market next year is two minutes it would grow somewhere in the sort of mid single digit range. Thank you so much.
Yes. Thank you.
I'll answer the question. The second question first I think that we believe that the opportunity for us to grow remains strong.
<unk>.
Products that we've rolled into marketing and frankly, a number of the.
The main the main focus areas and one of them I'll talk about briefly here is our direct access offering.
We believe that the opportunity.
For our direct access offering cannot be overstated, it's something that we've been working on.
With great dedication and focused investment.
In our view.
The programmatic market is long overdue.
For a transformational CAC.
Recalibration.
All ads are targeted to consumers currently it's done on an IV user basis.
To use your Ids recharging user Ids, we believe there's an incredible opportunity to introduce solution that changes that.
What we bring to the table, we think that it's resonating very well with the customers and the partners that we're talking to you.
Do you have that reflected in our results, we will take a little bit of time in this environment, but we feel very good about where we're going we believe that many organizations are looking for media activation capabilities.
That can sit on top of data many different sources of data some of the data that they have some source of <unk> data that we license.
Makes sense of it and then activate it to purchase digital media intelligently.
Without relying on user Ids.
And using our ml powered media buying platform, we do this very very well.
And we're excited to be having discussions with very big customers about those capabilities. We believe that we can return to a strong growth trajectory next year. Our historic goal has always been 20%. We don't think next year, it's going to be 20% just in the interest of being prudent and careful and cautious given a.
Lot of the unknown factors, but we're going to grow next year, we are going to realize a return on investment from the very very successful deployments that we've made with direct access.
There are predicted health audiences at their predictive audience is generally.
And CTV, we think those areas will drive growth.
We do not believe that these last few quarters are indicative of adherence and what the future holds for US our head has been down on driving that.
Ali creation differentiation, and frankly products that our customers want and things that will make us stand out we're having we have the luxury of having very good sophisticated customers that we've worked with for 10 years.
And they have communicated to us.
That we're performing at a very high level on their campaigns. This quarter. We grew the number of active customers that we have the AD spend was down the economy was bad.
That's okay.
We have the balance sheet, we have cash in the bank.
And we have a profitable business.
That allow us the luxury of being patient.
We have a very big and vast opportunity in front of us and we're not going to let a quarter or two.
Macro challenges impact our enthusiasm or changes from our course, we believe that a continued head down approach delivering on these.
Major opportunities is the job and we've rolled out in the third quarter two of our biggest products to date as a company and we're very excited to see some of the progress that come from those deployment.
Great. Thank you Jim I appreciate the color.
Thank you Maria.
Our next question comes from John Blackledge from Cowen. Please go ahead with your question.
Hi, Good afternoon. This is James Kopelman on for John Thanks for taking the question guys. There's obviously a ton of potential with direct access initiatives you just spoke to a little bit I'd like to come back we recognize its early innings as you begin to scale I'm curious what are some of the feedback that you're starting to hear from new customers. So far.
And.
Looking out over call. It 12 to 18 months I understand the macro is is complicated, but how how quickly should we think about the scaling of the initiative.
And then again looking out over some period of time call. It a year or two I'm curious if you could help us on.
In terms of verticals, how much you might expect to come from health versus versus other key verticals. Thank you.
Yeah. Thank you very much for the question on the last question first about health Health is is our largest vertical now.
And we expect it to be our largest vertical for the foreseeable future.
And that is why we rolled out the out there in health.
Predictive audiences product first.
We believe that in a data environment in a privacy environment, where there are very large budgets and very large organizations seeking to connect with consumers about health care products and pharmaceutical product.
That there was a.
There was a gap in the market and a gap in the capability set that we believe we have built by.
Accessing and licensing.
<unk> dataset.
That we can use health claims data and data about from pharmacies and other just first.
Source data that we can use to create.
Very valuable foundational data targeting layers for our machine learning programmatic platform.
So that we don't have to target.
Users based on inferences about their health condition that has been a standard fare method of delivering targeted ads in health care a lot of the very sophisticated and thoughtful.
Programmatic.
Health care advertisers are looking to find a better way to reach.
Consumers, who are interested in various health care products, our offering was designed and developed in close consultation with some of the most sophisticated and large global pharmaceutical advertisers in the world.
We talk to them about what was in the market, we're talking to them about what we can achieve with our machine learning capabilities. We licensed data, we need that investment and that and now we're seeing the beginnings of the return we're seeing pipeline that is record breaking for our company and we're seeing very good test opportunities.
As with <unk>.
Household name pharmaceutical companies even in Q4.
I don't want to get ahead of ourselves here and talk about what financial results were gonna see from health care in the fourth quarter or this year, but the response is very very positive and I think it's because the customers are smart and they recognize that making inferences about health care condition based on who visits what website is not the future for <unk>.
Digital advertising and health care.
Your first question I think it was about direct access.
Direct access we started out our company.
On the foundation of using machine learning and data science to target ads by predictably, scoring AD impressions and the.
The the challenge with doing that is that.
It's new and it's more disruptive and it's harder to do.
And in the beginning we offered our service as a programmatic manage programmatic offering or managed service <unk>.
Yeah.
And as we've as we've gone forward in the market we realized that.
We needed to make some changes to our UI and our workflows. So that these very complicated execution could be achieved on a self service basis by brands, who have in house teams or by agencies, where we're looking to use it.
A really really powerful performance DSP that is what we built that is what we've been focused on doing we could've come to market three years ago four years ago with another generic DSP that targets.
I.
That is not what we are in the business of doing so the work that we've put into building our DSP building. It on it on a to building our capabilities in terms of targeting ads.
Apart our direct access now that it's been market, we're talking with very very large media buying companies are the.
The results have not hit our financials, yet, but there are going to be some very good opportunities that we're going to have we already have trials that we're very happy about and excited about so I'll just I'll just leave it at that we think that direct access is a very very big part of our future and we will see results in 2023 from that effort.
Great. Thanks, Jim that's all very helpful and.
I appreciate the color and best of luck with the remainder of the fourth quarter.
Thank you. Thank you so much.
Our next question comes from Laura Martin from Needham. Please go ahead with your question.
So I'm going to push you a little time as you can expect from me.
So our competitive advantage here.
Algorithmic and performance and now you're talking about seeing TV, which is cool except states tends to be top of funnel.
Tends to be always registered environment, which feels to me like it's not the best.
This scoring so please reach out to me.
Thank you for that question.
The beauty of what we do is that we.
Try to disrupt some of those premise.
Premises that we think.
Can be challenged and I think that is an example of one.
D T D need not be a purely awareness upper funnel tactics.
As Darren has the ability to.
Yeah.
Generate machine learning insights from post CTV ad exposure.
Leverage those insights.
To drive optimization can make CTV more performance channel one of our major investments that we started making in the third and fourth quarter last year.
Was to normalize and enhance and improve.
The.
Data.
Received from the programmatic exchanges related to CTV inventory.
The content object metadata.
A lot of DSP is a lot of programmatic companies do not use that data because it is messy and it's not normalized and it's frankly very hard to understand what it is.
We invested and we have now completed that investment and we are using.
The data that comes through the bid request through SSP to make our CTV more data driven and obviously.
The ability to drive.
<unk> performance space CTV is different and that is exactly what we are in the market to do we have a full funnel approach, where we can leverage data from the upper funnel to inform our models and our algorithms and the lower funnel, but we also believe that at every level of the firm.
Theres also a performance aspect even in the upper funnel, there anything measurable winner and a loser in terms of who can drive clicks or engagement with CTV, we're making we're making that.
Screen and the ability to advertise on CTV more data driven and more accountable and I think that is what's resonating we saw 36% growth this quarter, it's a little bit down from last quarter of over 100, and 100%, but that was just a factor of some of the larger macro trends that we're seeing the.
The work that we're doing on C. T V. I think he is going to set us apart. It already is and we're very excited about it for the future.
Okay. Okay, and then my second one is sort of industry design question. So we haven't tried desk I report revenue up 31% a lot of the smaller companies like yourself.
Reported negative revenue growth. So the question is this is sort of a large getting larger I think it's winner take all markets in in the in the digital advertising space.
Yeah, I mean, the trade desk had a solid quarter. They are a great company a number of factors and back companies differently their size they are.
Almost 10 times our size.
They've had time to implement strategic partnerships that we're in the process of implementing.
This is our first year as a public company, we can't pulp became public at a quite an interesting time.
Some consolidation going on but at the end of the day the way we defend ourselves against that.
In the near term is just making sure that when when we get trials and frankly, when we go into the market. There. There is a need for what we do there is a demand for a DSP.
That comes to the table with a more data driven less I D focused way to drive business outcomes that is the lower funnel performance DSP opportunity that we're pursuing.
The more we vertical is that the more it resonates with the customers that we're talking to you I think there are.
Big ESP and other programmatic companies.
I don't have that same focus so we have a different we have a different opportunity and we believe we're pursuing it in the right way, we're not going to panic, because Q2 and Q3 had a.
The demand environment that wasn't ideal for media buying but at the same time, yeah. The trade desk had a great quarter great. Good for them, we're really happy for them, but we had a great quarter. Two there wasn't shown in the financial results at the end of the day, we realized that that is all that matters.
For this purpose.
But we also have an obligation and a duty to invest in the opportunity and the transformation of programmatic to an IV agnostic world, where you can predictably score impression and not be.
Not be required to identify Ids and and go in that direction. We believe it is an enormous opportunity and we're the only company doing it we're the only DSP doing it. It's inefficient. It's also an efficiency when you can create audiences using statistics and in.
All sorts of data and you can create audiences that are more effective and more valuable than the third party audiences that are being licensed by every other DSP in market right. Now that's valuable. It's also valuable to be able to go to very large brands that are trying to bring programmatic capabilities in house and they want a <unk>.
<unk> partner that can help them understand their own data.
Conclusions from that data and then use it to execute programmatic media buys.
That is the business that we're in we think it's very exciting a little bit different it's going to take a little bit longer for us to get the scale.
That some of our peers in market already have with 10 times, our size and resources.
But we're very optimistic about it we have a better business now than we had a year ago by far.
And we're going to just keep doing what we do until the market improves.
We will have results that are good and then we will have results that are great when the market improves.
So much thanks very much.
Thank you Laura.
And our next question comes from Andrew Boone from JMP Securities. Please go ahead with your question.
Hi, guys. Thanks for taking my question, Matt on for Andrew just repeat that obviously are reaching digital advertising environment can you give us any color on how we should think about take rates going forward and then maybe a second one just on the advertisers. They were added in the quarter are those health advertisers, obviously predictive audiences are being added in October .
Or just any any color there on the on the.
The strength from the client adds in the quarter. Thank you.
Yeah. Thank you for the question the third quarter did not did not reflect any incremental new predictive health.
Customer acquisition, we believe that those are going to come at the beginning.
At a smaller scale in the fourth quarter, but mostly next year most of the pipeline creation from this product is focused on 2023.
So no we have not seen any benefit from from that work to date.
With regard to take rate.
We look at things from.
From a very very different.
We think that when we work with customers. The first question, we ask them is what.
What is your cost per action goal for your campaign, if you're trying to sell something.
And you have a media budget what is the cost per action that you want to spend how do you define success and then our algorithms.
Our program to achieve that outcome. So for us to take rate is more about can we deliver.
The campaign performance that the customer came to us and requested.
And then from there if we can do that very efficiently by for example, removing fraud not wasting our money on impressions that arent viewable not wasting our money on impressions that are not accountable by third party measurement partners.
All of those other wasteful things if we can do it really efficiently.
And we know where to get the right conversion and we can get conversions without wasting as much money on on an impressions that are that are knocking it yields conversion then we can be profitable and our adjusted gross profit margins in the third quarter increased.
Two a very strong level, they've always been strong because because again for us it comes back to the ability of our platform to do hard things.
So.
We don't we don't talk about take rate, we don't publish take rate, but for us It just starts with.
How can we drive efficiently customer outcomes.
And when we do that well, we can have a very profitable business.
Thank you.
Thank you and our next question comes from John Roy from Water Tower Research. Please go ahead with your question.
Hey, so Jim you've talked obviously, a lot about predictive audiences in health care.
Was wondering are you going to be able to leverage that into other verticals quickly.
Is that going to be something that's going to be a lot of repeatability or is it a lot of a whole new designed to get that type of activity in other verticals.
Thank you Jonathan.
A great question.
The reason why we're so excited about the predictive audiences capability is that is an infrastructure that we built there is an audience building capability in our platform and it is a replicable.
Approach and method to creating.
Audiences, using data and facts rather than assumptions and we.
We rolled out our first predictive audience for health.
And it's been very very well received and that particular audience consists of health claims data.
That is the source and from that in this case, it's unique in health care, it's different you need to make sure that you don't.
There's a D identification layer when you're dealing with health care you can't have a seed audience you can't have it to the audience and then.
Uh huh.
Directly from that in health care, because there are rules under HIPAA about the extent to which actual condition suffer information can be used and many platforms take for example, 10% condition sufferers and then they they put 90%.
Non condition suffers into a into a segment and it makes it all up and that becomes a HIPAA compliant targeting segment well.
Our world.
It is a much better and more data driven and exacting method to understand some of the statistics of the audience and define the statistical parameters of condition sufferers without getting into who they are.
And then from there target.
Kpis based on actual conversion activity.
Within the context of that audience, but the beauty of predictive audience is it.
We are able to.
Optimize campaigns based on Kpis as we always have in other words, we scored impression based on the likelihood that those impressions are going to drive a sale or visitation or what have you.
But for those customers, who really care about audience quality in other words I only want to talk to people I only want to consider serving and add the people that are within these audience parameters. We can do that as well and I think doing that and making that something that can be activated on a self service basis and a turnkey.
<unk> is game changing for out there. So we're very excited about it we're excited to have out health resonating so much with our with our big customers.
We're really excited to talk about this as we go forward.
Across a number of different vertical. So so thank you for that question. It's a big it's a big opening for us in the market.
Thanks, Jeff.
And ladies and gentlemen, with that we'll be concluding today's question and answer session I'd like to turn the floor back over to James lessons.
Oh for any closing remarks.
Thank you for joining us today, we appreciate everybody joining to listen to our Q3 update.
In the third quarter, we delivered revenue on the low end of our range, but we believe we're doing the right things to position. This company for long term success and profitable growth.
In market, we are providing trans formative media buying products and capabilities we.
We believe the programmatic advertising industry needs to graduate.
From user I'd targeting and we are the platform company that can lead this transformation, we are well on our way.
A materially better business than we did a year ago and.
And I sincerely look forward to sharing further updates thank you for joining us today.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.