Q3 2022 Integral Ad Science Holding Corp Earnings Call
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Thank you for standing by and welcome to your I guess third quarter 'twenty to 'twenty two earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session.
You will need to press star one on your telephone.
I would now like to hand, the call over to Jonathan Schaffer VP Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to the Ias 2022 third quarter financial results Conference call.
And today by Schneider CEO .
As announced this afternoon via press release Tanya C Corps has been appointed as CFO effective December five we look forward to tani joining for our next earnings call.
On today's call Lisa will address high level financial results in her comments. In addition, we have posted leased in his prepared remarks, along with a more detailed financial review on our Investor Relations site investors Dot integral AD dot com.
<unk> and our Chief Accounting Officer will also be available at least during the Q&A session on today's call.
Please note that today's call and prepared remarks contain forward looking statements. We refer you to the company's filings with the SEC, which are posted on our Investor Relations site for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations.
We will also refer to non-GAAP measures a reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today's earnings release available on our Investor Relations site.
All financial comparisons unless noted otherwise are based on the prior year period.
So with these formalities out of the way I'd now like to turn the call over to our CEO , Lisa Ed Schneider, Lisa you may begin.
Thanks, Jonathan and welcome everyone to our 2022 third quarter earnings call as mentioned, we posted a detailed financial review on our IR site, but let me start with a few financial highlights.
We reported 28% increase in third quarter revenue year over year to $101 3 million, which compares favorably to our previously revised outlook of $99 million to $101 million.
International represented 31% of third quarter revenue unchanged from the second quarter gross profit margin was 81% adjusted EBITDA increased 19% year over year to $31 million at a 30% margin as we exceeded that rule of 50.
We also reach net income profitability for the third consecutive quarter as a result of our positive Q3 performance and current business trends, we are modestly increasing our previously revised full year revenue outlook. We are also raising the midpoint of our revised full year adjusted.
<unk> EBITDA range.
During the quarter, we delivered innovative and differentiated solutions to our customers that drove upsell and cross sell opportunities the adoption of context control, which includes both avoid incident targeting is a great example of how we meet the evolving needs of our customers.
Since launching context control in 2020, the business has grown to represent 45% of programmatic revenue in Q3 and more than $80 million in revenue expected in full year 2022, the tremendous growth that context control demonstrates our ability to develop and scale products.
Become meaningful revenue contributors over time.
New context control avoidance wins include Toyota in the U S and American Express in Italy.
We're committed to providing coverage of context controlled globally and have expanded to 45 languages. In addition to further penetrating our top 100 customers, we see additional opportunities to grow the avoidance business in the mid market as well as internationally where adoption is increasing.
Context controlled targeting represents a large addressable market, we're activating testing and learning with new customer wins in the U S and EMEA across industry verticals, including travel and entertainment finance consumer packaged goods and tech telco.
In social media, which continues to represent a dynamic and growing opportunity for Ias, we are making significant gains with our major platform partners.
<unk> leads the market with the launch of a full end to end measurements, we tick tock slides.
Including brand safety brand suitability view ability and invalid traffic our ICT detection.
In October we launched a postpaid measurement brand safety suitability solutions take time, we are leveraging our 100% machine learning multimedia classification technology for video image audio intact enhanced by our context acquisition, we can analyze content with greater granularity at the <unk>.
<unk> frame levels in the live feed offering both pre campaign targeting and campaign measurement solutions with Twitter, we plan to rollout our beta for our postpaid brand safety solution in the coming weeks.
The recent Netflix announcement further validates Ias's technology leadership in the important CTV market. We were delighted to announce that Netflix has selected Ias is a transparency partner to support their much anticipated AD supported planned starting in Q1 2023.
Our initial focus will be on view ability and IGT postpaid measurement.
We've established a leading market presence in CTV. Unlike linear Tv's one size fits all approach to advertising CTV as an addressable immeasurable medium and we're building confidence and trust with marketers and publishers.
Our public or business acquired last year is a leading solution to drive yield for streaming publishers, we provide superior technology, while maintaining independence from the media selling business. We are focused on maximizing revenue for a publisher clients across device manufacturers broadcasters.
And multichannel video programming distributors, including Samsung AMC Fox Directv and fiber, we also deliver the best experience for the consumer by incorporating the video recognition technology acquired through the context acquisition by utilizing context before.
<unk> AD runs along with our server side AD insertion stitching capabilities in the live stream publica ensures that the dealer has a positive experience without having to endure duplicative or repetitive ads or in some cases offensive or missed targeted ads.
For marketers public cloud provides insights into which adds have been delivered and what content to what audiences.
We also enable buyers to easily activate campaigns programmatically across private marketplaces connecting them directly to the highest quality CTV inventory. We are focused on delivering CTV solutions to provide content level transparency fraud detection targeting of contextually relevant.
Notable content and ensuring that adds have been rendered while Tvs on according to a recent study by group them and I spot, 17% of impressions delivered through CTV streaming devices or deliver while TV screens or our new onscreen completion rate metric.
Is this issue and validated <unk> TV was off while it device continue to stream if an AD was fully rendered on screen and if the athlete to completion.
<unk> is on track to contribute approximately 8% of total revenue for the full year or approximately $32 million.
We are also extending our capabilities into the fast growing audio and gaming markets, where advertisers are increasingly looking to our solutions in audio we are partnering with Spotify to create the industry's first third party brand safety suitability reporting tool at advertising week in New York David.
Byrne the director of global advertising brand safety at Spotify commented that it's great to have a partner like <unk> and together our responsibility is to make sure that advertisers feel safe secure and trust, what we're bringing to them in the audio space in Q3, we announced the launch of our post spin.
Verification product for either ability and IGT measurement, we're actively working to expand these capabilities to additional audio platforms in gaming, we partnered with Israeli based into where we are in market with your ability in IGT measurement solutions, we're looking to extend these capabilities.
Beyond mobile in App to other gaming environments, including consoles Pcs and desktops were also testing with other platform providers to expand our coverage within gaming.
We're delighted to announce that Kimberly Clark selected <unk> as their global AD verification and proactive brand safety prevention solution in a multi year agreement at the end of the third quarter.
This partnership with a major CPG company with secured after a head to head against other providers. We were awarded the opportunity based on the value of our solutions, our high standard of service and global support and our insights as a service approach I couldnt be prouder of the team for.
This one we.
We continue to strengthen our senior leadership team to help guide.
And our next phase of growth in May we appointed John It's Don to the newly created position of Chief Commercial officer responsible for global sales and marketing under his leadership. The honest is enhancing our go to market strategy across functions to bring best in class enterprise level.
Sales and Activations to our customers globally International is a key differentiator for Ias as global marketers look to simplify and consolidate verification under one provider.
In August we welcome Thomas Joseph or T. J is our Chief Technology Officer, TJ brings a high degree of technical expertise and global enterprise experience with Microsoft Most recently helped drive the Pandora integration at Sirius XM T. J is already making an impact.
Aligning the engineering organization to support our product roadmap and long term growth strategy.
Today, we are excited to announce another key addition to the senior leadership team Tania CCAR will join US as Chief Financial Officer based in New York Tanya is a highly accomplished finance leader with 25 years of financial leadership experience and a proven track.
Or are building teams and scaling organizations for growth.
Most recently Tanya was global CFO for RGA, and Reprice Interpublic group digital innovation and digital media agencies, respectively.
Deep background in P&A and capital markets, along with a relevant industry experience make time, yet a great fit for Ias, we look forward to Tania joining the team on December 5th and to introducing her to everyone.
Lastly, we're excited to support marketers' efforts to track and reduce their carbon footprint, we recently announced a partnership with UK based good Lou a purpose led advertising platform, that's moving the industry towards positive climate friendly advertising, we are working with omnicare.
Calm and Sanofi Aventis on pilot testing in Q4 with broader availability in 2023.
In closing 2022 is shaping up to be another year of expanding capabilities in delivering revenue growth and profitability that exceeded the rule of 50, we continue to focus on driving efficiencies in our business and prudent expense management as reflected in our adjusted EBITDA outlook.
Yes.
Additions to our senior leadership team, including today's announced CFO appointment, we are adapting and aligning our execution for the current environment. We are currently in the thick of planning for 2023, and we believe that we are setting the stage for long term durable growth and with that we're ready.
To take your questions operator.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Andrew <unk>.
Raymond James Please go ahead.
Hi, Thanks for taking my question.
First off on the Advertiser direct line in particular saw a nice little acceleration in <unk> is there anything specific to call out there. That's the driver behind that and then have a follow up after.
Sure Hi, Andrew Great question. So yeah, we're pleased with our results in the third quarter and also the fact that we're seeing strong programmatic results and advertiser direct with add direct in particular, where we saw strength, we're in a couple of verticals, including.
CPG.
Retail and auto and then also.
Saw a nice uptick in.
Growth from the EMEA market with 14% year over year growth and that was primarily driven by advertiser direct.
Got it and that actually did kind of dovetail into my next question that EMEA revenue seem pretty solid in <unk>. Despite all the bad news that we've heard about energy costs macro et cetera, I guess, what is your <unk> guide assume for U S versus international growth and anything to look out for macro wise.
Yeah, So great question.
Again, we saw a nice uptick in growth in EMEA as I mentioned before a 14% increase year over year for Q.
Primarily advertiser direct.
We're seeing solid performance in the fourth quarter, we typically don't break out U S from international revenue, but we're.
We're feeling good about fourth quarter and the trajectory of the business.
Cross all of the regions right now.
Great. Thank you.
Okay. Thanks, Andrew.
Thank you.
Our next question comes from Mark Mahaney of Evercore. Please go ahead.
Mark Mahaney of Evercore Your line is open.
Okay, I'm, sorry, I Couldnt hear my name being called sorry about that.
Lisa Let me ask two questions first just on your macro commentary there.
I assume you are seeing some softness in end market demands and market demand I assume thats why I know you didn't kind of changed your fourth quarter guidance, but it does imply a pretty material deceleration in growth rate. So I just wanted to go back to that like to the extent that there's softness in the end markets, where does it show up for Ias.
Fewer new advertisers less spend per advertiser higher churn per advertiser anything like what are the what are the.
What are you seeing so far and.
I was wondering I just want to go back to you on the macro outlook.
Yes sure.
First off we did exceed guide in third quarter, Mark and we modestly increased our Q4 and full year guide, we're seeing double digit growth on all three revenue lines in the third quarter and the Q4 guidance increase we are seeing an uptick in programmatic demand.
We're seeing improved performance in advertiser direct as I mentioned before in.
In particular verticals like automotive CPG and in the streaming vertical and then also I should note we are seeing strength in CTV and strong performance with public hub.
Yes.
Okay.
Okay, and then can I just can we just double click just under the Netflix relationship or the Netflix deal and can you put that in context like how big of a.
How big of a win is this what are the solutions sets that they are purchasing is this something where they're just doing a modest amount and then you can expand it over time is this across just the U S crop.
Properties or is this just a global deal just talk about.
How big the deal is so far and how to think about how it could grow over the next couple of years.
Sure. So we were delighted with the announcement that Ias was selected by Netflix as a transparency partner.
To support their much anticipated AD supported model I actually think it's.
A great initiative for the entire digital industry.
And our initial focus it will be available in Q1 of 2023, we'll be providing view ability and invalid traffic postpaid measurement.
To inform both brands and agencies on campaigns reach and engagement.
Our offering will be rolled out across multiple markets wherever Netflix is providing advertiser.
Advertising, we will be providing our measurement solutions and again. This is just the first inning of hopefully a very long game with Netflix I'm really looking forward to the launch of the partnership.
And just last question Lisa please the Netflix Netflix deployment require a lot of extra work customization on the part of Ias or of a essentially acquiring your off the shelf solutions.
Great question so.
It's an integration that we focus on scalability and ensure we have global reach of our solution.
And there is not much customization required when you take a look at how fast Netflix is moving to launch their AD supported solution I think all of US agree the faster we can get an offering out to the marketers the faster they will be spending on Netflix and again I really think it's a win win.
When across the board for the entire industry.
Okay. Thank you very much Lisa.
Thanks, Thanks Mark.
Thank you. Our next question comes from Brian Fitzgerald of Wells Fargo. Your question. Please.
Thanks, maybe a follow on to the Netflix a line of questioning as we're seeing new premium <unk> platforms coming to market and aiming to establish add businesses niche and cheap pretty IFC pms.
Are they in some cases proactively purchasing view ability and IBP solutions or is it more about them, enabling these capabilities and advertisers.
Having the verification verification revenue opportunity for you guys.
Yes, great question fits I would say what we're seeing the industry trend is you take the example of Netflix Netflix represents premium inventory.
With this AD supported solution that they are rolling out and what marketers are asking for is for the independent verification providers to provide view ability and invalid traffic coming out of the gate.
They obviously, one independent platforms like Ias in the mix coming out of the gate for the launch of their AD supported offering but I could see later in the game that marketers would potentially be interested in additional solutions like brand safety and suitability, but.
Coming out of the gate, it's IGT and view ability.
Got it and maybe one kind of follow on a wrinkle to that and that's on the advertiser side wanted to get a sense of.
Of advertisers level of concern about the mobility and RVP and these premium environments.
Yeah, I would say that I mean, the marketers, they're cheering wildly over Netflix is announcement and they want to focus first especially with premium inventory in non programmatic inventory on view ability and IGT and they really want.
Pending third party players like Ias in the mix at the start of the launch just to ensure that there is that independent.
Offering for the marketers.
Okay Awesome. Thank you Lisa.
Yes, Thanks Beth.
Thank you. Our next question comes from Jason helps stream of Oppenheimer. Please go ahead.
Thanks, Lisa let me try to can you give us a sense of the opportunities meta comes on board I mean, I assume most advertisers probably spend two to three times more than met it and maybe any other platform. Besides Google.
Is that kind of representative of the opportunity for you.
A per client basis and then.
One of the things that we've been active in.
<unk>, putting it out there like <unk>.
<unk>.
A potential currency.
And.
And then it's kind of like well if <unk> could be a currency why couldnt ISP currency. So maybe just if you.
Can opine.
Opine on kind of how you think about.
No.
Kind of.
The evolution of currency with.
Over the next period and kind of your role in that as well.
Yeah.
Yeah, Great question, So I'll take them in order. Thanks, Jason So the first is about matter and we are following <unk> lead in terms of.
Their plan to open up the live news feed for independent verification Badged partners. They have shared that publicly that they do plan to open up the live feed.
With the badge partners Ias is one of the badge partners I believe there are three of us and we're really looking forward for that to happen they have shared that.
I expect it to open and ramp in 2023 as you know, Jason we don't provide our 2023 outlook. So.
Not at Liberty now to share any anticipated contribution with any meta revenue, but given the massive volume.
And how large the entire social platform is.
We just can't wait to partner with meta.
Once they open up the live feed and then to your second question about <unk>.
<unk> being a potential currency the reality is and I know, Jason we've talked about this before but in macro economic conditions. The reality is marketers care, even more deeply about ROI inefficiency in their spend and that's why they are leaning into our solutions.
We're helping marketers identify where higher quality media is and as we have demonstrated in dozens of case studies that we've shared with our marketers higher quality media leads to higher ROI. So we do see a future where ias could.
Potentially be a currency for marketers when it comes to things like attention metrics or outcomes as marketers need to do more with less especially with.
With the macroeconomic headwinds that marketers are facing today, and we'll see what the headwinds look like in 2023.
Thank you.
Thanks, Jason.
Thank you. Our next question comes from the line of Raimo <unk> Barclays. Your question. Please.
Hi, This is Greg on for Raimo. Thanks for taking the question are you seeing any uptick in new customer urgency given the ROI argument for product and specifically have you noticed any more greenfield deals.
Yeah, Great question. So as I was mentioned before given the current macroeconomic conditions advertisers are leaning even more into Ias's solutions given both the efficiency of our offering we're helping marketers identify higher quality media.
Leading to our ROI.
So absolutely and you can see with things like programmatic, increasing by 40% the rapid adoption of our context control avoidance product. They are absolutely leading into our solutions and in terms of Greenfield opportunities. Yes, we are seeing low.
Those are greenfield opportunities, we don't really disclose RFP win rates, but in terms of greenfield opportunities are emerging markets. We're seeing really nice growth as I mentioned before in our nationally in some of those emerging markets like Latin America like Southeast Asia, and then also.
The big wins like I had mentioned previously on the call with Kimberly Clark, which is a multi year multi media $1 million.
When that was a direct jump ball doing deep tech diligence us against our competitors and winning fortune 500 brands.
I'm, just so incredibly proud of our team for that win.
Very helpful. Thank you.
Thank you.
Thank you our next question.
Come from Brent Thill of Jefferies. Your question. Please.
Just wanted to take another.
<unk> on the macro and I think last quarter, you took the guide down due to macro concerns.
Yes.
On your commentary it doesn't sound like.
Youre, saying its getting worse, maybe stabilized from what youre seeing or are you just saying hey, we're we're able to kind of fly through this because we're effectively helping so many different constituencies in the AD market that we're really not seeing the macro flame out that we're seeing across the rest of that industry I think everyone's a little confused about your view.
And ultimately how you're positioning for the next six months in this environment.
Yeah, I would say Brian . Thanks for the question, we're actually seeing resilience in our business.
We're seeing as I said before improvement in certain verticals auto in particular also CPG and as I mentioned before as we're all living in this macroeconomic headwinds that we're all living in marketers are seeking out solutions.
That deliver a higher ROI from them and they need to just generate as much ROI as possible with every dollar that they invest in digital advertising and again that is why they are leaning into the Ias solution. So we're feeling really good about our Q3 results. The fact that we exceeded guide.
And that we were able to modestly increase our guide for fourth quarter.
Okay.
On Netflix is.
Is it fair to say that a lot of the ads will be upfront and that youll have pretty decent visibility in our revenue stream and I think many are kind of asking what <unk> could look like for the solution.
Yeah, So with Netflix again, we're thrilled with the announcement of the Netflix partnership and they had selected Ias.
I see the first half of 2023 as a ramp right. So get through the integration marketers drive adoption and start buying and running the ads on Netflix and then getting our view ability and IV solution up and running and ramping and getting the fee.
Back from the marketers.
Thank you.
Thank you.
Yes.
Thank you our next question.
Come from the line of Mark Kelly of Stifel. Your question. Please.
Great. Thank you very much.
I wanted to ask you if its retail media.
It is an area. We can expect you to maybe focus on in the future.
It's been a lot of talk around retail media Commerce media and the market just curious to get your thoughts there and nice to see the announcement of tonys today.
Maybe a better question for what she gets settled in but would love to get your thoughts on what you think are priority there'll be one she joined in December .
Yes.
Yes, great. Thanks, Mark.
Let's start first with retail media retail media is a big bet for Ias, We currently have deep partnerships.
With the major players, including Amazon and Walmart and when you take a look at the retail media Tam the combination of those two players represents close to 80% of the total Tam and then we also have deep partnerships on the advertiser verification side with players like Wal.
Mara Amazon Shopify, Walgreens, Cvs Albertsons and home depot, so we have been investing in retail media.
We are partnering with all of the major players both from a partnership and integration and a verification perspective, and we see a ton of greenfield opportunity to.
To go get when it comes to expanding our retail media partnerships and presence.
And then in terms of Tanya we are thrilled with the announcement of Tanya C Corps as our new CFO I know, we were cheering wildly right before the call. When the announcement went out but just so excited to bring her on board and given that she has 25 years.
Of financial leadership experience. She has deep experience both in media and technology and also deep <unk> experience in terms of priorities. She will join us in early December roll up her sleeves, and we will get going on our.
Annual operating plan, we're in the thick of our 2023 planning now.
And we will be partnering with her also spending time with all of you and going out and meeting with our key investors and analyst community and obviously spending time with the team.
Alright, Thank you Lisa.
Thank you.
Thank you at this time I'd like to turn the call back over to Chief Executive Officer, Lisa Snyder for closing remarks Madam.
Sure. Thanks, everyone for joining today's call. We're pleased to have delivered on our expectations of profitable growth for Q3 and to increase our full year outlook, we're leading the market with credibility and innovation and we're excited to partner with major platforms, including Netflix and Tic Toc among other.
As we move into 2023, we look forward to anticipating our customers needs as a trusted independent provider across platforms formats and geographies. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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The conference will begin shortly to raise your hand during Q&A you can dial one one.
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