Q3 2022 DoubleVerify Holdings Inc Earnings Call
Greetings and welcome to the double their five third quarter 2022 financial results conference call.
At this time all participants are in a listen only mode a brief.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Reminder, this conference is being recorded.
It is now my pleasure to introduce your host teach out England Investor Relations. Thank you you may begin.
Good afternoon, and welcome to <unk> third quarter 2022 earnings conference call with US today are Mark Zagorski CEO Nikola life CFO .
Today's press release and this call may contain forward looking statements that are subject to inherent risks uncertainties and changes and reflect our current expectations and information currently available to us.
Actual results could differ materially for more information. Please refer to the risk factors in our recent SEC filings, including our Form 10-Q, and our annual report on Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results.
Reconciliations to most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at IR <unk> com.
Clarify dot com also during the call today, we will be referring to the slide deck page now website with that I'll turn it over to Mark.
Thanks, Angel and thanks, everyone for joining us. This evening, we delivered another record quarter with revenue growth of 35% above the top end of the raised guidance. We provided in August and a testament to the strength and resiliency of our business. Once again, all three of our revenue lines delivered double digit growth.
Create a greater value for our existing clients by upselling products and growing product usage across platforms and geographies and also one large roster of new clients, who have steadily ramped up usage of DB solutions over the last 12 months.
We are raising our full year guidance to reflect 36% revenue growth and 31% adjusted EBITDA margins at the midpoint.
And a year that has become increasingly challenging for global advertisers TV continues to deliver strong growth plus substantial profitability a rare combination in today's tumultuous public markets.
The drivers that helped us grow in the third quarter and throughout 2022 are also catalysts for future momentum I will discuss these within the context of double thereby three key differentiators.
Our rapidly growing scale, our focus on market defining innovation and a deep level of trust, we have built with our customers as an unbiased and independent partner.
Beginning with scale, we are laser focused on winning new clients and gaining market share.
We want a greater number of new deals in the third quarter than we did in the entire first half of this year, despite increasing macroeconomic headwinds our unique value proposition versus our competitive set has resulted in an 80% plus win rate across all opportunities over the 12 months ending September 30 and the.
The third quarter, we wanted Mattel gap and several other large and high profile advertisers away from our competitors.
In addition, we successfully broke through a number of Greenfield accounts, including TUI Marina Bay Sands, and Smart Energy U K in fact, 71% of our third quarter wins were greenfield, representing the highest share of greenfield wins in any quarter. This year.
Our vast Tam remains largely untapped with a significant number of global greenfield opportunities for us to win and expand our business with over the long term.
So why does gd win.
First the efficacy of our technology enables our solutions to perform better in head to head testing with our competitors.
We won 100% of the Rfps that required a test of DB solutions and that were decided on in the third quarter.
In a recent test of authentic brand suitability versus the competitors alternative.
<unk> has superior performance resulted in a lower post bid block rates and an average CPM that was 9% more efficient potentially saving that client millions of dollars in future ad spend.
We also win because our expansive platform helps our clients solve measurement problems holistically consolidating fragmented solutions and providing clients with a simplified path to verification and optimization across all media buying channels points.
<unk> solutions, just can't deliver a standardized single measurement currency across every media environment channel market format and device and the way that our comprehensive platform like TV can.
And finally, we win because we inspire customer confidence.
<unk> has the most comprehensive accreditation coverage across measurement and activation, making us a trusted independent and unbiased partner that brands know they can rely on.
Turning to channel expansion opportunities, we are focused on driving scale across three fast growing media environments.
The television social media and retail media networks.
Beginning with CTV AD spend on CTV is expected to double from $14 billion in 2021 $28 billion in 2025, According to E marketer and steady stuff.
As the CTV ecosystem increasingly becomes advertising dependent there are growing number of opportunities for <unk> to capitalize on.
Recently, we announced the upcoming launch of our verification solutions across the AD supported tier of Netflix one of the most popular streaming services in the world.
<unk> fraud protection and view ability verification solutions are expected to be available across all countries, where Netflix provides coverage, including the United States, Canada, Brazil, Mexico, Germany, UK, France, Italy, Spain, South Korea, Japan and Australia.
We're looking forward to working on a technical integration with Netflix over the coming months and expect to announce additional exciting CTV related partnerships in the quarters ahead.
These customer value proposition is particularly compelling to CTV advertisers because AD fraud, typically targets premium inventory with demand outstrip supply.
This year alone, we've identified 17 different fraud variance and schemes targeting CTV media investments and saved our clients tens of millions of dollars in waste that's been.
There remains a lack of data transparency and industry standards when it comes to CTV, resulting in a growing imperative for third party verification.
Our CTV measurement volumes have continued to grow rapidly this year, delivering 53% year over year growth suite through September 30.
And with the rising levels of CTV inventory expected to hit the market over the coming quarters <unk> is well positioned to continue to take advantage of this trend.
Moving onto social.
We are thrilled to continue to expand our partnership with Tic Toc.
Through the implementation of our brand safety and suitability measurement tools, which complement our brand safety controls currently on tick Tock Global brands will have an end to end in feed solution that provides greater clarity and confidence in their investment.
Our solution is based on Dd's proprietary brand safety and suitability capabilities that align with standards from forays Advertiser Protection Bureau, and the global Alliance for responsible media or garment.
As a result, dv advertisers will be able to consistently measure their media investment across all platforms DD measures in order to effectively inform future media planning and buying decisions.
In addition, we are pleased to have completed the development of brand safety and suitability measurement on Twitter newsfeed known as timeline and are launching the beta in the coming weeks. We are also continuing to expand our relationship with linked in to support suitability and contextual alignment for advertisers.
Shifting to our continued growth on retail media networks and the first nine months of 2022, we grew revenue from these networks by more than 130% year over year with growth spread across all three of our revenue lines.
Activation measurement and supply side.
A notable recent wins for DB was Kroger precision marketing Kroger's retail media business.
Our authentic brand suitability and BD authentic AD solutions supported Kroger precision marketing three main objectives, which are scale efficiency and quality.
We expect the success of retail media networks, which are projected to attract over $100 billion in media spend by 2024. According to BW <unk> strategy to drive further volume increases across our solutions as we expand our partnerships with some of the largest players in this space, including Amazon Walmart.
Target Macy's Bestbuy and Kroger.
Let me wrap on the topic of scale with our recent international expansion activity.
While FX headwinds and a pullback in EMEA by a few large advertisers impacted our relatively small international measurement revenue numbers, we have been very successful winning new EMEA and APAC clients.
In the third quarter, we signed several advertisers in EMEA, including TUI Club Med Martel global Mulberry molar melts and SC Johnson.
We also signed a number of new deals in APAC, including Mead Johnson Marina Bay Sands, KFC, India and go vivo one of India's largest travel booking sites.
We invested in building, our sales and customer service footprint in several overseas markets last year in recognition of the fact that our largest opportunity for Greenfield wins lies in the international markets.
Our investment has generated significant new client wins and is expected to be a key driver of our long term revenue growth in the years to come.
Turning to Dd's market, leading innovation, we launched the DD authentic attention snapshot in the third quarter located within the DD Pinnacle UI. The snapshot provides visualizations of attention exposure and engagement data with real time reporting which allows users to analyze performance by multiple dimensions, including campaign.
<unk> creative and device and enables a variety of strategic campaign improvements to date, we have over 600 clients actively evaluating their snapshot data, which is generated nearly 200 customer sales opportunities.
Select large advertisers across verticals, including technology automotive CPG and telecom have been converted to activate the full version of the product while numerous others are testing the solution.
While it's still early days for Dd's authentic attention solution. The industry is increasingly embracing attention as an alternative currency for outcomes fueled by ongoing industry disruption and attribution and audience measurement caused by the loss of third party cookies.
We continue to see traction with our suite of pre campaigns social media activation tools powered by open slates brand suitability and contextual analysis engine.
Since the second quarter 22, new advertisers have signed up for this capability, including high profile brands, such as Nestle, Japan, Colgate EMEA and the Emirates group.
In addition, we continue to cross sell pre campaign, social activation solutions to our existing post campaign, social measurement clients, thereby creating a beneficial optimization loop within walled gardens that is similar to the optimization loop that we have created for the open internet.
One of our most important recent innovations authentic brand suitability continues to be an incredible growth driver for our business ABS.
<unk> revenue grew 46% year over year, primarily driven by large new advertisers activating the solution, including best buy Norwegian cruise lines and state farm.
ABS is ability to reduce media waste, while safeguarding brand reputation and programmatic applications has rapidly evolved this solution from an upsell to a competitive conquesting tool for DB.
Recurring customers drove about 40% of ABS is revenue growth as our top 100 customers, including Amazon and Dell expanded their use of ABS to additional international geographies and we continue to grow ABS activation beyond our top 100 customers in the third quarter approximately 63.
3% of our top 500 customers activated avs.
Usage by this customer cohort has grown steadily each year.
In the third quarter of 2020 usage was 33%, which grew to 55% in the third quarter of 2021 and 63% this quarter a testament to the value of this premium priced product creates for DD customers of any size.
Let me end with our final differentiator trust, which is core to the value we deliver to our customers and underpins our important role in the digital advertising ecosystem.
In the third quarter, we achieved ISO 27, 001 certification the most widely recognized international standard for information Security management.
Our clients and partners Trust Dv to protect their brands and their information and this latest addition to our robust list of industry certification and accreditation demonstrates our commitment to offering the highest standard of information security protection and confidentiality and.
In a digital advertising environment that increasingly seeing stability and transparency dd's unmatched roster of accreditation and independent perspective have set us apart and supported long term sticky client relationships that continue to grow.
Our gross retention rate remains over 95% and we have achieved 41% growth in the total number of customers generating more than $200000 of revenue on a trailing 12 month basis.
To conclude our business continues to demonstrate resilience due to fundamental attributes that are worth reiterating.
First the essential nature of our products, which protect brand equity and optimized media efficiency by reducing waste help us continue to win new customers and expand our relationship with current customers.
It is especially important when marketing budgets get tight.
Next our largely fixed transaction fee business model substantially insulates, our revenue from CPM volatility, while our verify everywhere product strategy diversifies, our revenue across platforms and verticals, making dv largely agnostic to shifts in ad spend.
Our well diversified customer base comprises the world's largest and most trusted brands with no single vertical driving more than 20% of revenue last year.
And finally, the number of solutions and our product offering continues to expand further enhancing our ability to penetrate a vast and untapped Tam and sustain our long term growth.
We've had a strong first nine months of the year and remain confident that our growing global scale market defining innovation and legacy of trust will continue to solidify our client relationships and fuel steady growth that will outperform our competitors in the broader digital AD industry in 2022 and beyond.
With that let me turn the call over to Nicola.
Thank you Mark and good afternoon, everyone. We're pleased to have delivered another strong third quarter and year to date revenue growth of 35% and 40% respectively with adjusted EBITDA margins of approximately 30%.
Your ability of our revenue growth and profitability reinforces the resilience of Bd's business model and the central role of television solutions play for its customers, even in a challenging macro and geopolitical environment.
While we remain mindful of the possibility of further reductions in AD spend that could impact our performance. We are raising the midpoint of our full year revenue guidance range by the magnitude of our third quarter outperformance.
This is based on our current visibility into the fourth quarter and an expectation of the typical seasonal upswing in our activation business into year end.
Third quarter total revenue growth of 35% was driven by 48% growth in activation, 14% growth in measurement and 57% growth and supply side.
Our activation and measurement business is derived from advertisers and drive a combined 90% of total revenue.
Advertiser revenue grew 33% in the third quarter with volumes or MTM is growing 17% and pricing or MTF growing 10% on a year over year basis, excluding revenue contribution from open slate, which continues to perform in line with expectation of $15 million to $18 million of revenue.
Full year 2002.
On volumes or 17% year over year growth continues to significantly outpace the industry as reflected in magna forecast of 7% growth in 2022 U S digital AD spend X search.
With regards to pricing our MTM growth of 10% in the quarter was primarily driven by improved premium product mix.
Slowed by the impact of the programmatic display and video price bifurcation, which we initiated on our core programmatic products in the first quarter of this year.
Our fixed transaction fee model is not a take rate model, which allows our pricing to remain broadly insulated from CPM volatility.
The price of the DVS Advertiser products is fixed for measurement and activation.
On platforms that charge based on a percent of media our pricing includes caps, which effectively mirrored DBS standard fixed fees. As a result, MTS has remained generally stable throughout 2022.
Shifting to activation revenue growth was led by our premium priced programmatic products authentic brand suitability and customer contextual, which delivered 46% revenue growth and comprised 55% of programmatic activation revenue compared with 53% in the prior year period.
Approximately 60% of ABS as revenue growth was fueled by new client activation, while 40% was generated by existing clients growing their ABS impression volumes.
Increased volume in our standard programmatic products also significantly contributed to our activation revenue growth as well as the impact of the price bifurcation.
Turning to measurement revenue grew 14% measurement growth was driven by new client Activations and is reflected in our strong CTV volume growth of 48% and social volume growth of 23%.
International measurement revenue growth for the quarter was 2% on a reported basis.
Next movements resulted in a headwind of approximately seven percentage points in the quarter.
While international growth has slowed two days DVS measurement business remains predominantly U S based with a relatively small exposure to international which comprised 26% of total 2021 measurement revenue.
Longer term, we see several catalysts for the continued growth of <unk> measurement business. The first is expansion on social where as Mark mentioned, our brand safety and suitability measurement products have now launched on ticked up and are continuing to expand on Linkedin as well as other leading platforms.
The second is CTV, where Netflix selected <unk> to provide visibility and fraud measurement across its platform with brand safety and suitability to follow.
The third is authentic attention, which is gaining momentum with advertisers following the launch of DVS authentic attention snapshot.
Finally, there is the continued opportunity to cross sell our measurement suite to activation only clients of our top 500 customers over 20% have used <unk> solutions for activation only enough for measurement this year.
Using both products suites enables advertisers to further optimize media quality and reduced media waste a compelling customer value proposition for our commercial team to cross sell.
Shifting to supply side, which includes platform and publisher customers revenue grew 57% largely driven by new revenue from major platforms that embed DB solutions, including open fleet to provide their customers with inventory that meets a standard level of third party verification public.
Revenue also grew mainly driven by growth in new publisher customers.
Moving to expenses cost of revenue increased by 44%, primarily driven by our revenue sharing arrangement with programmatic partners as activation revenue grew to 55% of total revenue in the third quarter from 50% a year ago revenue less cost of revenue has remained steady this year at 83%.
<unk> revenue at slightly lower levels than prior year, reflecting the largest share of activation revenue. In addition to continued infrastructure investment to scale and accommodate our growth.
non-GAAP product development costs grew 34%, while sales marketing and customer support grew 26% in the quarter as compared to prior year.
G&A costs have remained relatively stable at approximately 14% of revenue this year.
Overall, we had 885 employees as of the end of the third quarter, an increase of 14% year over year as compared with a 40% year to date revenue growth, reflecting the efficiency of our operations as we scale.
We delivered $34 million of adjusted EBITDA, or 30% margin and $10 $3 million of net income as our business continues to combine high revenue growth and high margins.
Additionally, we generated approximately $32 million of net cash from operating activities in the third quarter and $58 million year to date, resulting in a year to date operating cash flow to adjusted EBITDA ratio of 63%.
We expect capital expenditures of approximately $35 million in 2022, including approximately $25 million invested globally in office space as we return to office this year with a significantly larger employee base than before the pandemic.
Finally, we ended the quarter with approximately $243 million of cash on hand with zero long term debt.
As we noted in prior quarters balance sheet strength remains an important advantage for DB is rising interest rates negatively impact more leveraged companies and decreasing valuations provide opportunities to accelerate long term growth through strategic investments, including M&A that will advance our product and <unk>.
Technology roadmap unlock adjacencies and expand our global footprint.
We remain disciplined with regards to capital allocation and continue to believe that the investment climate in the digital advertising ecosystem is likely to become even more favorable over time.
Now turning to guidance, we expect fourth quarter revenue in the range of $131 million to $135 million, which implies year over year growth of 26% at the midpoint.
The midpoint of the range is based on our current visibility into the quarter and an expectation of typical fourth quarter seasonality, where activation volume momentum built into year end.
We expect fourth quarter adjusted EBITDA in the range of 45% to $47 million, which represents a year over year increase of 14% and an adjusted EBITDA margin of 35% at the midpoint.
For the fourth quarter, we expect stock based compensation to range between 11% and $12 million and weighted average diluted shares outstanding to range between 170 and 172 million shares.
For the full year, we're raising revenue guidance to range from $450 million to $454 million, which implies year over year growth of 36% at the midpoint, we expect adjusted EBITDA in the range of $138 million to $140 million, which implies a year over year increase of 27.
<unk> percent and an adjusted EBITDA margin of 31% at the midpoint.
To close we delivered a strong third quarter and year to date revenue growth and profitability, which reflects the resilience of our business. We continue to engage regularly with our clients to ascertain their commercial and spend outlook as we execute our plan throughout the end of the year and over the coming quarters.
And with that we will open the line for questions. Operator. Please go ahead.
Thank you we will now conduct a question and answer session.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for our first question.
Our first question comes from Matt Swanson with RBC capital. Please proceed.
Yes. Thank you guys, so much and congratulations on the quarter, especially in this environment.
Mark I think the first thing I wanted to kind of touch on here was that 71% of wins were Greenfield and then following that what's seen them more deals in Q3 in the first half of the year combined.
It feels like just kind of intuitively this would be a challenging environment for finding new customers, especially ones that don't have a previous solution. When you kind of maybe doing a little bit of evangelizing can you just maybe talk us through what's working so well, especially in this macro for landing new customers both greenfield.
Yeah, Hey, thanks, Thanks for the question Matt.
Yes.
Yes.
It is truly part.
What we've been focusing on over the last 12 months with regard to investments if you remember.
Where we started with Jerry after IPO as we had.
Significantly under invested in some of our sales and marketing resources over the previous years and last year, we lean in pretty hard and those resources, particularly outside of the U S.
What we're seeing now is the payoff of that investment.
Additional sales head count and what they've been able to do with our products. We knew that if we could get our solution in front of folks have seen by now our RFP win rate.
About 80% for the last trailing 12 months.
We can win those deals so I think.
As part of the investment thesis that we had on sales and getting our products and find the right people.
More specifically when you're talking about how are we meeting sale.
<unk> macro environment I think it really is a testament to what our solution does for advertisers.
It helps us drive better ROI, and if you're a CMO and your prices was cut by 20%.
You now have much less money.
Money to deliver at the same or better results and because of that.
Concerns about AD fraud concerns about.
If you are concerned about and that are delivered an environment, that's not going to sell anything for it.
And geography of the wrong context, those concerns become that much more important to advertisers. So I think our favorite question.
Is really focused on our solutions.
That's what our media quality, but also that drive real ROI.
The message, we are delivering to the market and the market the market is responding to it which is.
Every dollar I have to spend that much more impressions and your solution is helping us.
That's really helpful. Eric kind of tails into my next question for Nicola where based on everything Mark just so that we can all see a lot of your model is very resilient in this macro but nobody's immune. So can you kind of talk a little bit more color around the macro assumptions in Q4, and then maybe just kind of what gives you a call.
<unk> seen that typical upswing in activation plan there.
Yes sure.
So what I would say we have we have been planning for year on year slowdown.
Since the end of the year and it's being reflected in sort of the.
As a pattern that we've guided to we haven't seen.
Material signs of changes in that trajectory, but we did.
It create a range on the Q4 guide, which kind of reflects the essence of the factors that you mentioned, particularly around <unk>.
Might happen on activation for the end of the year, which generally does show an uplift so.
The guidance range is sort of where we feel we might have some sensitivity around that.
And just to dig a little bit deeper on that.
And the advertisers are getting more concerned about and thats, where youre going to see foundations at the Miami right towards activation so that.
It's really the partner remains sensitive.
For the fourth quarter measurement, we have significant visibility.
Into the quarter already.
The sensitivity is just around activation.
Alright, I appreciate the Congress.
Okay.
Our next question comes from Andrew Boone with J M. P Securities. Please proceed.
Yes.
Hi, guys. Thanks, so much for taking my questions.
To start it sounds like authentic attention is moving towards a more real inflection point for monetization Mark how should we think about sizing that opportunity as we head into 2023 can you can you help us understand the contribution to MTF or anything else that we should think about as we think about just sizing how big that could be and then secondly.
Opex has been very disciplined just going back to <unk> you guys have kind of nudged up by about $1 million a quarter. Here can you just talk about 2023 as you are now going through likely the business planning cycle for next year, how should we be thinking about expenses just given the lack of visibility overall within macro thanks, so much.
Alright.
I'll start off and then if you.
Let's say the tough question.
On Opex.
Thanks, Andrew regarding operating attention I think.
I've been really pleased with.
The launch of the authentic attention snapshot.
Is now being engaged with over 600 of our clients, which is exactly what we want it.
Talk about this earlier this year as we look at building an entirely new metric which is attention.
So we have to have the industry acceptance and standardization, which which is fast occurring at multiple levels levels, but also better understanding of the brand and client and.
The launch of the snapshot, which is a freemium version of our tool.
We're doing exactly that it's getting attached metrics in five of our key clients.
Can you do that.
Gain on the interest is and actually employing them to better optimize their campaigns.
Today, we are looking at almost a third of those 600 are actually only a third of those 600, who are now interested in pursuing.
Further deals.
With regard to scale the business next year I know, it's still early days.
So looking at building out.
Oh that those business metrics is a premium priced product.
So I think the implementation of the product over there.
First several quarters of next year is going to be when we start seeing the real scaling and we'll be able to provide.
A bit more color on what we think the impact will be for the year. So sorry for her not a specific number here.
End of the day, we're still building out the escalation.
Still a minor contributor to our revenue.
It will probably likely be so moving into next year.
But at the end of the day, we're looking at scaling Sweden.
Market wise and for us it can be easily mobility, because it's a metric that.
That really next engagement plus exposure.
Two things are essential to driving outcomes for advertisers.
Early days, we've got work to do on kind of converting those testers into paid customers.
But the bush.
Yes.
Yeah and on the <unk>.
23 expenses. Your question was specifically around in a challenging environment.
While we were you on expenses.
What I would start by saying is we do have a very profitable model as you know we've been able to maintain 30 plus margin throughout if the growth is reduced right. If we are in a challenging macro we would look to maintain.
A decent level of EBITDA.
Growth slowed I think we'll just travel expenses until their conditions improve we don't want to necessary inside of the fact that the Tam is very large and so there are opportunities to invest opportunistically, we would do that but we will keep an eye on the expenses is the growth really does slow down.
I would also say in a tougher market macro environment that value add a lot of cash on the balance sheet.
It's an opportunity for us to invest in different ways.
This is another thing that we can book.
Thank you.
Our next question comes from lower Martin with Needham <unk> Company. Please proceed.
Hi, there guys excellent numbers raising guidance stocks up 10% aftermarket really excellent numbers I have two questions. The first one let's follow up on Andrew's question about and I'm going to ask it the other direction, which is I get that you want to maintain margins expenses are important to you how weber.
Twitter just you know thanks to Elon musk laid off half of their workforce Facebook has laid out people alphabets laid off people feels like there's going to be a lot of really talented technical people coming available and I'm wondering how you think for instance, your numbers continue to hold up so nicely grabbing some of this talent.
Now going to be out over the next six months, especially if they go into recession can you talk through how opportunistic youre going to be a talent comes available in the marketplace from very high quality places as they try to throttle their cost growth basically at wall Street's consistent actually and then my second question is mark 57%.
And supply side, what the Heck is this it is now over 10% of your revenue. It's probably in the first is could you tell us who is selling the supply side or are they just coming in over the transom and you guys don't have to do anything how is that really how does the tiny piece of your business is growing so fast and is it going to end up being a third of your business or are you.
I'm shocked at the growth in supply side I didn't even know we focus on that in this company.
Talk about those two subjects. Please.
Alright.
Good questions. Laura also rapidly to other people on and then maybe Nicolas.
Technical take on it but yes.
People are our most expensive asset alright.
Talking about Opex investments, it's all it's really what we're talking about is people.
The market for those people over the last trailing several quarters has been incredibly intense right.
The hiring.
Coming out of the pandemic was feverish.
The cost of those resources was incredibly high and we were competing against.
Everybody.
Great resources.
Now I think that the market has had loosened up there arent great people coming into market and for us that means an opportunity and an opportunity for us to continue to upgrade our team an opportunity for us to fill spots with great people.
So at a cost that hopefully.
Significantly less than it was a year ago.
We continue to focus on margins, we continue to focus on running a sound and.
Well run business that generates growth and profitability.
But we're going to look for opportunities to get great people are going to work.
For spending.
Against growth as it makes sense.
But one of the nice things right now is that spending has just gotten a little bit cheaper for us. So we're out there is inflation all over the place I think our people cost.
Correct basis are going to start to look a little bit better for us on the call.
Are you on that.
Yes I.
I agree with what Mark said for US it's really interesting.
Year to find talent.
It has been hard.
Difficult to find Tom So I think this just creates an easier for us to define the time that we need.
I would say we will remain opportunistic right. There is an opportunity for us to invest faster because we think the opportunities there, but we might do it we will be very mindful of our margins, but point up or down obviously, when we do it for the right level of investment.
For sure yes.
I have to get our teams. So kudos here, we have an incredibly talented team that's doing great work and challenging macro environment. So we already have great assets, adding more.
Yeah.
On your second question on the supply side I think this is a nice piece of our business I know, it's still relatively small.
Revenue generator, but a lot of this has to do with it.
Working with platforms to leverage our data to give them.
For example, a minimal level of our brand safety floor.
The inventory that they are offering now are providing.
Providing them with.
Internal fraud verification tool sets.
Basically taking our core datasets and just leveraging them on the supply side.
How was your sites.
On retail media platform, so folks, who basically are pushing inventory out, but what someone wants to provide some level of transparency and cleanliness to that inventory.
We see it grow at a steady pace.
We've got a team that's focused on it so.
They are like the rest of our best performing really well.
And as more and more platforms, particularly particularly folks the Cte in gaming space.
Deliver start to become focused on being AD supported.
Talking the talk of advertisers.
I think there is continued opportunities there as well so.
Nice revenue growth for us.
We all talk about it a lot but that also includes our publisher business, which has.
<unk> has a nice growth trajectory, but it's.
It is complementary to our advertising business.
We will continue to grow that business.
And we've got a great pizza brand.
Thank you.
Got it.
Next question comes from Youssef Squali with your Truest Securities. Please proceed.
Great. Thank you very much congrats.
Congrats guys.
You you make it look pretty easy in a pretty pretty challenging environments. So please keep it up so my two questions are first I know you're not guiding to 2023, yet, but as you look forward at next year and you go through your budgeting process. What base case are you guys baking into your expect.
Patients and maybe can you talk about the resiliency of the model as you know it I think in your prepared remarks, you talked about you.
Youre pricing model, but what else is there that gives you the confidence that your business is resilient relatively resilient and then can you just provide us an update on the met our relationship and the integration of our brand suitability solutions into the news feed thank you.
Maybe I'll start with.
So let me start with the back which is the easier one to talk about.
Alex like club can talk about that.
First rule, but.
Yes.
They had a flat.
Initial testing and began for third party verification solutions for feed in.
We've said publicly that we look forward to potentially working with them on expanding our solution.
We are.
What they call a batch brand safety business partner.
So we've been working in consulting with them as they continue to develop the solution and the plan is to offer at some point next year. So.
Still leading and Theyre still excited about the opportunity.
It's a great one for us.
Hum.
On the <unk>.
I'll talk a little about let me see maybe Nicolas.
At 2023, so I think from earlier this year when we had our Investor day, we talk about what drives resiliency for us in <unk>.
Everything from the fact that you've got.
Solutions that are we consider essential and that driving ROI for advertisers right there needed to be the fact that we have a business model that is based predominantly on fixed fees that don't suffer like eight percentage of media model does in CPM.
Oh down.
That plus the fact that.
A lot of Greenfield to go after I think 71% of our deals this quarter were greenfield they werent competitive takeaway there.
You to double their five so.
That plus.
Products coming out all of those things give us.
Good level of comfort that again, we've never said wherever you into downturn in advertising, but.
We've built a pretty resilient model in which no single sector.
No single property dollar shift from social to open web we're okay.
Yeah, and no single buying strategy is really going to impact us accurately.
All of those factors as we look at next year, which I think is we're not the first thing to say is still a question Mark from an advertiser perspective from a macroeconomic perspective, but what I would add is.
You say can we make it look easy it's obviously not easy and it's hard work for everybody here to make sure. The products are superior to what else is in the market and that our go to market strategy is the right. One I would say in addition to the pricing model.
One aspect of this year makes us feel good about how we're continuing to red shirt.
Macro disruption is that we are we are far outpacing the industry in terms of growth.
So we do feel like.
We're still at a higher clip than what the.
Macro is showing in terms of digital AD spend and I think going into 'twenty three.
Setting aside the pace of adoption.
Adoption into new areas. There are a lot of new areas are going to contemplate next year Netflix isn't on one ticked off is very new for US there are other areas that make us feel good about the opportunities out there I think the macro will impact the speed at which we get into those areas, but they're all there right. So it might delay.
Later on it.
But we do feel like there's plenty of us to go after on the tax side of things.
So.
I think 22 with confirmatory that we're a little ahead of where the industry that.
That's what we're looking at two to $2.
Makes sense. Thank you both.
Yes.
Our next question comes from Arjun Bhatia with William Blair. Please proceed.
Okay.
Hi, there. Thanks for taking my question guys and congrats on the quarter.
They don't have to pick up on that last point they call. It seems like there's a lot of important partnerships and big opportunities that are coming into play.
Julia on that quite a few of them better than you have.
Are there opportunities that you can certainly go after.
You talk a little bit about how the RMB or it's bearing from a capacity perspective as you're looking to build maybe the technical integrations into a lot of these newer opportunities.
How do you think about that from a hiring perspective, I do need to add more.
Engineers and maybe ramp up.
Hearing their as you have more.
Our opportunities to go after.
Yes, I'll start and Mark can chime in I think.
I'll I'll fall back on a few things that we've talked about in the past, we do have a unified pipeline for social products and that becomes something thats really.
To go into new areas.
Faster than just having to start from scratch right.
We have an integration is really help us to get into the next one.
I think.
The partnership that we have with the various platforms really helps us accelerate that first point right. When we start talking to the platforms about what it means to integrate.
And so we feel like we have a head start on all of that obviously, we will we will have to look at our resources is something very large comes to play but we're also redeploying the resources that we have right. After a while you are able to learn from what we've already built and kind of moving to the next to the next integration.
So we are balancing in a row.
Reapplying, our fat into new areas using the line that we already have supplement here a little bit without forcing obviously.
But if a very large opportunity cost as I said earlier, we'd be willing to look at additional investments. We wanted two points on the Martin I think it's the right investment we would do it.
I think you nailed it let's just basically.
We've been able to build a very flexible and agile data ingestion system that allows us to move to different types of platforms provide the same level of <unk>.
Data out at measurements out yet.
Yes.
Our list of what kind of data comes in so so I think that helped us and yep.
When we started social years ago.
Different story, but every social platform that we've added sense has given us more knowledge allows us to quicker.
When we start moving and CCTV. The work that we've got for example on Hulu at forums.
Work that we do with Roku, which form will inform the work that we do with Netflix right.
I think it all builds upon each other and there are certainly projects.
Projects in.
And our platforms that will involve additional resources.
But the good news is that just like fraud schemes at all kind of look almost the same but they have.
Various.
Platforms in lot of cases.
Look very similar to just have different variants that we have to deal with so it's not like reinventing the wheel each time, we created an integration.
Okay got it very helpful and then.
Mark maybe one for you when you think about you know a lot of these newer deals and your opportunities that your clothing, especially but.
The greenfield opportunities that are out there.
Where is brand safety like ranking.
In terms of priority from a customer advertiser perspective, like we've known it's been high but it seems like.
It's still increasing.
Relatively high level, so when when you're pitching.
And value prop the customers, where its brand safety relative to a lot of the other.
Forms of return that you offer with with your solution.
It's a great question I think.
We've talked about in the past.
Al.
Our our sales motion has changed to lean much more into brand safety and brands see the ability over the last several years just due to the macro environment that advertisers are dealing with right.
Kind of a no brainer to water filter out ads that people can't see so not beautiful.
Or at that could potentially fraud, but seek advertise those are those are money losers right.
<unk> bye.
Not great and no advertiser wants to do so, but what keeps them up at night is brand safety and brand suitability that becomes their nightmare of CML, which is my AD shows up next to hate speech or white supremacist content or something that's totally inappropriate for my brand.
And I think that has become the resounding message that we got out to market with it just yet we're gonna help you sleep better at night. So our sales team uses our brands 18 suitability as that Trey.
A lot of discussion you see that in the ABS growth that we have which is hey.
Measuring it blocking don't even buy right. So authentic brand safety became authentic brand suitability, because we want to provide a greater level of granularity and that kind of protection.
The suitability level so.
It has changed the dialogue has changed is now a big part of how we go to market you can see it in our results products like avs are growing as fast as they are and it's not a U S phenomenon anymore. It's a global phenomenon brands are global.
There are regional challenges to brand suitability and brand safety and now as we operate all of our brands agencies and early tools around the globe, we see opportunities for them there as well. So it's been a it's been a really important shifts in not only how we sell and where we invest in products and what our customers are really interested in buying from us.
Awesome that's worked out.
Thank you.
Our next question comes from Michael Graham with Canaccord. Please proceed.
Thank you. So one quick one on Twitter just I know you mentioned that you've just integrated four.
Brand safety and suitability.
Any thoughts on like sort of the timing too.
Having an impact on your revenue and is there any worry that with the changes there that might get disrupted at all and then a bit of a broader question.
Mark is there a good way to think about like how much headroom you have with a typical large advertising client you mentioned, 20%.
The top 500 are taking activation only but is there a good way to think about sort of how much growth you have and how much visibility you have I guess within some of your big advertising customers just to expand wallet share with them.
Sure. Thanks for the questions by client and we are waiting for our first two other questions.
Surprised it took this long.
So we're still in the beta process of getting that product out to market.
We obviously are excited to advertisers are really excited about having a brand savings utility solution in that environment.
All right out where it's a relatively small portion of our all of our social media revenue as we had planned for that to grow significantly.
Over the next couple of quarters, it's still.
Yeah.
Mauler social network, both from a scale and advertiser wallet share from our business.
It's a great opportunity.
We're likely going to see some delays in development and launch of that product just due to the chaos MVC at Twitter.
Ultimately as a financial impacts our business is it's very very right. So yeah.
Good opportunity good opportunity for advertisers.
The timing to get that product to market.
Real excited too.
Gets you general et cetera.
But where we're expecting some delays.
On the on the second question.
When we look at kind of.
Our solution set and where we have more opportunity to grow.
We've always start with kind of a number of products number of products that we have.
With that our with our customers so about 60%.
60% of our customers to use less than four products, which means that we still got a decent amount of headroom.
Go out and sell our full suite.
So we look at for example growth of Etfs over the quarter.
A lot of that growth is with current customers expanding that into new markets.
When we look at.
The adoption.
For example, new platforms.
Our social business, so new social coverage.
We saw social grow significantly over the quarter.
That's from current clients as well so I think we still a good amount of room.
We will look at it I believe.
Our our ABS business for our top 500 customers.
That number is still relatively low penetration I think six.
63%.
And our top 500 are using it but that 63% using it in one market.
So lots of room there.
As we've always said love, adding new customers, but we still got lots of growth of our current customers I think.
The product set that we continue to expand means that that.
63%, you think for a less products means that there's probably that number is going to be increasing over time.
Okay. Thank you Mark.
Got it.
Our next question comes we'll definitely cross shop with Cannonball Research. Please proceed.
Okay.
How political spending which is.
Oh.
So it all because they're looking at their transactions. So there is no change versus Q Q2. So can you talk about your exposure and then I have a follow up on that.
And lastly, you broke up a little bit there. So maybe if you can kind of repeat that helps yeah. Please. Please tip. My question was about political spending in the space, where both had an impact at all.
In the quarter or are you seeing it in Q4, because looking at your transactional measured growth is the same as in Q2 right. So it doesn't assume by that metric that you are benefiting from that so am I right and then I have a quick follow up on that.
Yes, yes, yes, I think you read it right and we said it in the past we don't political political spend doesn't really have a direct impact campaign.
Campaigns.
I'm not using our products the way a brand would right because those are specific to a specific time.
For a specific purpose. So we don't have a lot of direct impact from political campaign.
Thank you.
Some of your peers in the programmatic space say is that when political spend those are in the market brands, sometimes step aside because political campaigns on a price sense of that so.
Is that something that youre seeing so.
It's possible, but there will be even an improvement in trends with brands. After the political spending season is over.
Yes.
Yes.
We're aware of that thought that maybe political kind of just putting the brand decided we frankly we.
We haven't seen it to the point that it's directly tied to political in our trend that we havent seen even in prior campaign cycles, we haven't seen that necessarily.
Okay. Thank you very much.
Yes.
Next question comes from Mark Murphy with J P. Morgan. Please proceed.
Hey, guys. Thanks for taking the questions. This is already rule on for Mark Murphy.
Quick question, if youre looking at the retail segment of your customers anything worth calling out there since we're kind of heading into the holiday season sentiment expressed a little bit of caution. But then we also have a lot of inventory to trying to move so that's generally a positive for advertising okay.
Yeah, that's exactly that that would be exactly the dynamic that we're looking at which is it is a heavy season for retail but on the other hand.
Those are the types of companies that have been perhaps a little bit more cautious with their spending.
What I would say is the good news for US is we're not overly weighted on any specific industry.
The largest one part the CPG is 20% of our revenue so to the extent that some industries are going up and down.
Please offset by another industry that takes us.
<unk>.
Additional inventory.
So we are we are monitoring of course.
We do think that as a huge opportunity on the retail media network.
It.
Disrupted maybe currently but it is thought that the opportunities in there long term.
Got it. Thanks, and then just generally if you were looking to kind of add volumes or demand as you kind of exited Q3 into October and November anything kind of changed any variance to call out.
Geography industry or anything along those lines.
I think the.
The guidance that we have for Q4 sort of reflects three things. One is obviously, it's at a lower rate than it was prior year rates.
Put into that number.
Alright.
Lower overall market digital advertising. So that's step one step two is specific leases in the fourth quarter. We haven't we have decent visibility around campaign twice on the measurement side of things and based on what we see there generally there's a strong correlation with what we would see on the activation.
Syed.
But the past years, the past quarters have shown but but this time around we're being a little cautious around the app.
Upper and lower parts of the guidance in case that year end upswing on programmatic it doesn't happen.
Great. Thank you.
Our next question comes from Mark Kelley with Stifel. Please proceed.
Great. Thanks, very much I just have one.
And I'm going to go against the fight club here for a second but hopefully this is a question you can answer but.
Last week <unk> received MRC accreditation. So we've been getting the question as to whether that impacts your business on Facebook and Instagram.
And whether advertisers still think that they would need to use a third party.
Verify I'd love to get your bigger picture thoughts on on that question instead of it. Thank you.
Yes, Hey look it's definitely a fair question, but I think if you look at all of the platforms we work with.
There is a an absolutely value too.
Thing that we always talk about which side of independence.
And there are many platforms that.
And there are validated.
Verification.
Solutions that they try to push out that provides solutions for free for advertisers at the end of the day.
We are a trusted independent third party arbiter of quality and I think that's been positioned to stay one I think advertisers are always going to want somebody outside of the media transaction to them.
To help support.
There via quality initiatives. So I think at the end of the day.
Yes.
Whether it's better or any of the other platforms.
We saw the incredible value proposition to our advertisers which is independent.
For full functioning.
Multi platform, which is important multiplatform metric it allows them to make five and constantly make buys across any spot.
Platform and the open web and connected TV and mobile applications et cetera, So I think thats that safety here. So.
The independence and the fact that we are.
Our cross platform a single series of metrics that are individual platform may have I think is important.
So that makes sense thanks Mark.
Yeah.
Our next question comes from Raimo <unk> with Barclays. Please proceed.
Thank you thanks for squeezing me in.
And congrats guys on the call Mike I know that you have them already but on the software side Marc.
Can you talk a little bit about that.
Portion of mine that people spend on you press. The total advertisement spending you mentioned earlier, it's kind of a really worth spending the money rather than wasting. It can you just kind of remind people are not as familiar in terms of what the mix is and then related to that is also like where are we in terms of penetration given the number.
New customers that you've kind of signed this quarter.
<unk>.
Sure.
A little bit general on the first point.
Which is we looked at our fixed transaction fee as a percentage of the average CPM.
Use it as a rule of thumb somewhere around 1% to 2% and that obviously varies based on the type of media simplifying but as our media mix.
Starts to lean more towards video starts lean more towards connected TV offer.
The percentage of that transaction that we take is still incredibly small for the value we deliver and that's why I think even when we start the Q&A here when we talk about why we believe we can be resilient even in downtime.
The way that we deliver for folks using our solution is incredibly high.
And that ROI is based on the fact that we're saving metric of impressions that I've never viewed by human that can be potentially fraud or could actually crushed their brand in the long term. So we.
We are a very small investment for an advertiser is looking for a great return on their spend.
That's I think again as our product mix.
To lean more towards higher cost media.
That ROI actually decreases over time.
With regard to penetration Nicole if you have a thought on that.
I think it's.
I think raimo for us.
This may sound like.
Non answer, but the Tam is so large and the penetration.
The fact that we've got so many greenfield opportunities.
It makes it makes us feel like we have a ton of opportunity just to get more clients, we're not really.
Thinking about tapping out the opportunity and so we just continue to deliver the product and just going after the greenfield and as Mark said that the Greenfield percentage of our wins is higher I think.
If there is something that might happen in a slowdown.
Clients may not switch as easily but the fact that our greenfield is growing as a percentage of total new opportunities a sign that there's still a lot of opportunities out there for us yes.
Yeah.
We shared some metrics earlier this year, which is the top 700 global advertisers 50.
58% of them are still not covered and <unk>.
To our benefit obviously is as you know as we've seen FX issues over the last.
Several quarters, we're still predominantly.
U S base as far as our revenues concern, whereas a significant growth.
A significant amount of AD dollars yourselves back outside of the U S. So that greenfield opportunity as road real from a dollar perspective of where our revenue comes from internationally, but also just from an advertiser perspective, we still got.
Literally hundreds of advertisers that we don't have relationships with all of that top 700.
Okay. Thank you congrats.
Thank you.
Our next question comes from Justin Edison with Keybanc. Please proceed.
Great. Thank you very much and good afternoon to.
Two quick ones if I can first mark when you look at just attention and consider that as a currency.
Talk about just what inning, you're in there and perhaps just compare contrast attention in international markets versus the U S.
Call Europe might be a little bit further ahead there.
And then secondly, just.
Going back to retail media I believe you had some announcements there last quarter I want to say that broadens the type of advertiser from a size perspective that you work led so any updates on just retail media progress then.
New clients coming in via that would be helpful. Thank you.
Sure.
Talk a little bit about attention.
We talked about it a lot because we're incredibly enthusiastic about the long term opportunity there.
Yes, we do think it's a long play right when we talk about what inning. We're in I think we're in the second inning still.
Still warming up that team is on the field.
Starting to hit their groups.
All early days and I think we've said this.
Several times, which is we got to test here, you've got client introduction of client acceptance, but we also have market introduction and market acceptance of that market introduction is all about creating.
Standard.
That are accepted by the industry by ensuring that Theres accreditations behind.
Tools that are used for attention.
Yes.
Ain't way that people view view ability and never Theres, a few ability standard that they know that they are buying attention metric that theres a standard out there that's a credit as well. So I think that is a big part of us getting to that next thing, which is making sure that there's industry acceptance market accepted our marketing industry such as client acceptance is.
It's something I think we're probably.
Maybe a bit further on which is.
Getting this into the hands of our customers getting them using it I think the launch of the authentic attention snapshot big step forward for us.
They are looking at those metrics every day they are engaging with them now.
Now, it's all about conversion so.
Is.
It's a long play that we're doing here for.
What do you think that this is an investment that will pay off substantially over time, but it's still very early innings there.
Regarding retail media.
That's another great opportunity. It does open up a different different crew of advertisers to us.
Because it's not just advertisers, it's not just the retail retailers themselves, which we've always had great relationships with.
It's expanding into their networks and providing them services for small advertisers for smaller Oems that are advertising across their properties. So when you start thinking about how do we move out of just enterprise level clients.
Channel partners as a way of getting there and in some ways that those retail media networks relate to become channel partners for us getting our data in front of smaller advertisers, who are looking to leverage it within retail media networks.
Thank you.
At this time I would like to turn the call back to management for closing comments.
Thanks, everyone. Despite the challenging advertising environment ahead, we remain excited about the long term secular growth story, and our ability to drive continuous innovation that maximize media quality and performance for the world's largest brands.
Have a great night.
This concludes today's teleconference and webcast you may disconnect. Your lines at this time and thank you for your participation and have a great day.