Q4 2022 PubMatic Inc Earnings Call
These high growth highly profitable channels drove adjusted EBITDA margins of 38%, we generated over $87 million in net cash from operating activities and $38 million in free cash flow altogether, a compelling financial profile combined with ongoing targeted investments for long term growth.
The fourth quarter undoubtedly had its challenges performance was.
Was slightly below expectations as sharp declines in AD spend across the industry, particularly in December impacted our business.
In our case, we saw the largest sequential drop over November and the last 10 years has primarily impacted the display portion of our business, which declined 11% over last year and continues to pressure overall growth.
While Omnichannel video continues to gain share at a rapid pace display remains roughly two thirds of our business.
Revenues for our Omnichannel video business in the fourth quarter continued to grow 25% year over year and connected TV and over the top streaming more than doubled over Q4 last year.
These high growth areas remain intact, and we have reorganized resources to move quickly to innovate and execute across these areas.
While these long term growth drivers, we will diversify our revenue over time, we believe that when AD spend growth reaccelerate display will recover as well.
While visibility is limited due to the uncertain economic environment. Our business model is unique with respect to our ability to consistently generate cash and maintain 30% plus annual adjusted EBITDA margins, while also investing in future growth opportunities.
We are efficient as a company and technology platform, we are highly nimble and innovative leading in our category and we have a strong balance sheet, coupled with a long track record of profitability.
As a result, we will use the current challenging economic environment to build even deeper relationships with our customers and make highly focused innovation investments that we believe will position us for outsized gains when digital AD spend growth inevitably turns upward.
Moreover, we have taken significant steps to operate within the current environment protect our cash flow and set ourselves up for higher margins in the future.
We ended 2022 with an estimated market share of four to four 5%.
Significantly up from when we went public just over two years ago.
We are well on our way towards stated goal from the time of our IPO of 20% market share and we intend to use the downturn to further accelerate our gains.
Stepping back the opportunity for open Internet advertising has never been greater advertisers.
Advertisers and publishers continue to seek alternatives to the walled gardens. This tailwind along with the structural changes, including ongoing antitrust activities will only expand our total addressable market has an independent technology provider.
Moreover, consumers are increasingly seeking AD supported content experiences to offset other household budgetary priorities as.
As the ecosystem grows more complex the need for greater efficiency is driving publishers and buyers towards technologies that help them better compete.
The challenges of today's macro environment will pass and we believe the investments we make today will have exponential impact as we continue to increase the value proposition and stickiness of our platform and expand our addressable market.
Okay.
We have a sizable global Tam that includes high growth AD formats, such as CTV online video and mobile. In addition, we recently entered new markets like France, Spain, South Korea, and non domestic China, we expand our addressable market even further.
We see strong signs of success in these new markets with nearly 90 customers signed in 2022 alone such as French media company or Marty Media, Spanish mass media company Percenter, the CTV content and AD business of electronics, China, Tcl known as Tcl Falcon and Korean addressable TV leader SK broadband.
We have 600, plus publishers, we already work with and continue to acquire new marquee customers, such as Roku, and tebow, and CTV and Kroger and retail media.
And the slower economic environment, our priority is to deepen our relationships with existing customers and build the technical types of integrations with our customers for inventory and data access. So that we are in an advantaged position when AD spend growth picks up.
Publishers are actively looking to add the right partners that can help them increase their revenue in these uncertain times.
Spent significant time in the last several months with a number of customers in my view is that today's economic environment is likely to accelerate programmatic growth as publishers seek greater operational efficiencies to the alternatively high costs of managing a traditional insertion order based business.
In fact, we closed 50% more new customer additions and Upsells in January 2023, as compared to January 2022.
Once we sign a new customer our focus turns to expanding that relationship through our sticky portfolio of solutions, such as a wrapper mobile app SDK identity, and data solutions, which further embed us into publisher monetization and workflows.
Once integrated customers continue to grow with thematic in 2022, we had high publisher logo retention of 97% and benefit from our high net dollar based retention rate of 108%.
We spent the last two years investing in our sales and customer success team. We believe we have strong market coverage in place to continue to execute and drive market share gains.
We entered 2023, having significantly reduced the pace of hiring focusing instead on a very select number of high priority walls.
At the same time AD buyers are looking for more data driven decision, making and measurable results.
<unk> AD buyers are looking to consolidate their budgets with fewer partners in order to drive operational efficiency and effectiveness.
The majority of that spend comes from top agencies and advertisers. These powerhouses typically have multi layer decision makers across multiple regions.
<unk> vast market coverage and expertise.
We believe we are well positioned to gain share for two reasons first we have made the investments in our go to market coverage over the last two years and our teams are already executing second our differentiated technology, including workflow and data solutions provide buyers with greater control over their AD budgets and ultimately higher return on ad spend.
Activity from Spo grew to over 30% in Q4 2022 up from 21% in 2020.
We continue to expand our relationships with major holding companies like group element of us and recently with independent agencies like horizon.
We are one of only two independent global and Omnichannel platforms at scale and so it's quite possible that this economic environment will accelerate our spo penetration in 2023.
Let me turn now to our focus as it relates to product innovation and.
In 2022, we increased the number of product and features released by 30% over 2021 to almost 400, including connect open wrap for CTV and mobile App private marketplaces, CTV monetization agency specific solutions and infrastructure upgrades.
Going into 2023, the key pillars of our focus for this year, our supply path optimization and retail media.
We are accelerating our cadence of product releases in these two areas based on product and engineering investments made over the last couple of years and our acquisition of Martin last fall.
Our first priority is expanding our <unk> offering we have been hard at work integrating Martin technology, and we are receiving great feedback from agencies and advertisers and how we can help them further drive return on AD spend measurement and operational efficiency.
We will make a series of product releases for buyers on our platform over the course of this year with a particular focus on CTV and online video monetization.
Our second priority is retail media, which is one of the fastest growing categories within our addressable market over.
Over the past several quarters, we have been renting existing capabilities and onsite monetization data management and audience targeting specifically for retail media customers over the course of this year, we will make a series of product launches that brings automation scale and efficiency to this market.
There is no doubt that we are in a challenging economic environment with muted digital AD spend growth in the near term.
On our prior experience in such downturn. However, we expect to come out of this period, even better positioned.
We believe this environment favors scaled companies like Komatik that are efficient highly innovative nimble and profitable our focus on acquiring new customers and deepening integrations with existing customers as well as rapidly innovating in spo and retail media will be well rewarded when absent growth re accelerates.
Importantly, we have built a durable business and we entered this period with a very strong financial profile generating healthy free cash flow and no debt.
This attractive profile provides us with an opportunity to expand our priorities with respect to capital allocation.
We operate in a large and growing market and so we will continue to appropriately invest in the business to drive market share gains both organically and via acquisition from time to time in.
In addition, we are announcing a share repurchase program that allows us to return more value to shareholders.
And finally I want to add that we have aligned our investment strategy and continue to optimize for maximum productivity in anticipation of a less robust economic environment in the second half of the year compared to what many are assuming.
If the economy rebounds at a faster rate, we will adjust our plans appropriately to capture the opportunity.
Now, let me turn it over to Steve to provide additional detail.
Thank you Rajiv and welcome everyone.
As noted by other digital AD companies December spending across the ecosystem was uncharacteristically soft.
As a result, our fourth quarter revenue was $74 3 million down one 7% year over year, driven by an 11% decline in display which is about two thirds of our revenues.
This result was below our expectations.
Importantly, our high growth areas continue to shine.
Revenue from Omnichannel video grew 25% year over year, driven by CTV revenue, which more than doubled.
At the outset of the fourth quarter, our outlook assumes continued weakness in display but.
But not the severe industry wide deceleration that occurred in December .
Our display revenues were down 50% versus the prior December .
We are taking actions to mitigate the display impact to our business.
Despite these challenges we continued to outpace the overall market and was up 13% year over year to a record $256 4 million.
This growth was on top of 2020 once growth up 53%.
Significantly we are seeing the benefits of our investments in long term growth drivers like Omnichannel video, which grew 42% year over year on top of 2020 once growth of 79%.
These investments and others have enabled us to more than double our revenues from 2019.
2022 was our seventh straight year of GAAP net income and 10th straight year of adjusted EBITDA.
And notably our business generates significant cash flow.
2022 was our ninth straight year of positive cash from operations.
And since 2016, we have generated approximately $150 million.
Cash flow.
This consistent performance stands out amongst our peer set.
Q4 adjusted EBITDA.
Was $32 6 million a 44% margin.
We generated $19 4 million in net cash from operating activities.
And $7 million of free cash flow.
Full year, adjusted EBITDA was $98 million or 38% margin.
We generated $87 2 million of net cash from operating activities and $38 3 million of free cash flow or 15% free cash flow margin.
In the last two years alone we have generated $88 million of free cash flow and that is after investing $60 million in platform infrastructure with an expected average lifetime of over five years.
These financial results are driven by our strong publisher and buyer relationships.
Our diversified Omnichannel platform.
And our owned and operated infrastructure.
We have built an effective land and expand go to market organization and our pipeline continues to build in 2023.
We focus on expanding publisher relationships and drive healthy multiyear net dollar retention rates.
On a trailing 12 month basis publisher net dollar retention was 108%.
Representing a robust balance between new and existing publishers.
Turning to our buyers our supply path optimization efforts over the last several years have resulted in increased overall ad spend and greater spend retention.
Similar to our publisher strategy once we land new spo relationships, we successfully ramped them across formats and geographies.
You do the same retention lenses publishers then.
Net spend retention rate for spo buyers with at least three years of spending has been about 124% each year.
Since we pioneered spo four years ago, we have retained nearly 100% of spo AD buyers highlighting the stickiness of our platform and the increased value we bring to them.
The diversity of our platform is a key strength.
Our omnichannel video revenue spanned across desktop mobile and CTV devices and was 34% of revenues in Q4 up from 22% of revenues in Q1 2021.
From a device perspective mobile advertising revenues across all formats decreased to 57% of revenues in Q4 2022 up from 53% of revenues in Q1 2021.
We are also well diversified across AD verticals, which contributes to our resiliency.
For example in Q4, we saw.
Promoter.
And food and treat both grow 25% year over year.
This growth helped to offset weakness in shopping technology, and personal finance, which in aggregate declined 13% year over year.
Overall, our top 10 AD verticals were flat in the fourth quarter compared to last year.
Another source of strength as our geographic diversity.
In Q4, EMEA revenues increased 11, 5% year over year, partially offsetting the decline in the U S.
Early in the year Americas growth helped balance softness in EMEA and APAC.
For the full year, all which has expanded revenues by double digits.
Now turning to our operational strength, which gives us several significant levers in our business that allow us to maintain 30% plus annual adjusted EBIT margins.
Generally healthy cash flows and invest for continued long term growth.
And an expanding addressable market.
First by owning and operating our infrastructure, we have significant leverage and operational control.
A key competitive differentiator for us.
Since 2019, we have invested approximately $90 million to expand our impressive capacity and platform capabilities.
This has allowed us to grow our market share.
For example over the last three years, we increased the number of impressions, we processed by over 400%.
To capitalize on our expanded publisher relationships.
In 2023, our focus is on leveraging prior investments and driving increased optimization through the software and hardware layers.
These efforts will further increase capacity, while reducing our capex by more than 50%.
We anticipate seeing the margin benefits in the second half.
We also expect our optimization efforts will lead to further margin expansion next year.
Second we operate a highly efficient and productive development organization in India.
We estimate that we are saving over $30 million per year building software using our India team versus deploying those resources onshore.
Over 80% of our Tech Harman in 2022 was in India, which rolled out 30% more product releases last year.
And third with our long term focus on profitability, we take a nimble approach to managing our business.
In the second half of 2022, we moved quickly to adjust our expense structure and that's been plans once it became clear that overall AD spending growth was trending down.
These actions.
<unk> contributed about $10 million to our bottom line by the end of 2022.
Our operating plans for 2023 comp for significant reduction in the pace of hiring as compared to 2022.
Q4, GAAP Opex was $34 8 million or 13% decrease year over year.
Excluding stock based compensation costs and acquisition related costs.
Operating expense growth was 4%.
Full year, GAAP, Opex was $134 3 million or 22% increase year over year.
Excluding stock based compensation costs and acquisition related costs operating expense growth was 16%.
Q4 marked our 15th straight quarter of GAAP net income and was $12 8 million or 17% net margin.
Full year net income was 28 7 million or 11% net margin.
Q4, non-GAAP net income, which adjusts for unrealized gain or loss on equity investments.
Stock based compensation expense.
Acquisition related and other expenses and related adjustments for income taxes was $18 7 million or 25% of revenue.
Full year non-GAAP net income was $52 2 million or 20% margin.
Q4 diluted EPS was <unk> 22.
And non-GAAP diluted EPS was <unk> 33.
2022 diluted EPS was <unk> 50.
And non-GAAP diluted EPS was <unk> 90 <unk>.
Turning to cash central.
Since our IPO 26 months ago, we have generated more than $180 million in cash from operations.
We have uses of cash for working capital investments in long term organic growth.
And the acquisition of Martin.
At the end of 2022, we had $174 million in cash and marketable securities and no debt.
Our priority is to drive shareholder value.
There is no shortage of opportunities in our huge industry with years of growth ahead, and Youll see us continue to drive growth.
The market share both organically and from time to time via M&A.
In addition, our board of directors has approved the repurchase of up to $75 million of our class a common stock through the end of 2024.
Now turning to our 2023 outlook.
There is considerable uncertainty about the trajectory for your digital AD spend this year due to the pronounced it's timber weakness persisted overhang of macro headwinds across the globe.
Display in particular continues to see pressure.
These trends and challenging conditions have led to a wide range of industry forecast for 2023.
Given these circumstances, we have built our investment plan is assuming a low to mid single digit rate of growth for digital advertising in 2023.
Yeah.
We anticipate continued softness in the first half followed by temporary improvement in the second half.
Overall the plan we have in place is expected to deliver three important outcomes.
One.
Generate similar free cash flow as we did in 2022.
To position us for revenue acceleration with AD spend stabilizes and three establish a new level of efficiency in our cost structure that will lead to margin expansion by the end of 2023 and beyond.
For Q1, 2023, we anticipate revenue to be in the range of $50 million to $52 million.
December weakness continued into January with display revenue down 13% over January 2022.
Online video also started the year off slowly and was down in January year over year.
CTD continued its strong trajectory and grew double digits.
Overall Omnichannel video grew year over year.
From a regional perspective, EMEA, thus far has grown double digits year over year, while both the Americas and APAC were down.
Over the last several weeks, we have seen trends improved sequentially over January .
If these trends continue we anticipate that Q2 revenues were sequentially increased by approximately 10% in line with our historical 10 year average.
In light of this we have taken actions to drive our incremental productivity across every aspect of our business.
We expect to reduce capex by over 50% compared to 2022 and reduce our discretionary spend plans.
In addition, we have reorganized our go to market and technology teams to apply incremental resources towards the fastest growing areas in video <unk>.
Leading CTV supply path optimization and retail media.
GAAP cost of revenue in Q1 will grow sequentially from Q4 by approximately $1 4 million due to the full quarter impact of year end 2022, Capex and inflation cost increases pass through by our Colo providers that took effect in January .
Over the coming quarters as a function of proactive steps on productivity and cost saving measures, we anticipate keeping sequential cost increases in the low single digits.
We expect Q1, GAAP opex to increase approximately 7 million versus Q4.
This increase absorbs that Q4 run rate of expense.
Incremental Martin expense plus an additional cost related to our January global sales conference.
We anticipate Q2, opex will be lower than Q1 by about $1 million with sequential increases in the low single digits thereafter.
Excluding stock based compensation and Martin acquisition related costs.
Q1, non-GAAP opex will be $4 million higher versus Q4.
Given our revenue guidance and our cost structure, which is largely fixed in the near term by design.
We expect our Q1 adjusted EBITDA to be between $4 6 million or approximately 10% margin at the midpoint.
As a reminder, historically our first quarter is impacted by prior year investments carried forward during a period of low seasonal aspect.
We expect profitability to improve as the year progresses.
Driven by the full effect of our cost reductions optimizations and typical seasonal increases in ad spend.
We anticipate Q3 and Q4 adjusted EBIT margin levels to be above 30%.
For the full year, we expect adjusted EBITDA margins to be over 30%.
We also expect capex to be 13% to $16 million for the full year more than 50% lower than 2022.
As I mentioned earlier, we have built our plan assuming low to mid single digit growth in digital AD spend this year.
As a leading technology platform, we expect to continue to outpace the market rate of growth and gain share as a result.
Accordingly to the extent that industry growth rates are higher than our current assumptions, we would expect to grow faster.
In addition, the recently announced closure of several sell side platforms gives us even greater opportunity for incremental share gains over time, which are not included in our current 2023 expectations.
We have strong publisher and buyer relationships.
Our diversified omnichannel platform and a durable business model.
We anticipate that the work we are doing now to increase productivity and leverage prior investments.
We always help in margin expansion and increased cash flows later this year and well into 2024.
With that I'll turn the call over to Stacy.
Thank you.
As a reminder, you can ask a question by raising your hand painted on the dashboard it might be on your policy.
In the interest of time, we ask that you. Please limit your question to one and one follow up with that offset the kill off with Jason help scene of Oppenheimer. Please go ahead Jason.
I'm just going to add one can you elaborate on your deal with Roku Roku as you mentioned in the release.
Does it cover all of their own inventory such as the Roku channel how fast can this ramp and just broad thoughts because it would unlock significant amount of inventory for you. Thanks.
Yeah, Hey, Jason This is Virginia, so I can take that so I can't go into too many details on the some of the specific aspects of what you are asking but we see an opportunity to work with roku across a wide variety of inventory whether it's.
There their own inventory on Roku channel or inventory day, one on other channels. In addition to already working with other content owners channels inventory that flows through brokers. So I think Paul multiple aspects are open and we think it can be a really significant relationship and in 2023.
Okay. Thanks.
And our next question comes from Justin Patterson.
The whole platform.
Great. Thank you very much and good afternoon.
Yes, it came up towards the end of your comments, Steve but would love to hear your thoughts and Rajeev just around.
Opportunities around vendor consolidation, obviously, there had been some bankruptcies, we are seeing publishers like Yahoo shutdown. The SSP side of the business I think that was about 13% of your revenue last year. So would love to hear how you're thinking about just the vendor consolidation.
An opportunity over the course of the year. Thank you.
Yeah, I can kick that off and Steve feel free to add anything so as you mentioned right Yahoo announced that they plan to close their own SSP I think on the same day. We also saw amex a much smaller player declared bankruptcy and those are obviously two items that grabbed headlines, but theres plenty of other.
Consolidation story is happening in the background.
So specifically as it relates to Yahoo.
Two parts of yahoos.
<unk> owned and operated inventory and then there is third party inventory so as it relates to the third party publisher inventory, we analyze their publisher base and there is a very high degree of overlap with publishers that we already work with.
And so Yahoo, as SSP eventual closure will eliminate a path for buyers to those publishers Vienna, Yahoo, SSP and we expect AD spend that runs through that path will be redistributed to other <unk> and we would expect to gain share as a result, and then the other piece is the Yahoo owned and operated inventory, which.
Which is the bigger share.
We've consistently been a strong monetization partner for Yahoo.
Who has publicly said that they will rely more on third party SSP is going forward and so I would expect that their closure, we will open up more opportunity for us to work with Yahoo could be in wrapper solution and data solutions, our Pnp platform.
And their owned and operated inventory is primarily mobile web and mobile App, which are two areas of strength for us.
So just keep in mind, though that this is not planning to shut this down until the end of the year.
So in both cases, we expect share gains that's not built into our expectations for 2023.
Now more broadly I think what we see very clearly is whether it's the spo or some of these recent.
B closures is that the industry is consolidating down to fewer bigger platforms, and we certainly see ourselves as a winner in that process.
As recognized by our historical share gains and what we expect to see in the future and I think this kind of economic environment, We're really only accelerate the consolidation that we've all felt should be happening in this whole set of ecosystem and has already occurred and the buy side.
Our next question comes from <unk> <unk> at Evercore, it perhaps spread out.
Okay. Thanks, Nathan let me try two please one is could you talk about more.
More specifics around the investments youre doing for FBL as well as retail media.
They talk about several topics, but what specifically are you doing.
Are you doing that and then for Steve.
Or what was political.
Any.
Meaningful impact at all I know, it's not that big for you, but could you quantify that and second how do you think about margin expansion key Lubbock area that sustainable margins going forward beyond 'twenty. Thank you.
Sure. So yes, so let me start with your question around investments in Spo and retail media. So as we mentioned in the prepared remarks.
Given the macroeconomic environment, we are getting more focused in terms of our.
<unk> investments and these are two specific areas. So as it relates to spo building on the prior question from Justin We just see more opportunity for spend consolidation to happen.
On fewer bigger Ssp's and we obviously have been driving that that trend with spo. We plan to continue to drive that and so really what we're focused on is what are the high value and high growth AD formats things like online video and CTV, where we can better connect the publisher and the buyer and so that can be through.
Bringing the seller and the buyer closer together.
Less latency pure ops of inventory.
Measurement and verification of what the buyer what type of inventory they are buying their ability to curate specific audience sets or media assets on our platform.
They know exactly what they are buying and the price that theyre paying for it. So we see just a whole slew of innovation opportunities to help us get closer.
The publisher and the buyer get closer together and remove friction from the transaction process.
Now as it relates to retail media there is both an onsite and offsite focus that we have so with onsite obviously theres many retailers that are running ads on their websites.
Display and video ads as well as sponsored listings.
And then from an Offsite perspective, they usually want to extend those audiences offsite and we see opportunity to play in all of those areas. In addition to data management identity management, which is an area that we've been building over the last couple of years and so we think some of the use cases are becoming more clear specifically in the retail media space.
Great.
This to reconnect so with respect to the first question around political spend.
You're right it doesn't.
Two a lot on our on our platform in the fourth quarter was a couple of million dollars I would say describe it as slightly below our expectations, but we have not assumed a significant uptick in any case.
Relatively de Minimis.
And as I shared in my comments, the big driver of our Q4 results was display.
Really December was a big step down from a trend perspective.
And largely driven by lower Cpm's someone you would expect when there is demand.
Driven challenge with lower bidding activity lower prices et cetera now.
Now stepping back.
We have been very proactive over the last couple of quarters in anticipation of the trends that we saw emerging and we took steps in 2002 to reduce costs.
Key areas and in fact, repurpose them pre prioritize to the high growth areas that Rajiv has described.
We feel really good about the progress we've made there.
We've also commented on the significant reduction in Capex in 'twenty three that we're planning.
Which will be.
The long term driver of our margin and so when you step back and think about where we are as a company in the industry.
We've been through multiple economic cycles like this and what we've learned is that AD spending from a programmatic perspective always comes back bigger.
And more.
The part of the future of digital AD spending.
So we're taking this time right now to selectively invest in the areas that we think will have long term growth potential.
As well as make those adjustments to the model and so I fully expect.
Over time, we will be able to expand our gross margin getting more productivity out of our infrastructure.
Number two related to some of the changes we've made around our prioritization of head count that will have some benefit over the next couple of quarters, but ultimately the opportunity ahead of us.
And so we do anticipate a.
Challenging next couple of quarters.
But we're laying the groundwork for margin expansion later this year and into 'twenty four along a variety of parameters.
Okay. Thanks.
Rajiv.
Thanks, Mike.
Our next question what parts of that cycle.
Yeah.
Yeah.
Yeah, Thanks, guys for taking my questions here.
I think maybe I'll try to focus on the secular growth drivers driven by macros kind of antibody at Scottsdale. So on the CTV side, it's been great to see the expansion of publishers throughout the year, but could you maybe give us some color on what that revenue distribution looks like within that number.
Is it 90% from 10 publishers are evenly distributed between just kind of dive.
Dynamics of how we should be thinking about that number yes.
Yes, sure it's not it's definitely not evenly distributed I think as you know well right in the media industry, there tends to be a degree of concentration but.
But I would say that our strategy has been to go after a programmatic approach to CTV and so what that's meant is actually some of the smaller publishers are the first to embrace that publishers that are not incumbents that don't have big TV businesses or.
Our legacy sales forces.
And so its pretty well distributed and then over time and certainly one of the things that we see particularly in this economic environment is a much bigger embrace of programmatic monetization amongst some of the leading broadcasters right. So as obviously their revenues are coming under pressure and thinking about what can they do differently and time and again, what we've seen is that programmatic.
It's more efficient, it's more transparent and delivers more ROI to advertisers and so I think we're going to see very.
Very much an acceleration towards programmatic this year and next year and that will in part D. With some of the biggest players and so I would expect that actually concentration might move up overtime amongst some of those bigger media players, but we're approaching it from a perspective of bringing quite broadly diversified.
Yeah, No that's really helpful contacts, especially into 2023 that maybe the absolute number becomes a little less important and some of the qualitative context around the size of the new ads.
I guess on the other side thinking about.
Some of the secular growth drivers, we've done <unk> spo, but I think that expansion rate was super helpful.
Rajiv or Steve I don't know who wants to take it but if theres any color you can give us on kind of the specific drivers of that number because it.
Just volume based and how do you kind of more broadly think that number trends over time.
Yes.
We're very excited about that metric and.
The a couple of things that are very positive about it one day.
The metric that we've shared regarding the retention.
So once we've signed up an SPL buyer, we have close to 100% retention over multiple years, and so that really underscores.
Value exchange.
Conveys the stickiness.
The efforts that we're doing with SPL buyers.
The metric that I shared was around spend so its dollar based.
And it's very positive and that we're seeing consistent upticks.
From those SPL buyers over time, and so that's one factor. The other factor is that we are constantly adding new.
Buyers into the spo initiatives.
And of course, we've talked to you about the areas that we are continuing to invest in the round SPL show.
As we've shared in the past Spo is absolutely a strategic imperative for US we were a pioneer.
And now when we can look back at those metrics and see that our assessment and our investments that we've made are paying off gives us confidence that this will be continued to be a long term tailwind for us.
And it was terrific to see that the share of overall spend.
It was over 30% for full year 'twenty, two and we expect that to grow in 'twenty three.
Yeah.
Appreciate it.
And our next question comes from James who Jetblue.
Great. Thanks for taking the questions just a couple on guidance.
Really appreciate the commentary on January and February trends, but curious if the Q1 guide assumes conditions remain relatively stable or continue to improve sequentially.
And then as it relates to the rest of the year, you're saying you're expecting to grow outgrow the industry's low to mid single digits. So.
Does that imply we're just going to see a big step up in the second half and what gives you the conviction that that that plays out. Thank you.
Sure.
We connect James So from our perspective, we're taking a look at the trends for January February and.
We have stabilized.
Shared in my comments February improved versus January .
We anticipate.
That stability continuing into March.
By and large our expectation is that <unk>.
Advertisers have already locked and loaded the plans for the quarter. So the guidance. We gave it doesn't assume any further let's call it acceleration or improvement nor D cell.
So were feeling like were.
Representing sort of what we think is going to happen.
Stepping back and looking at the full year I mean, clearly there is a lot of different data points out there.
Different participants different forecast and so we built our plan.
Predicated on an assumption around single to mid digit growth and we anticipate in the first half there's going to be challenging conditions and there will be some incremental improvements in the second half.
And the improvement.
Movements, we believe will be part of sort of advertisers are getting more comfortable with the macro environment and understanding where they are getting return on dollars and we know that historically programmatic advertising delivers high ROI.
Think that youll start to see advertisers recognize that and deploy dollars I think you'll also see more dollars moved from social over into digital and into <unk>.
Our area of open Internet.
And so we don't expect like.
Huge inflection point, but some temporary improvement in the second half and that of course overlays with the normal seasonality that just exists.
In our in our industry, where you have the higher second half seasonal spend.
Thank you thanks Paul.
Our next question comes from Andrew Byrne at Gene pool.
Hi, guys I'll keep it to one thanks for taking my question can.
Can you talk a little bit about the underlying take rates for the business understood that spo is going to be a headwind there on more of a like for like basis are you guys seeing any.
Generics.
Economics as it makes the business. Thanks, so much.
The Great News Andrew is that we are not I mean.
When I E.
<unk> signed contracts.
Reflecting this over the last let's call it nine months a year.
The revenue share rates that we are achieving are on par if not better than prior trends. So we feel really good about the value that we are delivering and so from our perspective.
The investments that we're making in terms of valuable formats around omnichannel video focusing on working with.
<unk>.
The big head of market publishers, and establishing these deep relationships with buyers.
Theres really.
Underpinning our ability to continue to maintain the economics that we've had for some period of time.
And our next question comes from Andrew Mary Jane.
Hi, Thanks for taking my questions I'd like to drill down a little bit on the geographic revenue trends.
Even that EMEA actually grew double digits year over year for Q. Despite still experiencing what I think are fairly similar macro headwind headwinds for the rest of the world.
Really to call out there as to why that fared better than the U S and APAC, particularly.
Sure a.
A couple of things first we've been investing in our EMEA business for some time.
We've commented on a couple of new markets that we entered on the continent.
And.
It's.
An environment, where they faced a lot of challenges, let's call. It the end of 'twenty, one early 'twenty, two and they've been really figured out how to operate successfully in that market. So that's sort of on a macro level, but specifically.
We typically have a one of the things that we saw is that frankly display did not get as impacted as it did in the Americas.
And that sort of it wasn't a drag that it was just as a framework reference.
When we last spoke in early November at our last earnings call at.
At that point.
We had assumed that display was going to be slightly worse than what we saw in October November for the balance of the quarter that was.
Low to mid single digit decline with.
What actually occurred was minus 15% in December .
EMEA Buck that trend and that's a function I believe of sort of.
Just in terms of timing, but also establishing.
Establishing some new relationships in market and so overall.
Not really.
It is important to us is that we have a global business that.
In any one period of time, where there's challenges, let's say in one area.
There is the possibility of an offset and thats exactly what we saw in the fourth quarter of 'twenty, two and that's what we're seeing right now in the first quarter of 'twenty three EMEA is doing very well right now on a year over year basis.
And of course, there is the other component.
The typical rollout of incremental products on a global basis.
Going from the Americas, and EMEA in EMEA, starting to ramp up around CTV online video. So you have a confluence of factors again underpinning our approach and the reasons that we are confident in our ability to deliver.
The kinds of financial targets that we have for ourselves in the long run.
Great. That's really helpful. And then one more quick one if I could.
On the commentary around the trajectory of revenue growth trends as we walk through 'twenty three.
Obviously retail media is an investment area likely to be.
Focused investment area at least in the first half of the year, but how much of that.
Easing of revenue growth trajectories and things like that in the second half of the year does retail media contribute too.
So we very much see retail media as an emerging area. So we have not baked in significant incremental revenues from retail media, so to the extent to which that accelerates that will be an upside.
Awesome. Thank you.
And our next question comes from Eric Mike, Maybe you can like state for Hawk.
Yes, I wanted to dive into uses of capital here first on the buyback just two if I could better understand the logic behind the $75 million number is that just kind of a spent following on two years' worth of free cash flow and then.
Follow up question on the.
Capex.
I mean, we have obviously went through a very judicious.
Disciplined effort to come up with the number of consultation with the board you mean at the end of the day.
Our job is to be good stewards of the capital that we have and deliver shareholder value and so we took a look at.
Our ability to generate cash our ability.
To grow and still invest in and not miss out on opportunities and we looked at this as a multi year plan and so we found that this number of 75 million was a good balance to accomplish that.
And at the end of the day.
No.
We are trying to figure out the right mechanics.
And we feel really good about sort of our ability to grow.
And.
Our cash position.
Loud us to deliver value to our shareholders as well via this repurchase program.
Okay and then.
On the Capex I think last year, 2022% to $36 million. This year are you talking $13 million to $16 million, what do we miss out on with such a dramatic pullback in capital equipment purchases, yes, it's a great question and.
The answer is we don't believe we're missing out on anything and I'll tell you why so over the last couple of years, we've been as a function of.
Growth and the opportunity that we saw ahead of us.
We're very aggressive in terms of building out our infrastructure.
To the tune up.
Mr 80, plus million over a number of years.
And we.
We now have infrastructure.
To handle all of the opportunities that we have ahead of us and then.
Our room to grow.
So.
What we've decided to do is to <unk>.
Continue to leverage those prior investments through various optimization optimizations on the software side and the hardware side and we will have incremental capacity as a result of that without the large price tag of just using hardware and we're going to see how it goes.
And if it's something that goes well for US then we're going to emulate that and continue to do that in the future and so really what you see is a company that is very successful in owning and operating its own infrastructure.
And <unk>.
Taking more opportunities to pull levers.
And.
Turns out that there is a huge opportunity that will have a clear path to revenue in 'twenty four and beyond that would have a capex taken along with it will take a hard look at that but right now we're feeling really good about the incremental capacity that we have in our system. The optimization. So we can do to that to deliver more.
More upside opportunity today and that really goes to the point that I made earlier regarding our margin expansion. If this is successful.
And we will be able to continue to get more and more.
The impact from our existing infrastructure.
Got it thank you.
Thanks, Steve.
This time, we're coming up to the top line.
Our I am going to turn the call back over to me for closing remarks.
Thank you Stacy well, we are energized by our ongoing market share gains hats fan growth will inevitably accelerate and our strategy is to make measured investments that will best position us for outsized growth when that happens we're focused on deepening our relationships with existing customers, while adding new ones and making focused product investments in supply.
Path optimization, including CTV as well as retail media.
The plan we have in place is expected to deliver three important outcomes generate similar free cash flow as we did in 2020 to position us for revenue acceleration when AD spend stabilizes and establish a new level of efficiency in our cost structure that will lead to margin expansion by the end of 2023 and beyond.
Thank you to our analysts and investors for your continued support and we look forward to seeing many of you at our upcoming investor events, including the JMP Securities Technology Conference in San Francisco on March seven the Keybanc emerging Technology Conference NSF on March eight and the Lake Street virtual Endear on March 15th feel free to reach out directly to those firms are through Stacy and keen in with <unk>.
Investor Relations. Thank you all for joining us today.
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