Q3 2023 Integral Ad Science Holding Corp Earnings Call
Thank you for standing by and welcome to I F Q3, 2023 earnings conference call. At this time all participants are in.
Listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press star one one on your telephone.
Please be advised today's call is being recorded I would now.
I'll turn the call over to your host Mr. Johnson Shaper V. S. P M Investor Relations. Please go ahead.
Okay.
Thank you good afternoon, and welcome to the I asked 2023 third quarter financial results Conference call I'm joined today by at least Schneider CEO and Chinese C Corps CFO.
Before we begin please note that today's call and prepared remarks contain forward looking statements. We refer you to the company's filings with the SEC posted on our Investor Relations site at investors that integral adds dot com for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations.
We will also refer to non-GAAP measures on today's call a reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today's earnings release available on our Investor Relations site.
All financial comparisons unless noted otherwise are based on the prior year period.
So with these formalities out of the way I'd now like to turn the call over to our CEO Lisa Schneider Lisa you may begin.
Thanks, Jonathan and welcome everyone to our 2023 third quarter calls, we reported strong results exceeded our prior expectations revenue increased 19% to $123 million and adjusted EBITDA reached $46 million at 34%.
Margin, we are raising our financial outlook for the full year to reflect our positive third quarter performance and business momentum in the fourth quarter Tonya will provide a detailed review of our financial results and increased outlook for the full year.
Let me start by highlighting some key wins and expansion that reinforced the value of our AI backed products platform integrations superior service and geographic reach.
M W named I since its global verification partner BMW selected I ads for our technology innovation with products like total media quality or T. M. Q vertical expertise in the auto sector extensive international footprint and high quality service.
We are delighted that for railroad a global suite packaged food company has named I, yes, as its exclusive global measurement and optimization provider.
We secured a major renewal and expansion of our partnership with Mars, the home of iconic brands, including Eminem Snickers kind and pedigree.
Multi year exclusive agreement includes I, s's, leading market measurement and optimization offerings with annual minimum impression commitments. The renewal also expands our relationship with Mars to new markets, including Mexico, Brazil, Germany, and the APAC region.
During the third quarter, we generated a 41% year over year increase in social media revenue, surpassing 33% social media growth in the second quarter.
The accelerated growth in social media reflects the investments, we're making in our technology and integrations with the major social platforms, our TMT product identifies higher quality media at a three X rate, which leads to higher returns on advertising spend for marketers.
S. TMT was AI back the data becomes more accurate and adds greater value over time.
We frame the social media opportunity for I guess in terms of big building blocks, which are the live feeds and the medium building blocks of short form video letting.
Let me update you on the latest initiatives underway.
Since expanding inventory coverage of our total media quality for Youtube product suite impression growth in active accounts have doubled in September from July we've seen strong customer adoption of TMT Youtube from clients, including Dyson Volvo and Kimberly Clark.
Advertisers using our TMT products on Youtube now have access to a suitability dashboard that allows them to analyze brand suitability trends and create a custom suit ability profile.
During the quarter, we expanded our brand safety Youtube product suite capabilities to Google video partners or GBP.
<unk> is now providing view ability and invalid traffic or IV T measurement for Youtube shorts inventory and offers brand safety suitability view ability and IV team measurement across G. B P. In.
In addition, we enhanced our integration with Google campaign manager 360, marketers now have the ability to wrap tags create and launch campaigns with ease.
This enhancement insurers advertiser data is automatically populated and Ias signal, our UI dashboard and creates greater efficiencies and reduced campaign creation time, we continue to drive customer adoption of our TMT brand safety and suitability measurement product and tick Tock T.
<unk> is now available to advertisers in 50 markets up from 30 at the end of second quarter and ahead of our expectation of 40 markets by year end.
Active measurement campaigns on tick tock have more than doubled year to date and impressions have quadrupled.
In August I guess announced an exclusive first to market partnership with <unk> to provide pre bid brand safety and suitability for video across the social platform.
We're currently in beta testing expect to move quickly to launch in the coming weeks with a host of Blue chip clients. I S was selected by <unk> based on the sophistication of our TMT product with this expansion I S leads the industry in providing end to end support for marketers on X with a fuller.
Ray of solutions from measurement to optimization.
<unk> plans to offer brand suitability verification on data for both Facebook and Instagram feed in Reals, we remain on track to begin client testing in Q4 of this year.
Turning to optimization, we are prioritizing ease of activation and transparency, which are particularly important for mid tier performance based marketers, we are driving product adoption and streamlining customer activation with a single point of integration.
Our differentiated total visibility product enables marketers to optimize campaign spend with greater insights into the quality supply path and cost of programmatic ads and now with an overlay of marketing outcomes. We've.
We've expanded our total visibility offering with our new performance dashboard, which allows marketers to analyze metrics such as success rate over time and cost per action alongside financial immediate quality insight.
We are also increasing the number of contextual segments, which allows for higher avoidance and targeting customization.
Lastly, we are expanding our reach via increased ESP coverage. We are excited to announce that we have enhanced our integration with Amazon ads to include our context controlled prepaid segments. In addition to our standard pre bid segments within Amazon's DSP customers can now easily discover and envoy.
Unsuitable content and reach contextually relevant content in.
In retail media is a leader in independent verification with coverage for view ability fraud and brand safety with the top retail media networks year to date revenue from retail media networks has grown nearly 150% we are delighted to partner within the car and bring.
A new level of transparency in scar ads, the company's advertising products and solutions I asked will provide view ability and IV team measurement on instant car ads, which reaches more than 5500 CPG brands at advertising week in New York City I hosted Pan.
That included Tim Castelli, VP global advertising sales events Descartes, Tim spoke to instant carts ability to see across the grocery sales ecosystem and to provide actual data for marketers, we look forward to helping <unk> optimize the into car ads experience for our brand partners.
We launched our previously announced first to market partnership with <unk> Commerce media platform in September.
This partnership with <unk> allows brands and agencies to measure view ability and IV T. On a retailer's site across any onsite AD format and <unk> network of 210 retail partners marketers can be assured their media buys are driving engagement and validating real users.
We also launched a pre bid brand safety content categories to allow marketers the ability to optimize their programmatic buying in <unk> Commerce Max D. S. P.
We've discussed how we are harnessing AI to accelerate the rollout of new markets and advanced capabilities for products, such as context control and <unk>.
In addition, our product development is fueled by AI, which is a major point of differentiation for Ias and a game changer for our customers AI is a critical component of the new products, we're launching in emerging areas, including attention and made for advertising or MFA.
Our quality attention measurement product helps advertisers assess campaign performance and unlock superior results.
We launched a quality attention beta in August, which generated a high level of interest from advertisers over 1.5 billion impressions have already been measured using multi variable models that identify which signals are most relevant to optimize the insights being delivered.
In our early beta analysis, we found that higher attention can lead to a nearly three acts with in success rates and 98% better cost efficiency. We launched the second phase of the measurement beta last week, which includes Lumens eye tracking technology.
In October I S announced its new MFA site detection avoidance solution to align with our customer's media strategies related to this type of content.
Leveraging AI and ml Ias technology aims to improve transparency into advertiser campaign quality identify where spend is allocated and inform optimizations to minimize waste. According to the Ann as programmatic media supply chain transparency study from June 21% of all.
All advertisement impressions measure were served on MFA sites. The Ias MFA product is available now is a better measurement offering with general availability expected in early 2024.
In our television publisher business publicly is integrated with TV Oems, which serve as the entry point into the TV ecosystem and the live TV experience Oems often build their own proprietary advertising businesses and provide their AD serving technology to a growing number of streaming services.
During the quarter Vizio selected publica to help operate its global CTV advertising business, we look forward to expanding our partnership with Vizio and our previously announced exclusive renewal with Samsung in addition to exploring new OEM opportunities.
Public a recently announced a direct integration with Yahoo backstage via the server server connection publishers using the publica AD platform can now access AD budgets from the Yahoo, DSP directly within the public a unified auction.
During the third quarter, we earned our first certification from trusts are which conducts annual privacy focused third party attestations the trough.
Let's see enterprise privacy seal certifies that ias's data privacy policies and practices aligned with the standards set by the leaders in governance and compliance.
To conclude I am proud of the team for delivering a strong quarter and we are excited about our positive outlook for the fourth quarter, we are executing against our product roadmap with highly differentiated technology and fast growing channels, including short form video as we begin our planning process.
For 2024, we intend to prioritize investment in innovation that Leverages AI to bring the most advanced products to our customers and with that I'll turn the call over to Tania to review the financials.
Thanks, Lisa and welcome everyone.
Pleased to report another strong quarter of profitable growth.
We accelerated our revenue growth in the third quarter to 19% and adjusted EBITDA margin reached 34%.
We are raising our full year outlook to reflect our outperformance in the third quarter and positive business momentum into the fourth quarter.
Total revenue in the third quarter increased to $123 million well ahead of our prior outlook of $112 million to $114 million.
Both optimization and measurement revenue reported growth in excess of 20% for the quarter.
Turning to our business lines optimization revenue grew 21% to $57.0 million.
Optimization revenue benefited from increased product adoption and enhanced DSP integrations.
In addition, we experienced a larger contribution from our T any vertical which we expect to moderate in the fourth quarter.
TPG performed well and tech telco improved from the second quarter.
Context control revenue grew at a double digit rate as a result of accelerated mid tier growth, which more than doubled versus the second quarter.
We are expanding our mid tier presence by adding new product capabilities enhancing our go to market with the hiring of new programmatic specialists and establishing new partnerships with mid tier agency.
Measurement revenue increased 23% to $47 $8 million in the third quarter.
The increase in measurement revenue was attributable primarily to accelerated growth and social media, a 41% compared to 33% in the second quarter.
We continue to increase adoption of new and existing social media products with expanded market reach.
During the quarter, we increased customer uptake of T. M. Q involves tick tock and Youtube, including Youtube shorts.
And meta we saw an increase in existing products with impression growth and real.
National Media measurement revenue represented more than half of total measurement revenue for the first time at 51% in the third quarter up from 47% in the second quarter of 2023 with the balance being open web which continued to grow.
Social media revenue represented 20% of total revenue in the third quarter up from 18% in the second quarter of 2023.
Video, which commands a pricing premium to display grew 40% in the third quarter as a result of growth in social media.
Video accounted for 54% of measurement revenue in the third quarter up from 50% in the second quarter of 2023.
On a combined basis total revenue from advertisers, including optimization and measurement revenue increased 22% and represented 87% of third quarter revenue.
Publishing revenue increased to $15 $5 million in the third quarter Turbocar.
<unk> revenue growth was partially offset by the performance of our non CTV supply side businesses.
<unk> represented more than half of publisher revenue in the quarter.
We continue to innovate and deepen our integrations with publishers and platforms, including Samsung and Vizio as we continue to build our pipeline to support public on scrap.
Publisher revenue represented 13% of total third quarter revenue.
International revenue, excluding the Americas accelerated to 17% year over year growth from 10% in the second quarter of 2023.
EMEA revenue growth was particularly strong at 20% due to the contribution from previously announced new global and regional win <unk>.
Additionally, increased adoption of our T M Q, social media product drove measurement revenue internationally.
While international revenue represented 31% of total revenue in the third quarter, 42% of measurement revenue came from outside of the Americas.
Gross profit margin for the third quarter was 79%, which keeps us on track to deliver on our full year margin expectation of 78% to 80% and reflects investment in our data infrastructure and increased testing costs.
Sales and marketing technology, and development and general and administrative expenses combined only increased 2% year over year as a result of increased efficiency and productivity through streamlined operations.
In addition, lower expense growth reflects higher capitalization of internally developed software related to long term investments in our technology and improved productivity of our engineering team.
Adjusted EBITDA for the third quarter, which excludes stock based compensation and one time items increased 35% year over year to $46 million.
Our strong adjusted EBITDA margin of 34% was due to higher than expected revenue for the period as well as increased operating efficiencies.
We remain focused on continuing to invest in the long term growth of the business.
Net loss for the third quarter was $13 $7 million or <unk> <unk> per share.
Net loss for the quarter was driven by the timing of our income tax provision related to stock based compensation from the return target options expense in the second quarter.
Turning to our performance metrics.
Our third quarter net revenue retention, our NRI increased to 116% versus the 115% in the second quarter due to higher product adoption.
The total number of large advertising customers, which includes both mid and top tier clients with annual revenue over $200000 increased to 219 up 19% compared to 184 last year and up sequentially from 208 in the second quarter of 2023.
Revenue from large advertising customers with 85% of total advertising revenue at the end of the period up from 84% at June 30, and up from 81% at the end of the third quarter of 2022.
We maintain a healthy balance sheet with strong cash flow conversion that enables us to lower our debt and provides us with financial flexibility to invest in the long term growth of the business.
Cash and cash equivalents at the end of the third quarter were $92 million.
During the quarter, we reduced our long term debt by $20 million to $175 million, resulting in net debt of $83 million.
Year to date, we've reduced indebtedness by $50 million.
Our net debt to trailing 12 months adjusted EBITDA is currently 0.5 time.
Turning to guidance for the fourth quarter ending December 31, 2023, we expect total revenue in the range of $130 million to $132 million or 12% year over year growth rate at the midpoint.
Adjusted EBITDA for the fourth quarter is expected in the range of $45 million to $47 million or a 35% margin at the midpoint of the range.
For the full year 2023, we are increasing our revenue and adjusted EBITDA ranges to reflect our strong third quarter results and fourth quarter outlook.
We are raising the midpoint of our full year outlook by $9 million and now expect total revenue in the range of $470 million to $472 million or 15% year over year growth at the midpoint of the range.
We are increasing the midpoint of our adjusted EBITDA outlook for the full year 2023 by $7 million to $157 million to $159 million or approximately 34% adjusted EBITDA margin at the midpoint of the range.
A few additional modeling points.
We continue to expect gross profit margin in the range of 78% to 80% for the full year.
Fourth quarter stock based compensation expense is expected in the range of $15 million to $16 million.
Stock based compensation expense, which includes the RTL expense.
Now expected in the range of $81 million to $82 million.
We expect weighted average shares outstanding for the fourth quarter in the range of 157, five to 158 5 million shares and 156 to 157 million shares for the full year.
We delivered strong revenue growth and adjusted EBITDA profitability in the third quarter as a result of our third quarter performance and business momentum in the fourth quarter, we are raising our full year outlook.
We're in a healthy financial position and we will continue to invest in the business to drive long term growth to enhance shareholder value.
Lisa and I are now ready to take your questions.
Operator.
Thank you.
Again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one.
One moment for our first question.
Our first question comes from a lot of Mark Kelly of Stifel. Your line is open.
Great. Thank you very much good afternoon, everyone I wanted to ask you two quick ones first just.
Optimization really outperformed in Q3, I guess can you talk to you more of the moving pieces I know you called out.
More mid market clients.
Driving some of the performance there but.
Just curious if the Amazon DSP partnership can that lead to continued reacceleration.
Organization, I guess, what else should we be thinking about there.
And then second separately.
When we're thinking through the Medicaid access.
I know youre on track to test with clients in Q4, but is there kind of like a set cadence.
From going from testing to GAA that you can maybe point us to for some of the other integrations with a social platforms. Thank you.
Sure I'm happy to take both questions Mark So the first on optimization, we did see strong growth and optimization revenue in third quarter of 21%.
Year over year. It was due to various factors, including increased product adoption enhanced DSP integrations and also I should call out context control grew at a faster rate due to the acceleration that we're seeing in the mid tier.
<unk>.
The other thing I'll call out with the meta feed axis as we mentioned we're thrilled that we are heading towards launching a data towards the end of fourth quarter with meta meta is our largest social platform and you can see the strength of our measurement growth.
In third quarter.
We'll launch the beta and.
Ta is expected sometime early in 2024, I know, we've discussed before mark with Med Ed because it is our largest social platform and we are already have a significant client base of advertisers who are using Ias solutions in meta I do.
I think that the acceleration, we will see an acceleration at both the beta and the launch of the G. I.
Perfect. Thank you Lisa.
Yes, thanks Mark.
Thank you one moment please.
Okay.
Our next question comes from the lineup Andrew Merrick from Raymond James Your line is open.
Hi, Thanks for taking my questions and congrats on the quarter.
You talked about a lot of large new customers driving some strength in the results.
Are there any commonalities in the feedback that you're receiving as to why you were selected over competitors anything thats coming up in multiple of your conversations.
Sure happy to take that Andrew and then Tom you feel free if you want to add additional color we were delighted to announce those three.
Large brands.
M W and Mars and expanding our partnership with Mars in the third quarter, a couple of call outs in terms of why these major marketers are selecting ias and expanding what I with Ias.
Due to our product innovation with products like <unk>.
In particular, BMW, our vertical expertise in the auto sector and with all three of the brand's extensive international footprint and high quality service, China anything else you'd like to add.
I was just.
Also we have a really strong presence with what we define as large customers you can see in the kpis that we disclosed the growing nature of those large customers I'm pleased to be reporting 219 large customers at the end of the third quarter up from 184 at the end of third quarter last year.
Great and then one more if I could I know the made for advertisement.
Topic has been a big attention grabbing subject in the industry.
Has the feedback been on your MFA products, so far and how should we expect that scaling curve to progress could it be maybe more front end loaded than a typical product given all of the attention around MFA is at the moment. Thank you.
Yeah happy to take that one too so media quality remains a top priority for brands and as we're seeing in the industry, we're seeing a surge of lower lower quality environments, which brands do wanted to avoid because they just don't see the conversions.
That they'd like to see third party has cited the MSA issue.
The advertisers are wasting as much as 20% of their AD spend on MFA.
And to address this problem Ias, we recently announced our new MFA AI site detection and avoiding solution.
It's available now in beta measurement offering postpaid with Ta will be both prepaid and postpaid are expected in early 2024.
So far the feedback has been very positive from our advertisers. They have been clamoring for this MSA technology and the other thing I should call out is our MFA technology is backed by AI.
Thank you.
One moment please.
Our next question comes from a lot of Raimo <unk> of Barclays. Your line is open.
Okay.
I missed my name, but I think that with me.
Hey, Congrats from me as well on a great quarter.
Just.
At the moment, a big discussion I said going into the.
The important Q4 holiday season.
What are you seeing there.
Firstly since you have a lot of international.
Great International perspective, what do you see in terms of.
How does this shaping up for you what are the advertisement seeing given such a important part of the year and I have one follow up please.
Okay. Great question Raimo, So few things with that we're pleased with our increased forecast in the fourth quarter and full year and this reflects positive advertising outlook for the fourth quarter.
As you know I spent a lot of time with the brands and they continue to share both in the U S and internationally that they're doubling down on ROI and driving efficiency, which makes our products even more relevant today.
More than ever and then the other thing the marketers have been sharing about fourth quarter is they're very focused on driving customer engagement.
And retention during this holiday season.
Yeah, Okay perfect. Thank you and then just more one point for modeling you guys next year.
Think about the metal seat.
Access and Thats going to <unk> in early 2024 do you are you going to limit it somehow to have like a more controlled roll out or is this going to be like open for everyone and how should we think about that kind of playing out in the numbers. Thank you and congrats from me again.
Alright, Thanks Raimo.
So as I like to say, we always follow <unk> lead and they are our largest social platform. This year and we expect it to continue to be our largest social platform in 2024 in terms of the rollout as I mentioned, we are on track to offer <unk>.
<unk> suitability verification on meta for both Facebook and Instagram.
And <unk> and we remain on track to start declining testing in fourth quarter of this year, because we already have an established base of advertisers.
Running Ias solutions on meta.
I do anticipate both the beta and gea will be accelerated timing of the <unk> like I said before early 2024, but there is such a valued partner for US and then the other thing I will call out with meta and just the social.
Platforms in particular, its just the uptick that we're seeing in short form video, both with materials and Youtube shorts I know last Q2 earnings call. We talked about the launch of view ability and invalid traffic both in materials and in Youtube shorts and that.
It has also been a nice tailwind for the 41% growth that we're seeing in measurement in third quarter.
Alright, thank you.
Thanks Raimo.
Thank you one moment please.
Yes.
Our next question comes from a lot of James Hiney of Jefferies. Your line is open.
Great. Thanks for taking the question just looking at your Q4 revenue guidance imply roughly sequential growth of 8% to 10%, which if I look back historically would be one of the slower sequential growth in the holiday quarter is there anything that has you concerned or is there just some.
Conservatism baked in and then I had one more follow up for Lisa. Thank you.
Sure sure James Happy to address that the third quarter, we were really pleased with our above expectation performance. Both on the measurement and optimization side two things that are worth, noting I talked about this a bit in the script is that we saw stronger than expected growth in <unk>, which is our second largest vertical.
We expect that to moderate in the fourth quarter and then secondly, we did see very strong growth in context controlled double digit with multiple factors driving that growth, but as we have shared in the past, we do expect context control growth to moderate in the fourth quarter, but really pleased to be raising our guide for the fourth quarter Bye bye.
Two $2 million at the midpoint.
Great. Thanks for that and Lisa could you just talk more about the traction that youre getting on the tick tock product I think you are now live in like 50 countries.
Just talk about the contract and the contribution from that product and how to think about the roadmap for 2024. Thank you.
Yes.
Yeah, Great question, James So with Tic Toc, we are firing on all cylinders across social platforms, and including tick tock. So we continue to drive customer adoption of our <unk> brand safety and suitability measurement product on tick tock.
<unk> is now available to advertisers in 15 markets. That's up from 30 at the end of second quarter and ahead of our expectations of 40 markets.
By year end, and then I know, we had already said it previously on the call but our.
Active postpaid campaigns on chalk more than doubled year to date and impressions have quadrupled. So we're just thrilled with our partnership with Tic Toc, we're thrilled with the fact that brands are leaning in to our differentiated technology backed by <unk>.
<unk> AI and I'm incredibly proud of the team of just speed to market and again delivering differentiated value for our brands.
Thank you one moment please.
Our next question comes from the line of Brian Fitzgerald of Wells Fargo.
Line is open.
Yes, I think that was me.
Great to see the acceleration and optimization, we wanted to ask among the larger customers that you have you have done a great job.
Actual penetration there, but wondering if you could talk about continued runway for optimization growth with those customers can they light up contextual more geos for more campaigns.
And then wondering if you could talk about attention as well does that potentially drive a wave of adoption in growth similar to what youre seeing with contracts control how are you thinking about that.
Okay.
Sure I'm happy to take both fit so.
As I mentioned previously were a few things we're pleased with the double digit growth that we're seeing in context control for this quarter and it's reflected both with the acceleration that we're seeing with mid tier and then also it's driven by contribution that we're seeing.
From some of the large CPG logos.
That we signed several quarters ago.
Mid tiers in the area that I know, we've talked about last quarter, but we're very very focused on driving the acceleration of the mid tier channel.
And again, we're seeing great growth quarter over quarter more than doubling and we will continue to invest and innovate.
In automation in simplifying our product offerings and in particular, simplifying our optimization products.
For our mid tier channels so.
That's where we're at with mid tier and then great question on attention. So as we're seeing in the landscape with attention brands are increasingly.
Seeing attention as a key component of their media quality strategy.
We were pleased to launch our quality attention postpaid beta in third quarter.
Has generated a high level of interest from advertisers. We're now on track to launch the second phase of the measurement beta in fourth quarter. It includes lumen you might remember the partnership that we announced fits with lumen that has an industry leading eye tracking technology.
And a few things to call out since our attention paid to launch <unk>.
Already measured over 1 billion impressions, leading multi variable ml models, which identify which signals are more relevant to optimize the insights being delivered it's incredibly cool technology and then the other thing that we're seeing that's very encouraging in our.
Early beta analysis, we found higher attention can lead to nearly three X lift in conversion rate. So again, feeling really good about the rollout of the beta looking forward to the second phase of the beta with Lumens.
<unk> eye tracking technology, and the advertisers are completely leaning into the solution.
Awesome, Thanks, Lisa I appreciate it.
Yes. Thanks.
Thank you one moment please.
Our next question comes from a lot of Jason <unk> of Oppenheimer. Your line is open.
Thanks, everybody two questions Lisa.
It's real and speed with respect to kind of Facebook Instagram are they going along the same timeline or is it kind of different and product specific.
And then second thoughts around the opportunity around performance advertising is that something that you're thinking about in the pipeline.
Organically go there to use M&A to get there. Thanks.
Yes, sure happy to take both Jason.
With Reals with materials as I mentioned earlier, we launched few ability invalid traffic in meta reals in shorts in Q2, both are nice driver of our accelerated measurement growth in third quarter in terms of the upcoming data in <unk>.
Quarter with meta in the live feed that does include Facebook Instagram and met a real so that will all be part of the beta in fourth quarter and so same timeline.
Ta is scheduled for early 2024 in terms of performance advertising.
Performance advertising the way, we look at that it's a couple of things the first is.
Historically, the mid tier channel and we define mid tier as a channel of advertisers spending between $200000 and $1 million with I. Yes. Many of them are performance advertisers and I think that's a big reason why they are leaning into our context controls.
Solution, but also the other thing that we're focused on is our total visibility product and enhancing that product within our overall optimization offering and you might remember total visibility provides transparency too with supply path.
<unk> it helps provide additional insights across outcomes cost targeting tactics. So that's an area, where we are investing more resources more time and energy.
And in 2024, I think in terms of performance advertisers.
And all advertisers will see an enhanced total visibility offer.
Thanks.
Thank you one moment please.
Our next question comes from the line of Mark Mahaney of Evercore. Your line is open.
Hi, This is Ian on for Mark Congrats on the good quarter.
Two questions. If I may 1st it would be great to kind of go back to the macro.
Were seeing any signs of brand advertisers pausing in Q4 related to the geopolitical risks in the middle East and.
Maybe secondly can you remind us of maybe the trends that happened.
For advertisers.
2020 related to the Ukraine War, and maybe has there been increased need or conversations around.
Hello, guys.
Brand safety brand suitability products and second question.
Operating expenses for the fourth quarter and do you guys expect to see any leverage or if there was where would we expect to see that.
Yes.
Okay. Thanks, Ian.
So I'll take the first two questions and then Tom you can take the third question. So.
First firstly regarding.
The crisis in the Middle East our Hearts go out to all of those were impacted by the war.
We'll continue to ensure our products provide value to our global customer base. During this difficult time.
In the Ukrainian conflict that occurred a few years ago.
We did see advertisers.
Engage in our context control.
<unk>.
And I don't want to correlate the two but we did see.
More and more advertisers leaning into our sophisticated contexts control.
So that their brands ran adjacent to appropriate content.
John do you want to take that.
And the third on your on your last question, we do expect operating leverage in the fourth quarter. The midpoint of our guidance has EBITDA adjusted EBITDA at 35%, we've improved our EBITDA margin every quarter this quarter and pleased to be raising both our revenue and EBITDA guide.
That 35% in the fourth quarter would be higher than 34% in the fourth quarter of 2022.
Thank you.
Thank you thanks.
One moment please.
Our next question comes from a lot of Youssef Squali of.
Choice Your line is open.
Okay, great. Thank you very much so a couple from me as well so starting maybe with the with the optimization.
I'll tell you I think last quarter, you said something to the extent that.
Growth there, we're going to be similar to the growth in Q2, which was more like 90, 10%.
You ended up obviously doing more than double that can you maybe speak to the linearity.
Demand for optimization throughout the quarter, and where where are you guys.
We're off which which wishing surprised you the most I guess in a good way and then second on.
On the Q4 guide I think you just said earlier that there are two areas that account for maybe the slower growth expected in Q4, one was <unk>.
And the other was the.
Cutoffs control, which grew double digits, which you think.
Should moderate in terms of growth maybe you can just explain why we should expect both of these to decelerate sequentially. Thank you.
Sure.
So we were really pleased to see the acceleration of growth and optimization in the third quarter.
And we after the second quarter earnings call, we talked about optimization growth with possible upside, but the beat it was stronger than we had expected on the optimization front. There are several factors driving that one was just overall across the.
Teeny sector, we saw stronger spans from particularly media brands and entertainment clients. So really spent more in terms of volumes, particularly around promotional campaigns and we expect that to moderate in the fourth quarter, but we also as we talked about earlier, we're really pleased to see that some of the inverse.
And that's we made around mid tier clients on the context control front did have an impact on our third quarter performance. So we were pleased to see that.
In terms of linearity.
Ready.
The optimism digital media programmatic spend tends to be more variable than other forms of digital media and we were just pleased to see the benefits from that in the third quarter.
Sure.
On the second question.
What's your second question about overall, yeah, just just.
The reasons for the slow down sequential slowdown you're expecting across both.
You mean in the fourth quarter, yes.
Yeah. So.
Yes, like I said, we were really pleased to be able to raise our guidance in the fourth quarter.
Measurement front.
We expect that.
Social and the strong.
Hi.
Numbers that we've reported on social will continue to drive double digit growth in measurement. We're also expecting double digit growth and optimization, but just wanted to call out the two areas. We expect moderation, which is the T&D industry moderating because we saw such strong growth in the third quarter and context controlled growth.
Alright, thanks for the color.
Thank you one moment please.
One moment for our next question.
Our next question comes from the line of Justin Patterson of Keybanc. Your line is open.
Great very much so.
If I can first I just wanted to go back.
That's kind of the demand environment for brand safety products.
I realize that you can't completely correlated with geopolitical risk.
Step back it does seem like there's a lot more scrutiny on user generated content.
Certainly have a lot more channel exposure there across short form video these days.
Just how youre thinking about.
But demand for products like contacts control and the rest as we.
And through Q4 and into 2024, which will also likelihood pretty heated political cycle and then.
So stepping back.
Several large marketplace clients in there like Uber and instant card.
Curious just what your initial learnings are that makes.
More so on on the Uber side in there and how you think that can be more of a contributor over the next few years. Thank you.
Okay, Justin happy to take both so the first is around.
The increasing demand that we're seeing from advertisers for our brand safety and suitability solutions.
And a big reason why we're seeing this uptick in demand and we're seeing the increase in our measurement revenue in third quarter is because brands want to be where the users are and the users are spending more and more time of their time in social platforms. Even when you think about the two major platforms and their earn.
From last week meta meta reals matter on their earnings call cited that real has driven more than 40% increase in time spent on Instagram since launch and Google's Youtube shorts now average over 70 billion daily views and our watch by over two <unk>.
<unk> signed in users every month and exactly to your point just in that the social platforms. It's user generated content highly dynamic highly unpredictable so brands they want to connect with consumers, while they're on the social platforms. They just want to rest assure.
Is it that Theyre brands run adjacent to brand safe and brand suitable con.
Content and our AI backed TM Q product the brands. They are leaning in and that's why we're seeing such strong both impression growth and adoption of the product, which is great to see and then in terms of your second question was related to them.
Retail media networks is that right.
Yes, that's right.
And the <unk> of the World, Yes, so with retail media that's another marketplace.
Just growing and accelerated growth and when we take a look at retail media network. We're also seeing significant growth.
In that channel year to date, our revenue from retail media networks, it's grown nearly 150% and we were thrilled I know last quarter, we announced our partnership with Uber. This quarter, we launched a partnership with <unk>, where we're bringing a new level of transparency to <unk>.
Mister car as an offering view ability and invalid traffic and then the other partner I should call out is <unk>.
We announced in third quarter, our first to market partnership with <unk> Commerce media platform.
We are on cardio, enabling brands and agencies to measure view ability and invalid traffic our retailers' site across <unk> network of 210 retail partners. So we'll continue to invest in the retail media space, we're thrilled with our partners.
Ships that we've launched and also the partnerships that we're strengthening and again, it's been a tailwind for our business.
Okay. Thank you.
Thank you.
Sure.
Our next question comes from the line of Jason <unk> of Craig Hallum. Your line is open.
Thank you. This is Cal BARDA is on for Jason.
First one from me it sounds like you guys are having a lot of success in your go to market strategy I know that was a big point of emphasis at the Investor day. So.
Just curious anything you would highlight there maybe any efficiencies you're seeing is AI becomes a broader part of your strategy and go to market priorities as we go towards 2024.
Yes, great question.
Thanks, Kyle so with the go to market strategy in AI, I mean, AI and ml is the core of everything that we do it.
Our differentiated technology.
One New example, I can share is related to our <unk> product and especially with this accelerated adoption that we're seeing across our social platforms with team Q. This.
This is hot off the press scale, but we currently classified 40 years of video content across all the media platforms social media platforms everyday.
Ias, we evaluate every pixel and every second for true in content classification in more than 90 languages across all of the major social platforms and again. This is because of our highly sophisticated TMT products backed by ml AI.
And we're very proud of the product's capability.
It's getting smarter over time and the rapid adoption rates that we're seeing and we're really looking forward in particular to launching our data with meta later in the fourth quarter with 10-Q.
Yeah.
Thank you just last one for me real quick just wanted to circle back to some of the stuff with the TV Oems.
We're pleased to see that Samsung expansion and how you guys are integrating with <unk>. So maybe as you guys kind of build out these OEM relationships I mean, how how much do you see the public differentiator growing and being able to be.
Be applied to generate wins across other segments of the business. Thank you.
Yeah, Great question so.
Yeah, when we take a look at CTV there is a lot of runway with CTV.
It is a $25 billion market in 2023.
We've consistently said that CTV, it's a long game and we are building a robust pipeline with the OEM providers. This quarter, we announced our partnership with Vizio as well as last quarter.
Announcing that we renewed our exclusive partnership with Samsung and these larger OEM deals. They typically do have a larger a longer sales cycle, but our team their heads down focused on closing these deals integrating the deals and continuing to launch <unk>.
<unk> products, so the way to think about it is.
Big $25 billion marketplace, but long runway longer sales cycle, especially with the Oems.
Lots of upside.
Awesome. Thank you guys.
Yes. Thank you.
Thank you our marketplace.
Our next question comes from a lot of Matt Farrell Piper Sandler Your line is open.
Congrats on the strong results and thanks for taking my questions for the first one I know youre not going to provide any quantitative commentary on 2024 today.
Any way you could help us think about the qualitative the major puts and takes for next year as you're kind of going through your operational planning right now.
Sure, where we continue to expect and plan for double digit growth in 2024, it's still early days and we're deepen our budgeting and planning process. We will provide our 2024 outlook when we when we report on our fourth quarter results.
Thanks, and maybe just a follow up you all are on pace to drive some really solid EBITDA margin expansion here in 2023, even as you've made some investments in AI.
Should we be thinking about the cadence of margin expansion moving forward and what are the primary drivers kind of as we think over the next couple of years. Thanks.
So I was I would have similar comments in terms of our EBITDA margin as we look out in 2024, our focus remains on balancing growth and profitability in 2023, we demonstrated our ability to expand EBITDA margins by.
By driving efficiencies and productivity and deepen our planning for next year, and we'll provide a further update and in the fourth quarter.
Awesome. Thank you so much.
Thanks, Matt. Thank you one moment please.
Our next question comes from a lot of Mark with Calix, the bench company than benchmark company. Your line is open.
Thank you.
I was hoping to get maybe.
Some cadence on measurement next year, and I know youre not going to quantify anything but just at a very high level.
If you think about all the deals that you've signed.
Yes, both last quarter and this quarter.
Is there any reason to expect any of those deals to contribute to the first half of the year or is that all sort of more back in.
Weighted.
<unk> oriented.
Yes sure.
Further quarters out.
Sure I'm happy to take that Mark.
So.
The way, we think about inside the social platform opportunities large building blocks medium building blocks. So large building blocks include meta Youtube tick tock to a lesser extent ex medium building blocks tuck in matter of Reals and.
Youtube shorts.
And when you take a look at.
The where we are in the product.
Lifestyle and product.
Adoption.
Youtube <unk> launched in June up and running product adoption in place.
Over 30 languages.
<unk> talk as I mentioned before humming 15 markets over 90 languages.
We're pacing towards the fourth quarter beta with meta and then meta <unk> and Youtube seeing nice adoption of our view ability invalid traffic.
<unk> will also be part of the fourth quarter. So several of these social platforms are already generating.
Significant revenue for Ias and it's early days. So we're just going to continue to focus on investing in the innovation driving the product adoption land and expand into new markets and have a strong start to 2024.
With our social platform offerings.
Thankfully. So that's helpful. I just have one last quick one for Tanya.
You had commented that mid tier was.
Trying to remember what you exactly said I think meaningful contributor.
Two.
Optimization in the third quarter I was just wondering if you could further quantify that and sort of what the.
Pace of that.
Penetration might look like over the next 12 months.
Sure Yeah, we're really pleased to see the growth, particularly in optimization from the investments we've made and mid tier clients in fact, the growth rate for our mid tier revenue in optimization in the third quarter doubled from the second quarter. So the big contributor to our over performance in.
The third quarter.
Okay in terms of revenue contribution.
Although you can for either.
Yeah.
We've been making investments and mid tier.
Round products integration hiring programmatic specialists. So we do expect those investments to continue to pay off and we were pleased to see the ramp so quickly in the third quarter.
Okay fair enough. Thank you.
Thank you.
One moment please.
Okay.
One moment for our next question.
Our next question comes from a lot of Tim Nolan from Macquarie. Your line is open.
Hi, Thanks for taking the question I know, we've had a number of questions on the social media roll ons. When I got two part related question to that is well noticed that your Cpm's you say were flat in the nine months and three months I Wonder if the social media Cpm's. If you could talk about what the pricing might be like on those if we might get better.
Cpm's out of those over time, and then Relatedly.
It sounds like the social media room, they're all well underway or at least there's even more to come next year I would assume the costs are largely done or let us know maybe if there are any incremental costs youll have to incur there and if not.
Can this be a nice driver of profitability upside from here and the more sustainable operating income higher levels. Thanks.
Yeah.
Yes, correct in the both the year to date period and the third quarter. We were really pleased to see an acceleration of volume and measurement overall, which accelerated to 25% volume growth up from 17% and we were able to do that while also having at our average CPM.
For the quarter consistent with the prior year period, so pleased to see that in social in particular, it's a higher mix of video and video is a premium to our display ads.
That was a tailwind for <unk>. The other thing is we're really pleased to see expansion internationally in markets like Europe, and APAC in the quarter with strong growth there and our CPM theyre slightly lower in those markets. So that was an offset to the favorable mix on CPR.
Okay.
Okay.
Okay great.
About the profitability upside potential please.
Yeah. So.
The beauty of our <unk> technology, that's running in the live feed to the social platforms now is that the.
The product is backed by AI ml. It gets smarter over time, and we don't see significant increase in costs as the product scales over time as the technology gets smarter it gets more efficient.
And it operates at scale.
Yes.
Right. So I know youre not talking 24 guidance by any means but the implication might be a CPM can rise on social and more social roles item has no incremental cost we could be getting optimistic about better profitability going forward.
And so I would temper that.
We have executed on.
<unk> track record and driven profitable growth consistently throughout 2023 quarter by quarter with our margin improvement.
The large Tam ahead of us we've taken a balanced approach to driving revenue growth and profitability.
We will continue to maintain that balance because I think it's important as we're driving these efficiencies and productivity and we're also investing in the growth of the business.
Right that makes sense, thanks for the color.
Thank you. Thank you.
Thank you.
I'm showing no further questions at this time, let's turn the call back over to Lisa Schneider CEO for any closing remarks.
Thanks, everyone for joining today's call, we are coming off a strong third quarter with double digit growth in measurement and optimization and we are excited to execute on our strategy in the fourth quarter. We will continue to innovate with the most advanced AI technology to ensure marketers maximize their spend and protect their brand.
We look forward to meeting with you at several upcoming investor events and to updating you on our progress in the new year.
Thank you ladies and gentlemen, this does conclude today's conference.
You all may disconnect have a great day.
Okay.
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