Q2 2019 Earnings Call
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Greetings and welcome to the Telerik second quarter 2019 earnings Conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Andrew Posen, VP Investor Relations. Please go ahead.
Good morning, welcome to Larry's second quarter 2019 earnings call. During the course of today's call. We may make forward looking statements, including statements regarding to Larry's future financial and operating results future market conditions, and management's plans and objectives for future operations.
These forward looking statements are not historical facts, but rather are based on the company's current expectations and beliefs and are based on information currently available to us.
The outcome of the events described in these forward looking statements is subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results anticipated by these forward looking statements, including but not limited to those factors contained in the risk factors section of the company's most recent annual report on Form 10-K for the year ended December 31.
2018 filed with the SEC on March 19th 2019, and in our future SEC filings and reports by the company, including its Form 10-Q .
The period ended June Thirtyth 2019.
All information provided in this conference call is as of today August six 2019, except as required by law. We undertake no obligation to update publicly any forward looking statements made on this call to conform the statements to actual results or changes in our expectations.
Our commentary today will include non-GAAP .
Natural measures.
We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding company performance, but note that these measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Reconciliation between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release issued today, a copy of which can be found on our website.
I'll now turn the call over to Marc cigars.
So Larry is CEO .
Thanks, Andrew Good morning, and welcome to our second quarter 2019 earnings call.
This morning, we reported another strong quarter, our revenue grew more than 47% year over year to 18.2.
The number of CTV viewers and U.S. is now estimated to be 195 million people a significant increase from 2016 and is expected to grow to more than $206 million by 2021, According to the market.
GTB reach will eclipse pay TV reach this year as a greater percentage of us households have acted TV that will have a pay TV subscription.
And as cord cutting continues at an accelerated pace the GAAP as expected team to widen over the coming years.
Due to cord cutting market research also estimates that more than 30% of U.S. households are no longer reach both through traditional TV traditional wired connection.
They expect that number to increased to 41% and 2022, making CTV an increasingly essential way for brands to reach video consumers and a brand safe environment at scale.
A growing amount of content that is being delivered via CTV channels is adds a quarter.
OTG services, such as Disney's Hulu with 58 million AD supported viewers Viacom's Pluto TV was 16 million active users and independents like two BTD, which recently announced 20 million active users continue to gain steam amongst consumers driving incremental add availability across the media.
As inventory and CTV grows the opportunity to monetize that inventory programmatically is to getting screened traction as well.
Within other areas of digital advertising programmatic quickly emerged as the standard way in which inventory is bought and sold we believe the same will hold true for CTV.
The market or estimate that 85% of display and 80% of mobile advertising will be transacted programmatically in 2019.
This result represents rapid growth from the 10% to 15% of AD sales that were delivered programmatically less than a decade ago.
Today see TV advertising sits in a similar position as mobile and desktop that just a few years ago.
And the industry is projecting a similar paradigm shift given the strength of our technology and our leading position in the ecosystem. We believe these trends provide us significant opportunity play a key role in this transition.
The second pillar of our strategy is continued emphasis on premium partner relationships and a focus on transaction transparency, both would differentiate us in a marketplace, becoming increasingly wary of black box.
Acknowledges enclosed systems.
This quarter, we continued our track record of adding new and compelling video publishers to the roster of leading media companies using our platform.
Notable new partners signed in the US included MLB TV Fox News NBC news.
And Sinclair as news on.
Which includes 170 local TV stations covering 83% of us population.
Globally, we've had great traction as well closing Brazil's Globo sat the largest pay TV TV provider in Latin America Kale, why the leading media online group in Indonesia, and ABS CBN Corporation, the leading media and entertainment organization in the Philippines.
Additionally, we are happy to announce today that we have inked our first platform deal in Canada with Bell, Canada, the country's largest communication come.
This is another positive outcome of our slim cut acquisition, which gave us a local for footprint to expand our BNP solution into the Canadian market.
Working with the best brands of video is only part of our strategy to elevate our position as the premium leader in this space.
Last quarter to ARIA became the first video monetization platform to Institute, a comprehensive transparency initiative to help increase clarity and efficiency throughout the advertising supply chain.
By both delivering granular auction mechanics data to agencies and brands and by providing aggregated take rates across specific buyer campaigns are helping build more confidence in the video supply chain.
The results of our transparency effort speak for themselves as the initial partners who engage in this program have expanded their platform business through two ARIA over 300% with more room to grow.
Transparency is rapidly becoming the mantra of buyers seeking to ship their AD spend from traditional TV or transactional clarity has always been at the forefront to the emerging advertising opportunities in CTV.
Our.
In philosophy, and technology investments focused on creating a more transparent marketplace have put us in exceptional position to take advantage of this growing share shift opportunity.
The third and final pillar of our strategy is our relentless pursuit in ensuring our platform technology leads the industry in maximizing AD inventory yields.
By optimizing our partners AD revenue opportunities, we create a mutually beneficial longer lasting relationship.
Staying ahead of technology curve requires a consistent.
Concerted effort to work with our partners developed solutions that help optimize their video inventory.
This successful efforts paid off not only new business wins cited previously but also in global industry recognition in June two already won the award for marketing Technology company of the year at the number of awards in Sydney.
The Tilera video management platform was awarded this honor based on its ability to solve the nuances of advanced TV among the changing ways.
Sciences watch video, all tackling workflow and AD delivery challenges faced by publishers today.
This quarter, we also advanced our technology leadership by becoming both the first video platform to provide Nielsen verified audience is programmatic CTV buyers and by launching our addressable audience targeting solution.
Our Nielsen integration helps connect linear and CTV buying criteria, making cross platform advertising purchases more seamless.
Our addressable audience targeting solution enables our platform partners to leverage their proprietary data to extract the highest value from their inventory.
Both of these efforts are steps towards bridging the gap between traditional TV buying and the addressable opportunities of programmatic CTV.
Our technology development doesn't happen in a vacuum.
This quarter, we continued to enhance our platform in concert with our client for example, our product development relationship who continues to be very strong several successful product releases throughout the quarter.
Our work with them and other key partners ensures that our technology remains at the forefront of the industry.
In summary, Q2 was a great quarter that exceeded our expectations.
We continue to successfully execute the three pillars of our strategy, which is helping to deliver solid financial results against our plan.
Our focus on the large screen world of CTV continues to drive our growth as more consumers cut the cord more CTV content becomes AD supported and more CTV publishers embrace programmatic technology.
Our expanding roster of leading publishers and our drive to build the most transparent transactional platform in the marketplace has established us as a leader in the premium or lack thereof.
And our technology advancements are helping and deliver higher advertising yield more addressable CTV opportunities for our publisher partners and in turn creating a stronger stickier relationship with our platform.
All in all we continue to believe that we are in a great position to grow our business and deliver value to our shareholders.
I will now turn the call over to John to walk you through the financials in more detail.
Thanks Mark.
This was another strong quarter with revenue of 18.2 million up 47% from the same period last year and for the first time.
We reported EBITDA profitability in the second quarter of the year with adjusted EBITDA of $1 million a significant improvement from last year. When we reported an adjusted EBITDA loss of $1.1 million.
Both revenue and adjusted EBITDA exceeded our expectations this quarter and build on the momentum we saw last quarter.
Our gross profit increased 31% to 14.7 million from Q2 last year.
While our gross margin decreased year over year, 81%, which was in line with Q1.
The decrease in our gross margin mostly reflects the positive contribution from our out stream business, which has helped return our desktop segment to growth to a growth trajectory.
Well it operates at a lower gross margin.
Because this business is continuing to exceed our expectations. We now believe that our overall gross margins will stay around this level for the remainder of the year.
CTV revenue increased 133% from the same period last year and while CTV continues to be the biggest driver of our growth our mobile and desktop businesses were also significant contributors this quarter.
On a combined basis, they increased more than 19% year over year, driven by the growth in both our outstanding business as well as the monetization of OLTP inventory that does not end up on a big screen.
Our quarterly core operating expenses, which exclude noncash items increased 11% from the same period last year due mostly to head count investment principally due to our acquisition completed in the second quarter last year.
And the expansion of our technology team.
However, as a percent of revenue we continue to demonstrate significant operating leverage with core operating expenses for the quarter at 75% of revenue down from 99% of revenue in Q2 of 2018.
This is a significant reflection of our commitment to managing our cost base and driving our topline growth to our EBITDA.
Our balance sheet remains strong with working capital of 39.5 million no debt.
And an unused credit line of $25 million.
I'd like to finish our call. This morning, with our expectations for the third quarter and a positive update on our outlook for 2019.
For the third quarter, we expect revenue to be between 16, and 17 million and adjusted EBITDA to be between a loss of $1 million and breakeven.
This quarterly guide is reflective of the normalization of our desktop revenue as well as the growing impact of our CTV business, which experiences more TV like seasonality, where some reviewing is traditionally the lightest.
For the full year, we are raising our revenue guidance to be between 68 and $72 million and maintaining our adjusted EBITDA to be between two and $5 million. We'll now open up the line for some questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question can you May press star two if you would like to remove your question from that counts.
For those using speaker equipment and may be necessary to pick up your handset before pressing the star key inscape one moment, please while we pull for questions.
The first question is from Jason Kreyer of Craig Hallum Capital Group. Please go ahead.
Hey, gentlemen, good morning, and thank you for taking my questions.
Hey, Mark just wanted to start out in CTV, just maybe you can touch on the supply and demand environment that you're seeing there and it seems like you're seeing very rapid growth in that segment. Despite kind of a perceived a supply constraint at least on the programmatic side and then kind of dovetailing that just.
If you're seeing any different trends as far as I know that the total spend that you see in CTV, if theres more of a shift to the kind of the addressable or programmatic side.
Hey, Jason Thanks for the question.
So the supply and demand environment in CTV is definitely one in which it's evolving over time and I think there is a couple key factors to consider as we look at.
The the opportunity there. The first is just the general subside subscriber growth that we're seeing across AD supported properties.
The pluto's and TV TV side of the World are are making a real play for.
For viewers eyeballs to be as a matter of fact, just launched a.
A pretty wide AD campaign this week to take on Netflix ads, it's pretty cheeky should check it out, but but but nonetheless.
Those guys are driving more viewers to AD supported.
CTV and that's creating.
Opening up the gates a little bit.
Cards to the amount of inventory there.
And then you know with that inventory increase that we're seeing.
We're also seeing more of that move towards programmatic and a lot of that has to do with the fact that the guys.
That are driving the inventory increases the pluto's to two piece of the world the who lose our guys that are digital first entities there or not.
Broadcast entities that are moving to CTV their digital first entities that have always been in that space.
They are more comfortable with programmatic.
Dave grown up in that space they've seen it.
Become an important part of how they move inventory so.
Net net I think the inventory picture is only getting brighter for us as we move down the path with CTV both from the changes in the.
The core audience size driven by more users go into that space as well as the the comfort level with the guys who are driving that growth.
With programmatic.
Got it okay. Thanks, Mark and then you talked a little bit about the reach that.
CTV has across the consumer base just wondering when you go into conversations with advertisers how does that resonate and how has that pitch changed over the last couple of months or quarters.
Yes, it's a great question. So the I can tell you when we first started down this path two years ago in pursuing CTV as a core focus of the business discussions with advertisers was very different CTV was seen as.
You know a niche play for advertisers it was seen as a supplement to there.
Maybe desktop or mobile video plays it was not seen as a substitute for television.
Fast forward two years and the world has changed considerably.
The profile of connected television OTG services has been raised massively.
And we can thank you know in some part the subscription based services like Netflix for that.
But where the real dynamic has changed as I've noted has been in the AD supported services penetration in households, and that has really driven.
The advertisers to take notice.
But I have to say now with all that great positive.
Momentum the one thing that is really driven advertisers to think about shifting dollars has looked really been the cord cutting that's been going on they just can't reach.
A full national audience through traditional television like they could just a few years ago, when you're looking at 30% of us households, not having some type of cable TV or pay TV subscription whether that satellite or cable.
And that number is increasing daily so for a national brand advertiser to say that we truly can reach.
A significant number or basically all us households, CTV needs to be part of that and so it is truly being seen connected television is being seen as not just a supplement or complement to digital video strategy, but as in some cases replacement for linear TV strategy or at a minimum a.
Big complement to that linear TV strategy.
All right. Thanks, guys congrats on the results.
Thank you.
The next question is from Aston Mulder of Canaccord Genuity. Please go ahead.
Hi, Thanks for taking my questions and congrats on the quarter.
Since you brought up addressable I wanted to ask about that can you talk more about your capabilities with an access to addressable TV inventory and what your view is and kind of tapping into those budget.
Can your current technology be used to enable demand for addressable and can you leverage your virtual MVP relationships to more traditional integrations.
Thanks, Austin, Great question and lets take a second here to define how we're looking at addressable there's what the market has kind of considered addressable to date, which is addressable linear are addressable cable based which is a relatively small market.
I think it's expected to be a couple of billion dollars this year, and that's more or less kind of.
The the purview of the traditional media guys.
And then there's going to be kind of emerging form addressable, which is using either the publishers are the first party data that that that media company owns.
As well as third party data to allow for targeting.
In an OTG, OTI or CTV environment, and that OTI trc to the environment can be both on demand.
Or linear.
Or I mean, I'm, sorry on demand or life.
And so that market is.
No really coming to bear.
In a similar way and the way it's the way it's growing is taking advantage of the initial interest that folks had in.
You know traditional cable based or linear based addressable and moving that into the L. GTN CTV world. So at the end of the day, we look at this as not being.
In competition with traditional Brasil, we look as being an entirely new animal that at the end of the day is going to be a big play for those guys who are buying CGD, but also the folks that have.
Traditionally or have in the last few years started buying the cable or linear base addressable.
Has the same capabilities, which is you know targetability by household Targetability by specific first party data and first party information.
But I think it has the added capabilities of being.
Both on demand and live and CTV environment.
I appreciate that color.
My second question is on pricing I don't know if your day and.
Ecpm number.
Quarter, but curious if you can maybe give that and Tom that.
On what you're seeing in terms of like for like.
Writing increases.
And maybe.
How the mix shift just be TV is.
Perfect.
Yes.
Do we noted that overall E CPM growth was pretty significant this quarter up to about $15.41.
Which is.
From 11 50 years ago.
33% year over year growth.
Driven.
In part by the growth in TV as a percentage of Arpus, but also.
Some of the efficiencies and change in our our publisher mix.
And how we.
Post auction dynamics. So there's there's a couple of factors there. The first is as we said CTV being a bigger part.
As our overall.
Suite of publishers and our overall suite of revenue. The second is as Weve worked on becoming more premium the publishers that were made across the board whether their desktop mobile or CTV are better brands demanding.
Higher Cpms the third is.
Our ability to manage auction dynamics so.
Things like first price auctions and.
Managing the patient.
Revenue for publishers.
Had a Pos pack.
Our ability to drive a higher.
Correct.
So net net I think theres a few facts.
Is driving that on a line per line basis, we've seen.
Certainly.
Increases.
Across the board in all three areas differing sizes. So we haven't broken them out I don't think publicly.
But at the end of the day because this is being driven last two factors by both auction dynamics and more premium publishers.
We've seen increases across.
Desktop mobile and LTV.
Oh.
Thanks very much.
Thank you.
The next question is from Mark Argento of Lake Street Capital. Please go ahead.
Hi, good morning, guys and congrats.
Another strong quarter, just a couple quick ones terms of the model market now.
Historically at least over the last year so the.
Yeah opportunity almost going to add a SaaS component to the business in terms of the tools and analytics.
Just wanted to see.
One of the latest thinking there relative to the traditional take rate model and then John if you could just give us an update on your thoughts in terms of Ah kind of the target operating model here at scale, if anything's changed there from historical thanks.
Thanks, Mark Sue we've noted in the past that the business is starting to.
Look more SaaS like in the types of deals that were.
We're being approached with and the way that we're looking at the market in the future.
To date, we are focused our strategy on kind of moving towards enterprise clients. Those enterprise clients are looking for more stability and what they are ongoing.
Fees are as well as longer term relationships in which our platform becomes the de facto platform for their business. We have that type of relationship with Hulu, which we are the only platform through which they are pushing programmatic inventory through.
The fee structure is based on on that type of relationship.
It's also very similar to what we have in APAC, which we are if not the exclusive the only platform, which those publishers are using I think the U.S. market is slowly evolving to that type of market as well in which.
It's not just supply path optimization from a seller side or from a buyer side, it's from the seller side as well and looking at moving towards.
Not multiple platforms to work with on the programmatic side, but a single platform.
As more companies move down that road.
We see a greater opportunity to build anytime enterprise relationships and do so on it in a manner, which is more SaaS like so that's a long answer to the question Yeah, we see a future in which this business becomes more SaaS like more stable as more clients can become comfortable with the enterprise model and using a single platform for all of their business to run through programmatically. We think those opportunities are greatest in the Ctb space where.
Those transactions are run through private marketplaces, and private marketplaces lend themselves to having as single partner manage that.
So I think that's a you know a mid to long term play for us as we look at the kinds of clients were talking to and how our relationships are evolving.
Yes, Hi, John just correct Jon quick.
Any updates on that target operating model.
No I think if you if you look at US a again on the operating expenses of the business.
Core operating expenses are cash based operating expenses. They are still relatively consistent and stable. They don't really change very much. So I'm looking at Q1 Q2 looking around 13, five cash operating expenses around the business that slight uptick from a year ago, but remember we bought a company.
And picked up a 20 plus heads in doing that so it's increased our cost base a little bit so assuming that remains relatively fixed.
Revenues have been going up gross profits have been going up and you know as described.
It's going to take us a bit more time to stabilize or increase the gross margin.
Even though gross profit dollars are going up and Thats really just a function of math.
Some of the stuff from a from the upstream business is just at a lower gross margin. We're just going to have to work our way through that but aside from that the model is solid the fixed element of of of the overhead is still very much the case.
I don't see any changes in that and.
It was a good quarter for actually starting to see the real leverage effect with operating expenses being stable and revenue in gross profit going up so feel pretty good about it.
Great. Thanks, guys.
Thanks Mark.
The next question is from Lee Crown as B. Riley FBR. Please go ahead.
Great. Thanks for taking my questions and congrats on a strong quarter as well.
I'm, just kind of wanted to dive into kind of the upside in the quarter and maybe just some overall trends.
On past calls you've kind of talked about growing same store sales within existing publisher. So I was kind of curious on the mix of kind of growth driven by existing publishers versus contribution from new publishers in the quarter.
Hi, Thanks, Lee said, it's a good question I mean, I think we noted a decent amount as a new clients that were signed in the quarter and those clients for the most part we're not you know revenue drivers for the quarter. So.
Yeah were looking for those guys to grow down the pipe as we get them launched in lived in ready.
But net net you know our growth continues to come from our core client group of CGD partners and.
Handfuls, a leading desktop and mobile guys and it's about digging deeper into those relationships. So.
You know, we haven't broken out kind of same store versus new business growth, but as has been in the past.
I would say a significant majority of our revenue growth has come from same store sales. It's come from current clients getting a larger percentage of their current business.
And growing with them as they move a larger share of their percent of their business programmatically. If you remember we have got a couple of different levers here. The first is obviously just more dollars flowing to the AD supported Ctb guys that we mentioned earlier the second is the fact that.
Those guys are becoming increasingly.
Comfortable.
Moving more of their inventory into programmatic.
And the third is our ability to get a bigger share of that is straight either through a more of an enterprise type relationship.
Or making sure that our technology.
Gives them advantages that other platforms don't and whether that's the new addressable features that we launched which gives us targeting capabilities. The first party data or the relationship with folks like Nielsen, which allows buyers to buy.
Both.
Across CTV inventory using traditional Nielsen data.
Those are things that are helping us get a bigger share of our current clients business. So.
You know again, a long answer to say our growth is still being driven by same store sales and that same store sales is being supported by both endemic growth of those clients.
But also our ability to take market share.
Got it.
And then kind of on that market share point, and I guess, just the overall competitive landscape as a whole maybe kind of talk.
Perhaps maybe year to date or a little bit longer in terms of what you guys are seeing out in the marketplace in terms of.
Your peers and and I guess, you guys kind of mentioned.
F. Pos them into some of the conversations with publishers.
Maybe just talk about how you guys feel positioned.
When you go into these publishers, even in some exclusive deals and maybe how these addressable TV offerings kind of differentiate yourself versus some of your other FSP peers.
Yeah. It's a great question I mean, the one thing that you hear a lot of noise around the ctb space with kind of everyone, saying that they do it but the reality of it is there is a pretty small.
Competitive set for TLR yet.
Clients, who actually really have the chops to manage.
Connected television and the intricacies around that I mean, it's a complex space its more TD like than it is digital in many ways.
The ability to deal with AD pods and competitive separation those AD pods and frequency capping across pause with multiple different types of buyers and suppliers. It creates a pretty complex matrix.
Have to deal with as a as a partner in that space, particularly around programmatic. So we've seen that space to be honest with you its.
Still remains the same handful that we've mentioned before the spot accident free wheels of the world are really.
Folks we run into the most.
Other.
Guys may play around the fringes and the desktop and mobile space and be.
Great competitors, there, but in reality the Ctb space is a pretty small space due to the complexity of the build and that's why one of the reasons why we focused on it so intently, which is we believe we have a great technology advantage in that space because the amount of investment we've made over the last several years, so whether it's things like addressable or data or our ability to manage pods or have most recently, our positioning and the technology, we built about transparency.
We're constantly driving to build Differentiators and you brought up supply path optimization I think at the end of the day, we are very well positioned with regard to espresso based not only on kind of the advantages our technology brings that our position is around.
Transparency and the demands that.
Buyers have had.
Around.
What.
How clean or how transparent that supply path needs to be and how much information. They want from it are you going to hearing a lot more about SPL as well as transparency over the next few quarters I think the work that we've done earlier this year really positions us at the forefront of that space.
Great.
And then just.
No wonder from cash flow given your guidance for cash flow and kind of your from Capex rate would you guys expect to be free cash flow positive for the full year.
It'll be close so we almost got there last year we were.
So very very close so we'll we'll we'll track along with you, but I think I think we have a shot at it.
Got it thanks for taking my question guys.
Thanks.
There are no further questions at this time I would like to turn the floor back over to Mark Sikorsky CEO for closing comments.
Thank you operator, and thank you for all for joining us this morning.
In closing this was another strong quarter for the company in which we exceeded our expectations for market leadership and CTV enhanced by strong secular tailwinds continues to power our business forward.
Our expanding list of premium partners and robust transparency programs are helping to build more advertiser trust and drive spend to programmatic CTV.
And our advancements in platform technology are creating more revenue opportunities as stronger relationship with our.
These factors coupled with the operating leverage that exists in our business model give us confidence.
Our outlook for the remainder of the year.
Thank you for your participation in the call. This morning, and we look forward to updating you in the months ahead.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Mhm.