Integral Ad Science (IAS) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2024 report $114.5 million revenue, a $1.3 million net loss, and $1.1 million net cash used in operating activities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,145,822 | $1,191,724 | | Cash and cash equivalents | $83,947 | $124,759 | | Goodwill | $674,454 | $675,282 | | Total Liabilities | $220,746 | $282,268 | | Long-term debt | $123,841 | $153,725 | | Total Stockholders' Equity | $925,076 | $909,456 | Condensed Consolidated Statement of Operations Highlights (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $114,530 | $106,092 | | Total operating expenses | $113,993 | $96,503 | | Operating income | $537 | $9,589 | | Net (loss) income | $(1,255) | $3,146 | | Diluted EPS | $(0.01) | $0.02 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,131) | $22,956 | | Net cash used in investing activities | $(10,291) | $(8,342) | | Net cash used in financing activities | $(28,294) | $(7,098) | Notes to the Condensed Consolidated Financial Statements (Unaudited) Detailed notes reveal the Americas as the largest revenue region, $125 million outstanding revolver debt, and $15.7 million in stock-based compensation expense for the quarter - The company operates as a single segment. Revenue is primarily generated from the Americas, which contributed $78.5 million in Q1 2024, up from $74.2 million in Q1 2023[65][66] Revenue by Geographic Area (in thousands) | Region | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Americas | $78,519 | $74,201 | | EMEA | $27,227 | $24,063 | | APAC | $8,784 | $7,828 | | Total Revenue | $114,530 | $106,092 | - As of March 31, 2024, the company had $125 million outstanding on its revolving credit facility, which matures in 2026. The interest rate on the debt was 7.4%. The company was in compliance with all debt covenants[55][57][59] - Total stock-based compensation expense was $15.7 million for Q1 2024, an increase from $11.3 million in Q1 2023. The majority of the expense is related to Restricted Stock Units (RSUs) and Market Stock Units (MSUs)[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, noting 8% revenue growth to $114.5 million, an 18% rise in operating expenses, and a contraction in Adjusted EBITDA margin to 29% Key Business Metrics Key performance indicators show an 11% increase in large advertising customers to 227, but net revenue retention for advertising customers decreased to 113% Key Performance Indicators | Metric | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net revenue retention of advertising customers | 113% | 118% | | Total number of large advertising customers | 227 | 204 | - The decrease in net revenue retention was primarily due to lower advertising revenue growth during the trailing-twelve-month period (15% in 2024 vs. 22% in 2023)[130] - Revenue from large advertising customers represented 85% of total advertising revenue for the trailing-twelve-month period ended March 31, 2024[131] Results of Operations Q1 2024 revenue grew 8% to $114.5 million, but total operating expenses increased 18%, leading to a 94% decrease in operating income and a $1.3 million net loss Revenue Breakdown (in thousands) | Revenue Type | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Optimization revenue | $52,461 | $51,033 | 3% | | Measurement revenue | $46,315 | $40,703 | 14% | | Publisher revenue | $15,754 | $14,356 | 10% | | Total revenue | $114,530 | $106,092 | 8% | - Cost of revenue increased by 21% ($4.5 million), mainly due to higher hosting fees[149] - Sales and marketing expenses rose 21% ($5.6 million), driven by increased compensation ($3.5 million) and stock-based compensation ($1.9 million) to support revenue growth[150] - Depreciation and amortization increased 18% ($2.3 million), primarily from higher amortization of capitalized internal-use software[153] Non-GAAP Financial Measures Adjusted EBITDA for Q1 2024 was $33.1 million, a slight decrease from Q1 2023, with the margin contracting from 32% to 29% Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net (loss) income | $(1,255) | $3,146 | | Depreciation and amortization | $15,080 | $12,825 | | Stock-based compensation | $15,738 | $11,306 | | Interest expense, net | $1,926 | $3,417 | | (Benefit) provision from income taxes | $(134) | $3,026 | | Other adjustments | $1,695 | $333 | | Adjusted EBITDA | $33,050 | $34,053 | | Adjusted EBITDA margin | 29% | 32% | Liquidity and Capital Resources As of March 31, 2024, liquidity included $83.9 million in cash, with $1.1 million net cash used in operating activities and $30.0 million in long-term debt repayment - Principal sources of liquidity as of March 31, 2024, were cash and cash equivalents of $83.9 million[162] - Net cash used in operating activities was $1.1 million, compared to $23.0 million provided in Q1 2023, primarily due to a $32.0 million decrease in working capital[172][173] - Net cash used in financing activities was $28.3 million, driven by a $30.0 million repayment of long-term debt[176] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure, primarily from inflation and interest rates, has not materially changed since the 2023 Annual Report on Form 10-K - The company's primary market risk exposure is from potential changes in inflation or interest rates[182] - There have been no material changes to market risks since the year-ended December 31, 2023[183] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024[185] - There were no changes during the quarter in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls[186] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition or operations - As of the reporting date, the company is not involved in any legal proceedings that would have a material adverse effect on the business[190] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K have occurred - There have been no material changes to the risk factors disclosed in the company's 2023 Form 10-K[191] Other Items (Items 2, 3, 4, 5, 6) This section covers other disclosures, including no unregistered equity sales, no defaults on senior securities, and no Rule 10b5-1 trading plan adoptions or terminations by directors or officers - The company reported no unregistered sales of equity securities or use of proceeds for the period[192] - No defaults upon senior securities were reported[193] - During the quarter, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement[195]