Integral Ad Science (IAS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 revenue increased by 11% YoY to $133.5 million, driven by growth in optimization, measurement, and publisher businesses [6][34] - Adjusted EBITDA margin reached a record 38% in Q3, exceeding expectations, and is expected to maintain this level in Q4 [9][40] - Net income for Q3 was$ 16.1 million, compared to a $13.7 million loss in Q3 2023 [41] - Q4 2024 revenue is expected to grow 11% YoY to$ 148- $150 million, representing 28% of full-year revenue [8][44] - Full-year 2024 revenue guidance is updated to$ 525- $527 million, with adjusted EBITDA expected at$ 185- $187 million [46] Business Line Performance - Optimization revenue grew 7% YoY to$ 61.1 million in Q3, driven by increased adoption of context control avoidance offerings [35] - Measurement revenue increased 11% YoY to $52.9 million, primarily due to higher adoption of the premium TMQ offering on global social platforms [35] - Social media revenue grew 21% YoY, accounting for 55% of measurement revenue and 22% of total revenue [36] - Publisher revenue increased 26% YoY to$ 19.5 million, outperforming expectations due to scaling of new Publica CTV products and political advertising [37] Market Performance - International revenue grew 11% YoY, contributing 31% ( $41 million) of total Q3 revenue, with 44% of measurement revenue coming from outside the Americas [38] - The company won over 75 new Oracle customers since June, representing a 72% win rate on Oracle opportunities [15] - New Oracle wins include major brands like Peacock, Heineken, and Emirates, as well as platforms such as The Trade Desk and publishers like Dow Jones [16][17][18] Strategy and Industry Competition - The company is investing in CTV, aiming to unlock a projected$ 40 billion ad spend market by 2027 [29] - Strategic partnerships with prominent data providers are being pursued to enrich first-party media quality signals and expand monetization potential [31] - The company launched first-to-market pre-bid optimization solutions on Meta, TikTok, LinkedIn, and X, doubling the size of its social opportunity [27][26] - IAS Curation on Google Ad Manager was launched, allowing advertisers to consolidate bidding on high-quality inventory and target contextually relevant content [28] Management Commentary on Operating Environment and Future Outlook - Near-term revenue growth was limited by a slowdown in volume growth, particularly in CPG and retail verticals, due to budget cuts and delays in digital media spending [7][34] - The company expects double-digit revenue growth in 2025, driven by scaling of 2024 product launches, adoption of pre-bid optimization in social media, and full-year contributions from Oracle business [48][49] - Adjusted EBITDA margin in 2025 is expected to remain similar to 2024, keeping the company above the rule of 40 for the fifth consecutive year since IPO [50] Other Important Information - The company hired over 30 former Oracle employees, which is seen as an advantage in securing and onboarding Oracle customers [15] - Gross profit margin improved to 80% in Q3, up from 79% in the prior year period, due to optimized hosting costs [39] - Net revenue retention (NRR) for Q3 was 108%, reflecting the trend of overall advertising revenue growth over the trailing 12-month period [43] Q&A Session Summary Q: What impacted the Q3 and Q4 outlook? - A slowdown in volume growth, particularly in CPG and retail, due to budget cuts and delays in digital media spending, along with slower-than-expected ramp of new product adoption [52][53] Q: How is the integration of Oracle customers progressing? - The company won 75 new Oracle customers with a 72% win rate, focusing on integration, onboarding, and activation to ensure customers were live by October 1 [56][58] Q: Are there pricing pressures from Oracle wins? - The company offered competitive rates but focused on demonstrating the value of its differentiated technology and products [102][103] Q: What is the outlook for 2025? - Double-digit revenue growth is expected, driven by scaling of 2024 product launches, adoption of pre-bid optimization in social media, and full-year contributions from Oracle business [69][70][71] Q: How is the pre-bid optimization on Meta performing? - Early feedback from beta and GA advertisers has been positive, with pre-bid social optimization estimated to be a 2x revenue opportunity compared to post-bid measurement [77][78] Q: What is the opportunity with IAS Curation on Google Ad Manager? - The launch leverages IAS' contextual data to help advertisers consolidate bidding on high-quality inventory and target contextually relevant content more precisely [80] Q: How is the publisher revenue performing? - Publisher revenue grew 26% in Q3, driven by Publica CTV products and political advertising, with mid-teen growth expected for the full year [87][88][89] Q: What is the pricing environment like? - CPMs in measurement were down 6% in Q3, while optimization CPMs were consistent with the prior year, with significant opportunities to charge more for pre-bid social optimization [108]